Practice Exam 2 - Ch 4-7

Refer to the information provided for Klump Co. If the company uses the (moving) Average Cost inventory costing method, ending inventory at June 30th is:

1,819.86

How much will be recorded as land improvements?

$6,000

While preparing a bank reconciliation, which of the following items would be subtracted from the balance per the company records?

bank service charges

At the year-end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the inventory count of:

the buyer

Land is not depreciated because it

will provide future benefits for a company for an unlimited period of time.

Refer to the information provided for Tedder Co. Which of the following entries correctly records the purchase assuming the units were acquired on credit under terms of 2/10, n/30?

Purchases 270.00 Accounts payable 270.00

All of the following would be considered internal control weaknesses except:

the practice of shipping goods to customers right before year-end even though the customers had not ordered them.

Which of the assets listed below is considered the most liquid?

Cash

Which of the following is a transposition error?

writing $89 as $98

In the reconciliation of a bank statement, deposits in transit should be

added to the unadjusted bank statement balance.

Refer to A-One Construction. If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense?

$27,100

Many companies use MACRS (Modified Accelerated Cost Recovery System) depreciation for

tax purposes because of a desire to report higher expenses in early years in order to pay lower taxes.

A company had beginning accounts receivable of $175,000. All sales were on account and totaled $550,000. Cash collected from customers totaled $650,000. Calculate the ending accounts receivable balance.

$ 75,000

Refer to the information provided for Klump Co. If the company uses the LIFO inventory costing method, ending inventory at June 30th is:

$1,811.75

Art Shoes This company received a promissory note from a customer on July 1, 2019. The face amount of the note is $45,000; the terms are 12 months and 10% annual interest. Refer to Art Shoes. How much interest revenue will the company recognize for the year ended December 31, 2019?

$2,250

On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called

accumulated depreciation

Refer to the information provided for Klump Co. If the company uses the FIFO inventory costing method, the amount of ending inventory reported on the balance sheet is:

$1,823.75

This company received a promissory note from a customer on July 1, 2019. The face amount of the note is $45,000; the terms are 12 months and 10% annual interest.

$4,500

A company receiving payment of a $20,000 accounts receivable within 10 days with terms of 2/10, n/30, would record a sales discount of:

2% of $20,000

Having one employee prepare company checks and sign those checks relates to which internal control activity?

a violation of proper segregation of duties

Which of the following is an intangible asset?

goodwill

On January 2, Alfredo Corporation sold merchandise with a gross price of $100,000 to a customer with terms of 2/10, n/30. How much Sales Discounts would be recorded if payment was received from the customer on January 8? Assume the company uses the Gross Method of recording receivables.

$2,000

Refer to A-One Construction. What is the balance of Accounts Receivable at December 31?

$515,000

Which of the following is the correct entry to establish a petty cash fund in the amount of $300?

Petty Cash Fund 300 Cash 300

Refer to the information provided for Aaron Corporation. Calculate the Cost of Goods Sold.

$105,500

Refer to the information provided for Aaron Corporation. Calculate net income.

$65,500

Which inventory cost flow method assigns the cost of the most recent items purchased to cost of goods sold?

LIFO

Art Shoes This company received a promissory note from a customer on July 1, 2019. The face amount of the note is $45,000; the terms are 12 months and 10% annual interest. Refer to Art Shoes. At the maturity date, the customer pays for the note and interest. The company made the proper adjustment at the end of December for interest. The effect of recognizing the transaction on the maturity date is

a decrease to Notes Receivable.

Eli Company Eli Company sells novelty items and offers terms of 1/10, n/30 to credit customers. One customer, Faulkner, Inc., purchased 100 Sweet-16 party decor packs with a list price of $20 each on March 5, 2019. Refer to the information provided for Eli Company. If the customer pays the amount of the invoice for its purchase on March 14, 2019, how much cash will Eli Company receive?

$1,980

Fantasy Cruise Lines ​ On January 1, 2019 the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method. Refer to Fantasy Cruise Lines. What will be the book value of the ship after 10 years?

$100,000

Fantasy Cruise Lines ​ On January 1, 2019 the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method. Refer to Fantasy Cruise Lines. What will be the book value of the ship at the end of its useful life?

$100,000

Refer to A-One Construction. If the aging approach is used to estimate bad debts, what should the balance in the Allowance for Doubtful Accounts be after the bad debts adjustment?

$29,200

Which of the following items would not be a reconciling item on a bank reconciliation?

canceled checks

For which type of merchandise would a company most likely use the specific identification method of inventory costing?

custom-made boats

Refer to the information provided for Pham Enterprises. What is the company's inventory turnover ratio for the year ended December 31?

6.108

At the year-end inventory count, if goods in transit are shipped FOB destination, they should be included in the inventory count of

the seller

Refer to the information provided for Aaron Corporation. Calculate gross margin.

$144,500

Depreciation is

an effort to achieve proper matching of the cost of operating assets with related revenues.

Dietz, Inc. sells merchandise on credit. If a customer pays its balance due within the discount period, what is the effect of the payment on Dietz's accounting equation?

Assets and stockholders' equity decrease.

Which one of the following is an accurate description of the Allowance for Doubtful Accounts?

Contra Account

Each of the following documents is used in the control of cash receipts except

outstanding checks

Plant assets are depreciated because

the accrual basis of accounting requires matching of costs to revenues

Eli Company Eli Company sells novelty items and offers terms of 1/10, n/30 to credit customers. One customer, Faulkner, Inc., purchased 100 Sweet-16 party decor packs with a list price of $20 each on March 5, 2019. Refer to the information provided for Eli Company. If the customer pays the invoice on March 31, 2013, how much sales discount will Eli Company recognize?

$ -0-

Assuming outstanding checks of $338, what is the company's adjusted cash balance at June 30th?

$2,014

Each of the following items is considered a cash equivalent except:

a 180-day note issued by a local government

During a period of increasing purchase prices, which inventory costing method will yield the lowest cost of goods sold?

FIFO

Which inventory cost flow method assigns the cost of the most recent items purchased to ending inventory?

FIFO

A physical count of inventory is required even though the company uses the perpetual inventory system. This is an example of which of the following internal control activities?

checks on recorded amounts

A customer returned damaged goods for credit. Under a perpetual system, which of the seller's accounts decreases?

accounts receivable

Which of the following is a reconciling item on the bank side of a bank reconciliation?

outstanding checks

While preparing a bank reconciliation, which of the following items would be subtracted from the balance per the bank statement?

outstanding checks

Transportation-in is

part of the net cost of purchases

Which of the following is not a sound internal control procedure for cash disbursements?

paying with petty cash to expedite the payment process

Fernbank Farms ​ This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000. Refer to Fernbank Farms. What is the truck's book value at December 31, 2021?

$80,000

Refer to the information provided for Tedder Co. If the company uses the weighted average method of inventory costing, how much is cost of goods sold for January?

$232

A company's unadjusted bank balance is $3,000. Outstanding checks amount to $500 and deposits in transit total $300. Based on this information alone, what is the company's adjusted cash balance for the purpose of preparing a bank reconciliation?

$2800

Fernbank Farms ​ This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000. Refer to Fernbank Farms. What amount should be recorded as depreciation expense each year starting in 2021?

$13,600 $16,000

Fabian Woodworks ​ This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Refer to Fabian Woodworks. If the company uses the units-of-production method, what is the depreciation rate per hour for the equipment?

$0.10

An oil company purchased 10,000 acres of land on January 1, 2019, for $5,000,000, on which it developed an underground oil site. The company spent $11,000,000 to prepare the site for operation but believes that 500,000 barrels of oil can be extracted from the site over 5 years after drilling begins. The land has a residual value of $250,000. Assuming 50,000 barrels of oil were extracted from the land in 2021, how much depletion would be recorded?

$1,575,000

Parlato Corp. has an inventory turnover rate of 8 times. Calculate the company's average days to sell inventory.

45.625

Checks presented for payment and paid by the bank are known as

canceled checks.

The journal entries required for purchase and sales transactions using the perpetual system are more complex than under the periodic system but offer the advantage of:

providing management with more complete information from which to control inventories.

The operating cycle is the elapsed time between the

purchase of goods or services and the ultimate collection of cash from customers related to the sale of those goods

A Better Mousetrap The company sold merchandise to a customer on December 1, 2019, for $100,000. The customer paid with a promissory note that has a term of 6 months and an annual interest rate of 9%. The company's accounting period ends on December 31. Refer to A Better Mousetrap. What amount should the company recognize as interest revenue on the maturity date of the note?

$3,750

Fantasy Cruise Lines ​ On January 1, 2019 the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method. Refer to Fantasy Cruise Lines. What is the depreciation expense for the year ended December 31, 2020?

$160,000

If a company erroneously records a $50 check received from a customer as $500 in its records, which of the following must occur when reconciling its bank statement?

The company must decrease the balance per its records by $450.

Fernbank Farms ​ This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000. Refer to Fernbank Farms. When calculating depreciation for 2021, the company's accountant should

add the $30,000 to the book value at December 31, 2020, and then allocate the revised depreciation basis over the remaining adjusted useful life of 5 years.

Each of the following documents is used in the control of cash disbursements except

bank credit memos

If the amount assigned to ending inventory is incorrect,

both the balance sheet and income statement are affected.

Goodwill can be recorded as an asset when a(n)

business is purchased and payment is made in excess of the value of the net assets.

Cost of goods sold is equal to

the cost of merchandise purchased plus transportation costs plus beginning inventory minus purchase returns and allowances and purchased discounts minus ending inventory.

Depreciation is a process by which

the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset

Which of the following sets of factors is needed to calculate depreciation on plant and equipment?

the estimated life of the asset, its acquisition cost, and its estimated residual value

In order to determine inventory for its balance sheet, a company must count the inventory at the end of its accounting period according to:

the periodic inventory system.

Refer to the information provided for Pham Enterprises. What is the company's gross profit ratio for the year ended December 31?

33.44%

What is the distinguishing characteristic between accounts receivable and notes receivable?

Notes receivable generally specify an interest rate and a maturity date at which any interest and principle must be repaid.

If a company erroneously records a $500 deposit as $50 in its records, which of the following must occur when reconciling its bank statement?

The company must increase the balance per its records by $450.

While preparing a bank reconciliation, which of the following items would be added to the bank statement balance?

deposits in transit

Irwin Company counted its ending inventory as $178,000 at year-end, January 31, 2019. Upon review of the records, it was noted that the following items were in transit during the count: - Goods totaling $2,000 shipped by the supplier FOB destination on January 31 were received February 5th and were not counted by Irwin Company. - Goods totaling $5,000 shipped by the supplier FOB shipping point on January 30 were received February 2nd and were not counted by Irwin Company. - Goods totaling $6,000 shipped by Irwin Company to a customer FOB shipping point on January 31 were received by the customer on February 3rd and were counted by Irwin Company. What is Irwin Company's correct inventory balance on January 31, 2019?

$177,000

Refer to the information provided for Pham Enterprises. What is the company's average-days-to-sell inventory measure?

59.76 22.29

If a company uses the allowance method to account for doubtful accounts, when will the company's Stockholders' equity decrease?

At the end of the accounting period when an adjusting entry for bad debts is recorded

Fabian Woodworks ​ This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Refer to Fabian Woodworks. Based on the information presented above, what method of depreciation will maximize depreciation expense in 2020?

double-declining-balance

Fabian Woodworks ​ This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Refer to Fabian Woodworks. What amount will be reported as depreciation expense over the 5-year life of the equipment?

$10,000

Which of the following would be correct if a company factored $2,500,000 of receivables with a 2 percent fee?

$50,000 debit to factoring fee expense

Accent Flooring The company received a promissory note from a customer on March 1, 2019. The principal amount of the note is $20,000; the terms are 3 months and 9% annual interest. Refer to the information for Accent Flooring. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Accent Flooring on the maturity date assuming that none of the interest had already been recognized?

Increase Cash by $20,450, increase Interest Revenue by $450, and decrease Notes Receivable by $20,000

Academy Grill Supply On October 1, 2019, the company received a $50,000 promissory note from a customer. The annual interest rate is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2020. Refer to Academy Grill Supply. If the company's year ends December 31, 2019, an adjusting entry is needed to:

increase interest receivable by $750.

On January 1, a company sold a machine for $5,000 that it had used for several years. The machine cost $11,000, and had accumulated depreciation of $4,500 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine for the year ended December 31?

loss of $1,500

Action Signs recorded credit sales of $10,000 on the gross method. Terms are 2/20, n/30. Select the correct statement about the entry to record this sale.

Accounts receivable increases $10,000

Fabian Woodworks ​ This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Refer to Fabian Woodworks. Based on the information presented above, what method of depreciation will maximize depreciation expense in 2019?

All methods produce the same expense in 2019.

If a company uses the direct write-off method of accounting for bad debts,

It will record bad debt expense only when an account is determined to be uncollected.

Fantasy Cruise Lines ​ On January 1, 2019 the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method. Refer to Fantasy Cruise Lines. Compute the amount of depreciation expense for the year ended December 31, 2019.

$200,000

Refer to the information provided for Tedder Co. If the company uses FIFO inventory costing, how much is cost of goods sold for January?

$230

Accent Flooring The company received a promissory note from a customer on March 1, 2019. The principal amount of the note is $20,000; the terms are 3 months and 9% annual interest. Refer to the information for Accent Flooring. What is the total amount of interest the company will receive when the note is collected?

$450

Refer to the information provided for Tedder Co. If the company uses the LIFO inventory method, how much is inventory on the balance sheet at the end of January?

$50

Fabian Woodworks ​ This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Refer to Fabian Woodworks. If the company uses the straight-line method of depreciation, what is the book value at December 31, 2021?

$6,000

Which of the following statements best describes the act of collusion?

Collusion is an intentional act of two or more employees to accomplish theft of company assets.

Fabian Woodworks ​ This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. Refer to Fabian Woodworks. If the company uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2020?

2,880

A check returned by a bank because the issuer's cash account balance could not cover the check is called a(n)

NSF check

Which of the following entries is necessary for recording the replenishment of the fund?

Postage Expense 48 Office Supplies Expense 146 Delivery Expense 35 Cash 229

Academy Grill Supply On October 1, 2019, the company received a $50,000 promissory note from a customer. The annual interest rate is 6%. Principal and interest will be collected in cash at the maturity date of September 30, 2020. Refer to Academy Grill Supply. The effect on the company's financial statements on December 31, 2019 is as follows:

assets and Stockholders' equity increase.