ACC255 EXAM2

Which of the following statements about a periodic inventory system is true?

Companies determine cost of goods sold only at the end of the accounting period.

Which statement is true about reporting receivables on the balance sheet?

Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet.

In a classified balance sheet, how are assets usually classified?

Current assets; long-term investments; property, plant, and equipment; and intangible assets

Which statement is used by most corporations instead of the retained earnings statement?

Statement of stockholders' equity

When is a receivable recorded by a service organization?

When service is provided on account

The following ratios are available for Leer Inc. and Stable Inc. Current Ratio Debt to Assets Ratio Earnings per Share Leer Inc. 2:1 75% $3.50 Stable Inc. 1.5:1 40% $2.75 Compared to Stable Inc., Leer Inc. has

higher liquidity and lower solvency, but profitability cannot be compared based on information provided.

Issuing new shares of common stock will

increase common stock.

The operating cycle of a merchandising company is ordinarily ___________________ that of a service firm.

longer than

An item is ________ if it is likely to influence the decision of an investor or creditor.

material

At December 31, 2014, Shorts Company had retained earnings of $2,184,000. During 2014, the company issued stock for $98,000, and paid dividends of $34,000. Net income for 2014 was $402,000. How much was the retained earnings balance at the beginning of 2014?

$1,816,000

Kam Company has the following units and costs: Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under LIFO using a periodic inventory system?

$100,000

Kam Company has the following units and costs: Units Unit Cost Inventory, Jan. 1 8,000 $11 Purchase, June 19 13,000 12 Purchase, Nov. 8 5,000 13 If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?

$113,000

Net credit sales for the month are $4,000,000 for Marx Clothiers. Its accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment. How much is the balance of the allowance account after adjustment?

$12,000

Current liabilities are $10,000, long-term liabilities are $20,000, common stock is $50,000, and retained earnings totals $70,000. How much is total stockholders' equity?

$120,000

Beginning inventory is $12,000; purchases are $34,000; sales revenue are $60,000; and cost of goods sold is $31,000. How much is ending inventory?

$15,000

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Accounts payable $35,000 Cash provided by operations $90,000 Accounts receivable 37,500 Net income 36,000 Average common shares 20,000 Salaries and wages payable 8,000 Average current liabilities 110,000 Stockholders' equity 240,000 Average and total assets 600,000 Total current assets 300,000 Average total liabilities 320,000 Total current liabilities 120,000 Cash 100,000 How much is working capital?

$180,000

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2014. This count did not take into consideration the following transactions: ● Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by CityplaceRogers. The selling price of these goods is $50,000. ● Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.

$215,000

How much accrued interest should be reported on the payee's December 31 balance sheet on a $5,000, 8%, 9-month note receivable issued on June 1?

$233

Danta Company has a March 31 fiscal year end. What is the maturity value of a $25,000, 12%, 3-month note receivable dated March 1?

$25,750

What is the maturity value of a $25,000, 9%, 4-month note receivable issued on December 1 if the company has a fiscal year end on December 31?

$25,750

During 2014, Patterson Wholesale Company had net credit sales of $750,000. On January 1, 2014, Allowance for Doubtful Accounts had a credit balance of $18,000. During 2014, $30,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage-of-receivables basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2014?

$32,000

If beginning inventory is $60,000, cost of goods purchased is $380,000, sales revenue is $800,000 and ending inventory is $50,000, how much is cost of goods sold under a periodic system?

$390,000

Martin Company purchases $4,200 of merchandise on March 1, with credit terms of 3/10, n/30. If Martin pays on March 11, what is the cost of this purchase?

$4,074

For 2014, Stoneland Corporation reported net income, $24,000; net sales, $400,000; and average shares outstanding, 6,000. There were no preferred stock dividends. How much was the 2014 earnings per share?

$4.00

Cost of goods purchased is $540,000, ending inventory is $20,000, and cost of goods sold is $560,000. How much is beginning inventory?

$40,000

Hagger Sounds has accumulated the following cost and market data on March 31: Cost Data Market Data iPods $24,000 $20,400 Cell phones 18,000 19,000 DVDs 28,000 25,600 Using the lower-of-cost-or-market, how much is the value of the ending inventory? (Apply LCM to each category)

$64,000

A credit sale of $750 is made on June 13, terms 2/10, n/30, on which a return of $50 is granted on June 16. What amount is received as payment in full on June 23?

$686

On June 15, Kersee Company sold merchandise on account to Eng Co. for $1,000, terms 2/10, n/30. On June 20, Eng Co. returns merchandise worth $300 to Kersee Company. On June 24, payment is received from Eng Co. for the balance due. What is the amount of cash received on June 24?

$686

An analysis and aging of the accounts receivable of Raja Company at December 31 reveal the following data: Accounts receivable $800,000 Allowance for doubtful accounts balance before adjustment (credit) 12,000 Amounts expected to become uncollectible 65,000 How much is the cash (net) realizable value of the accounts receivable at December 31, after adjustment?

$735,000

Davidson Electronics has the following: Units Unit Cost Inventory, Jan. 1 5,000 $ 8 Purchase, April 2 15,000 10 Purchase, Aug. 28 20,000 12 If Davidson has 7,000 units on hand at December 31, how much is the cost of ending inventory under the average-cost method in a periodic inventory system?

$75,250

Sales revenue total to $10,000. Sales returns and allowances are $500 and sales discounts are $1,000. How much is net sales?

$8,500

Carlos Comany had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales revenue of $475,000. What is Carlos' days in inventory?

121.7 days

If sales revenues totals $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, how much is the gross profit?

$90,000

When credit terms of 1/15, n/60 are offered, how long is the discount period?

15 days

The following balances and amounts were taken from the financial statements of Ortiz, Inc. Accounts payable $35,000 Cash provided by operations $90,000 Accounts receivable 37,500 Net income 36,000 Average common shares 20,000 Salaries and wages payable 8,000 Average current liabilities 110,000 Stockholders' equity 240,000 Average and total assets 600,000 Total current assets 300,000 Average total liabilities 320,000 Total current liabilities 120,000 Cash 100,000 How much is Ortiz's current ratio?

2.50

Net income is $15,000, operating expenses are $20,000, net sales total $75,000, and sales revenues total $95,000. How much is the profit margin?

20%

A company has the following accounts balances: Sales revenue $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; and Cost of Goods Sold $1,275,000. How much is the gross profit rate?

25%

Using the following balance sheet and income statement data, what is the debt to total assets? Current assets $7,000 Net income $15,000 Current liabilities 4,000 Stockholders' equity 21,000 Average assets 44,000 Total liabilities 9,000 Total assets 30,000 Average common shares outstanding was 10,000.

30 percent

Which one of the following is part of the transaction that is recorded when an account is written off under the allowance method?

Allowance for Doubtful Accounts is debited.

Prall Corporation sells its goods on terms of 2/10, n/30. It has a receivables turnover ratio of 7.00. What is its average collection period (days)?

52 days

The following information came from the income statement of the Wilkens Company at December 31, 2014: sales revenue $1,800,000; beginning inventory $160,000; ending inventory $240,000; and gross profit $600,000. What is Wilkens' inventory turnover ratio for 2014?

6.0 times

Eddy Corporation had net credit sales during the year of $800,000 and cost of goods sold of $500,000. The balance in receivables at the beginning of the year was $100,000 and at the end of the year was $150,000. How much is the accounts receivables turnover?

6.4

Net credit sales are $800,000, average net receivables total $150,000, average inventory totals $200,000, and the allowance for doubtful accounts totals $8,000. How much is the average collection period?

68.5 days

Jax Company uses a perpetual inventory system and on November 30 purchased merchandise for which it must pay the shipping charges. Which of the following is one part of the required journal entry when Jax pays the shipping charges of $200?

A debit to Inventory for $200

Which situation requires a departure from the cost basis of accounting to the lower-of-cost-or-market basis in valuing inventory?

A decline in the value of the inventory

A company purchased a tract of land on which it expects to build a production plant on in approximately five years. During the five years before construction, the land will be idle. In what classification should the land be reported?

A long-term investment

What are generally accepted accounting principles?

A set of accounting rules and practices that have authoritative support

Which one of the following is the correct presentation of Accounts Receivable and its contra account on the balance sheet?

Accounts Receivable $642,000 Less: Allowance for Doubtful Accounts (2,000) $640,000

In a perpetual inventory system, which accounts will the seller credit when merchandise is returned by a customer?

Accounts Receivable and Cost of Goods Sold

Obama Company has identified that Bill Clinton's receivable account of $100 is uncollectible. What is the journal entry needed to write off the account under the allowance method?

Allowance for Doubtful Accounts 100 Accounts Receivable 100

When is a physical inventory usually taken?

At the end of the company's fiscal year

Ryan Leaf Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $60,000 at year-end and the total credit sales were $2,300,000 for the year. Management estimates that 3% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a credit balance of $200 before adjustment?

Bad Debts Expense 1,600 Allowance for Doubtful Accounts 1,600

RyTronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?

Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200

In what order are current assets listed?

By liquidity

At what value are accounts receivable reported on the balance sheet?

Cash (net) realizable value

Myers and Company sold $1,800 of merchandise on account to Oscar, Inc. on March 1 with credit terms of 2/10, n/30. Oscar returned $500 of the merchandise due to poor quality on March 3. If Oscar pays for the purchase on March 11, what entry does Myers make to record receipt of the payment?

Cash 1,274 Sales Discount 26 Accounts Receivable 1,300

Schleis Co. holds Murphy Inc.'s $10,000, 120-day, 9% note. What is the entry to be made by Schleis Co. when the note is collected, assuming no interest has previously been accrued?

Cash 10,300 Notes Receivable 10,000 Interest Revenue 300

Cecil gives goods on consignment to Jerry who agrees to try to sell them for a 25% commission. At the end of the accounting period, which of the following parties includes in its inventory the consigned goods?

Cecil

Which of the following statements is true?

Company management selects the method of inventory costing method a company will use.

What type of accounts are Sales Returns and Allowances and Sales Discounts?

Contra revenue accounts

Which of the following would appear on both a single-step and a multiple-step income statement?

Cost of goods sold

Cosmos Corporation, which uses a perpetual inventory system, purchased $2,000 of merchandise on July 5 on account. Credit terms were 2/10, n/30. It returned $400 of the merchandise on July 9. Which of the following is one effect when Cosmos pays its bill on July 21?

Credit to Cash for $1,600

Which of these measures is an evaluation of a company's ability to pay current liabilities?

Current ratio

What is often the most critical part of managing receivables?

Determining who gets credit and who doesn't

Which is an indicator of profitability?

Earnings per share

In a period of rising prices which inventory method will result in the greatest amount of income tax expense?

FIFO

Ownership passes to the buyer when the public carrier accepts the goods if the goods are shipped

FOB shipping point.

At what amount is a short-term notes receivable recorded on the issue date?

Face value

On the date a 90-day note is honored, how much cash will the payee receive?

Face value plus 90 days of interest

What is the primary accounting standard-setting body in the United States?

Financial Accounting Standards Board

Marsh, Inc. paid for freight costs on merchandise it shipped to a customer. In what account will Marsh record this cost in a perpetual inventory system?

Freight-out account

Which of the following should not be included in the physical inventory of a company?

Goods held on consignment from another company

Which of the following would most likely employ the specific identification method of inventory costing?

Jewelry store

Butte Co. loaned $25,000 to Beavis Co. on June 1, at 12% interest for 3 months. What adjusting entry will Butte Co. have to make on June 30 before preparing the financial statements on June 30?

Interest Receivable 250 Interest Revenue 250

Which of the following is classified in an income statement as a nonoperating activity?

Interest expense

On what amount is a sales discount based?

Invoice price less returns and allowances

Which one of the following does not affect retained earnings?

Issuance of common stock

Which of the following is true of the FIFO inventory method?

It assumes that the cost of the earliest units purchased are the FIRST to be ALLOCATED to COST OF GOODS SOLD.

With the assumption of costs and prices generally rising, which of the following is correct?

LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold.

Which of the following is considered property, plant, and equipment on a classified balance sheet?

Land

If a company has the ability to pay obligations that are expected to become due within the next year or operating cycle whichever is longer, what is the term that describes this measure?

Liquidity

In periods of rising prices, what will LIFO produce?

Lower net income than FIFO

On May 2, Wainwright Company receives a $3,000, 4-month, 10% note from Fulton Company as a settlement of its accounts receivable. What entry will Wainwright Company make when it receives the note on May 2?

Notes Receivable 3,000 Accounts Receivable 3,000

Which inventory system will likely be used by a company with merchandise that has a high unit value?

Perpetual inventory system

Which one of the following is not a consideration that affects the selection of an inventory costing method?

Perpetual versus periodic inventory system

If a company is concerned about lending money to a risky customer, which one of the following would it not want to do?

Provide the customer a lengthy payment period to increase the chance of paying

Which of the following is classified in an income statement as a nonoperating activity?

Receiving dividend revenue from an investment

Which one of the following will result in gross profit?

Sales revenue less cost of goods sold

Which of the following ratios measures the ability of the company to survive over a long period of time?

Solvency ratios

Which of the following statements is true?

Specific identification method inventory valuation requires physical flow of goods to be representative of the cost flow.

Which statement is true for the seller?

The Sales Returns and Allowances account is debited for defective merchandise returned by a customer.

What is the primary criterion by which accounting information can be judged?

Usefulness for decision making

Two companies report the same cost of goods available for sale, but each employs a different inventory costing method. If the price of goods has increased during the period, which statement is true? The company using

The company using FIFO will have the HIGHEST ENDING INVENTORY.

What is the underlying rationale for the lower-of-cost-or-market rule?

The conservatism constraint

Which of the following is not a characteristic of relevance?

Verifiability

Which of the following is not a legitimate business reason for taking a physical inventory?

To verify the profitability of individual inventory items

Which of the following is an example of an intangible asset?

Trademarks

Which statement is true when recording the sale of goods for cash in a perpetual inventory system?

Two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and to reduce inventory.

The correct order of presentation in a classified balance sheet for the following current assets is

cash, accounts receivable, inventories, prepaid insurance.

Inventory costing methods place primary reliance on assumptions about the flow of

costs