Accounting Exam 3

The required balance in Wheeler's Allowance for Doubtful Accounts is $36,750, based on an aging of its accounts receivable. The Allowance for Doubtful Accounts currently has a debit balance of $4,200. Wheeler's bad debt expense for the period is

$40,950.

All of the following are properly classified as temporary investments except: A. Money orders. B. Certificates of deposit (CDs). C. Money market funds (no checking privileges). D. Money market certificates.

Money orders.

Assuming no beginning inventory, what can be said about the trend of inventory prices if cost of goods sold computed when inventory is valued using the FIFO method exceeds cost of goods sold when inventory is valued using the LIFO method?

Prices decreased.

Which of the following is a period cost? A. Production costs. B. Freight in. C. Selling costs. D. Labor costs.

Selling costs.

If a company employs the net method of recording accounts receivable from customers, then sales discounts not taken should be reported as

an item of "other revenue" in the income statement.

A new layer is formed under dollar-value LIFO when the ending inventory at:

base-year prices exceeds the beginning inventory at base-year prices.

Finance companies that buy receivables from businesses are called:

factors.

Goods in transit which are shipped f.o.b. destination should be

included in the inventory of the seller.

If the beginning inventory is overstated:

retained earnings is understated.

Which of the following accounts does not exist in a perpetual inventory system?

Purchases.

Which of the following is a product cost as it relates to inventory? A. Selling costs. B. Interest costs. C. Abnormal spoilage. D.Raw materials.

Raw materials.

If a company uses the periodic inventory system, what is the impact on net income of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

Understate net income.

In a transfer of receivables accounted for as a secured borrowing: A. receivables are reduced. B. a finance charge is recorded. C. a recourse liability is recognized. D. a gain or loss is recorded.

a finance charge is recorded.

FBS Corporation uses the perpetual inventory method and the gross method for recording purchases on account. On May 11, it purchased $44,000 of inventory, terms 2/10, n/30. On May 13, FBS returned goods that cost $4,000. On May 19, FBS paid the supplier. On May 19, the company should credit

inventory for $800.

Feine Co. accepted delivery of merchandise which it purchased on account. As of December 31, Feine had recorded the transaction, but did not include the merchandise in its inventory. The effect of this on its financial statements for December 31 would be

net income, current assets, and retained earnings were understated.

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported

on the balance sheet in the Current Assets section.

RF Company had January 1 inventory of $200,000 when it adopted dollar-value LIFO. During the year, purchases were $1,200,000 and sales were $2,000,000. December 31 inventory at year-end prices was $286,720, and the price index was 112. What is RF Company's gross profit?

$862,720

The acquisition cost of a certain raw material changes frequently. The book value of the inventory of this material at year end will be the same if perpetual records are kept as it would be under a periodic inventory method only if the book value is computed under the

FIFO method.

Which of the following statements is not true as it relates to the dollar-value LIFO inventory method?

It is easier to erode LIFO layers using dollar-value LIFO techniques than it is with specific goods pooled LIFO.

How is a significant amount of consignment inventory reported in the balance sheet?

The inventory is reported separately on the consignor's balance sheet.

Under dollar-value LIFO each layer in ending inventory at LIFO cost is calculated by:

multiplying the layer at base-year prices by the price index for the year the layer was added.

Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2015 and 2014 contained errors as follows: 2015 2014 Ending inventory $6,000 overstated $16,000 overstated Depreciation expense $4,000 understated $2,000 overstated Assume that no correcting entries were made at December 31, 2014, or December 31, 2015 and that no additional errors occurred in 2016. Ignoring income taxes, by how much will working capital at December 31, 2016 be overstated or understated?

$0

The following information is available for Naab Company for 2014: Freight-in $30,000 Purchase returns 75,000 Selling expenses 230,000 Ending inventory 260,000 The cost of goods sold is equal to 400% of selling expenses. What is the cost of goods available for sale?

$1,180,000.

White Corporation uses the FIFO method for internal reporting purposes and LIFO for external reporting purposes. The balance in the LIFO Reserve account at the end of 2014 was $160,000. The balance in the same account at the end of 2015 is $240,000. White's Cost of Goods Sold account has a balance of $1,200,000 from sales transactions recorded during the year. What amount should White report as Cost of Goods Sold in the 2015 income statement?

$1,280,000

On December 31, 2014, Swan Company sold for $150,000 an old machine having an original cost of $170,000 and a book value of $120,000. The terms of the sale were as follows: $30,000 down payment $60,000 payable on December 31 each of the next two years The agreement of sale made no mention of interest; however, 9% would be a fair rate for this type of transaction. What should be the amount of the notes receivable net of the unamortized discount on December 31, 2014 rounded to the nearest dollar? (The present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)

$105,546

Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 4,800 units that cost $12 each. During the month, the company made two purchases: 2,000 units at $13 each and 8,000 units at $13.50 each. Checkers also sold 8,600 units during the month. Using the average cost method, what is the amount of cost of goods sold for the month?

$111,370.

Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 360 units that cost $65 each. During the month, the company made two purchases: 540 units at $68 each and 270 units at $70 each. Chess Top also sold 900 units during the month. Using the average cost method, what is the amount of ending inventory?

$18,236

Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2015 and 2014 contained errors as follows: 2015 2014 Ending inventory $6,000 overstated $16,000 overstated Depreciation expense $4,000 understated $12,000 overstated Assume that no correcting entries were made at December 31, 2014. Ignoring income taxes, by how much will retained earnings at December 31, 2015 be overstated or understated?

$2,000 understated

Winsor Co. records purchases at net amounts. On May 5 Winsor purchased merchandise on account, $40,000, terms 2/10, n/30. Winsor returned $3,000 of the May 5 purchase and received credit on account. At May 31 the balance had not been paid. The amount to be recorded as a purchase return is

$2,940.

Emley Company has been using the LIFO method of inventory valuation for 10 years, since it began operations. Its 2014 ending inventory was $50,000, but it would have been $75,000 if FIFO had been used. Thus, if FIFO had been used, Emley's income before income taxes would have been

$25,000 greater over the 10-year period.

RF Company had January 1 inventory of $200,000 when it adopted dollar-value LIFO. During the year, purchases were $1,200,000 and sales were $2,000,000. December 31 inventory at year-end prices was $286,720, and the price index was 112. What is RF Company's ending inventory?

$262,720

Milford Company had 400 units of "Tank" in its inventory at a cost of $6 each. It purchased 600 more units of "Tank" at a cost of $9 each. Milford then sold 700 units at a selling price of $15 each. The LIFO liquidation overstated normal gross profit by

$300

Willy World began using dollar-value LIFO for costing its inventory two years ago. The ending inventory for the past two years in end-of-year dollars was $180,000 and $270,000 and the year-end price indices were 1.0 and 1.2, respectively. Assuming the current inventory at end of year prices equals $387,000 and the index for the current year is 1.25, what is the ending inventory using dollar-value LIFO?

$339,750

Chess Top uses the periodic inventory system. For the current month, the beginning inventory consisted of 360 units that cost $65 each. During the month, the company made two purchases: 540 units at $68 each and 270 units at $70 each. Chess Top also sold 900 units during the month. Using the FIFO method, what is the amount of cost of goods sold for the month?

$60,120

Checkers uses the periodic inventory system. For the current month, the beginning inventory consisted of 4,800 units that cost $12 each. During the month, the company made two purchases: 2,000 units at $13 each and 8,000 units at $13.50 each. Checkers also sold 8,600 units during the month. Using the FIFO method, what is the ending inventory?

$83,700

During the year, Trout Enterprises made an entry to write off a $8,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $100,000 and the balance in the allowance account was $9,000. The net realizable value of accounts receivable before and after the write-off entry was

$91,000.

A cash discount of 1/10, n/30 means the customer gets a:

1% discount if they pay within 10 days.

Mayer Company received a seven-year zero-interest-bearing note on February 22, 2013, in exchange for property it sold to Reardon Company. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 7% on February 22, 2013, 7.5% on December 31, 2013, 7.7% on February 22, 2014, and 8% on December 31, 2014. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2013 and 2014, respectively?

7% and 7%

During 2014, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end. Which of the following recording procedures would result in the highest net income for 2014? 1. Recording purchases at gross amounts 2. Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement

Either 1 or 2 will result in the same net income.

Which inventory costing method most closely approximates current cost for each of the following: Ending Inventory, Cost of Goods Sold A. FIFO, LIFO B. LIFO, LIFO C. FIFO, FIFO D. LIFO, FIFO

Ending Inventory, Cost of Goods Sold FIFO, LIFO

The ending inventory and cost of goods sold will be the same whether a perpetual or periodic system is used under the:

FIFO method.

Which of the following items should be included in a company's inventory at the balance sheet date?

Goods in transit which were purchased f.o.b. shipping point.

Select the correct statement concerning LIFO liquidations from the following.

LIFO liquidations often distort net income and may result in substantial tax payments.

In a period of rising prices, the inventory method that produces the lowest ending inventory is the:

LIFO periodic method.

Which of the following is correct? A. Manufacturing overhead costs are product costs. B. All of these answers are correct. C. Interest costs for routine inventories are product costs. D. Selling costs are product costs.

Manufacturing overhead costs are product costs.

Which of the following would not be included in a manufacturing company's balance sheet?

Merchandise inventory.

What is the effect of a $50,000 overstatement of last year's inventory on current years ending retained earning balance?

No effect.

Which of the following is true regarding the use of LIFO for inventory valuation? A. If LIFO is used for external financial reporting, then it must also be used for internal reports. B.None of these answers are correct. C.For purposes of external financial reporting, LIFO may not be used with the lower of cost or market approach. D.If LIFO is used for external financial reporting, then it cannot be used for tax purposes.

None of these answers are correct.

Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet?

Not on the balance sheet.

During 2014, which was the first year of operations, Oswald Company had merchandise purchases of $985,000 before cash discounts. All purchases were made on terms of 2/10, n/30. Three-fourths of the items purchased were paid for within 10 days of purchase. All of the goods available had been sold at year end. Which of the following recording procedures would result in the highest cost of goods sold for 2014? 1.Recording purchases at gross amounts 2.Recording purchases at net amounts, with the amount of discounts not taken shown under "other expenses" in the income statement

Recording purchases at gross amounts

Cash consists of all of the following except: A. Personal checks. B.Money orders. C.Short-term paper with a maturity of 6 months. D.Certified checks.

Short-term paper with a maturity of 6 months.

Of the following conditions, which is the only one that is not required if the transfer of receivables with recourse is to be accounted for as a sale?

The transferor is obligated to make a genuine effort to identify those receivables that are uncollectible.

When using the periodic inventory system, which of the following generally would not be separately accounted for in the computation of cost of goods sold? A.Purchase returns and allowances of merchandise during the period B.Cost of freight-in for merchandise purchased during the period C.Trade discounts applicable to purchases during the period D.Cash (purchase) discounts taken during the period

Trade discounts applicable to purchases during the period

If a company uses the periodic inventory system, what is the impact on the current ratio of including goods in transit f.o.b. shipping point in purchases, but not ending inventory?

Understate the current ratio.

When using a perpetual inventory system: A. no Purchases account is used. B. all of these answer choices are correct. C. a Cost of Goods Sold account is used. D.two entries are required to record a sale.

all of these answer choices are correct.

The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in

an understatement of liabilities and an overstatement of owners' equity.

Short-term paper with maturities of less than 3 months should be classified as

cash equivalents.

The minimum cash amounts that banks often require customers to whom they lend money to maintain in checking accounts is called:

compensating balances.

Goods on consignment are

included in the consignor's inventory.

Goods in transit which are shipped f.o.b. shipping point should be

included in the inventory of the buyer.

Elkins Corporation uses the perpetual inventory method. On March 1, it purchased $30,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost $3,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit A. inventory for $600. B.purchase discounts for $540. C.inventory for $540. D.purchase discounts for $600.

inventory for $540.

The use of a Purchase Discounts Lost account implies that the recorded cost of a purchased inventory item is its

invoice price less the purchase discount allowable whether taken or not.

Milford Company had 500 units of "Tank" in its inventory at a cost of $4 each. It purchased, for $2,800, 300 more units of "Tank". Milford then sold 400 units at a selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption used by Milford

is weighted average.

Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. The effect of this on its financial statements for March 31 would be

net income was correct and current assets and current liabilities were overstated.

Green Co. received merchandise on consignment. As of January 31, Green included the goods in inventory, but did not record the transaction. The effect of this on its financial statements for January 31 would be

net income, current assets, and retained earnings were overstated.

When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported:

on the balance sheet in the Current Assets section.

If the beginning inventory for 2014 is overstated, the effects of this error on cost of goods sold for 2014, net income for 2014, and assets at December 31, 2015, respectively, are

overstatement, understatement, no effect.

The buyer would report the inventory in its balance sheet for items:

purchased f.o.b. shipping point and in transit.

Costs which are inventoriable include all of the following except A. costs that are directly connected with the converting of goods to a salable condition. B.selling costs of a sales department. C. costs that are directly connected with the bringing of goods to the place of business of the buyer. D.buying costs of a purchasing department.

selling costs of a sales department.

Under a perpetual inventory system which accounts should be debited the each time a sale on account is made?

Accounts Receivable and Cost of Goods Sold.

Which of the following is a characteristic of a perpetual inventory system? A. Cost of goods sold is determined as the amount of purchases less the change in inventory. B. Inventory records are not kept for every item. C. Inventory purchases are debited to a Purchases account. D. Cost of goods sold is recorded with each sale.

Cost of goods sold is recorded with each sale.