Accounting multiple choice questions test 2

On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine was expected to produce a total of 60,000 units during its life. The machine actually produced 16,000 units during 2018, 23,000 units during 2019, and 21,000 units during 2020. The machine has a salvage value of $3,000. Using the units-of-production method, the amount of depreciation that should be recorded during 2018, is approximately

$8000

straight line depreciation

(cost - salvage value) / useful life

units of production depreciation

(cost-residual value)/estimated total production x actual production

Days' Sales in Inventory

(ending inventory/CGS)*365

reinstating an uncollectible account(allowance)

1) DR: accounts receivables CR: allowance for DA 2) DR: Cash CR: Accounts receivables

A 60-day, 11 percent, promissory note dated June 10 matures on

August 9th

XYZ Company made a mistake in counting its ending inventory. Determine which of the items below will be affected by this error.

Net income, Cost of goods sold, current assets

Which of the following summarizes the weighted average cost flow assumption?

Weighted average assumes that cost flow at an average of the costs available.

double declining balance depreciation

a accelerated method that allocates a higher depreciation in the earlier years of the asset's life and lower depreciation in later years

On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000. Using the straight-line method, the book value of the machinery at December 31, 2019, is approximately

$13,000

recording a dishonored notes

DR: Accounts receivables CR: Interest revenue and notes receivables

Last year, Mountain Top, Inc., purchased a coal mine at a cost of $900,000. The salvage value has been estimated at $100,000. The coal mine has an estimated 200,000 tons of available coal. A total of 70,000 tons were mined and sold during the current year. Complete the necessary adjusting journal entry to record depletion expense for the current year by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

DR: Depletion expense for $280000 CR: Accumulated Depletion for $280,000

reporting accrued interest

DR: Interest receivable CR: interest revenue

The supplementary record providing information on each customer is called the _____.

accounts receivables ledger

Sarbanes-Oxley Act requires each of the following

an effective internal control and auditors must evaluate internal controls

inventory turnover focuses on

average inventory

If all units are purchased at the same unit cost, cost of goods sold will ____?

be the same for all four methods

weighted average smooths out

erratic changes in costs

lifo differs taxes to

future periods

all of the following are examples of cash except

short term investments

Kirov, Inc. reports credit sales of $200,000 for the year ending December 31. The year-end unadjusted balance of its Allowance for Doubtful Accounts is a debit of $9,000. Experience suggests 6 percent of its net sales will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in its year-end adjusting entry is

$12,000- no need to add in ADA

A company used straight-line depreciation for equipment that cost $12,000, had a salvage value of $2,000, and a 5-year useful life. At the beginning of year 4 of its useful life, the estimate of the salvage value was reduced to $1,200 and its total useful life was increased to 6 years. The amount of depreciation that will be recorded during each of the remaining years of its useful life is:

$1600

Bailey Company has $200,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a debit of $9,000. An aging of its accounts receivable suggests that $12,000 of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is

$21000

On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000. Using the double-declining balance method, depreciation for 2018 is approximately

$22,000

Grey Corporation has $100,000 of accounts receivable on December 31. The unadjusted balance of its Allowance for Doubtful Accounts is a credit of $1,000. Experience suggests 5 percent of its receivables will be uncollectible. The amount that should be debited to Bad Debt Expense and credited to Allowance for Doubtful Accounts in the year-end adjusting entry is:

$4000(100000*.05-1000)

On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000. Using the double-declining balance method, depreciation for 2020 is approximately

$667

On January 1, 2019, Coopers Industries bought a parcel of land for use in its operations by paying the seller $100,000 in cash and signing a 5-year, 12 percent note payable in the amount of $400,000. In connection with the purchase of the land, Coopers incurred legal fees of $19,000, a real estate agent sales commission of $25,000, surveying fees of $1,000, and an appraisal fee of $5,000. The acquisition cost of the land is

550000

A company had total sales of $620,000, net sales of $582,000, and an average accounts receivable of $97,000. Its accounts receivable turnover equals

6

The total interest that is due at maturity on a $1,500, 12 percent, 120-day note is

60

_____ are additional costs of plant assets that provide benefits extending beyond the current period and increase or improve the type or amount of service an asset provides.

Capital expenditures

Cake Mart understated its ending inventory in the current year by $5000. The company incorrectly reported net income of $100,000. Determine the effect of the error.

Cost of goods sold will be too high by 5000 causing net income to be understated by 5000.

On December 29, 2018, Patel Products, Inc., sells a delivery van that cost $20,000. After recording the entry to bring the accumulated depreciation up-to-date, the delivery van had accumulated depreciation of $18,000. Patel received $2,000 cash from the purchaser of the delivery van. Complete the necessary journal entry to record the sale by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

DR Accumulated Depreciation for 18000 and cash for 2000 CR: Delivery Van for 20000

On January 2, Dixie, Inc., pays a salvage company $1,000 to haul away a machine costing $28,000 with accumulated depreciation of $28,000. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

DR: Accumulated Depreciation and Loss on disposal of machinery CR: Machinery and Cash

writing off an uncollectible(allowance)

DR: Allowance for DA CR: accounts receivables

On January 5, Barnaby, Inc., purchased a patent costing $100,000 with a useful life of 20 years. The company records its adjusting entries at the end of each year on December 31. Complete the necessary adjusting entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

DR: Amortization expense for $5000 CR: Accumulated amortization for $5000

journaling accounts that are expected to be uncollectible

DR: Bad debts expense CR: allowance for doubtful accounts

writing off uncollectible sales(allowance)

DR: Bad debts expense CR: allowance for DA

receiving payment for a note with interest

DR: Cash CR: Interest revenue and notes receivables

recording a fully honored note

DR: Cash CR: interest revenue, interest receivable, notes receivable

On December 29, 2019, Patel Products, Inc., sells a delivery van that cost $20,000. The equipment had accumulated depreciation of $16,000 at December 31, 2018. Annual depreciation on this equipment is $2,000 computed using straight-line depreciation. Complete the necessary journal entry to bring the accumulated depreciation up-to-date by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

DR: Depreciation Expense 2000 CR: Accumulated Depreciation 2000

On August 4, Armstrong Trucking, Inc., paid $4,500 to replace the engine in one of its trucks. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

DR: Trucks 4500 CR: Cash 4500

All of the following statements regarding a voucher system are incorrect except _____.

an invoice approval initiates the recording of a purchase

gross profit method of estimating inventory

applying gross profit ratio to net sales

If goods are shipped FOB shipping point then the ? is responsible for paying freight charges and the ? will not include the merchandise in their inventory

buyer, seller

inventory that cannot be resold is included in inventory

false

The LIFO cost flow assumption assumes that the cost of items purchased ? are the costs that will be transferred first to cost of goods sold on the ?

latest, income statement

The useful life of a new plant asset _____.

might be estimated based on the experience of others or on engineering studies and judgment if the company does not have past experience with a similar asset

Total asset turnover

net sales/average total assets

The double-declining-balance and straight-line depreciation methods:

produce the same amount of total depreciation over an asset's useful life

The allowance method of accounting for bad debts has the following advantages over the direct write-off method including

recording estimated bad debts expense in the period the sales are recorded and report accounts receivable on the balance sheet at the amount of cash expected to be collected

The acquisition cost of a plant asset does not include

repair costs resulting from damage to the plant asset while it was being unpacked

Plant assets are:

tangible assets used in a company's operations that have a useful life of more than one accounting period

The goal of the accounts receivable methods is to adjust the Allowance for Doubtful Accounts balance so that

the adjusted balance is equal to the estimate of the uncollectible accounts receivable

When using the allowance method of accounting for uncollectible accounts, the entry to write off Jeannie's uncollectible account is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable—Jeannie.

true

Partial Year Depreciation

when a plant asset is acquired during the year, depreciation is calculated for the fraction of the year the asset is owned

Meredith Company's records reflected the following as of September 30: Currency and coins $ 12,500 Checking account 35,000 Customer checks on hand (not yet deposited) 2,000 Money market fund 50,000 Investment in 3-month U.S. Treasury bills 10,000 Investment in Microsoft common stock 15,000 The company's balance sheet on September 30, reflects cash and cash equivalents of _____.

$109,500

Days' sales uncollected

(accounts receivable-ending not average/net sales) x 365

The consistency concept allows a company to use different accounting methods from period to period in order to maximize profits

False

Expense Recognition Principle

Match expenses with revenues in the period when those expenses are incurred

merchandise inventory is updated continually with the perpetual system

True

FIFO approximates

current cost on the balance sheet

An item was shipped from a supplier under FOB shipping point. The invoice in the amount of $2,000 included payment terms of 2/10, n/30. When the invoice was paid, a purchase discount in the amount of $40 was taken. Other details relating to the purchase of this item included the following: shipping charges of $300, storage fees of $50, and insurance premium of $100. The cost of this inventory item is _____.

$2410

The following information is available for the Maribel Company for the month of June: The unadjusted balance of the company's Cash account was $26,620 at the end of June. The bank statement shows a balance on June 30 of $26,960. Outstanding checks totaled $4,000 at June 30. Deposit in transit totaled $3,000 on June 30. The bank statement included a credit memorandum in the amount of $150 for interest. Check #1221 (in payment of account payable) was written for $4,900, but recorded in the accounting records as $4,090. The adjusted bank and book balance is:

$25960

A company's warehouse was destroyed by a tornado on March 15. The only information that was salvaged is as follows: Inventory, January 1: $28,000 Purchases for the period 1/1 through 3/15: $15,000 Sales for the period 1/1 through 3/15: $50,000 Sales returns for the period 1/1 through 3/15: $300 Company's gross profit ratio: 20% Using the gross profit method, the estimated cost of inventory that was destroyed is ____:

$3240

A company has beginning inventory of $20,000, purchases of $15,000, and ending inventory of $2,500. The cost of goods available for sale is ___.

$35000

A company uses a periodic inventory system. On November 1, the company had 8 items of beginning inventory with a cost of $22 per unit. On November 2, the company purchased 10 units at $21 per unit. On November 6, the company purchased 5 units at $25 per unit. Then, on November 8, the company sold 18 units. Using LIFO, the cost of the 18 units sold is _____.

$401

Assume that we use a perpetual inventory system and that five identical units are purchased at the following four dates and costs: April 5 $10 April 10 $12 April 15 $14 April 20 $16 April 22 $17 One unit is sold on April 25. The company uses the last-in, first-out (LIFO) inventory costing method. Identify the cost of the ending inventory on the balance sheet.

$52

Assume that we use a perpetual inventory system and that five identical units are purchased at the following four dates and costs: April 5 $10 April 10 $12 April 15 $14 April 20 $16 April 22 $17 One unit is sold on April 25. The company uses the weighted average inventory costing method. Identify the cost of the ending inventory on the balance sheet. (Round your answer to 2 decimal places.)

$55.20

Assume that we use a perpetual inventory system and that five identical units are purchased at the following four dates and costs: April 5 $10 April 10 $12 April 15 $14 April 20 $16 April 22 $17 One unit is sold on April 25. The company uses the first-in, first-out (FIFO) inventory costing method. Identify the cost of the ending inventory on the balance sheet.

$59

A company has the following per unit recorded cost and replacement cost relating to its inventory: Item 1 5 units Cost $50 Market $45 Item 2 7 units Cost $60 Market $65 Item 3 9 units Cost $30 Market $25 Applying the lower of cost or market method, the reported value of this company's ending inventory if LCM is applied to individual items is _____.

$870

Reinstating an account(direct)

1) DR: Accounts Receivables CR: Bad Debts Expense 2) DR: Cash CR: Accounts Receivables

Inventory, December 31, 2018 $ 75,000 Inventory, December 31, 2019 125,000 Net Sales for 2019 850,000 Cost of Goods Sold for 2019 400,000 The company's days' sales in inventory is closest to ____.

114 days

A company borrowed $11,000 by signing a 90-day promissory note at 10%. The total interest due on the maturity date is: (Use 360 days a year.)

275

Inventory, December 31, 2018 $ 75,000 Inventory, December 31, 2019 125,000 Net Sales for 2019 850,000 Cost of Goods Sold for 2019 400,000 The company's inventory turnover ratio is closest to ____.

4

direct write-off method

A method of accounting for bad debts that involves charging receivable balances to Bad Debt Expense at the time receivables from a particular company are determined to be uncollectible

Intercontinental, Inc., uses a perpetual inventory system. Consider the following information about its inventory: July 1, purchased 10 units for $910 or $91 per unit; July 3, purchased 15 units for $1,590 or $106 per unit; July 14, sold 20 units; July 17, purchased 20 units for $2,300 or $115 per unit; July 28, purchased 10 units for $1,190 or $119 per unit; July 31, sold 23 units. Using FIFO, the cost of goods sold for the sale of 23 units on July 31 is ____ and the inventory balance at July 31 is _____.

CGS for 23 units on July 31-2600 Inventory Balance- 1420

Intercontinental, Inc., uses a perpetual inventory system. Consider the following information about its inventory: July 1, purchased 10 units for $910 or $91 per unit; July 3, purchased 15 units for $1,590 or $106 per unit; July 14, sold 20 units; July 17, purchased 20 units for $2,300 or $115 per unit; July 28, purchased 10 units for $1,190 or $119 per unit; July 31, sold 23 units. Using weighted average, the cost of goods sold for the sale of 23 units on July 31 is ____ and the inventory balance at July 31 is _____.

CGS for July 31st sale- $2622 Inventory balance-$1368

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is:

DR: Accounts receivables 2000 CR: allowance for DA 2000 DR: cash 2000 CR: accounts receivables

A company reports merchandise inventory on December 31 at $250,000 but LCM applied to items is $200,000.Record the journal entry to report merchandise inventory at the correct amount.

DR: CGS-$50,000 CR: Merchandise Inventory-$50,000

Accepting a note on a past due account with cash

DR: Cash and Notes receivables CR: Accounts Receivables

Selling receivables to a company or bank

DR: Cash and factoring fee expense CR: Accounts Receivables

At the end of business on September 1, the total displayed on the cash register tape shows $1,059 of cash sales for the day. However, when the clerk and the supervisor count the cash in the register, the count reveals that $1,050 was actually collected from customers

DR: Cash-1050 and Cash Over and Short-9 CR: Sales-1059

accepting a notes receivables for a sale

DR: Notes Receivables (for principal) CR: Sales

Recall on February 1, Derrick Company established a $200 petty cash fund. On February 15, when the fund balance reached $7, the petty cash custodian prepared a petty cash report that summarized receipts for postage ($140) and printing ($54). Complete the seller's necessary journal entry by selecting the account names and dollar amounts from the drop-down menus.

DR: Postage expense and printing expense CR: Cash over and Short and cash

The work of one person acts as a check on another person to prevent fraud and errors. Responsibility for a task should be clearly established and assigned to one person. Use of cash registers, time clocks and personal identification scanners to improve internal control Use of detailed records to help prevent loss of assets.

Divide responsibilities establish responsibilities apply technological controls maintain adequate records

The accounts receivable turnover is calculated by:

Dividing net sales by average accounts receivable

On July 18, Jerry Pope signed a note when he borrowed $1,200 at 12 percent for 30 days from Second National Bank. In this situation:

Pope is the maker of the note

Which of the following is a correct statement regarding control of over-the-counter cash receipts:

The supervisor should compare the register transactions with the cash receipts report to make sure that both are correct

A bank reconciliation explains any differences between the balance of a checking account on the depositor's records and the balance reported on the bank statement.

True

If the Cash Over and Short account has a credit balance at the end of the period, the amount is commonly reported as miscellaneous revenue.

True

companies make a physical inventory count at least once a year

True

A bank issues a debit memorandum to notify a depositor of:

a deduction to the depositors account

If a perpetual inventory system is in use _____.

a physical inventory count should be taken at least annually.

inventory turnover

cost of goods sold/average inventory value(Year 1 inventory+year 2 inventory/2)

FIFO assumes

costs flow in the order incurred

During the month of July, Clanton Industries issued a check in the amount of $856 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

deduct the check amount from the bank balance

FIFO

lowest CGS, highest net income, and highest inventory

The pledging of receivables:

enables a company to raise cash, retain ownership of receivables, not transfer bad debts to the lenders and are disclosed in finance statements

days sales in inventory focuses on

ending inventory

Weighted Average

middle CGS and middle net income

financial, family and societal stresses to succeed

pressure

An internal control system is used to do all of the following:

protect assets and ensure reliable accounting

Internal control systems are:

requires by the SOX act to be documented and certified if the companys stock is traded on an exchange

goods in transit shipped to purchaser- FOB destination

excluded from inventory

Most large thefts in a company come from payments of:

fictitious invoices

goods in inventory include all goods except

goods sold

LIFO

highest CGS, lowest net income and lowest tax expense

The accounts receivable turnover measures:

how often on average receivables are received and collected during the period

goods in transit shipped from person- FOB destination

included in inventory

Principles of internal control include all of the following except:

maintaining security by having one person track and record assets

The listing of cash received via mail should be sent to each of the following individuals

Cashier, Recordkeeper, Mail Clerk

a high inventory turnover is

best(more is being sold)

Employees justifying fraudulent behavior

rationalization

Select the items below which must be adjusted to the book balance

book errors, interest earning on checking accounts, collections of accounts receivables

LIFO approximates

current cost on the income statement/ CGS approximates its current cost

In applying the lower of cost or market method to inventory valuation, market is defined as

current replacement cost

Cash management principles include all of the following except _____.

maximize other assets

accounts receivables turnover

net credit sales/average net accounts receivable

if goofs can be sold at a reduced price they are included in the

net realizable value (sales price-cost of making the sale)

internal control weaknesses in a business

opportunity

fob shipping point

ownership of goods passes to the buyer when the public carrier accepts the goods from the seller-seller accepts shipping charges

FOB destination

ownership of goods remains with the seller until the goods reach the buyer-buy doesn't pay for shipping

Market value is replacement cost for LIFO, but net ___ value is used for FIFO, Specific Identification and Weighted Average methods.

realizable

What are the two reasons that inventory must be estimated?

Companies report interim statements and companies might experience a casualty

The direct write off method

is permitted if results are similar to the allowance method

Technology helps managers to monitor and control business activities and includes each of the following except:

less extensive testing of records

Sellers allow customers to use credit cards for all of the following reasons:

seller does not decide who gets credit, seller receives cash sooner than if credit is granted directly to the customers, and it may allow seller to increase sales volume

used by bank employees to verify signatures on checks

signature card

If a check correctly written and paid by the bank for $745 is incorrectly recorded in the company's books for $754, how should this error be treated on the bank reconciliation?

subtract $9 from the book balance

A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 6% of outstanding receivables are uncollectible. The current debit balance (before adjustments) in the allowance for doubtful accounts is $1,200. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $6,000.

true

goods from inventory are not included in the consignee inventory

true

Marion Industries has an average accounts receivable turnover ratio of 12 times per year whereas most of its competitors have a ratio nearer to 8 times. This suggests that Marion's management should consider:

using more liberal credit terms to increase sales

An advantage of FIFO is that it assigns the most recent costs to CGS and does a better job of matching current costs wit revenues on the income statement.

False

A company uses a periodic inventory system. On August 1, the company had 6 items of beginning inventory with a cost of $7 per unit. On August 3, the company purchased 16 units at $14 per unit. Then, on August 5, the company sold 12 units. Using FIFO, the cost of the 12 units sold is _____.

$126

A company has beginning inventory of $10,500, purchases of $5,500, and ending inventory of $2,500. The cost of goods sold is ___.

$13,500

A company uses a periodic inventory system. On August 1, the company had 6 items of beginning inventory with a cost of $7 per unit. On August 3, the company purchased 16 units at $14 per unit. Then, on August 5, the company sold 12 units. The 12 units sold consisted of 7 units from the August 3rd purchase and 5 units from the August 1st beginning inventory. Using specific identification, the cost of the 12 units sold is _____.

$133

Big Box Store has operated with a 30% average gross profit ratio for a number of years. It had $112,000 in sales during the second quarter of this year. If it began the quarter with $19,200 of inventory at cost and purchased $73,200 of inventory during the quarter, its estimated ending inventory by the gross profit method is:

$14000

A company uses a periodic inventory system. On April 1, the company had 9 items of beginning inventory with a cost of $13 per unit. On April 18, the company purchased 15 units at $14 per unit. Then, on April 29, the company sold 14 units. Using weighted average, the cost of the 14 units sold is closest to _____.

$190.75

to establish a petty cash fund

debit petty cash and credit cash

Writing off an account(direct)

DR: Bad Debts Expense CR: Accounts Receivables