SB CH 5A

The amount in the Cash amount, which is reported as an asset on the balance sheet, includes all of the following except: 1. expected litigation settlements 2. demand deposit balances 3. undeposited receipts 4. petty cash fund balances

1

The amount in the cash account, which is reported as an asset on the balance sheet, includes: 1. savings account balances 2. undeposited receipts including checks 3. money on hand in petty cash funds 4. checking account balances 5. IOUs from credit worth customers 6. supplies on hand

1, 2, 3, 4

Identify the true statements regarding a bank reconciliation 1. in a bank reconciliation, service charges are subtracted from the company's book balance 2. in a bank reconciliation, outstanding checks are subtracted from the bank's balance 3. in a bank reconciliation, interest earned is subtracted from the company's book balance 4.in a bank reconciliation, deposits in transit are subtracted from the bank's balance 5. in a bank reconciliation, NSF checks are subtracted from the company's book balance

1,2, 5

A note receivable: 1. represents a formal, legal contract 2. usually bears interest 3. are notes that are only offered to the most creditworthy customers 4. is easier to account for 5. involved penalties if not paid on the maturity date

1,2,5

Assume that on September 1, year 1 , a six-month property insurance premium of $12,000 was paid for a policy whose coverage began on that day. The amount of insurance expense to be reported with respect to this policy for the year ended December 31, year 1, would be:

$12000 x 4/6 = $8000

Assume the Missvel Inc. has credit sales terms of 1/10, n60. On May 5, Missvel Inc. made a $10,000 sale to Terence Co. This means that Terence Co. has the option of paying:

$9,900 by May 15 or paying $10,000 by July 4.

Outstanding checks:

are subtracted from the bank's balance

If the ending inventory was understated at the end of year 1, but counted correctly at the end of year 2 and this error was not discovered until sometime in year 3, then:

cost of goods sold was overstated in year 1 and understand in year 2 but the error would have self-corrected in total

Inventory is reported on the balance sheet at:

lower of cost or market value

The "market" in the lower of cost of market valuation is generally:

the replacement cost of the inventory

In the cost of goods sold model, the "cost of good available for sale" equals:

Beginning Inventory + Purchases Cost of goods sold + Ending Inventory

Purchase = $210,000 cost of goods available for sale = $300,000 and cost of good sold = $230,000. Thus:

Beginning inventory = $90,000 and Ending Inventory = $70,000

Purchase = $210,000 cost of goods available for sale = $300,000 and cost of goods sold = $230,000. Thus:

Beginning inventory = $90,000 and Ending Inventory = $70,000 BI = goods available for sale - purchase EI = good available for sale - cost of goods sold

Beginning Inventory = $15,000 Purchases = $24,000 and Ending Inventory = $17,000. Thus:

Cost of good available for sale = $39,000 and cost of goods sold = $22,000

If ending inventory was overstate at the end of Year 1, but counted correctly at the end of Year 2 and this error was not discovered until sometime in Year 3, then:

Cost of goods sold was understated in Year 1 and overstated in year 2, but the error would have self-corrected in total.

The beginning inventory for ProKnows Ltd. consisted of 20 units at $4 each. During March, 40 more units of inventory were purchased for $5 each, and during May, an additional 40 units were purchased for $6 each. A total of 70 units of inventory were sold during the year. Under the weighted-average cost flow assumption:

Costs of goods sold = 70 units x $5.20 per unity = $364 average cost = 520/100 = 5.20 costs of good sold = 70 units x $5.20 per unit

Identify the true statements regarding a bank reconciliation: 1. In a bank reconciliation, outstanding checks are subtracted from the company's book balance. 2. In a bank reconciliation, service charges are subtracted from the company's book balance. 3. In a bank reconciliation, interest earned is added to the company's book balance. 4. In a bank reconciliation, NSF checks are subtracted from the company's book balance. 5. In a bank reconciliation, deposits in transit are added to the company's book balance.

2, 3, 4

The cost of an inventory item is released to the income statement as an: 1. expense when the product is purchased 2. expense when the product is sold 3. asset when the product is purchased 4. expense when the product is lost or stolen 5. revenue when the product is sold 6. expense when the product becomes worthless

2, 4, 6

The effects on the financial statements of accruing interest on Notes Receivable include: 1. an increase to expenses 2. an increase to liabilities 3. an increase to net income 4. an increase to assets 5. an increase to revenues

3, 4, 5

The entry to record accrued interest on Note Receivable is:

Dr. Interest Receivable xx Cr. Interest Income xx

The entry to record accrued interest on Notes Receivable is:

Dr. Interest Receivable xx Cr. Interest income xx

If ending inventory was understated at the end of year 1, but counted correctly a the end of year 2, and this error was not discovered until sometime in year 3, then:

Gross profit (and net income) was understated in year 1 and overstated in year 2, but the error would have self-corrected in total.