Accounting Chapter 5-8

Accounts receivable are valued and reported on the balance sheet

at cash realizable value.

The accounts receivable turnover

can be used to compute the average collection period.

The account Allowance for Doubtful Accounts is classified as a(n)

contra account to Accounts Receivable.

Bramble Corp. had net credit sales during the year of $1100800 and cost of goods sold of $712000. The balance in accounts receivable at the beginning of the year was $117600 and at the end of the year was $138400. What was the accounts receivable turnover?

$1100800 ÷ [($117600 + $138400) ÷ 2] = 8.6 Cr. sal. ÷ [(beg. A/R + end. A/R) ÷ 2]

Skysong, Inc. purchased merchandise inventory with an invoice price of $13100 and credit terms of 2/10, n/30. What is the net cost of the goods if Skysong, Inc. pays within the discount period?

$13100 × 98% = $12838(Purch. amount × (1-2%))

Oriole Company had checks outstanding totaling $36300 on its June bank reconciliation. In July, Oriole Company issued checks totaling $261400. The July bank statement shows that $176700 in checks cleared the bank in July. A check from one of Oriole Company's customers in the amount of $2000 was also returned marked "NSF." The amount of outstanding checks on Oriole Company's July bank reconciliation should be

$36300 + $261400 - $176700 = $121000 (June out. Checks + book disb - bank disb.)

The financial statements of the Sunland Company report net sales of $384000 and accounts receivable of $50400 and $33600 at the beginning of the year and the end of the year, respectively. What is the average collection period for accounts receivable in days? (Use 365 days for calculation.)

$384000 ÷ [($50400 + $33600) ÷ 2] = 9.14; 365 ÷9.14 = 39.9 365 ÷ A/R +urn.

Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $42000. If the balance of the Allowance for Doubtful Accounts is an $8400 debit before adjustment, what is the balance after adjustment?

$42000 estimated uncollectible accounts

The following information was available for Sheffield Corp. at December 31, 2022: beginning inventory $83000; ending inventory $142000; cost of goods sold $644000; and sales $800000. Sheffield inventory turnover ratio in 2022 was

$644000 ÷ [($83000 + $142000) ÷ 2] = 5.7 (COGS ÷ [(beg. inv. + end. inv.) ÷ 2])

Blue Spruce Corp. accounting records show the following for the year ending on December 31, 2022. Purchase Discounts$ 12800 Freight-in 15900 Purchases 681020 Beginning Inventory 55000 Ending Inventory 63600 Purchase Returns and Allowances 13500 Using the periodic system, the cost of goods purchased is

$681020 - $12800 - $13500 + $15900 = $670620 (Purch. - purch. dis. - purch. ret./all. + fr. -in.)

An aging of a company's accounts receivable indicates that $8900 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $4190 debit balance, the adjustment to record bad debts for the period will require a

$8900 + $4190 = $13090 (Est. Uncoll. accts. + ADA bal.)

Financial information is presented below: Operating expenses$ 54000 Sales returns and allowances 2000 Sales discounts 9000 Sales revenue 158000 Cost of goods sold 92000 Gross Profit would be

($158000 - $2000 - $9000) - $92000 = $55000 [(Sal. rev. - sal. ret./all. - sal. dis.) - C0GS]

Blue Spruce Corp. had beginning inventory of $17400 at March 1, 2022. During the month, the company made purchases of $75400. The inventory at the end of the month is $20070. What is cost of goods sold for the month of March?

($17400 + $75400) - $20070 = $72730 (Beg. Inv. + purch.− end inv.)

Explain where each of the following items would appear on a multiple-step income statement. 1.Gain on disposal of plant assets 2.Cost of goods sold 3.Depreciation expense 4.Sales returns and allowances

1. Other revenues and gains 2. Cost of Goods Sold 3. Operating Expenses 4. Sales

The following information was available for Windsor, Inc. at December 31, 2022: beginning inventory $80000; ending inventory $60000; cost of goods sold $700000; and sales $1000000. Windsor days inventory turnover ratio in 2022 was (Use 365 days for calculation. Round intermediate calculation to 2 decimal places, e.g. 12.25.)

365 ÷ 10.00 = 36.5 (365 ÷ inv. turn.)

In periods of rising prices, which is an advantage of using the LIFO inventory costing method?

Cost of goods sold will include the latest (most recent) costs and thus will be more realistic.

Internal control measures

are in place to safeguard assets.

For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?

Deposit of $900 recorded by the bank as $90

Which of the following bank reconciliation items would not result in an adjusting entry?

Deposits in transit.

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, then the company using

FIFO will have the highest ending inventory.

Which of the following is not considered in computing net cost of purchases?

Freight paid on goods shipped to customers

Which of the following is not one of the main factors that contribute to fraudulent activity?

Incompatible duties.

What is an advantage of using the multiple-step income statement?

It highlights the components of net income.

In a period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?

LIFO

Which of the following would be added to the balance per books on a bank reconciliation?

Notes collected by the bank.

Which of the following receivables would not be classified as an "other receivable"?

Notes receivable

Under the concept of establishment of responsibility, how many people should have the ultimate responsibility?

Only one individual.

Which of the following would be deducted from the balance per bank on a bank reconciliation?

Outstanding checks.

Which of the following items will not result in an adjustment to the inventory account balance under a perpetual system?

Payment of freight costs for goods shipped to a customer

Which of the following is not true regarding a promissory note?

Promissory notes may not be transferred to another party by endorsement.

In its first month of operation, Blossom Company purchased 230 units of inventory for $11, then 330 units for $12, and finally 270 units for $13. At the end of the month, 310 units remained. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO.

Purchases $11 x 230 $11 x 230 $12 x 330 $12 x 330 $13 x 270 $13 x 270 Cost of goods available for sale $ 10,000 $ 10,000 Less: Ending inventory $ 3,490 * $ 3,990 ** Cost of goods sold $6,510 $6,010 *(230 x $11) + (80 x $12) = $3,490**(270 x $13) + (40 x $12) = $3,990Phantom Profit = $6,510 - $6,010 = $500

Which of the following would not be reported on the balance sheet as a cash equivalent?

Restricted cash.

Which of the following accounts is classified as a contra revenue account?

Sales Returns and Allowances

In its first month of operations, Bramble Corp. made three purchases of merchandise in the following sequence: (1) 240 units at $4, (2) 340 units at $6, and (3) 440 units at $7. Assuming there are 140 units on hand at the end of the period, compute the cost of the ending inventory under (a) the FIFO method and (b) the LIFO method. Bramble Corp. uses a periodic inventory system.

The ending inventory under FIFO consists of 140 units at $7 for a total allocation of $980. The ending inventory under LIFO consists of 140 units at $4 for a total allocation of $560.

Which of the following statements is correct with respect to inventories?

Under FIFO, the ending inventory is based on the latest units purchased.

If a customer agrees to retain merchandise that is defective because the seller is willing to reduce the selling price, this transaction is known as a sales

allowance.

Splish's Market recorded the following events involving a recent purchase of inventory:Received goods for $83800, terms 2/8, n/30.Returned $1500 of the shipment for credit.Paid $300 freight on the shipment.Paid the invoice within the discount period.As a result of these events, the company's inventory

[($83800 - $1500) × 0.98] + $300 = $80954 (Purch.amount - ret.) × (1 − 0.02) + freight

An overstatement of ending inventory in one period results in

an understatement of net income of the next period.

The following reconciling items are applicable to the bank reconciliation for Forde Co.Indicate how each item should be shown on a bank reconciliation. (a)Outstanding checks. (b)Bank debit memorandum for service charge. (c)Bank credit memorandum for collecting from customer an electronic funds transfer. (d)Deposit in transit.

a) deducted from cash balance per bank b) deducted from cash balance per book c) added to cash balance per book d) added to cash balance per bank

Tott Company has the following internal control procedures over cash disbursements.Identify the internal control principle that is applicable to each procedure. (a)Company checks are prenumbered. (b)The bank statement is reconciled monthly by an internal auditor. (c)Blank checks are stored in a safe in the treasurer's office. (d)Only the treasurer or assistant treasurer may sign checks. (e)Check-signers are not allowed to record cash disbursement transactions.

a) documentation procedure b) independent internal verification c) physical control d) establishment of responsibility e) segregation of duties

Match each situation with the fraud triangle factor (opportunity, financial pressure, or rationalization) that best describes it. (a)An employee's monthly credit card payments are nearly 75% of their monthly earnings.Select the fraud triangle factor Financial PressureOpportunityRationalization (b)An employee earns minimum wage at a firm that has reported record earnings for each of the last five years.Select the fraud triangle factor Financial PressureOpportunityRationalization (c)An employee has an expensive gambling habit.Select the fraud triangle factor RationalizationOpportunityFinancial Pressure (d)An employee has check-writing and -signing responsibilities for a small company, and is also responsible for reconciling the bank account.

a) financial pressure b)rationalization c)financial pressure d)opportunity

The internal control procedures in Dayton Company result in the following provisions.Identify the principles of internal control that are being followed in each case. (a)Employees who have physical custody of assets do not have access to the accounting records.Select the principle of internal control Documentation proceduresIndependent internal verificationHuman resource controlsEstablishment of responsibilitySegregation of dutiesPhysical controls (b)Each month, the assets on hand are compared to the accounting records by an internal auditor.Select the principle of internal control Human resource controlsDocumentation proceduresSegregation of dutiesIndependent internal verificationEstablishment of responsibilityPhysical controls (c)A prenumbered shipping document is prepared for each shipment of goods to customers.

a) segregation of duties b) Independent internal verification c) documentation procedures

A check written by the company for $138 is incorrectly recorded by a company as $183. On the bank reconciliation, the $45 error should be

added to the balance per books.

An assumption about cost flow is used

because prices usually change, and tracking which units have been sold is difficult.

Net income will result if gross profit exceeds

operating expenses

The entry to record a sale of $2800 with terms of 2/12, n/30 will include a

credit to Sales Revenue for $2800.

Related selling activities do not include

ordering the merchandise.

You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to

debit Allowance for Doubtful Accounts and credit Accounts Receivable.

The entry to record the return of goods from a customer would include a

debit to Sales Returns and Allowances.

On a bank statement, paid checks are shown as

debits.

The primary difference between a periodic and perpetual inventory system is that a periodic system

determines the inventory on hand only at the end of the accounting period

In a perpetual inventory system, cost of goods sold is recorded

each time a sale occurs

A decline in a company's gross profit could be caused by all of the following except

paying lower prices to its suppliers.

Control over cash disbursements is generally more effective when

payments are made by check.

Internal auditors

evaluate the system of internal controls for the companies that employ them.

The term "FOB" denotes

free on board.

Each of the following is a feature of internal control except

generic design of documents.

All of the following requirements about internal controls were enacted under the Sarbanes Oxley Act except

independent outside auditors must eliminate redundant internal controls.

An advantage of the single-step income statement over the multiple-step form is

its simplicity.

Goods held on consignment are

never owned by the consignee.

Gross profit does not appear

on a single-step income statement.

Under a perpetual inventory system, acquisition of merchandise for resale is debited to

the Inventory account.

The selection of an appropriate inventory cost flow assumption for an individual company is made by

the SEC.

The LIFO inventory method assumes that the cost of the latest units purchased is

the first to be allocated to cost of goods sold.

If goods in transit are shipped FOB destination

the seller has legal title to the goods until they are delivered