Accounting Midterm 2

Deposits in transit a. have been recorded on the company's books but not yet by the bank. b. have been recorded by the bank but not yet by the company. c. have not been recorded by the bank or the company. d. are customers' checks that have not yet been received by the company.

a

Net credit sales for the month are $900,000. The accounts receivable balance is $192,000. The allowance is calculated as 5% of the receivables balance using the percentage-of-receivables basis. If the Allowance for Doubtful Accounts has a credit balance of $6,000 before adjustment, what is the balance after adjustment? a. $ 9,600 b. $ 3,600 c. $15,600 d. $ 9,900 Solution: $192,000 ´ .05 = $9,600 (A/R bal. × 5%)

a

Sassy Saxophones has the following inventory data: July 1 Beginning inventory 50 units at $120 5 Purchases 300 units at $112 14 Sale 200 units 21 Purchases 150 units at $115 30 Sale 140 units Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a LIFO basis? a.$18,320 b.$18,370 c.$38,480 d.$38,530

a

The following information is related to December 31, 2021 balances. · Accounts receivable $1,400,000 · Allowance for doubtful accounts (credit) (120,000) · Cash realizable value 1,280,000 During 2022, sales on account were $390,000 and collections on account were $230,000. The company wrote off $22,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year-end indicated that bad debts should be estimated at $144,000. Bad debt expense for 2022 is: a. $46,000. b. $24,000. c. $144,000. d. $ 2,000. Solution: $144,000 - ($120,000 - $22,000) = $46,000 (Est. bad debit - (ADA bal. - accts. writ. off)

a

Which statement is incorrect? a. Periodic inventory systems provide better control over inventories than perpetual inventory systems. b.Computers and electronic scanners allow more companies to use a perpetual inventory system. c.Freight-in is debited to Inventory when a perpetual inventory system is used. d.Regardless of the inventory system that is used, companies should take a physical inventory count

a

a purchaser using a perpetual inventory system pays the transportation costs for goods purchased, then the a.Inventory account is increased. b.Inventory account is not affected. c.Freight-Out account is increased. d.Delivery Expense account is increased

a

he situation that requires a departure from the cost basis of accounting to the lower-of-cost-or-net-realizable-value basis in valuing inventory is necessitated by a. a decline in the value of the inventory. b. an increase in selling price. c. an increase in the value of the inventory. d. a desire for more profit

a

An aging of a company's accounts receivable indicates that $9,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $3,200 debit balance, the adjustment to record bad debts for the period will require a a. debit to Bad Debt Expense for $9,000. b. debit to Bad Debt Expense for $12,200. c. debit to Bad Debt Expense for $5,800. d. credit to Allowance for Doubtful Accounts for $9,000. Solution: $9,000 + $3,200 = $12,200 (Est. Uncolls. accts. + ADA bal.)

b

Financial information is presented below: Operating expenses $ 28,000 Sales returns and allowances 7,000 Sales discounts 3,000 Sales revenue 150,000 Cost of goods sold 98,000 Gross profit would be a.$49,000. b.$42,000. c.$45,000. d.$52,000.

b

Freight costs incurred by a seller on merchandise sold to customers will cause an increase a. in the selling expenses of the buyer. b. in operating expenses for the seller. c. to the cost of goods sold of the seller. d.to a contra-revenue account of the seller

b

In periods of inflation, phantom or paper profits may be reported as a result of using the a. perpetual inventory method. b. FIFO costing assumption. c. LIFO costing assumption. d. periodic inventory method

b

James Company had checks outstanding totaling $32,400 on its June bank reconciliation. In July, James Company issued checks totaling $233,400. The July bank statement shows that $157,800 in checks cleared the bank in July. A check from one of James Company's customers in the amount of $1,800 was also returned marked "NSF." The amount of outstanding checks on James Company's July bank reconciliation should be a. $75,600. b. $108,000. c. $106,200. d. $43,200.

b

Pop-up Party Favors Inc. has the following inventory data: July 1 Beginning inventory 30 units at $19 $ 570 7 Purchases 105 units at $20 2,100 22 Purchases 15 units at $22 330 $3,000 A physical count of merchandise inventory on July 30 reveals that there are 48 units on hand. Using the FIFO inventory method, the amount allocated to ending inventory for July is a.$930. b.$990. c.$960. d.$1,056.

b

The following information was available for Bowyer Company at December 31, 2022: beginning inventory $90,000; ending inventory $70,000; cost of goods sold $800,000; and sales $1,100,000. Bowyer's inventory turnover in 2022 was a. 13.8 times. b. 10.0 times. c. 11.4 times. d. 8.9 times.

b

Thompson Corporation's unadjusted trial balance includes the following balances (assume normal balances): · Accounts receivable $1,865,000 · Allowance for doubtful accounts $ 35,500 Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debt expense will the company record? a. $119,400 b. $76,400 c. $74,270 d. $114,030 Solution: ($1,865,000 ´ .06) - $35,500 = $76,400 (A/R bal. × 6%) - ADA bal.)

b

When the allowance method of accounting for uncollectible accounts is used, Bad Debt Expense is recorded a. in the year after the credit sale is made. b. in the same year as the credit sale. c. as each credit sale is made. d. when an account is written off as uncollectible.

b

Which of the following bank reconciliation items would not result in an adjusting entry? a. Service charge. b. Deposits in transit. c. NSF check of a customer. d. Collection of a note by the bank.

b

Which of the following is a true statement about inventory systems? a. Periodic inventory systems require more detailed inventory records. b. Perpetual inventory systems require more detailed inventory records. c. A periodic system requires cost of goods sold be determined after each sale. d. A perpetual system determines cost of goods sold only at the end of the accounting period

b

Which one of the following is not an objective of a system of internal controls? a. Safeguard company assets. b. Overstate liabilities in order to be conservative. c. Enhance the accuracy and reliability of accounting records. d. Reduce the risks of errors. Chapter 7

b

Whitman Corporation sells six different products. The following information is available on December 31: When applying the lower-of-cost-or-net-realizable-value rule to each item, what will Whitman's total ending inventory balance be? a. $346,000 b. $332,400 c. $333,100 d. $332,800

b

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 a. debit Allowance for Doubtful Accounts and credit Bad Debt Expense. b. debit Allowance for Doubtful Accounts and credit Accounts Receivable. c. debit Bad Debt Expense and credit Allowance for Doubtful Accounts. d. debit Bad Debt Expense and credit Accounts Receivable.

b

periods of rising prices, which is an advantage of using the LIFO inventory costing method? a.Ending inventory will include latest (most recent) costs and thus be more realistic. b.Cost of goods sold will include the latest (most recent) costs and thus will be more realistic. c.Net income will be the highest and thus reflect the prosperity of the company. d.Phantom profits are reported.

b

1. Karlin Company gathered the following reconciling information in preparing its April bank reconciliation: Cash balance per books, 4/30 $17,600 Deposits in transit 2,400 Notes receivable and interest collected by bank 5,920 Bank charge for check printing 200 Outstanding checks 12,000 NSF check 1,120 The adjusted cash balance per books on April 30 is a. $24,600. b. $23,520. c. $22,200. d. $24,440.

c

A bank reconciliation should be prepared a. whenever the bank is evaluating a firm's request for loans. b. when an employee is suspected of fraud. c. to explain any difference between the depositor's balance per his/its books with the balance per bank. d. by the person who is authorized to sign checks.

c

Andrea's Fashions sold merchandise for $190,000 cash during the month of July. Returns that month totaled $4,000. If the company's gross profit rate is 40%, Andrea's will report monthly net sales revenue and cost of goods sold of a.$190,000 and $114,000. b.$186,000 and $74,400. c.$186,000 and $111,600. d.$190,000 and $111,600.

c

Bad Debt Expense is reported on the income statement as a. part of cost of goods sold. b. an expense subtracted from net sales to determine gross profit. c. an operating expense. d.a contra revenue account

c

Davies Company purchased merchandise inventory with an invoice price of $15,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Davies Company pays within the discount period? a.$15,000 b.$14,760 c.$14,700 d.$12,000

c

Dole Industries had the following inventory transactions occur during 2022: Units Cost/unit Feb. 1, 2022 Purchase 90 $90 Mar. 14, 2022 Purchase 155 $94 May 1, 2022 Purchase 110 $98 The company sold 255 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, what is the company's gross profit using FIFO? (rounded to whole dollars) a.$24,410 b.$23,650 c.$8,480 d.$7,720

c

Erin Corporation purchases $500 of merchandise on credit. Using the periodic inventory approach, Erin would record this transaction as: a. Inventory 500 Accounts Payable 500 b.Accounts Payable 500 Purchases 500 c.Purchases 500 Accounts Payable 500 d.Accounts Payable 500 Inventory 500

c

If employees are bonded a. it means that they are not allowed to handle cash. b. they have worked for the company for at least 10 years. c. they have been insured against misappropriation of assets. d. it is impossible for them to steal from the company.

c

In the month of November, Gavin Company Inc. wrote checks in the amount of $46,250. In December, checks in the amount of $63,290 were written. In November, $42,340 of these checks were presented to the bank for payment and $54,415 in December. What is the amount of outstanding checks at the end of December? a. $8,875. b. $3,910. c. $12,785. d. $17,750.

c

Jenks Company developed the following information about its inventories in applying the lower-of-cost-or-net-realizable-value(LCNRV) basis in valuing inventories: Product Cost NRV A $114,000 $120,000 B 80,000 76,000 C 160,000 162,000 After Jenks applies the LCNRV rule, the value of the inventory reported on the balance sheet would be a. $354,000. b. $358,000. c. $350,000. d. $362,000.

c

Kinsler Company uses the percentage-of-receivables method for recording bad debt expense. The Accounts Receivable balance is $250,000 and credit sales are $1,000,000. Management estimates that 6% of accounts receivable will be uncollectible. What adjusting entry will Kinsler Company make if the Allowance for Doubtful Accounts has a credit balance of $2,500 before adjustment? a. Bad Debt Expense 17,500 Allowance for Doubtful Accounts 17,500 b. Bad Debt Expense 5,000 Allowance for Doubtful Accounts 5,000 c. Bad Debt Expense 12,500 Allowance for Doubtful Accounts 12,500 d. Bad Debt Expense 10,000 Accounts Receivable 10,000

c

On September 14, 2022, Sampson Company sells merchandise valued at $24,000 on account to Pacifica Inc. with terms 3/10, n/30. Both Sampson and Pacifica use the periodic inventory system. Pacifica remits payment to Sampson on September 23. Sampson's entry on that date is: a. Cash 23,280 Sales Discounts 720 Accounts Payable 24,000 b. Accounts Receivable 24,000 Cash 23,680 Purchase Discounts 320 c. Cash 23,280 Sales Discounts 720 Accounts Receivable 24,000 d. Cash 23,280 Sales Discounts 720 Accounts Payable 24,000

c

Trumpeting Trumpets has the following inventory data: July 1 Beginning inventory 50 units at $120 5 Purchases 300 units at $112 14 Sale 200 units 21 Purchases 150 units at $115 30 Sale 140 units Assuming that a periodic inventory system is used, what is the cost of goods sold on a FIFO basis? a. $18,320 b. $18,370 c. $38,480 d. $38,530

c

Under the allowance method, Bad Debt Expense is recorded a. when an individual account is written off. b. when the loss amount is known. c. for an amount that the company estimates it will not collect. d. several times during the accounting period.

c

Which of the following accounts is classified as a contra revenue account? a.Purchase Returns and Allowance b.Cost of Goods Sold c.Sales Returns and Allowances d.Purchase Discounts

c

Allowance for Doubtful Accounts on the balance sheet a. is offset against total current assets. b. increases the cash realizable value of accounts receivable. c. appears under the heading "Other Assets." d. is deducted from accounts receivable.

d

An assumption about cost flow is used a. because it is required by the income tax regulation. b. because it matches the physical flows of inventory items. c. because d. because prices usually change, and tracking which units have been sold is difficult.

d

At April 30, Mendoza Company has the following bank information: Cash balance per bank $3,600 Outstanding checks $280 Deposits in transit $550 Credit memo for interest $10 Bank service charge $20 What is Mendoza's adjusted cash balance on April 30? a. $3,860. b. $3,880. c. $3,330. d. $3,870.

d

Financial information is presented below: Operating expenses $ 45,000 Sales returns and allowances 3,000 Sales discounts 7,000 Sales revenue 160,000 Cost of goods sold 96,000 The profit margin (or operating margin ratio) would be a. .360. b. .056. c. .120. d. .060. Note: operating income/net sales (150k), do NOT use gross revenue!

d

Ron Jones has been a trusted employee for over 10 years. He is responsible for ordering merchandise inventory, receiving the inventory items, and authorizing the payment for these items. Which internal control principle, if any, is being violated? a. None, Ron has proven to be trustworthy and has enough experience to do a good job. b. Documentation procedures. c. Establishment of responsibilities. d. Segregation of duties.

d

Tony's Market recorded the following events involving a recent purchase of inventory: Received goods for $80,000, terms 2/10, n/30. Returned $1,600 of the shipment for credit. Paid $400 freight on the shipment to the third-party shipping firm Paid the invoice within the discount period. As a result of these events, the company's inventory a.increased by $76,832. b.increased by $78,800. c.increased by $77,224. d.increased by $77,232. Note: $400 is not in the $80k contract, 400+ 0.98*(80,000-1,600).

d