ACCT 2113 Exam 2 (SmartBook)

Perpetual inventory system

Peter Company recognizes cost of goods sold each time it recognizes a sale.

The journal entry to record bad debt expense includes:

debit to bad debt expense credit to allowance for uncollectible accounts

Ronald Corporation purchases inventory with terms FOB destination. The shipping costs are $300. The shipping costs are

paid by the supplier

The estimated selling price of inventory less costs necessary to sell the inventory is referred to as net ----- -----

realizable vaule

Accounts receivable are typically classified as current assets because

they will be converted to cash within 1 year.

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, cost of goods sold will be

$1760

Accounts receivable are normally classified

Assets on the balance sheet

Net revenues is calculated as total revenues minus which of the following items?

Sales allowances Sales Returns Sales discounts

York Inc. records a year-end adjustment for estimated sales returns and allowances. As a result of this entry, York's financial statements will change as follows:

assets decrease SE decrease

True or false: The inventory cost flow assumption must match the physical flow of inventory units.

false

In a LIFO inventory system, inventory costs shown in the balance sheet may be distorted because they may represent costs

incurred several years eariler

Which of the following items are readily available from an inventory account under the perpetual inventory system?

individual purchases beginning inventory balance ending inventory balance cost of units sold

Freight-in on inventory purchases is typically recognized as

part of the cost of purchasing inventory.

Freight-out

recognized as operating expense

The primary benefit of LIFO is:

tax savings

The LIFO inventory method assumes that the units sold are

the most recent units purchased

Periodic inventory system

Sherman Company recognizes cost of goods sold after completing a physical inventory.

In a perpetual inventory system, when a company sells inventory on account, how many entries are required?

Two

The account "Allowance for Uncollectible Accounts" is classified as

a contra asset to accounts receivable

Bottom, Inc. paid an invoice for $1,000, with discount terms of 1/7, n/30, within the discount period. The net amount paid was:

$990

Planters Corp. wrote off a customer's uncollectible account in April. In the following month, Planters collected from the customer in full. The entry to reinstate the account would require a

credit to allowance for uncollectible accounts

Under the allowance method, companies estimate _____ uncollectible amounts and report those estimates in the _____ year.

future, current

The FIFO method assumes that units sold are the ----- units are acquired

oldest

Tudor Corp. has an ending balance in the accounts receivable account of $20,000. Tudor recorded bad debt expense of $1,000. Tudor has an ending balance in the allowance for uncollectible accounts of $2,000. What is the net accounts receivable balance?

$18,000

The list price in Boyton's catalog indicates that Product A sells for $3,000, with a trade discount of 5%. Boyton sells the goods to a customer who qualifies for the trade discount. At what amount should Boyton record the sale and related account receivable?

$2,850

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, the cost of ending inventory will be what?

$640

Clark uses the perpetual inventory system. Clark sells goods to a customer on account for $1,000. The cost of the goods sold was $700. Which of the following entries are required?

Debit Accounts Receivable $1,000; credit Sales Revenue $1,000 Debit Cost of Goods Sold $700; credit Inventory $700

Clover Corporation uses the perpetual inventory system. When Clover purchases inventory on account, the entry will include which of the following?

Debit Inventory

The allowance method is required by

GAAP

Assuming that prices rise over time, which inventory cost flow assumption will result in the lowest ending inventory?

LIFO

Choice, Provides better matching of current revenues with current inventory cost Provides better matching of current revenues with current inventory cost

LIFO

When prices increase, the ----- inventory method provides the best matching of revenue and expenses.

LIFO

Which inventory cost flow method most realistically matches the current cost of inventory with the current revenue it produces?

LIFO

the ----- cost flow assumption more realistically matches the current cost of inventory with current sales revenue.

LIFO

The financial statement effects of recording an allowance for estimated sales returns are that:

SE decreases net income decreases assets decrease

The weighted average cost method assumes that ending inventory consists of

a mixture of all the goods available for sale

A trade discount is

a percentage reduction from list price.

An ---- ----- is the legal right to receive cash from a credit sale and represents an asset of the company.

accounts receivable

The allowance for uncollectible accounts is a contra account to

accounts receivable

The amount of cash owed to a company by its customers from the sale of goods or services is referred to as

accounts receivable

The approach that considers the age of various accounts receivables to estimate uncollectible accounts is referred to as the ---- method of accounts receivable.

aging

A partial adjustment to the amount owed by the customer for goods that were not returned, but did not fully meet the customer's expectations is referred to as a sales

allowance

A sales return occurs when a customer returns a product for a full refund, whereas a sales ----- is when the customer keeps the product and obtains a partial refund.

allowance

To record an estimate for future bad debts at the end of the period, an adjustment would be made with a credit to

allowance for uncollected accounts

A company that expects that some of its customers will not pay the agreed upon sales price must utilize the

allowance method

Amend Inc. debited Accounts Receivable and credited Allowance for Uncollectible Accounts to reestablish an account previously written off. Amend Inc. should also debit _______ and credit _______.

cash accounts receivable

Ophelia Inc. just learned that Patton Inc., one of its customers with an outstanding accounts receivable balance, filed for bankruptcy. Assuming that the company utilizes the allowance method, Ophelia should record a(n):

decrease in accounts receivable

The purchase discount term, 2/10, n/30, means that the purchaser ______.

has 10 days from the purchase date in which to pay and receive a 2% discount

When the allowance method is used, the write-off of an uncollectible account:

has no effect on net income

Freight-in is

included as a cost of inventory.

Norma Inc. uses the perpetual inventory system. When the company records a sale, it should make entries to:

increase an asset and increase revenue decrease an asset and increase an expense

Items held for sale in the normal course of business are referred to as ----

inventory

Items held for sale in the normal course of business are referred to as -----

inventory

Pixie Inc. writes off a specific accounts receivable. If Pixie is using the allowance method, the write off will _____ net income.

not affect

The LIFO inventory method assumes that the units that remain in ending inventory are

the oldest units in inventory

The lower of cost and net realizable value method causes losses in the value of inventory to be recognized in the period when

the value declines below cost.

Margot Inc, which uses the perpetual inventory system, purchases 500 units of inventory to be held for resale. Margot should debit the purchase to:

Inventory

With the allowance method, bad debt expense is recorded

at the end of the period when bad debts are estimated

When an account previously written off is collected in full, the entry to reverse the previous write-off would require which of the following?

debit to accounts receivable credits to allowance for uncollectible accounts

Peter Company, a produce distributer, always tries to sell its oldest produce first. Peter company

is allowed to use the FIFO, LIFO, or Weighted-average cost flow assumptions.

Under the inventory system, the inventory account reflects purchases during the year, as well as cost of units sold.

perpetual

Warner Corp. sells goods on account for $10,000 on April 2. On April 20, the customer returns $3,000 of the merchandise. The customer has not yet paid for any of the goods. What is the entry Warner will make on April 20 when the goods are returned?

Debit Sales Returns; credit Accounts Receivable.

The amount reported on the balance sheet approximates current cost of inventory.

FIFO

Because prices change over time, costs reported for these accounts tend to differ among inventory cost methods.

Cost of goods sold Inventory

Which of the following contributes to the importance of properly determining the cost of inventory and the cost of goods sold?

Cost of goods sold may be the largest expense on some companies' income statement Inventory may be the largest asset on some companies' balance sheets

Joyce Corp. uses the percentage-of-receivables method to account for bad debt expense. Joyce determines that a customer account of $20,000 should be written off as uncollectible. The write off of the account will include which of the following entries?

Debit to allowance for uncollectible accounts Credit to accounts receivable

Vogel Company maintains its inventory records using the FIFO assumption, but reports its inventory consistent with LIFO. At the end of the year, Vogel converts its inventory balance from FIFO to LIFO by using the

LIFO adjustment

Which of the following are classified as receivables?

Loans by a company to other entities Interest due from loans to customers

The definition of inventory includes which of the following items?

Materials used currently in the production of goods to be sold Items currently in production for future sale Items held for resale

The percentage-of-receivables approach to measuring bad debt expense is referred to as _____ method.

balance sheet

Compared to other methods of estimating uncollectible accounts, the aging of accounts receivables method tends to

be more accurate

In times of rising prices, cost of goods sold determined using the LIFO inventory assumption typically will be ----- than cost of goods sold determined using the FIFO inventory assumption.

higher

Inventory not yet sold is classified as a(n) ------- in the ------ ----- .

asset, balance sheet

Using the perpetual inventory system, what is the effect of a sale of inventory on assets?

assets decrease by the cost of the inventory assets increase by the sales price of the inventory

Purchasing inventory on account:

assets increase assets liabilities

Two entries are required when a previously written off account is collected. These two entries include:

record the collection on the account receivable reinstate the account receivable

A periodic inventory system measures cost of goods sold by

counting inventory at the end of a period

The account "Allowance for Uncollectible Accounts" normally has a ----- balance

credit

The ______ method of valuing inventory was developed to avoid reporting inventory at an amount that is ______ than the benefits it can provide.

lower of cost and net realizable value greater

The estimated selling price of inventory less any costs of completion, disposal, and transportation is referred to as:

net realizable vaule

The FIFO inventory method assumes that units remaining in ending inventory are the ------ units purchased.

newest

Receivables not expected to be collected should

should not be counted in the assets of the company

Balance sheet approach

FIFO

An account receivable is normally classified as

an asset

Allowance for Uncollectible Accounts has a credit balance because it is a(n) _____ account.

contra asset

Sales Returns and Sales Allowances are ---- ---- accounts and require a debit entry to increase the account.

contra-revenue

Gwendolyn uses the allowance method to account for uncollectible receivables. Gwendolyn should record _____ bad debt expense ______.

estimated, at the end of the year

When inventory is sold, the cost of inventory is recognized as a(n)

expense

The shipping term FOB stands for

free on board

Most closely approximates the actual physical flow of inventory

FIFO

The ---- inventory cost flow assumption typically approximates the actual physical flow of inventory items of most companies.

FIFO

inventory is classified as

a current asset

The allowance method estimates

uncollectible accounts

Bern Company has 100 units costing $200 in beginning inventory. During the year, the company purchases 900 additional units for $1,980. At the end of the year, 200 units remain unsold. If Bern Company utilizes the LIFO method, ending inventory will be

$420

Palmer Company's beginning inventory consists of 1,000 units at $1.00 per unit. During the year, the company purchases 5,000 units costing a total of $5,800. At the end of the accounting period, Palmer still has 1,000 units on hand. If Palmer uses the weighted average cost method, its cost of goods sold (rounded to the nearest dollar) will be

$5667

Prime Corp. has an ending balance in the accounts receivable account of $100,000. Prime recorded bad debt expense of $3,000. Prime has an ending balance in the allowance for uncollectible accounts of $7,000. What is the net accounts receivable balance?

$93,000

Pine Corporation provides $1,000 of services on account with terms 2/10, n/30. If the customer takes the discount and pays within 10 days, Pine will receive

$980

The percentage-of-receivables method of estimating bad debt applies ____ to _____.

a single percentage accounts receivable

Which of the following items are classified as receivables?

Amounts loaned and expected to be repaid Tax refund claims Amounts owed by customers

When an account previously written off is collected in full, which is required to ensure the accounting for the complete payment history of the customer?

An entry to reinstate the account receivable and an entry to record payment.

The Sales Returns and Sales Allowances accounts are classified as

Contra revenue account

When a business provides services to a customer, and the customer promises to pay later, this is referred to as

Credit Sales

Sales to customers in which the customers pay within 30 to 60 days are referred to as (Select all that apply.)

Credit Sales Sales on account

Adrian Corp. sells goods on account for $100,000 on May 1. On May 15, the customer returns $40,000 of the merchandise. The customer has not yet paid for any of the goods. What will Adrian record on May 15?

Credit to Accounts Receivable. Debit to Sales Returns.

Josh Corporation uses the perpetual inventory system. Josh sells goods to a customer on account for $2,000. The cost of goods sold is $1,500. What is the entry required to record the expense of the inventory sold?

Debit Cost of Goods Sold $1,500 credit Inventory $1,500

For internal record keeping, most companies carry their inventory using the _____ basis.

FIFO

A customer receives a partial refund of the sales price after the customer discovers a flaw in the merchandise. The customer keeps the merchandise.

Sales allowance

Which of the following is a discount in the amount to be paid if the customer pays within a specified time period?

Sales discount

A customer returns merchandise purchased during the month and receives a refund of the full sales price.

Sales return

When a customer returns a product for a refund, in which account is the entry recorded?

Sales return

A trade discount is recognized

by reducing the revenue amount recorded.

Catalina Bookstore pays freight on books shipped to its store. The shipping cost is debited to Inventory. When the books are sold, the freight costs pertaining to the books are included in:

cost of goods sold

If a company pays freight-in for its inventory, that amount will later be included in

cost of goods sold

Abby Fashions sells a suit to a customer for $600 on account. The day after the sale, the customer discovers that the jacket has a small stain on the back. Abby Fashions grants the customer a $60 credit. Abby Fashions will record:

credit to accounts receivable $60 debit to Sales Allowances $60

Where is inventory classified in the financial statements?

current asset on the balance sheet

A sales allowance ____ the amount owed by the customer for merchandise that is _____ by the customer.

decreases, retained

Gerald Corporation purchases inventory FOB shipping point. The shipping costs are $300. The shipping costs are

included in Gerald's inventory

Freight-in is recorded as part of ______, whereas freight out is often recorded as ______.

inventory selling expense

A cash discount representing a reduction in the amount to be paid by a credit customer if the customer pays within a specified period of time is also referred to as a(n) ----- discount

sales

The LIFO adjustment is used internally to convert the inventory

to the LIFO basis

Weighted-average unit cost is determined by dividing cost of goods available for sale by

total quantity available for sale

Adam Company has 100 units costing $300 in beginning inventory. During the year, the company purchases 900 units for a total cost of $2,880. At the end of the year, a physical count reveals that 200 units remain in ending inventory. If the company uses the FIFO method, cost of goods sold will be

$2,540

True or false: Determining inventory-related amounts is very important because for some companies cost of goods sold represents the largest expense on the income statement.

true

Bell provides $500 of services to customers on account with terms 3/10, n/30. The Service Revenue account is credited for $500. If the customer pays within 10 days, Bell will record which of the following?

Debit Sales Discount $15

Claire provides $100 of services to customers on account with terms 2/10, n/30. The Service Revenue account is credited for $100. If the customer pays within 10 days, Claire will record which of the following?

Debit Sales Discount $2 Debit Cash $98 Credit Accounts Receivable $100

Which inventory cost flow assumption is commonly used internally by companies that externally report under the LIFO cost flow assumption?

FIFO

Which inventory costing method assumes that the inventory's costs flow out in the same order the goods are received?

FIFO

A company makes a sale on terms 2/10, n/30. What does this mean?

If payment is not made in 10 days, the net amount is due in 30 days. The customer may take a 2% discount off the price if paid within 10 days.

Income statement approach

LIFO

The amount reported on the income statement approximately matches current cost with current revenue.

LIFO

The primary benefit for choosing this method is that it tends to save taxes.

LIFO

Which of the following methods are not used for inventory costing?

NIFO Simple-average

Total revenues less discounts, returns, and allowances are referred to as ---- revenues.

Net

When merchandise is returned for a refund or for credit to be applied to other purchases, the situation is called a(n)

Sales return

Which of the following methods are available for costing inventory?

Specific Identification FIFO Weighted-average LIFO

Freight-in

added to the cost of inventory

What is the effect of recording a sale of inventory under the perpetual inventory system on the financial statements? (Assume that the sales price is higher than the cost of inventory)

assets increase SE increase Net Income Increase

Meller purchases inventory on account. As a results, Meller's

assets will increase

The lower of cost and net realizable value method was developed to

avoid reporting inventory at an amount that exceeds the benefits it provides.

The cost of estimated accounts receivable that will not be collected is referred to as ---- ---- expense

bad debt

The estimated expense for accounts that may not be collected is referred to as

bad debt expense

Shannon Corp. uses the aging method to account for bad debt expense. Shannon determines that a customer account of $10,000 should be written off as uncollectible. The write off of the account will include

debit for allowance to accounts receivable

Kilroy Corporation provides services to a customer for $1,000. The customer complained that there was a slight defect in the service. Kilroy granted the customer a $50 credit. Kilroy will record this adjustment to the sales price with a

debit to Sales Allowances $50.

The Accounts Receivable account is reduced when the seller:

determines that a specific customer account will not be collectible

How is cost of goods sold classified in the financial statements?

expense on the income statement

In times of rising prices, ending inventory determined using the LIFO inventory assumption will be ------ than ending inventory determined using the FIFO inventory assumption.

lower

A trade discount is a reduction from the list price, which is used to:

give quantity discounts to customers change prices without publishing a new catalog disguise real prices from competitors

Berta Company's inventory value has declined during the current period. Berta does not expect to sell its inventory during the current year. Berta should recognize the loss in the period when the inventory

value declines

FOB destination means title to the goods passes

when they arrive at the destination.