Acg 2 p3

Which one of the following statements is correct? - A company which uses a perpetual inventory system does not record any journal entries when it sells merchandise. - A company which uses a perpetual inventory system needs only one journal entry when it sells merchandise. - A company which uses a perpetual inventory system debits inventory and credits cost of goods sold when it sells merchandise. - A company which uses a perpetual inventory system needs two journal entries when it sells merchandise.

- A company which uses a perpetual inventory system needs two journal entries when it sells merchandise.

Parrish Company has the following inventory units and costs: Units Unit Cost Inventory, Jan. 1 7,000 $11 Purchase, June 19 10,000 12 Purchase, Nov. 8 4,000 13 If 8,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO using a periodic inventory system?

100000 [FIFO periodic ending inventory] Ending inventory under FIFO uses the most recent costs of inventory to compute ending inventory. Ending inventory = (4,000 x $13) + (4,000 x $12) = $100,000.

Net sales are $2,400,000, cost of goods sold is $1,260,000, and average inventory is $40,000. How many days' sales are in inventory?

11.6 Days' sales in inventory is calculated as 365 days divided by inventory turnover. Inventory turnover = $1,260,000/$40,000 = 31.5 times Days' sales in inventory = 365/31.5 = 11.6 days

Net credit sales are $800,000, average inventory totals $50,000, average net receivables total $40,000, and the allowance for doubtful accounts totals $4,000. How much is the average collection period (also known as the days in receivable ratio)?

18.25 days There are two steps: The accounts receivable turnover is net credit sales divided by average net accounts receivable = $800,000/$40,000 = 20 times The average collection period is 365 divided by the accounts receivable turnover ratio = 365/20.0 = 18.25 days.

Oak Company uses the percentage-of-receivables method for recording bad debts expense. The accounts receivable balance is $80,000 at year-end. The total credit sales were $2,500,000 for the year. Management estimates that 3.5% of receivables will be uncollectible. What adjusting entry should be made if the Allowance for Doubtful Accounts has a debit balance of $100 before the year-end adjusting entry for Bad Debt Expense?

Bad Debts Expense 2,900 Allowance for Doubtful Accounts 2,900

Good Stuff Retailers accepted $60,000 of Wells Fargo Visa credit card charges for merchandise sold on July 1. Wells Fargo charges 4% for its credit card use. What should Good Stuff Retailers debit as a result of this transaction?

Cash for $57,600 and Service Charge Expense for $2,400 The entry includes a credit to Sales for $60,000, a $57,600 debit to Cash, and a debit to Service Charge Expense for $2,400. Chapter 8, Learning objective 9: Describe methods to accelerate the receipt of cash from receivables.

Net credit sales for the month are $5,000,000 for Karl Clothiers. Its accounts receivable balance is $180,000. The allowance is calculated as 8.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $6,000 before adjustment. How much is the balance of the allowance account after adjustment? - Credit balance of $6,000 - Debit balance of $15,300 - Credit balance of $15,300 - Debit balance of $9,300 - Credit balance of $9,300

Credit balance of $15,300 . The ending balance required in the allowance account (i.e., Allowance for Doubtful Accounts) needs to be a credit balance equal to 8.5% times $180,000, or $15,300

When an uncollectible account is recovered after it has been written off, which of the following journal entries will be recorded first? - Debit Account Receivable and credit Bad Debt Expense - Debit Allowance for Doubtful Accounts and credit Accounts Receivable - Debit Cash and credit Accounts Receivable - Debit Accounts Receivable and credit Allowance for Doubtful Accounts - Debit Cash and credit Allowance for Doubtful Accounts

Debit Accounts Receivable and credit Allowance for Doubtful Accounts

Baker Co. loaned $30,000 to Idaho Co. on May 1, at 10% interest for 3 months. What adjusting entry should Baker Co. record on June 30 before preparing the financial statements on June 30? - Debit Interest Expense for $250 and credit Interest Payable for $250 - Debit Cash for $30,000 and credit Interest Revenue for $30,000 - Debit Interest Expense for $750 and credit Interest Payable for $750 - Debit Interest Receivable for $500 and credit Interest Revenue for $500 - Debit Interest Receivable for $250 and credit Interest Revenue for $250

Debit Interest Receivable for $500 and credit Interest Revenue for $500

If a company collects from a customer after the customer's account has been written off as uncollectible, the company is said to recover the uncollectible account. When a company uses accrual basis accounting and it recovers an uncollectible accounts the recovery - requires the company retroactively restate its prior period's income at a lower amount than originally reported. - will increase the company's total assets in the period it is collected. - requires the company retroactively restate its prior period's income at a lower amount than originally reported. - will decrease the company's total assets in the period it is collected. - does not affect the company's total assets in the period it is collected.

Does not affect the company's total assets in the period it is collected

Which of the following would not be classified as an operating expense on a multi-step income statement? - Advertising expense - Insurance expense - Income tax expense - Salaries and wages expense - Freight-out

Income tax expense

In a period of falling prices, which of the following methods will give the largest net income? - Average-cost - Specific identification - LIFO - FIFO - All of these produce the same net income

LIFO The largest net income occurs with the smallest cost of goods sold. In periods with falling prices (i.e., deflation), low cost of goods sold occurs when the last units of inventory purchased are the ones assumed sold. LIFO will provide the highest net income during a period of falling prices. FIFO will not provide the highest net income during a period of falling prices. Specific identification costing will vary depending on which units are sold. Average costing will produce a net income between LIFO and FIFO.

Reporting which one of the following allows analysts to make adjustments to compare companies using different cost flow methods? - LIFO reserve - Periodic inventory - Inventory turnover ratio - Current replacement cost - FIFO reconciliation

LIFO Reserve When LIFO inventory valuation is used, the disclosure of LIFO Reserve allows comparisons of companies using LIFO and FIFO. There is no FIFO reserve; there is only a LIFO reserve. Inventory turnover will not provide valuation differences for inventory methods. Current replacement costs may assist in lower-of-cost-or-market decisions but they are not financial statement values.

With the assumption of costs and prices generally rising, which of the following is correct? - Specific identification method provides the closest cost of goods sold to replacement cost on the income statement. - LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold. - LIFO provides the closest valuation of inventory on the balance sheet to replacement cost. - FIFO provides the closest cost of goods sold to replacement cost.

LIFO provides the closest valuation of cost of goods sold to replacement cost of inventory sold

Which is true if the ending inventory is overstated? - Net income will be understated and the stockholders' equity will be overstated. - Net income will be overstated and the stockholders' equity will be understated. - Net income will be understated and the stockholders' equity will be understated. - Net income will be overstated and the stockholders' equity will be overstated

Net income will be overstated and the stockholders' equity will be overstated

A company has the following accounts balances: Sales revenue $2,000,000; Sales Returns and Allowances $250,000; Sales Discounts $50,000; Cost of Goods Sold $1,275,000; and Net income $153,000. How much is the gross profit rate? 25% 46.7% 51% 36% 64%

Net sales = Sales revenue - sales returns and allowances - sales discounts Net sales = 2,000,000 - 250,000 - 50,000 = 1,700,000 Gross profit = Net sales - cost of goods sold Gross profit = 1,700,000 - 1,275,000 = 425,000 Gross profit divided by net sales equals the gross profit rate. Gross profit rate = 425,000/1,700,000 = 25%

A decline in a company's gross profit could be caused by all of the following except - clearance of discontinued inventory. - increasing competition resulting in a lower selling price. - paying lower prices to its suppliers. - selling products with a lower markup

Paying lower prices to its suppliers

A company has the following balances: Sales revenue $312,000; Sales Returns and Allowances $2,000; Sales Discounts $4,000; Cost of Goods Sold $184,000; Operating Expenses $79,000; Other expenses $5,000. How much is the profit margin? 20% 12.4% 16.0% 41.0% 34.6%

Profit margin = Net income divided by net sales Net sales = Sales revenue minus sales returns and allowances minus sales discounts Net sales = 312,000 - 2,000 - 4,000 = 306,000 Net income = Net sales - cost of goods sold - operating expenses - other expenses Net income = 306,000 - 184,000 - 79,000 - 5,000 = 38,000 Profit margin = Net income divided by net sales Profit margin = 38,000/306,000 = 12.4%.

Edward Corporation had net credit sales during the year of $400,000 and cost of goods sold of $150,000. The net accounts receivable at the beginning of the year was $60,000 and at the end of the year was $70,000. The balance of total assets at the beginning of the year was $1,200,000 and at the end of the year was $1,300,000. How much is the accounts receivables turnover?

The accounts receivable turnover ratio measures the liquidity of receivables. This ratio measures the number of times a company collects its net accounts receivable average balance. The accounts receivables turnover is computed by dividing net credit sales by average net accounts receivable. Accounts receivable turnover = $400,000/[($60,000 + $70,000)/2] = 6.15. The company's average accounts receivable for the year is $65,000. Its net credit sales are 6.15 times its average balance suggesting the company collected the equivalent of its average accounts receivable 6.15 times during the year.

Which of the following is an inventory account? - Accounts receivable - Accounts payable - Work in process - Equipment - All of these are inventory accounts

Work in progress

If a company uses the allowance method for uncollectible accounts, then the entry to record writing-off a customer's $800 account includes - a debit to Allowance for Doubtful Accounts for $800 and a credit to Accounts Receivable for $800. - a debit to Bad Debts Expense for $800 and a credit to Allowance for Doubtful Accounts for $800. - a debit to Bad Debts Expense for $800 and a credit to Accounts Receivable for $800. - a debit to Accounts Receivable for $800 and a credit to Bad Debts Expense for $800. - a debit to Accounts Receivable for $800 and a credit to Allowance for Doubtful Accounts for $800.

a debit to Allowance for Doubtful Accounts for $800 and a credit to Accounts Receivable for $800

When the allowance method for uncollectible accounts is used, a company records Bad Debt Expense when - a customer's account receivable becomes past due. - a sale on account is recorded. - adjusting entries are recorded. - a previously written-off account receivable is recorded. - an account becomes uncollectible and it is written off.

adjusting entries are recorded