Exam 2 Acct

Anton Co. uses the perpetual inventory system and FIFO cost flow method. During the year, Anton purchased 920 units of inventory that cost $7 each and then purchased an additional 990 units of inventory that cost $9 each. If Anton sells 1,350 units of inventory, what is the amount of cost of goods sold?

$10,310 Cost of goods sold = (920 × $7) + (430 × $9) = $10,310

Hancock Medical Supply Co., earned $85,000 of revenue on account during Year 1, its first year of operation. During Year 1, Hancock collected $67,600 of cash from its receivables accounts. The company did not write-off any uncollectible accounts. It estimates that it will be unable to collect 1% of revenue on account. What is the net realizable value of receivables that will be reported on the balance sheet at December 31, Year 1?

$16,550 Ending accounts receivable = Beginning accounts receivable of $0 + Revenue on account of $85,000 − Collections on account of $67,600 = $17,400Ending allowance for doubtful accounts = Beginning allowance for doubtful accounts of $0 + Uncollectible accounts expense of ($85,000 × 1%) − Write-offs of $0 = $850Net realizable value = Accounts receivable of $17,400 − Allowance for doubtful accounts of $850 = $16,55

Vargas Company uses the perpetual inventory system and the FIFO cost flow method. During the current year, Vargas purchased 1,300 units of inventory that cost $14 each. At a later date during the year, the company purchased an additional 1,700 units of inventory that cost $15 each. Vargas sold 1,400 units of inventory for $18. What is the amount of cost of goods sold that will appear on the current year's income statement?

$19,700 Cost of goods sold = (1,300 × $14) + (100 × $15) = $19,700

On September 1, Year 1, Gomez Company collected $9,000 in advance from a customer for services to be provided over a one-year period beginning on that date. How much revenue would Gomez Company report related to this contract on its income statement for the year ended December 31, Year 1? How much would the company report as net cash flows from operating activities for Year 1?

$3,000; $9,000 Monthly revenue = Receipt of $9,000 ÷ 12 months = $750 per monthRevenue (on the income statement) = $750 per month × 4 months (September through December) = $3,000The company will recognize the $9,000 received as a cash inflow for operating activities in Year 1.

Sanchez Company engaged in the following transactions during Year 1: 1) Started the business by issuing $10,900 of common stock for cash. 2) The company paid cash to purchase $6,800 of inventory. 3) The company sold inventory that cost $4,200 for $8,150 cash. 4) Operating expenses incurred and paid during the year, $3,700. Sanchez Company engaged in the following transactions during Year 2: 1) The company paid cash to purchase $9,200 of inventory. 2) The company sold inventory that cost $8,400 for $14,750 cash. 3) Operating expenses incurred and paid during the year, $4,700. Note: Sanchez uses the perpetual inventory system. What is the amount of inventory that will be shown on the balance sheet at December 31, Year 2?

$3,400

Melbourne Company uses the perpetual inventory system and LIFO cost flow method. Melbourne purchased 2,300 units of inventory that cost $15.50 each. At a later date, the company purchased an additional 2,400 units of inventory that cost $16.00 each. If the company sells 2,600 units of inventory, what amount of ending inventory will appear on a balance sheet prepared immediately after the sale?

$32,550 Ending inventory units = 2,300 units + 2,400 units − 2,600 units sold = 2,100 unitsEnding inventory = 2,100 units × $15.50 (earliest purchase) = $32,550

On September 1, Year 1, Zelda Company collected $120,000 cash for services to be provided for one year beginning immediately. Based on this information, the amount of revenue appearing on the December 31, Year 1 income statement would be

$40,000

Rosewood Company made a loan of $9,600 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2, respectively?

$432 in Year 1 and $144 in Year 2 Interest revenue = Principal × Annual interest rate × Time outstandingYear 1 (April through December):Interest revenue = $9,600 × 6% × 9/12 months = $432Year 2 (January through March):Interest revenue = $9,600 × 6% × 3/12 months = $144

Sanchez Company engaged in the following transactions during Year 1: 1) Started the business by issuing $10,900 of common stock for cash. 2) The company paid cash to purchase $6,800 of inventory. 3) The company sold inventory that cost $4,200 for $8,150 cash. 4) Operating expenses incurred and paid during the year, $3,700. Sanchez Company engaged in the following transactions during Year 2: 1) The company paid cash to purchase $9,200 of inventory. 2) The company sold inventory that cost $8,400 for $14,750 cash. 3) Operating expenses incurred and paid during the year, $4,700. Note: Sanchez uses the perpetual inventory system. What is Sanchez's gross margin for Year 2?

$6,350 Gross margin = Net sales − Cost of goods soldGross margin = $14,750 − $8,400 = $6,350

Allegheny Company ended Year 1 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $60,000 and $2,850, respectively. During Year 2, Allegheny wrote off $5,100 of Uncollectible Accounts. Using the percent of receivables method, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $4,600. What amount will Allegheny report as Uncollectible Accounts Expense on its Year 2 income statement?

$6,850 Uncollectible accounts expense = $4,600 − $2,850 + $5,100 = $6,850

Darlington Company entered into the following business events during its first month of operations. The company uses the perpetual inventory system. 1) The company purchased $12,800 of merchandise on account under terms 2/10, n/30. 2) The company returned $2,300 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $19,600 cash.

$9,310 Purchase discount = (List price of purchase − List price of return) × discount percentagePurchase discount = ($12,800 − $2,300) × 0.02 = $210Cash outflow for inventory purchase = $12,800 − $2,300 − $210 = $10,290Cash inflow from inventory sale = $19,600Net cash flow from operating activities = $19,600 − $10,290 = $9,310

Which of the following is the term commonly used to describe the practice of reporting the net realizable value of receivables in the financial statements?

Allowance method.

Darlington Company entered into the following business events during its first month of operations. The company uses the perpetual inventory system. 1) The company purchased $12,800 of merchandise on account under terms 2/10, n/30. 2) The company returned $2,300 of merchandise to the supplier before payment was made. 3) The liability was paid within the discount period. 4) All of the merchandise purchased was sold for $19,600 cash.

Assets and liabilities decrease by $2,300.

Which of the following shows how the event "collected cash for services to be rendered in the future" affects a company's financial statements?

Balance SheetIncome StatementStmt ofCash FlowsAssets=Liab.+EquityRev.−Exp.=Net Inc.+ + NANA NA NA+OA

At the end of the Year 2 accounting period, DeYoung Company determined that the market value of its inventory was $79,800. The historical cost of this inventory was $81,400. DeFazio uses the perpetual inventory method. Assuming the amount is material, how will the necessary write-down to reduce the inventory to the lower-of-cost-or-market affect the elements of the company's financial statements?

Decrease total assets, gross margin, and net income

A benefit of accepting credit cards is that increased sales may be generated.

False

A loss resulting from application of the lower-of-cost-or-market rule is included in cost of goods sold if the loss is material in amount.

False

Collecting a credit card receivable is an asset source transaction.

False

Generally accepted accounting principles do not allow the cost flow pattern for merchandise inventory to differ from the physical flow of merchandise within the business.

False

In a perpetual inventory system, a purchase allowance is treated as a decrease in expenses by the company that purchased the goods.

False

Net sales is calculated by subtracting cost of goods sold from sales revenue.

False

Recording a credit card sale increases total assets and increases total liabilities.

False

When a company accepts a credit card payment for a sale, the amount of sales revenue to be recorded is reduced by the amount of the credit card company's fee.

False

Faust Company uses the perpetual inventory system. Faust sold goods that cost $6,300 for $10,600. The sale was made on account. What is the net effect of the sale on the company's financial statements? (Consider the effects of both parts of this event.)

Increase total assets by $4,300

What is the term used to describe the amount of accounts receivable that is actually expected to be collected?

Net realizable value

Flagler Company purchased $4,000 of merchandise on account. Flagler sold the merchandise to a customer for $7,000 cash. What is the increase in gross margin and the net change in cash flow from operating activities as a result of these transactions? (Consider the effects of both parts of this event.) Gross MarginCash Flow FromOperating Activities A.$7,000 $4,000inflow B.$3,000 $7,000inflow C.$3,000 $7,000outflow D.$4,000 $7,000inflow

Option B

Pizitz Company experienced a business event that affected its financial statements as indicated below. Balance SheetIncome StatementStmt ofCash FlowsAssets=Liab.+EquityRev.−Exp.=Net Inc.NA NA NANA NA NA−OA Which of the following events could have caused these effects?

Paid cash to purchase supplies

Which of the following statements is false?

Prepaid insurance is a liability reported on the balance sheet.

Middleton Company uses the perpetual inventory system. The company purchased an item of inventory for $95 and sold the item to a customer for $160. How will the sale affect the company's Inventory account?

The Inventory account will decrease by $95.

Hoover Company purchased two identical inventory items. The item purchased first cost $42.50. The item purchased second cost $47.25. Then Hoover sold one of the inventory items for $70. Based on this information, which of the following statements is true?

The gross margin is $25.12 if Hoover uses the weighted-average cost flow method.

A benefit of making credit card sales is that there is no cost to the merchant.

True

Generally accepted accounting principles often allow companies to account for the same types of events in different ways.

True

In a period of rising inventory prices, use of the FIFO cost flow method would cause a company to pay more income taxes than would use of LIFO.

True

Most companies report receivables on their balance sheets at the net realizable value.

True

Recording the collection of cash from the credit card company increases cash and increases revenue.

True

The income statement is not affected at the time the cash receipt is recorded.

True

Which of the following shows how paying cash to purchase supplies will affect a company's financial statements?

assets = NA Liab = NA Equity = NA Rev = NA Exp = NA Net Inc = NA Stmt of Cash Flows = -OA

Hawk Company purchased $300 of supplies on account. Which of the following shows how this purchase will affect Hawk's accounting equation? Assets=Liabilities+Stockholders' Equity CashSupplies AccountsPayable CommonStockRetainedEarnings A. 300 300 B. (300) (300) C.(300)300 D. 300 (300)

option A