Exam 3
If uncollectible accounts are determined by the aging-of receivables method to be $1,090, the uncollectible account expense for 2018 would be $90. Using the aging-of-receivables method, the balance of the Allowance account after the adjusting entry at year-end 2018 would be
$1,090
During 2016, Roy Ltd. had a beginning inventory of $45,000, ending inventory of $88,000, and a cost of goods sold of $105,000. What was Roy's 2016 cost of goods purchased?
148,000
Juan, Inc. had the following balances in accounts for the year ending December 31st: Accounts receivable: $3,480,000 (Dr.) Allowance for Doubtful Accounts: $22,000 (Cr.) Net credit sales: $5,500,000 (Cr.) Juan, Inc. estimates bad debt expense as 3% of net credit sales for the year. What amount will Juan report as Bad Debt Expense on the income statement?
165,000
On August 1, 2018, Gitore, Inc., sold equipment and accepted a six-month, 12%, $40,000 note receivable. How much interest does Gitore expect to collect on the maturity date (February 1, 2019)?
2,400
Venice Legal Association performs legal services for Archer Construction for $3,000 on account with credit terms of 2/10, n/30. If Archer pays the invoice within the discountperiod, Venice will record a debit to Cash in the amountof:
3,000 * 2% = 60
Juan, Inc. had the following balances in accounts for the year ending December 31st: Accounts receivable: $3,480,000 (Dr.) Allowance for Doubtful Accounts: $22,000 (Cr.) Net credit sales: $5,500,000 (Cr.) Juan, Inc. estimates bad debt expense as 3% of net credit sales for the year. The net realizable value of Accounts Receivable on the Balance Sheet will be:
3,293,000
The Walking Dead Co. provides services for both cash and on account. The accounts are adjusted monthly. For September, the following information is available: Accounts Receivable on September 1st is $22,400 Allowance for Doubtful Accounts on September 1st is $4,400. Services provided during September for cash $20,000. Services provided during September on account $45,000. During the month collections on account were $34,400 and accounts written off as bad debts were $2,000. The Walking Dead estimates bad debts at 8% of credit sales. Do not use the dollar sign or a decimal in your answer. Commas are ok. The dollar amount for the bad debt adjustment will be
3,600
On April 1, 2017, Clare Barry received a 5%, $600,000 note from John Edwards, a customer. The note is due on September 30, 2017. Clare Barry's entry on September 30 2017 to record the payment received would include a debit to Cash for $ [a].
615,000
Evan Corp. had January 1, 2015 inventories of $55,000, purchases of $48,000, transportation-in of $15,000, and December 31, 2015 inventories of $20,000. The company uses the periodic inventory system. What was the 2015 cost of goods sold for Evan?
98,000
Which of the following statements is correct?
A company must accrue for estimated future returns at the end of the period in which the related sales revenue is recognized.
Which of the following statements regarding contracts is incorrect?
A contract must be written to be valid.
Washington Products offers credit terms of 3/10, n/45. Which of the following statements is correct?
A discount of 3% can be taken if the invoice is paid within 10 days of the invoice date.
At Dec. 31, 2018, Ending Inventory for ABC, Inc. was overstated by $8,000. What are the effects on the following accounts? Revenue [a] Expenses [b] Net Income [c] Assets [d] Liabilities [e] Equity [f] (Overstated, Understated, or Correct)
A: Correct B: Understated C: Overstated D: Overstated E: Correct F: Overstated
In times of rising prices, which inventory cost method (LIFO or FIFO) reflects the highest: Ending Inventory Cost [a] Cost of Good Sold [b] Net Income [c] Taxes [d]
A: FIFO B: LIFO C: FIFO D: FIFO
In times of declining prices, which inventory cost method (LIFO or FIFO) reflects the highest: Ending Inventory Cost [a] Cost of Good Sold [b] Net Income [c] Taxes [d]
A: LIFO B: FIFO C: LIFO D: LIFO
Accounts Receivable has a debit balance of $2,600, and the Allowance for Uncollectible Accounts has a credit balance of $600. A $70 account receivable is written off. What is the amount of net receivables (net realizable value) after the write-off
AR: (2,600-70) = 2530 Allowance for uncollectible amounts (600-70) = 530 AR : 2530 - Allowance : (530) = Net Realizable Value : 2,000
Which of the following statements is true? - Collections on account decrease receivables. - Credit sales increase receivables. - Write-offs of accounts decrease receivables.
All of these statements are true.
Flag Corporation had beginning inventory of $35,000 and ending inventory of $41,000. Its net sales were $149,000 and net purchases were $83,000. Flag's cost of goods sold for the period is
Beg Inventory : 35,000 + Net Purchases : 83,000 - Ending Inventory : (41,000) = COGS : 77,000
Driver Corporation had beginning inventory of $32,000 and ending inventory of $40,000. Its net sales were $200,000 and net purchases were $83,000. Driver's gross profit for the period is
Beg inv. : 32,000 + net purchases 83,000 - end inv 40,000 = COGS 75,000 Net sales : 200,000 - COGS : (75,000) = Gross Profit : 125,000
Kolker Company uses thepercent-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $150,000, and management estimates 3% will be uncollectible. Kolker Company's balance of Allowance for Uncollectible Accounts afteradjustments, was $5,000. The following year, Kolker Company wrote off $3,000 of old receivables as uncollectible. What is the balance in the Allowance accountnow?
Beginning (credit) : 5,000 - Write - off (debit) : 3,000 End (credit) : 2,000
Corporation began 2018 with a balance in Accounts Receivable of $525,000. Service revenue, all on account, for the year totaled $2,400,000. The company ended the year with a balance in Accounts Receivable of $575,000. Rivercliff's bad-debt write-offs are nonexistent. How much cash did the company collect from customers in 2018?
Beginning Accounts Receivable : 525,000 + Service Revenue : 2.400,000 - Ending Accounts Receivable : (575,00) = 2018 Cash Collections : 2,350,000
On March 15, Maxwell Plush sold and shipped merchandise on account for $6,000 to Kittson Amusement Park, terms FOB shipping point, n/30. Maxwell's cost of goods sold is 40% of sales. How is Maxwell impacted by this sale on March 15?
Its assets will increase, as will its equity.
Which inventory system maintains a running record of inventory on hand, purchased, and sold?
Perpetual
Tee Corporation had beginning inventory of $24,000 and ending inventory of $32,000. Its net sales were $171,000 and net purchases were $91,000. Cost of goods sold for the period was $83,000. What is Tee's gross profit percentage (rounded to the nearest whole percentage)?
( Net sales : 171,000 - COGS : 83,000 ) / Net Sales : 171,000 = 51%
Seth Corp. sold merchandise to Kelly Corp. on November 1st, for $150,000, and accepted a promissory note for payment in the same amount. The note has a term of 3 months and a stated interest rate of 8%. Seth' accounting period ends on December 31st. What amount should Seth recognize as interest revenue on the maturity date of the note, which is January 31st of the following year?
1,000
On August 1, 2018, Acre, Inc., sold equipment and accepted a six-month, 11%, $30,000 note receivable. Acre's year-end is December 31. How much interest revenue should Acre accrue on December 31, 2018?
1,375
The McDermott Company showed the following balances on December 31st. Transportation-out 3,000 Purchases 130,000 Purchases returns & allow. 2,000 Transportation-in 1,600 Selling expenses 50,000 Administrative expenses 30,000 What were the net purchases for the year?
129,600
The following is from Spiderman Inc.'s financial accounts. Purchases $190,000 Transportation-In $11,000 Inventory, January 1st, $25,300 Inventory, December 31st $27,900 Purchase Returns and Allowances $6,200 How much will Spiderman report as its cost of goods sold on its income statement?
192,200
The Walking Dead Co. provides services for both cash and on account. The accounts are adjusted monthly. For September, the following information is available: Accounts Receivable on September 1st is $22,400 Allowance for Doubtful Accounts on September 1st is $4,400. Services provided during September for cash $20,000. Services provided during September on account $45,000. During the month collections on account were $34,400 and accounts written off as bad debts were $2,000. The Walking Dead estimates bad debts at 8% of credit sales. Do not use the dollar sign or a decimal in your answer. Commas are ok. What is the September 30th net realizable value of Accounts Receivable?
25,000
New Navy Stores Co. had Merchandise Inventories of $150,000 on January 1st. During the year, the company purchased $230,000. A count of the inventory on December 31st, found total inventories remaining of $105,000. What is the Cost of goods sold for the year?
275,000
The Raider Company had a fire on April 1st, 2018, which completely destroyed its inventory. No physical inventory count had been taken since December 31, 2017. The company's books showed the following balances at the date of the fire: Net Sales $160,000 Inventory, Dec. 31, 2017 40,000 Net Purchases 130,000 Gross profit 20% Determine the cost of inventory destroyed by fire on April 1, 2018
42000
Kathy Corp. had a Merchandise Inventory account with a balance on January 1, 2016 of $715,000 and the cost of goods purchased was $230,000. The cost of goods sold for 2016 was $520,000. What is the December 31, 2016 ending inventory?
425,000
Wolf Inc. made a sale of $10,000 on August 1, accepting a 6-month 12% note. Wolf makes annual adjusting entries. On December 31st, Wolf will make an adjusting entry accruing how much Interest Receivable?
500
On October 1, 2017, Frank Underwood received a 6%, $500,000 note from Claire Barry, a customer. The note is due on March 31, 2018. Frank Underwood's entry on March 31, 2018 to record the payoff of the note would include a debit to Cash for $ [a].
515,000
The Walking Dead Co. provides services for both cash and on account. The accounts are adjusted monthly. For September, the following information is available: Accounts Receivable on September 1st is $22,400 Allowance for Doubtful Accounts on September 1st is $4,400. Services provided during September for cash $20,000. Services provided during September on account $45,000. During the month collections on account were $34,400 and accounts written off as bad debts were $2,000. The Walking Dead estimates bad debts at 8% of credit sales. Do not use the dollar sign or a decimal in your answer. Commas are ok. What is the September 30th balance in Allowance for Doubtful Accounts?
6,000
On April 1, 2016, Clare Barry received a 5%, $600,000 note from John Edwards, a customer. The note is due on March 31, 2017. Clare Barry has a December 31st year-end. Clare Barry's entry on March 31, 2017 to record the payment received would include a credit to interest revenue of
7,500
Which of the following accounts normally has a credit balance?
Allowance for uncollectible accounts (aka Allowance for doubtful accounts).
How is cost of goods sold classified in the financial statements?
As an expense
A company uses the allowance method to recognize bad debts from its customers. The entry required to recognize the bad debt will have what effect on the following elements of the financial statements? Use these abbreviations: Use I for Increase Use D for Decrease Use NC for Not change Assets will? Net Income will?
Assets: Decrease Net Income: Decrease
A company uses the allowance method to recognize bad debts from its customers. The entry required to write off uncollectible accounts will have what effect on the accounting equation? Use the following abbreviations: Use I for Increase Use D for Decrease Use NC for Not change
Assets: NC Liabilities: NC Owner's Equity: NC
The Clooney Co. has an account called Sales Returns and Allowances with a balance of $24,058. What type of account is Sales Returns and Allowances and what is its normal balance?
Contra-Revenue, Debit balance.
Miguel Company uses the percent-of-sales method to estimate uncollectible. Net credit sales for the current year amount to $100,000, and management estimates 4% will be uncollectible. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $1,000. The amount of expense to report on the income statement will be
Credit Sales of 100,000 * Uncollectible amount of 4% = Uncollectible - Account Expense = 4,000
Juan, Inc. had the following balances in accounts for the year ending December 31st: Accounts Receivable: $3,480,000 (Dr.) Allowance for Doubtful Accounts: $22,000 (Cr.) Net credit sales: $5,500,000 (Cr.) Juan, Inc. estimates bad debt expense as 3% of net credit sales for the year. The journal entry on December 31st to record bad debt expense for the year would be.... CA = Cash AR = Accounts Receivable BD = Bad Debt Expense ADA = Allowance for Doubtful Accounts SR = Sales Revenue
Debit: BD Credit: ADA
On Oct. 10, Red Raider Jewels sold merchandise costing $3,000 and accepted the customer's First Bank MasterCard. At the end of the day, the First Bank MasterCard receipts were deposited in the company's bank account. First Bank charges a 4% service fee for credit card sales. What journal entry is required?
Debit: Cash 2,880 Debit: Credit Card Discount Expense 120 Credit: Sales Revenue 3,000
On July 1, 2017, Nathan Company received a $20,000 promissory note from Dylan Company. The annual interest rate is 8%. Principal and interest are paid in cash at the maturity date of June 30, 2018. If Nathan's fiscal year ends September 30, 2017, the adjusting entry needed is: CA = Cash AR = Accounts Receivable NR = Notes Receivable AP = Accounts Payable NP = Notes Payable IREC = Interest Receivable IP = Interest Payable IE = Interest Expense IREV = Interest Revenue
Debit: IREC Credit: IREV
On November 1st, Chipotle Corp. received a $2,000 note from a customer with a rate of 9% interest that is due in six months. The adjusting entry on December 31st for this note receivable would be: CA = Cash NR = Notes Receivable AP = Accounts Payable IR = Interest Revenue IREC = Interest Receivable UR = Unearned Revenue Debits? Credits?
Debit: Interest Receivable Credit: Interest Revenue & 30
On December 31, 2018, Bonsai Boards has 15 Maple Sleds at a cost of $1,200 per unit (total inventory of $18,000). The current replacement cost (value) of the inventory is $1,100 per unit (total value of $16,500). Based on the LCM rule, what adjustment, if any, is needed?
Debit: Inventory 1,500 Credit: COGS 1,500
On January 3rd, a customer returned $1,250 of merchandise that had been purchased with cash to Raider Supplies. Raider's cost of the goods returned was $350. Which journal entry or entries should Raider prepare?
Debit: Sales Refunds Payable 1,250 Debit: Cash 1,250 Credit: Inventory 350 Credit: Inventory returns estimated 350
Under the allowance method for uncollectible receivables, the entry to record uncollectible-account expense has what effect on the financial statements?
Decreases net income and decreases assets
Ellen Donoghue Cosmetics ended the month of March with inventory of $21,000. Ellen Donoghue Cosmetics expects to end April with inventory of $14,000 after selling goods with a cost of $95,000. How much inventory must Ellen Donoghue Cosmetics purchase during April in order to accomplish these results?
End Inv. : 140,000 + COGS : 95,000 - Beg Inv. : (21,000) = Net Purchases : 88,000
A doctor for the Benson Family Practice performs a sports physical exam for Allison Smythe on February 1. The charge for the exam is $100; Smythe's insurance company, Cardinal Health, is billed for the entire $100 on February 1. Cardinal Health receives the invoice on February 2, and enters the amount into its payment system on February 4. Benson Family Practice receives the $100 payment from Cardinal Health on February 20. On which date would Benson Family Practice recognize the revenue for the Smythe's physical?
February 1
Ravenna Candles recently purchased candleholders for resale in its shops. Which of the following costs would be part of the cost of the candleholder inventory?
Freight in
The income statement for Natures Way Foods shows gross profit of $149,000, operating expenses of $130,000, and cost of goods sold of $216,000. What is the amount of net sales revenue?
Gross Profit : 149,000 + COGS : 216,000 = Net Sales Revenue : 365,000
On August 1, 2018, Avonette, inc., sold equipment and accepted a six-month, 9%, $50,000 note receivable. Avonette's year-end is December 31. Which of the following accounts will Avonette credit in the journal entry at maturity on February 1, 2019, assuming collection in full?
Interest Receivable
An allowance method of accounting for bad debts expense:
Is the required method when the uncollectible amounts are expected to be material.
Raider sold goods costing $40,000 to Waco Company FOB Destination on September 30. The goods shipped on October 4. The goods were received by Waco Company on October 8. Waco paid on October 25. When should Raider recognize the revenue from the sale?
October 8th
On April 3, a customer returned $400 of merchandise that had been purchased with cash to Baird Supplies. Baird's cost of the goods returned was $200. Which journal entry or entries should Baird prepare? (No sales discount was offered for early payment.)
One entry to debit Sales Refunds Payable and credit Cash for $400; another entry to debit Inventory and credit Inventory Returns Estimated for $200
An error understated Golden Flash Company's December 31, 2018, ending inventory by $27,000. What effect will this error have on net income for 2019?
Overstate it
What is the maturity value of a $100,000, 10%, six-month note?
Principal 100,000 * 10% * 6/12 = 5,000 +100,000 = 105,000
Gap, Inc. received a request from a customer to reduce the invoice price of goods because the goods were damaged in shipment. This type of request is recorded as credit to Accounts Receivable and a debit to:
Sales Returns and Allowances
Which of the following accounts normally has a debit balance?
Sales Returns and Allowances
The Frodo Co. offers their customers a reduction in price for early payment. Frodo would refer to this reduction in price as a:
Sales discount.
Mina Corp. has a policy of encouraging customers receiving goods that were in any way damaged in shipment to send them back to the company. Mina would refer to this type of transaction as a:
Sales return
What is the financial impact on a company when a customer returns a product for a refund?
Sales revenue will not be impacted because the company has already accrued for estimated refunds and returns.
Raider sold goods costing $35,000 to Texas Company FOB Shipping Point on September 1. The goods shipped on September 7. The goods arrived at Texas Company on September 15. Texas paid on September 20. When should Texas Company record the purchase?
September 7th
Which of the following is TRUE about the accounting for bad debts?
The allowance method for bad debts is acceptable for financial reporting.
Which of the following statements is FALSE? a. An aging schedule typically categorizes the various accounts by the length of time each invoice is outstanding. b. Because the allowance method results in better matching, accounting standards require its use rather than the direct write-off method, unless bad debts are immaterial. c. Bad Debts expense is debited and Allowance for doubtful accounts is credited at the end of the period to recognize bad debts under the allowance method. d. The reason the allowance method of recognizing bad debts is used is primarily because it recognizes higher amount of Accounts receivable on the balance sheet than the direct method. e. Allowance for doubtful accounts is a contra account that is used to reduce accounts receivable to its net realizable value.
The reason the allowance method of recognizing bad debts is used is primarily because it recognizes higher amount of Accounts receivable on the balance sheet than the direct method.
Raider sold goods costing $35,000 to Texas Company FOB Shipping Point on September 1. The goods shipped on September 7. The goods arrived at Texas Company on September 15. Texas paid on September 20. Texas Company is responsible for the shipping charge
True
Raider sold goods costing $40,000 to Waco Company FOB Destination on September 30. The goods shipped on October 4. The goods were received by Waco Company on October 8. Waco paid on October 25. Raider is responsible for the shipping charge.
True
Fisherman Company uses the percent-of-sales method to estimate uncollectible. Net credit sales for the current year amount to $150,000, and management estimates 33% will be uncollectible. The amount of expense to report on the income statement was $4,500. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $3,000. The balance of Allowance for Uncollectible Accounts, after adjustment, will be
Unadjusted allowance 3,000 + Uncollectible - Account Expense 4,500 = Adjusted Allowance for Uncollectible accounts : 7,500
An error understated Power Corporation's December 31, 2018, ending inventory by $54,000. What effect will this error have on total assets and net income for 2018?
Understate Assets and Net Income
When does the cost of inventory become an expense?
When inventory is delivered to a customer
Mars Corporation received a four-month 7%, $6,000 note receivable on March 1. The adjusting entry on March 31 will include
a credit to Interest Revenue for $35.
An understatement of ending inventory by $2 million in one period results in
an overstatement of gross profit by $2 million in the next period.
The sum of ending inventory and cost of goods sold is
cost of goods available (or cost of goods available for sale).
When a customer returns a product to Hartville Equipment that the customer purchased on account, Hartville will issue a __________ to authorize a credit to the customer's account receivable on Hartville's books:
credit memo
In a period of rising prices,
gross profit under FIFO will be higher than under LIFO.
On August 1, 2018, Avonette, Inc., sold equipment and accepted a six-month, 9%, $50,000 note receivable. Avonette's year-end is December 31. If Avonette fails to make an adjusting entry for the accrued interest on December 31, 2018,
net income will be understated and assets will be understated.
The word market as used in "the lower of cost or market" generally means
net realizable value.
Fairmont Company has shipped goods to Willowbook Recreation FOB shipping point. Fairmont will recognize sales revenue when:
the goods leave Fairmont's shipping dock.
Which U.S. GAAP principle or rule would apply if the net realizable value of a company's inventory is below its original cost?
Lower-of-cost-or-market rule
If the adjusting entry to accrue interest on a note receivable is omitted, then
assets, net income, and stockholders' equity are understated.
