MGMT 200 Exam 2 Review

Accounts Payable $55,000 Land $90,000 Inventory $10,500 Accounts Receivable $7,500 Equipment $8,000 Deferred Revenue $58,500 Short‐term Investments $20,000 Patents $75,000 What is the amount of property, plant & equipment A. $98,000 B. $165,000 C. $90,000 D. $110,000

A. $98,000

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be: A. FIFO. B. LIFO C. Weighted average D. Each method always produces a different amount

A. FIFO.

If A sells to B, and B obtains title while goods are in transit, the goods were shipped _______. If C sells to D, and C maintains title until the goods arrive at D's door then the goods were shipped _______. A. FOB shipping point; FOB destination B. FOB destination; FOB shipping point C. FOB destination; FOB destination D. FOB shipping point; FOB shipping point

A. FOB shipping point; FOB destination

Knomark Inc., sold inventory for $1,200 that was purchased for $700. Knomark records which of the following when it sells inventory using a periodic inventory system? A. No entry is required for cost of goods sold and inventory. B. Debit Cost of Goods Sold $700; credit Inventory $700. C. Debit Cost of Goods Sold $1,200; credit Inventory $1,200. D. Debit Inventory $700; credit Cost of Goods Sold $700.

A. No entry is required for cost of goods sold and inventory.

A business may use the periodic or perpetual inventory systems for different types of inventory. A. True B. False

A. True

At the time inventory is sold, cost of goods sold is recorded under the perpetual inventory system. A. True B. False

A. True

Book value or carrying value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation A. True B. False

A. True

The Sales Discounts account is an example of a contra revenue account. A. True B. False

A. True

If a company has total revenues of $100,000, sales discounts of $3,000, sales returns of $4,000, and sales allowances of $2,000, the income statement will report net revenues of $91,000. A. True B. False

A. True (Revenues Less: Sales discounts Less: Sales returns Less: Sales allowances Net revenues contra accounts $ 100,000 (3,000) (4,000) (2,000) $ 91,000)

How much depreciation should be recorded for the first year for a delivery truck with a cost of $30,000, an expected life of six years, and an estimated residual value of $6,000? Assume the double‐declining‐balance method is used. A. $ 12,000 B. $ 10,000 C. $ 8,000 D. $ 5,000

B. $ 10,000

Papercraft Corporation purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five‐year life, with a residual value of $5,000 at the end of five years. Using the straight‐ line method, depreciation expense for 2018 would be: A. $12,000 B. $11,000 C. $60,000 D. None of these

B. $11,000

Real Angus Steakhouse purchased land for $75,000 cash. They also incurred commissions of $4,500, property taxes of $5,000, and title insurance of $800. The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date. For what amount should Real Angus Steakhouse record the land? A. $83,500. B. $84,300. C. $85,300. D. $75,000.

B. $84,300.

Bahama Catering purchased a commercial dishwasher by paying cash of $8,000. The dishwasher's fair value on the date of the purchase was $10,000. The company incurred $600 in transportation costs, $500 installation fees, and paid $300 annual insurance of the equipment. For what amount will Bahama record the dishwasher? A. $10,000. B. $9,100. C. $8,000. D. $9,400.

B. $9,100.

The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as: A. On‐going expense. B. An addition in the Buildings account. C. An expense in the period incurred. D. A patent.

B. An addition in the Buildings account.

The factors used to compute depreciation expense are an asset's: A. Cost, residual value, and physical life B. Cost, residual value, and service life C. Fair market value, residual value, and economic life D. Cost, replacement value, and service life

B. Cost, residual value, and service life

Which of the following transactions would increase the balance of the inventory account for a company using the perpetual inventory system? A. A return of damaged inventory to the vendor B. Costs of incoming freight charges on merchandise inventory C. A purchase discount taken for prompt payment D. Shipping charges for outgoing inventory

B. Costs of incoming freight charges on merchandise inventory ( Freight charges on inventory increase the inventory account. Returns & purchase discounts decrease the account balance.)

Which of the following subsequent expenditures would be capitalized? A. Ordinary repair B. Costs that increase the service life of an asset C. Routine maintenance D. Ordinary repair and routine maintenance

B. Costs that increase the service life of an asset

The normal balance of the account "Allowance for Uncollectible Accounts" is a _______ because _______. A. Debit; it is a contra account to Revenue (a credit account) B. Credit; it is a contra account to Accounts Receivable (a debit account) C. Debit; it is an expense in the income statement D. Credit; it is a contra account to Bad Debt Expense (a debit account)

B. Credit; it is a contra account to Accounts Receivable (a debit account)

Using LIFO, the amount reported for ending inventory does not differ depending on whether a company uses a periodic system or a perpetual system. A. True B. False

B. False

We record a gain if we sell an asset for less than book value A. True B. False

B. False

Which inventory cost flow assumption more realistically matches the current cost of inventory with current sales revenue? A. FIFO B. LIFO C. Weighted‐Average D. LIFO ‐ Simplified

B. LIFO

Which of the following statements is true? A. Product costs affect only the balance sheet B. Product costs affect only the income statement inventory C. Period costs affect only the balance sheet D. Neither product costs nor period costs affect the Statement of Retained Earnings. This can also be a true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation) E. Product costs eventually affect both the balance sheet and the income statement.

E. Product costs eventually affect both the balance sheet and the income statement.

Northern purchased the entire business of Southern including all its assets and liabilities for $600,000. Below is information related to the two companies: Northern Southern Fair value of assets $1,050,000 $800,000 Fair value of liabilities 575,000 300,000 Reported assets 800,000 650,000 Reported liabilities 500,000 250,000 Net Income for the year 60,000 50,000 How much goodwill did Northern pay for acquiring Southern? A. $100,000. B. $300,000. C. $200,000. D. $150,000.

A. $100,000.

During the first two years, Supplies, Inc. drove the company truck 15,000 and 22,000 miles, respectively, to deliver merchandise to its customers. The company originally purchased the truck for $175,000. If the truck has an estimated life of 10 years or 300,000 miles, with an estimated residual value of $25,000, what amount of deprecation expense should Supplies, Inc. record in the second year using the activity‐based method? A. $11,000 B. $18,500 C. $7,500 D. $16,000

A. $11,000

Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of goods sold is $60,000. What is ending inventory? A. $20,000 B. $30,000 C. $10,000 D. $50,000

A. $20,000

Inventory records for Modern Company revealed the following: Mar. 1 Beginning inventory 1,000 $7.20 Mar. 10 Purchase 600 $7.25 Mar. 16 Purchase 800 $7.30 Mar. 23 Purchase 600 $7.35 Mar. Sales (2,300) Mar. 31 Ending inventory 700 Modern sold 2,300 units of inventory during the month. Ending inventory assuming FIFO would be: A. $5,140 B. $5,080 C. $5,060 D. $5,050

A. $5,140

At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be A. $6,540 B. $7,800 C. $7,140 D. $7,740

A. $6,540

Cedarhurst purchased land, a building, and equipment for $800,000. The estimated fair values of the land, building, and equipment are $100,000, $700,000, and $200,000, respectively. At what amount would the company record the land? A. $80,000 B. $90,000 C. $100,000 D. $800,000

A. $80,000

Sandburg Veterinarian reports the following information for the year: Net credit sales - $120,000 Average accounts receivable - 20,000 Cash collections on credit sales - 100,000 What is Sandburg's receivables turnover ratio? A. 6.0 B. 5.0 C. 1.2 D. 0.2

A. 6.0 ($120,000/ $20,000 = 6.0.)

At the end of the year, a company reports the following inventory amounts ($ per unit): Item # of Units Cost Net Realizable Value A 100 $4 $8 B 150 $8 $6 The year‐end adjustment using the lower of cost and net realizable value would include: A. A credit to Inventory for $300 B. A debit to Cost of Goods Sold for $400 C. A debit to Inventory for $500 D. A credit to Cost of Goods Sold for $700

A. A credit to Inventory for $300

Losses on the sale of long‐term assets for cash: A. Are the excess of the book value over the cash received B. Are recorded as a credit C. Are reported on a net‐of‐tax basis if material D. Are the excess of the cash received over the book value

A. Are the excess of the book value over the cash received

The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______. A. Asset; Balance sheet B. Expense; Income statement C. Liability; Balance sheet D. Revenue; Income statement

A. Asset; Balance sheet

One advantage of the allowance method for accounting for uncollectible accounts is that the company reports: A. Bad debt expense in the same period as the credit sale B. Greater total sales to customers C. Fewer returns by customers D. Greater total cash collected from customers

A. Bad debt expense in the same period as the credit sale

A company's ratio of net sales (cash and credit sales) to average accounts receivable can be interpreted as management's ability to: A. Collect cash from all sales to customers B. Effectively market its products and services C. Generate profits for investors D. Reduce costs of selling products and services to customers

A. Collect cash from all sales to customers

The inventory turnover ratio is measured as: A. Cost of goods sold divided by average inventory B. Average inventory divided by gross profit C. Gross profit divided by net sales D. Net sales divided by average inventory

A. Cost of goods sold divided by average inventory

Identify the likely disadvantage(s) of extending credit to customers A. Delay or failure to collect cash B. Lower profitability C. Lower revenues D. All of the other answers are disadvantages of extending credit to customers

A. Delay or failure to collect cash

Research and development costs should be: A. Expensed in the period incurred B. Expensed in the period they are determined to be unsuccessful C. Deferred pending determination of success D. Expensed if unsuccessful, capitalized if successful

A. Expensed in the period incurred

The inventory cost flow assumption that generally best matches the physical flow of inventory is: A. FIFO B. LIFO C. Weighted‐average D. Lower of cost or net realizable value

A. FIFO

Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase using a periodic inventory system? A. Purchases 2,000 Accounts Payable 2,000 B. Cost of Goods Sold 2,000 Deferred Revenue 1,000 Sales Revenue 3,000 C. Inventory 2,000 Accounts Payable 2,000 D. Cost of Goods Sold 2,000 Gain 1,000 Accounts Payable 3,00

A. Purchases 2,000 Accounts Payable 2,000

Cost of goods sold is: A. Reported in the income statement B. Reported in the balance sheet C. A current asset D. The cost of inventory on hand at the end of the period

A. Reported in the income statement

Which of the following statements is true with respect to the percentage‐of‐credit‐sales method for estimating uncollectible accounts? A. The amount recorded for bad debt expense does not depend on the balance of the allowance for uncollectible accounts B. This method is referred to as the balance sheet approach C. This method does not allow for future uncollectible accounts D. Under this method, bad debt expense is recorded at the time of an actual bad debt

A. The amount recorded for bad debt expense does not depend on the balance of the allowance for uncollectible accounts

Land improvements are recorded separately from the land itself because, unlike land, these assets are subject to depreciation. A. True B. False

A. True

Many intangible assets are not recorded on the balance sheet at their estimated market values A. True B. False

A. True

The LIFO difference (reserve) is the additional amount of inventory a company would report if it used FIFO instead of LIFO. A. True B. False

A. True

When a company sells a $100 service with a 20% trade discount, $80 of revenue is recognized. A. True B. False

A. True

Which of the following subsequent expenditures would not be capitalized? A. Unsuccessful legal defense of intangible assets B. Additions C. Improvements D. Successful legal defense of intangible assets

A. Unsuccessful legal defense of intangible assets

Costello Company purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no residual value. The computer was depreciated by the straight‐line method and was sold at the end of the second year of use for $5,000 cash. Costello should record A. a loss of $1,000 B. a gain of $1,000 C. neither a gain nor a loss ‐ the computer was sold at its book value D. neither a gain nor a loss ‐ the gain that occurred in this case would not be recognized

A. a loss of $1,000

The following information pertains to Royce, Inc., at the end of the year: Credit Sales - $60,000 Accounts Receivable - 7,000 Allowance for Uncollectible Accounts - 400 Cash Sales - 20,000 Royce uses the percentage‐of‐credit‐sales method and estimates 1% of sales are uncollectible. What is the ending balance of the allowance account after the year‐end adjustment? A. $600 B. $1,000 C. $200 D. $1,200

B. $1,000 (Beg Bal. + ( % of sales) = Ending Bal. $400 + ($60,000 × 1%) = Ending Bal. $400 + $600 = $1,000)

On September 1, 2018, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp. report during 2018? A. $20 B. $40 C. $30 D. $60

B. $40; Interest revenue = $1,000 × 12% × 4/12 = $40

Purdue Development incurred the following costs associated with the purchase of a piece of land that it will use to re‐build an office building: Sale price of the land $400,000 Sale of salvaged parts already on land ($20,000) Demolition of the old building $30,000 Ground breaking ceremony (food and supplies) $1,500 Land preparation and leveling $7,500 Total net costs $419,000 What amount should be recorded for the purchase of the land? A. $437,500. B. $417,500 C. $439,000 D. $419,000

B. $417,500

A company has the following inventory transactions: Jan. 1 Beginning inventory Purchase 100 units @ $4 each Jan. 15 Purchase 100 units @ $5 each Jan. 31 Purchase 100 units @ $6 each What would be the cost of goods sold under the FIFO method if 120 units were sold in January? A. $600 B. $500 C. $620 D. $720

B. $500

Davis Hardware Company uses a perpetual inventory system. How should Davis record the return of inventory previously purchased on account for $200? A.Inventory 200 Accounts Payable 200 B. Accounts Payable 200 Inventory 200 C. Purchase Returns 200 Accounts Payable 200 D. Accounts Payable 200 Purchase Returns 200

B. Accounts Payable 200 Inventory 200

Davis Hardware Company uses a periodic inventory system. How should Davis record the sale of inventory costing $620 for $960 on account? A. Cost of Goods Sold 620 Purchases 620 Accounts Receivable 960 Sales Revenue 960 B. Accounts Receivable 960 Sales Revenue 960 C. Purchases 620 Income 340 Sales Revenue 960 D. Accounts Receivable 960 Sales Revenues 620 Income 340

B. Accounts Receivable 960 Sales Revenue 960

At the end of the year, Mark Inc. estimates future bad debts to be $6,500. The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year‐end adjustment. What adjustment should Mark Inc. record for the estimated bad debts at the end of the year? A. Debit Bad Debt Expense, $6,500; credit Allowance for Uncollectible Accounts, $6,500 B. Debit Bad Debt Expense, $4,000; credit Allowance for Uncollectible Accounts $4,000 C. Debit Allowance for Uncollectible Accounts, $9,000; credit Bad Debt Expense, $9,000 D. Debit Bad Debt Expense, $9,000; credit Allowance for Uncollectible Accounts, $9,000

B. Debit Bad Debt Expense, $4,000; credit Allowance for Uncollectible Accounts $4,000 (Bad Debt Expense = $6,500 ‐ $2,500 = $4,000)

Good Inc., sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a perpetual inventory system? A. No entry is required for cost of goods sold and inventory. B. Debit Cost of Goods Sold $700; credit Inventory $700. C. Debit Cost of Goods Sold $1,200; credit Inventory $1,200. D. Debit Inventory $700; credit Cost of Goods Sold $700.

B. Debit Cost of Goods Sold $700; credit Inventory $700

During periods of consistently falling prices, the FIFO inventory method will produce the highest possible amount of net income A. True B. False

B. False

If a company has ending inventory of $25,000, purchases during the year of $95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000. A. True B. False

B. False

If prices were to never change, there would still be a need for alternative inventory cost methods A. True B. False

B. False

In accounting for inventory, the assumed cost flow must match the physical goods flow. A. True B. False

B. False

Inventory methods such as LIFO and FIFO deal more with goods flow than with cost flow. A. True B. False

B. False

Sales revenue less cost of goods sold is referred to as operating income A. True B. False

B. False

A company expects 5% of its newer accounts receivable to be uncollectible and 20% of its older accounts to be uncollectible. If the company has $40,000 of newer accounts and $5,000 of older accounts, the total estimate of uncollectible accounts is $2,000. A. True B. False

B. False ( ($40,000 × 5%) + ($5,000 × 20%) = x $2,000 + $1,000 )

When the value of inventory falls below its cost, companies other than those that use LIFO have the option of recording the inventory at cost or the lower net realizable value A. True B. False

B. False ( Companies are required to report inventory at the lower of cost and net realizable value.)

For inventory that is shipped FOB destination, title transfers from the seller to the buyer once the seller ships the inventory. A. True B. False

B. False ( For FOB destination, title transfers once the inventory reaches the buyer (destination).)

During periods of rising costs, FIFO generally results in a higher cost of goods sold. A. True B. False

B. False (During periods of rising costs, FIFO generally results in a lower cost of goods sold.)

During periods of rising costs, LIFO generally results in a higher ending inventory balance. A. True B. False

B. False (During periods of rising costs, LIFO generally results in a lower ending inventory balance since earliest costs are assigned to inventory.)

For most companies, actual physical flow of their inventory follows LIFO. A. True B. False

B. False (Most often, the actual physical flow of goods follows FIFO)

Goods in transit shipped FOB shipping point should be included in the seller's ending inventory. A. True B. False

B. False (Purchaser's inventory)

The franchisee's initial fee is recorded as an expense on the income statement A. True B. False

B. False (The franchisee's initial fee is recorded as an intangible asset and then expensed over the life of the franchise agreement)

We capitalize repairs and maintenance expenditures because they maintain a given level of benefits A. True B. False

B. False (We expense repairs and maintenance expenditures in the period incurred because they maintain a given level of benefits)

Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand. A. True B. False

B. False ( Companies can assume which inventory units are sold and still remain on hand using a variety of methods (FIFO, LIFO, and weighted‐ average cost).)

Using the weighted‐average cost method, the average cost of inventory is calculated as the average unit cost of inventory purchased during the year. A. True B. False

B. False (The average is a weighted‐average cost which includes both beginning inventory and purchases and is equal to total cost of goods available for sale divided by the total number of units available for sale.)

The Sales Returns account is an expense account A. True B. False

B. False, Sales Returns is a contra revenue account

A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales Allowances. A. True B. False

B. False; A sales allowance is recorded as a debit to Sales Allowances and a credit to Accounts Receivable.

Even though the percentage‐of‐receivables method and the percentage‐of‐credit‐sales method use different accounts to estimate future uncollectible accounts, the amount of bad debt expense reported in the income statement will always be the same under the two methods. A. True B. False

B. False; Bad debt expense will typically differ between the two methods

The net realizable value of accounts receivable is the full amount owed by customers A. True B. False

B. False; Net realizable value is the net amount of cash we expect to collect.

Trade discounts represent a discount offered to the purchasers for quick payment. A. True B. False

B. False; Trade discounts represent a reduction in the listed price of a product or service

Under the allowance method, when a company writes off an account receivable as an actual bad debt, it records an expense A. True B. False

B. False; Writing off an account receivable has no effect on expenses

One of the major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for: A. Current assets B. Inventory C. Selling expenses D. Deferred revenue

B. Inventory

The inventory cost flow assumption that is least likely to match the physical flow of inventory for most companies is: A. FIFO B. LIFO C. Weighted‐average D. Specific identification

B. LIFO

During a period of rising prices, which inventory cost flow assumption would result in the highest cost of goods sold, and thereby the lowest net income? A. FIFO B. LIFO C. Weighted‐average D. Simple LIFO average

B. LIFO (Using LIFO, we assume that the last units purchased (the last ones in) are the first ones sold (the first out). If prices are rising, cost of goods sold would be composed of the latest (and highest) costs using LIFO.)

A perpetual inventory system measures cost of goods sold by: A. Estimating the amount of inventory sold. B. Making entries to the inventory account for each purchase and sale. C. Counting inventory at the end of the period. D. Debiting cost of goods sold for all purchases of inventory.

B. Making entries to the inventory account for each purchase and sale.

Which level of profitability is considered profit from normal operations? A. Gross profit B. Operating income C. Income before taxes D. Net income

B. Operating income

The primary distinction between operating activities and nonoperating activities in a multiple‐step income statement is whether the activity is: A. A large or small dollar amount B. Part of primary business operations C. Related to current versus long‐term assets D. Reported as a revenue or an expense

B. Part of primary business operations

When customers purchase products on account, Knomark, Inc. offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a: A. Bad debt B. Sales discount C. Sales return D. Sales allowances

B. Sales discount

An overstatement of ending inventory in one period results in A. an overstatement of the ending inventory of the next period. B. an understatement of gross margin of the next period. C. an overstatement of gross margin of the next period. D. no effect on gross margin of the next period.

B. an understatement of gross margin of the next period. (The inventory overstatement will reverse in the subsequent period causing additional expense (CGS) or a reduction of gross margin.)

The following information relates to inventory for LePage's, Inc. March 1 Beginning Inventory 20 $2 March 7 Purchase 15 $3 March 11 Sale (25) $7 March 12 Purchase 20 $4 Ending inventory 30 A. $55 B. $170 C. $110 D. $70

C. $110

Capital Construction purchased a 3‐acre tract of land for a building site for $350,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $250 covered the period after the purchase date. The capitalized cost of the land is: A. $366,400 B. $366,150 C. $364,650 D. $231,150

C. $364,650

A company has the following inventory transactions: Jan. 1 Beginning inventory 100 units @ $4 each Jan. 15 Purchase 100 units @ $5 each Jan. 31 Purchase 100 units @ $6 each What would be the cost of goods sold under the LIFO method if 120 units were sold in January? A. $600 B. $500 C. $700 D. $720

C. $700

During the year, Bears Inc. recorded credit sales of $500,000. Before adjustments at year‐end, Bears has accounts receivable of $300,000, of which $50,000 is past due, and the allowance account had a credit balance of $2,500. Using the aging of receivables approach, what would be the adjustment assuming Bears expects it will not collect 5% of the amount not yet past due and 20% of the amount past due? A.Bad Debt Expense - 22,500 Allowance for Uncollectible Accounts - 22,500 B. Bad Debt Expense 25,000 Allowance for Uncollectible Accounts - 25,000 C. Bad Debt Expense - 20,000 Allowance for Uncollectible Accounts - 20,000 D. Allowance for Uncollectible Accounts - 20,000 Bad Debt Expense - 20,000

C. ( current x 5% + past due x 20% ($250,000 × 5%) + ($50,000 × 20%) ($12,500) + ($10,000) $22,500)

The direct write‐off method is not normally an acceptable method for GAAP because it fails to report: A. Revenue from the sale of goods or services to customers B. Cash collected from customers C. Accounts receivable for their net realizable value D. The amounts receivable from customers

C. Accounts receivable for their net realizable value

A note receivable is reported in the balance sheet A. Always as a current asset B. Always as a long‐term asset C. As either a current asset or long‐term asset depending on the expected collection date D. As a contra asset

C. As either a current asset or long‐term asset depending on the expected collection date

LIFO is considered an income statement approach for reporting inventory because it: A. Always results in a higher amount of net income being reported. B. Better approximates the value of ending inventory C. Better approximates inventory cost necessary to generate revenue. D. Always results in a lower amount of net income being reported

C. Better approximates inventory cost necessary to generate revenue.

Amalgamated Corporation creates the following accounts receivable aging report at the end of the year: Age Amount X Estimated Uncollectible Reserve Needed Less than 30 days $6,000 X 5% = $300 31‐60 days $4,000 X 10% = $400 61+ days $2,000 X 25% = $500 Prior to adjusting entries, the Allowance for Uncollectible Accounts has a debit balance of $500. The year‐end adjustment would include a A. Credit to Allowance for Uncollectible Accounts for $1,200 B. Debit to Bad Debt Expense for $700 C. Debit to Bad Debt Expense for $1,700 D. Debit to Bad Debt Expense for $1,200

C. Debit to Bad Debt Expense for $1,700

In a perpetual inventory system, the entry at the time of a sale to record the cost of the inventory sold includes a: A. Debit to Accounts Receivable B. Credit to Cost of Goods Sold C. Debit to Cost of Goods Sold D. Not recorded at the time of the sale

C. Debit to Cost of Goods Sold

Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation? A. Increase liabilities and decrease stockholders' equity B. Decrease assets and decrease liabilities C. Decrease assets and decrease stockholders' equity D. Increase assets and decrease stockholders' equity

C. Decrease assets and decrease stockholders' equity

Inventory does not include A. Materials used in the production of goods to be sold. B. Assets intended to be sold in the normal course of business. C. Equipment used in the manufacturing of assets for sale. D. Assets currently in production for normal sales.

C. Equipment used in the manufacturing of assets for sale

On January 1, 2016, Jacob Inc. purchased a commercial truck for $48,000 and uses the straight‐line depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000. On December 31, 2017, Jacob Inc. sold the truck for $43,000. What amount of gain or loss should Jacob Inc. record on December 31, 2017? A. Gain, $22,000 B. Loss, $18,000 C. Gain, $5,000 D. Loss, $3,000

C. Gain, $5,000

Morgan Pharmaceutical spends $50,000 this year in research and development for a new drug to cure liver damage. By the end of the year, management feels confident that the new drug will gain FDA approval and lead to higher future sales. What impact will the $50,000 spending have on this year's financial statements? A. Increase Assets B. Decrease Revenues C. Increase Expenses D. Increase Revenues

C. Increase Expenses

In accounting, goodwill A. May be recorded whenever a company achieves a level of net income that exceeds the industry average. B. Is amortized over its useful life. C. May be recorded when a company purchases another business. D. Must be expensed in the period it is recorded because benefits from goodwill are difficult to identify.

C. May be recorded when a company purchases another business.

An increase in a company's receivables turnover ratio typically means the company is A. Having trouble paying debts as they become due. B. Less profitable. C. More effectively granting and collecting credit to customers. D. Losing customers to its competitors.

C. More effectively granting and collecting credit to customers.

The purpose of recording an allowance for uncollectible accounts is to: A. Record the sales returns and allowances B. Report net sales conservatively C. Report accounts receivable at net realizable value D. Report accounts receivable for the total amount of sales in the period

C. Report accounts receivable at net realizable value

LePage's Inc. shipped the wrong color of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a: A. Trade discount B. Sales discount C. Sales allowance D. Sales return

C. Sales Allowance

Which of the following computations would be used to compute Net Revenue? A. Total Revenue + Accounts Receivable - Sales Discounts - Sales Allowances B. Net Revenue + Sales Allowances - Sales Discounts C. Total Revenue - Sales Discounts - Sales Allowances D. Net Income - Change in Accounts Receivable

C. Total Revenue - Sales Discounts - Sales Allowances

At the end of the year, a company reports the following inventory amounts ($ per unit): Item # of Units Cost Net Realizable Value A 100 $4 $8 B 150 $8 $6 The amount to report for ending inventory using the lower of cost and net realizable value is: A. $1,600 B. $1,700 C. $2,000 D. $1,300

D. $1,300

Bricktown Exchange purchases a copyright for $50,000. The copyright has a remaining legal life of 25 years, but only an expected useful life of five years with no residual value. Assuming the company uses the straight‐line method, what is the amortization expense for the first year? A. $0 B. $2,000 C. $3,333 D. $10,000

D. $10,000

Given the information in the table below, what is the company's gross profit? Sales revenue $350,000 Accounts receivable $280,000 Ending inventory $230,000 Cost of goods sold $180,000 Sales returns $50,000 Sales discount $20,000 A. $280,000 B. $170,000 C. $50,000 D. $100,000

D. $100,000

At December 31, Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments. An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected. The balance of Allowance for Uncollectible Accounts after adjustment will be: A. $1,000 B. $16,000 C. $14,000 D. $15,000

D. $15,000 (($300,000 × 5%) = $15,000))

Consider the following year‐end information for Amalgamated Corporation: Cost of goods sold $500,000 Sales revenue $1,000,000 Nonoperating expenses $100,000 Operating expenses $300,000 Income tax expense $100,000 What amount will Amalgamated report for operating income? A. $100,000 B. $300,000 C. $500,000 D. $200,000

D. $200,000

Crimson Inc. recorded credit sales of $750,000, of which $600,000 is not yet due, $100,000 is past due for up to 180 days, and $50,000 is past due for more than 180 days. Under the aging of receivables approach, Crimson Inc. expects it will not collect 1% of the amount not yet due, 10% of the amount past due for up to 180 days, and 20% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,000 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account? A. $29,000 B. $28,000 C. $27,000 D. $26,000

D. $26,000 ( ($600,000 × 1%) = $6,000 ($100,000 × 10%) = $10,000 ($50,000 × 20%) = $10,000 )

Inventory records for Amalgamated Incorporated revealed the following: Apr. 1 Beginning inventory 500 $2.40 Apr. 20 Purchase 400 2.50 Sale (700) Ending inventory 200 Amalgamated sold 700 units of inventory during the month. Ending inventory assuming LIFO would be: A. $500 B. $490 C. $470 D. $480

D. $480

Wiley Company purchased new equipment for $60,000. Wiley paid cash for the equipment. Other costs associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation cost, $2,500. The cost recorded for the equipment was: A. $60,000 B. $61,000 C. $64,000 D. $66,500

D. $66,500

Amalgamated Company has the following information: Total revenues = $860,000 Sales returns and allowances = $50,000 Sales discounts = $30,000 Ending inventory = $100,00 What is the amount of net revenues for Amalgamated? A. $330,000 B. $230,000 C. $680,000 D. $780,000

D. $780,000 ($860,000 ‐ $50,000 ‐ $30,000 = $780,000)

Which of the following would be recorded as land improvements? A. Property taxes. B. Title insurance. C. Real estate commissions. D. Adding a parking lot.

D. Adding a parking lot.

The choice of inventory cost flow assumptions affects which of the following amounts? A. Inventory. B. Cost of goods sold. C. Gross profit. D. All of the other answers are affected by the inventory cost flow assumption.

D. All of the other answers are affected by the inventory cost flow assumption.

Suppose Company A places an order with Company B on May 12. On May 14, Company B ships the ordered goods to Company A with terms FOB destination. The goods arrive at Company A on May 17. Company A begins selling the goods to customers on May 19 and pays Company B on May 20. When would Company A record the cost of inventory? A. May 12 B. May C. May 19 D. May 17

D. May 17

Identify the condition(s) that must exist for a sale and the related receivable to be recognized. A. Collection of cash is probable B. The company must have collected cash from at least one previous sale to the customer C. Goods or services have been provided to the customer D. Two of the other answers are conditions that must exist

D. Two of the other answers are conditions that must exist

Which of the following is not a period cost? A. Legal costs B. Public relations costs product C. Sales commissions D. Wages of assembly‐line workers cost E. The salary of a company's chief financial officer (CFO).

D. Wages of assembly‐line workers cost

Gross profit is calculated as net sales minus A. Nonoperating expenses and income tax expense. B. Operating expenses. C. Cost of goods sold. D. All of the other answers are subtracted from net sales.

C. Cost of goods sold

Costs that are expensed when incurred are called? A. Product costs B. Direct costs C. Inventoriable costs D. Period costs E. Indirect costs

D. Period costs

The portion of cost of goods available for sale that is not assigned to ending inventory is assigned to cost of goods sold. A. True B. False

A. True

Under GAAP, a company is permitted to apply the lower of cost or net realizable value rule to total inventory as compared to item by item analysis. A. True B. False

A. True

The adjustment to write down inventory from cost to its lower net realizable value includes a debit to Cost of Goods Sold and a credit to Inventory. A. True B. False

A. True

All of the following are inventory costing methods except A. last‐in, last‐out. B. average‐cost C. perpetual. D. specific identification.

C. perpetual.

Which of the following items are classified as receivables? A. Tax refund claims B. Amounts owed by customers C. Amounts loaned and expected to be collected D. All of the other answers are classified as receivables

D. All of the other answers are classified as receivables

The practice of using the lower of cost and net realizable value to evaluate inventory reflects which of the following accounting principles? A. Matching principle B. Materiality C. Conservatism D. Answers A and C

D. Answers A and C

The account "Allowance for Uncollectible Accounts" is classified as a(n): A. Liability account in the balance sheet B. Contra revenue to credit sales in the income statement C. Expense in the income statement D. Contra asset to accounts receivable in the balance sheet

D. Contra asset to accounts receivable in the balance sheet

Credit sales are recorded as: A. Debit Cash, credit Deferred Revenue B. Debit Service Revenue, credit Accounts Receivable C. Debit Cash, credit Service Revenue D. Debit Accounts Receivable, credit Service Revenue

D. Debit Accounts Receivable, credit Service Revenue