Accounting 210 Midterm 5&6

Floors, Inc. offers terms of 2/10, n/30 to credit customers. Tile Magic Corp. purchased 100 tile cutters with a list price of $20 each on August 5, 2017, on account. Tile Magic Corp. paid the invoice on August 31, 2017. How much sales discount will Floors recognize? a. $0 b. $236 c. $200 d. $40

a. $0

Specific identification relies on matching unit costs with the actual units sold. True False

True

Under the periodic inventory system, a physical inventory must be taken at the end of the period to determine cost of goods sold. True False

True

Which of the following items would be added to the balance per books on a bank reconciliation? a. Interest collected by the bank on a customer note b. Deposit in transit c. Service charge assessed by the bank d. Outstanding checks

a. Interest collected by the bank on a customer note

Credit terms of n/30 mean that the net amount of the invoice, less any returns or allowances, is due within 30 days of the date of the invoice. True False

True

The accountant for Busch Corp. was preparing a bank reconciliation as of February 28, 2017. The following items were identified: Busch's book balance $15,000 Outstanding checks 2,500 Service charge 15 Customer's NSF check returned by the bank 100 What amount will Busch report as its adjusted cash balance at February 28, 2017? a. $14,885 b. $12,500 c. $12,385 d. $17,385

a. $14,885

Quan uses a periodic inventory system. The company had the following data for the month of April: April 1 On hand, 10 units @ $2 each $ 20 19 Purchased 90 units @ $3 each 270 Cost of goods available for sale $290 30 On hand, 20 units If Quan, Inc. uses the FIFO method, how much is cost of goods sold for April? a. $230 b. $232 c. $240 d. $250

a. $230

Which of the following is another term for the invoice approval form? a. A voucher b. A receiving report c. An invoice d. A remittance advice

a. A voucher

Which of the following statements regarding changing inventory methods is true? a. Changing inventory methods affects consistency. b. Tax advantages are valid justification for changing inventory methods. c. One place that the reader of an annual report would be able to identify that a company changed inventory methods is the statement of stockholders' equity. d. A change in inventory methods can be justified if the change is made to better match profits with revenue.

a. Changing inventory methods affects consistency.

Goldman Inc. The following is from Goldman Inc.'s 2017 income statement. Purchases $172,000 Transportation-in 11,000 Inventory, January 1, 2017 26,500 Inventory, December 31, 2017 28,800 Purchase returns and allowances 8,400 How much will Goldman report as cost of goods purchased in its 2017 income statement? a. $180,400 b. $174,600 c. $183,000 d. None of these choices are correct.

b. $174,600

The set of items below was identified in preparing a bank reconciliation for Mars Corp. as of August 31, 2017. Bank statement balance $19,500 Mars's book balance (before adjustments) ? Outstanding checks 2,700 Customer's NSF check 350 Service charges 100 Deposit in transit 1,000 Interest earned on checking account 60 Mars Corp.'s balance per books before the reconciliation is a. $17,410. b. $18,190. c. $18,310. d. $17,900.

b. $18,190.

George's Department Store George's Department Store is a merchandising company that uses the periodic inventory system. Selected account balances are listed below: Sales $200,000 Purchases 90,000 Inventory (beginning) 23,000 Inventory (ending) 17,000 Purchase returns and allowances 3,000 Purchase discounts 7,000 Transportation-in 4,000 Sales discounts 8,000 Sales returns and allowances 5,000 Refer to the account information for George's Department Store. Calculate cost of goods purchased. a. $90,000 b. $84,000 c. $103,000 d. $117,000

b. $84,000

Which one of the following types of inventory accounts would be used by a wholesaler or retailer? a. Finished Goods Inventory b. Merchandise Inventory c. Work-in-Process Inventory d. Raw Materials Inventory

b. Merchandise Inventory

If a company overstates its ending inventory balance for 2018 by $10,000 and overstates its ending inventory balance for 2017 by $5,000, what are the effects on its net income for 2018 and 2017 if neither error is corrected? Effecton 2018 Net Income Effecton 2017 Net Income a. Understated by $5,000 Overstated by $10,000 b. Overstated by $15,000 Overstated by $10,000 c. Overstated by $5,000 Overstated by $5,000 d. Overstated by $10,000 Overstated by $5,000

c. Overstated by $5,000 Overstated by $5,000

Gentech Corp. prepared a bank reconciliation as of June 30, 2017. The following items were identified: Gentech's bank balance $14,300 Deposits in transit 1,000 Outstanding checks 1,300 Bank service charge 50 Customer's NSF check returned by the bank 150 Gentech's adjusted cash balance at June 30, 2017 is a. $14,300. b. $13,800. c. $14,000. d. $14,100.

c. $14,000.

Which internal control procedure is followed when a physical count of inventory is performed in a perpetual inventory system? a. Proper authorizations b. Segregation of duties c. Independent verification d. Safeguarding assets and records

c. Independent verification

Which of the following would not be included in inventory costs? a. The cost of insurance taken out during the time that inventory is in transit. b. Freight costs incurred by the buyer in shipping inventory to its place of business. c. Shelving to hold the inventory. d. The cost of sales tax paid when purchasing the inventory.

c. Shelving to hold the inventory.

In order to determine inventory for its balance sheet, it is best for a company to count the inventory at the end of its accounting period for a. the perpetual inventory system. b. the periodic inventory system. c. both the periodic and perpetual inventory systems. d. neither the periodic nor perpetual inventory systems.

c. both the periodic and perpetual inventory systems.

The following data was identified by Raines Corp. in preparation of a bank reconciliation on October 31, 2017: Bank statement balance $30,700 Raines' book balance (before adjustments) ? Outstanding checks 4,200 NSF checks 400 Service charge 300 Deposits in transit 3,100 Interest earned on checking account 100 What is the net amount of the increase or decrease in Raines' cash balance which must be recorded as a result of the adjustments identified by the bank reconciliation? a. $300 decrease b. $400 decrease c. $100 decrease d. $600 decrease Feedback

d. $600 decrease

Which of the following assets is considered the most liquid? a. Prepaid expenses b. Merchandise inventory c. Accounts receivable d. Cash

d. Cash

A good system of internal control is important to make a company's accounting records completely foolproof. True False

False

A six-month bank certificate of deposit would be classified as a cash equivalent. True False

False

The LIFO conformity rule requires that if a company uses LIFO in reporting income to stockholders, it also must use LIFO on its tax return. True False

False

The gross profit ratio is computed by dividing net sales by gross profit. True False

False

The only reason a company needs to create an internal control system is to deter intentional fraudulent acts. True False

False

Treasury notes with a maturity of six months or less, that are issued by the federal government are cash equivalents. True False

False

When a bank pays interest or collects an amount owed to a company by one of the bank's customers, the bank issues a debit memorandum. True False

False

Match the costs that might be included as part of the cost of inventory to the listed accounting treatment. - Add to inventory cost - Not an inventory cost - Invoice price paid for resale goods. - Freight costs incurred by the buyer to ship goods to its place of business. - Freight costs incurred by the seller to ship goods to its customers. - Cost of storing the goods before they are sold to customers.

*Add to inventory cost - Invoice price paid for resale goods. - Freight costs incurred by the buyer to ship goods to its place of business. - Cost of storing the goods before they are sold to customers. *Not an inventory cost - Freight costs incurred by the seller to ship goods to its customers.

Latahmer Corporation is reconciling its May bank account. For each item listed, state how it would be handled on the bank reconciliation. - Deduction from the bank balance - Deduction from the book balance - Would not appear on the May reconciliation - A check written from the company's account and paid by the bank is returned with the bank statement - A check written from the company's account in May that does not appear on the bank statement - Service charge on the May bank statement for new checks

*Deduction from the bank balance - A check written from the company's account in May that does not appear on the bank statement *Deduction from the book balance - Service charge on the May bank statement for new checks *Would not appear on the May reconciliation - A check written from the company's account and paid by the bank is returned with the bank statement

Match the inventory-related accounts to costs that may be included in inventories for retailers and manufacturers. - Merchandise Inventory - Raw Materials Inventory - Work-in-Process Inventory - Finished Goods Inventory - Cost of Goods Sold - Cost of materials which are not yet entered into the production process. - Cost of completed, but unsold items. - Costs to purchase goods ready to sell. - Costs of direct materials, overhead, and direct labor used in unfinished goods. - Costs of direct materials, overhead, and direct labor used in goods that have been sold.

*Merchandise Inventory - Costs to purchase goods ready to sell. *Raw Materials Inventory - Cost of materials which are not yet entered into the production process. *Work-in-Process Inventory - Costs of direct materials, overhead, and direct labor used in unfinished goods. *Finished Goods Inventory - Cost of completed, but unsold items. *Cost of Goods Sold - Costs of direct materials, overhead, and direct labor used in goods that have been sold.

Match the following terms with the best definitions. - Receiving report - Check - Inventory count - Source documents - An example of independent verification. - May be generated by computer or completed manually and include items such as employee's time card and a sales invoice. - Typically sent along with a remittance advice. - A form used for verification that the items originally requested have been received.

*Receiving report - A form used for verification that the items originally requested have been received. *Check - Typically sent along with a remittance advice *Inventory count - An example of independent verification. *Source documents - May be generated by computer or completed manually and include items such as employee's time card and a sales invoice.

Which inventory costing method might allow a company to make significant inventory purchases at year-end for the purpose of manipulating income? a. LIFO b. Specific identification c. FIFO d. Weighted average cost

a. LIFO

Selected data for Sorenta, Inc. and New World Corp., two companies in the same industry, are presented below: Sorenta, Inc. New World Corp. Sales $50,000 $80,000 Cost of goods sold 30,000 50,000 Average inventory balance 5,000 5,000 Based on this data, which of the following statements is true? a. New World Corp. sells its inventory faster than Sorenta, Inc. b. Sorenta, Inc. has a lower gross profit ratio than New World Corp. c. New World Corp. has a higher net income than Sorenta, Inc. d. Sorenta, Inc. has lower storage costs and a lower investment in inventory than New World Corp.

a. New World Corp. sells its inventory faster than Sorenta, Inc.

Which of the following items is a reconciling item on the bank side of a bank reconciliation? a. Outstanding checks b. Canceled checks c. NSF checks d. Service charge

a. Outstanding checks

Park, Inc. purchased merchandise from Jay Zee Music Company on June 5, 2017. The goods were shipped the same day. The merchandise's selling price was $15,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Park received the merchandise on June 10, 2017. Park paid the amount due on June 13, 2017. Who is responsible for payment of the transportation costs on the merchandise sold by Jay Zee Music to Park? a. Park, Inc. b. Split equally between the two companies c. Jay Zee Music Company d. Cannot be determined from the information provided.

a. Park, Inc.

Which of the following is not a requirement of a company's external auditors under the Sarbanes-Oxley Act? a. They must design and implement an effective information system design. b. They cannot perform any brokerage services for the company. c. They must give an opinion that the company maintained an effective internal control system over financial reporting. d. All of these choices are requirements of a company's external auditors under the Sarbanes-Oxley Act.

a. They must design and implement an effective information system design.

Which of the following is not considered to be a cash equivalent? a. U.S. Treasury bills with an original maturity of six months b. A money market account with a stock brokerage firm c. Corporate commercial paper due in 90 days after purchase d. A certificate of deposit with a term of 75 days when acquired

a. U.S. Treasury bills with an original maturity of six months

Which of the following procedures is incorrect for setting up and maintaining a petty cash fund? a. When the petty cash fund is replenished, a journal entry is recorded to recognize an increase in the petty cash account. b. A check is prepared for a fixed amount; when the check is cashed, the money is entrusted to a petty cash custodian. c. A journal entry is recorded to establish the fund and obtain the cash. d. When appropriate documentation is presented, cash payments are made from the fund; the petty cash custodian retains the documentation.

a. When the petty cash fund is replenished, a journal entry is recorded to recognize an increase in the petty cash account.

Deposits made by a company, but not yet reflected on a bank statement are called a. deposits in transit. b. debit memoranda. c. credit memoranda. d. None of these choices are correct.

a. deposits in transit.

Dimension Lighting Corp. has the following data at its fiscal year-end: Net Sales $27,250 Cost of Goods Sold 19,600 Gross Profit $7,650 Determine Dimension Lighting's gross profit ratio. a. 71.9% b. 28.1% c. 39.0% d. None of these choices are correct.

b. 28.1%

The following set of items describes activities completed by a company in collecting cash for merchandise sales. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. Cash register tapes are picked up on a regular basis each day by an employee from the accounting department. a. Violates sound internal control procedures b. Adheres to sound internal control procedures c. Neither strengthens nor violates internal control

b. Adheres to sound internal control procedures

Which of the following is a sound internal control procedure for cash disbursements? a. Using presigned checks to facilitate payment within the cash discount period. b. Comparing purchase requisitions, purchase orders, receiving reports, and invoices. c. Making copies of purchase orders for the receiving department so they know how many items to be expected upon delivery. d. Requiring the signature of the purchasing department supervisor on checks.

b. Comparing purchase requisitions, purchase orders, receiving reports, and invoices.

Which one of the following would appear on the income statement of a merchandising company, but not on the income statement of a service company? a. Income tax expense b. Cost of goods sold c. Selling and administrative expenses d. Net sales

b. Cost of goods sold

For which type of inventory would a company most likely use the specific identification method? a. Barbie dolls b. Custom-designed diamond rings c. Cartons of milk d. Gasoline in storage tanks at a gasoline station

b. Custom-designed diamond rings

Which of the following is not a generally recognized internal control procedure? a. Limiting access to computerized accounting records b. Reducing the cost of hiring seasonal employees c. Establishing of clear lines of authority to carry out specific tasks d. Physically counting inventory in a perpetual inventory system

b. Reducing the cost of hiring seasonal employees

Which internal control procedure is violated when the cashier at the checkout stand also records the daily receipts in the journal? a. Independent verification b. Segregation of duties c. Independent review and appraisal d. Proper authorizations

b. Segregation of duties

The following set of items describes activities completed by a company in purchasing and paying for merchandise. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures. The receiving department compares the quantity received with the quantity printed on the receiving report when the purchase order was prepared. a. Adheres to sound internal control procedures b. Violates sound internal control procedures c. Neither strengthens nor violates internal control

b. Violates sound internal control procedures

Which of the following statements is true if the amount assigned to ending inventory is incorrect? a. Neither the balance sheet nor the income statement are affected. b. The balance sheet is affected, but the income statement is not. c. Both the balance sheet and the income statement are affected. d. The income statement is affected, but the balance sheet is not.

c. Both the balance sheet and the income statement are affected.

Which of the following statements regarding cost of goods available for sale is true? a. Cost of goods available for sale is an expense account. b. Cost of goods available for sale is subtracted from net sales to arrive at the gross margin. c. Cost of goods available for sale is added to beginning inventory to determine cost of purchases during the period. d. Cost of goods available for sale is a "pool" of costs to be distributed between what was sold and what was not sold during a period.

d. Cost of goods available for sale is a "pool" of costs to be distributed between what was sold and what was not sold during a period.