accounting practice test

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts Receivable$ 35,000debitNet Sales180,000credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of net sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

$1,080 $180,000 × 0.006 = $1,080

ickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. Determine the machines' second year depreciation under the double-declining-balance method

$20,880. Depreciation Expense = Beginning of Year Book Value × Double Straight-line RateDepreciation Expense = $87,000 × (2 × 20%) = $34,800 (Depreciation Expense, year 1)Depreciation Expense = Beginning of Year Book Value × Double Straight-line RateDepreciation Expense = ($87,000 − $34,800) × (2 × 20%) = $20,880 (Depreciation Expense, year 2)

A company has the following products in its ending inventory. Compute lower of cost or market for inventory applied separately to each product ProductQuantityCost per UnitMarket per UnitProduct A10$ 700$ 670Product B15$ 500$ 540Product C20$ 650$ 675 Multiple Choice

$27,200. Explanation ProductQuantityCost per UnitMarket per UnitTotal CostTotal MarketLCM ItemsProduct A10$ 700$ 670$ 7,000$ 6,700$ 6,700Product B15$ 500$ 540$ 7,500$ 8,100$ 7,500Product C20$ 650$ 675$ 13,000$ 13,500$ 13,000 $ 27,500$ 28,300$ 27,200

Health Defense sells first aid kits and uses the periodic inventory system to account for its merchandise. The beginning balance of the inventory and its transactions during January are as follows: DateActivitiesUnits Acquired at CostUnits Sold at RetailJanuary 1Beginning inventory18 units @ $13 = $234 January 12Purchase30 units @ $14 = $420 January 19Sale 24 units @ $30January 20Purchase24 units @ $17 = $408 January 27Sale 27 units @ $30 Using the FIFO inventory method under a periodic system, the company's ending inventory would be:

$357. DateGoods Available for SaleCost of Goods SoldEnding InventoryJanuary 118 units @ $13 = $23418 units @ $13 =$ 234 January 1230 units @ $14 = $42030 units @ $14 =$ 420 January 2024 units @ $17 = $4083 units @ $17 =$ 5121 units @ $17 =$ 357Total $ 705 $ 357

On January 31, a company needed to estimate its ending inventory to prepare its monthly financial statements. The following information is currently available:Inventory as of January 1: $120,500Net sales for January: $400,000Net purchases for January: $270,500This company typically achieves a gross profit ratio of 15%. Ending Inventory under the gross profit method would be:

$51,000. Explanation COGS = $400,000 × 85% = $340,000Costs available for sale = $120,500 + $270,500 = $391,000EI = $391,000 − $340,000 = $51,000

A company reports the following information regarding its inventory.Beginning inventory: cost is $80,000; retail is $130,000Net purchases: cost is $65,000; retail is $120,000Sales at retail: $145,000The year-end inventory shows $105,000 worth of merchandise available at retail prices. What is the cost of the ending inventory calculated using the retail inventory method?

$60,900. Beginning inventory$ 80,000$ 130,000Purchases65,000120,000Goods available$ 145,000$ 250,000 Cost/retail ratio $145,000/$250,000 = 58%Ending inventory at cost $105,000 × 58% = $60,900

Harris Company has the following products in its ending inventory. Compute lower of cost or market for inventory applied separately to each product. ProductQuantityCost per UnitMarket per UnitTelevisions500$ 500$ 550Radios600$ 30$ 25

265000 Explanation ProductQuantityCost per UnitMarket per UnitTotal CostTotal MarketLCM ItemsTelevisions500$ 500$ 550$ 250,000$ 275,000$ 250,000Radios600$ 30$ 25$ 18,000$ 15,000$ 15,000 $ 268,000$ 290,000$ 265,000

A machine costing $75,000 is purchased on January 1, Year 1. The machine is estimated to have a salvage value of $10,000 and an estimated useful life of 4 years. Double-declining-balance depreciation is used. If the machine is sold on January 1, Year 4 for $9,000, the journal entry to record the sale will include

A debit to loss on sale for $1,000. BOY BV = Beginning of the year book valueDB Rate = Declining-balance rate of depreciation (100%/4) × 2EOY BV = End of the year book value

Merchandise inventory includes:

All goods that a company owns and holds for sale

Crestfield leases office space. On January 3, the company incurs $12,000 to improve the leased office space. These improvements are expected to yield benefits for 10 years. Crestfield has 4 years remaining on its lease. What journal entry would be needed to record the expense for the first year related to the improvements?

Amortization Expense = Cost/Lesser of Estimated Useful Life or Remaining Length of LeaseAmortization Expense = $12,000/4 = $3,000

An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:

Cash Over and Short.

A company had the following purchases and sales during its first month of operations: DateActivitiesUnits Acquired at CostUnits Sold at RetailJanuary 1Purchase10 units @ $4.00 = $40.00 January 9Sales 6 units @ $12.00January 17Purchase8 units @ $5.50 = $44.00 January 27Sales 7 units @ $12.00 Using the Periodic weighted average method, what is the value of cost of goods sold? (Round weighted average cost per unit to 2 decimal places.)

Cost of goods sold: DateGoods Available for SaleCost of Goods SoldEnding InventoryJanuary 110 units @ $4.00 = $40.00 January 178 units @ $5.50 = $44.00 $84.00/18 units = $4.67 per unit13 units @ $4.67 = $60.715 units @ $4.67 = $23.35

Which of the following is not an internal control that should be applied when a business takes a physical count of inventory

Counters of inventory should be those who are responsible for the inventory.

Freeman Company had net sales of $4,200,000 and accounts receivable of $672,000. Its days' sales uncollected equals:

Days' Sales Uncollected Ratio = Accounts Receivable/Net Sales × 365Days' Sales Uncollected Ratio = $672,000/$4,200,000 × 365 = 58.4 days

Valley Spa purchased $7,800 in plumbing components from Tubman Company. Valley Spa signed a 60-day, 10% promissory note for $7,800. If the note is dishonored, but Tubman intends to continue collection efforts, what is the journal entry made by Tubman to record the dishonored note? (Use 360 days a year.)

Debit Accounts Receivable—Valley Spa $7,930, credit Interest Revenue $130; credit Notes Receivable $7,800. $7,800 × 0.10 × 60/360 = $130 + $7,800 = $7,930

At the end of the day, the cash register tape shows $1,000 in cash sales but the count of cash in the register is $1,010. The proper entry to account for this excess is:

Debit Cash $1,010; credit Sales $1,000; credit Cash Over and Short $10.

MacKenzie Company sold $180 of merchandise to a customer who used a Regional Bank credit card. Regional Bank charges a 4% fee for sales on its credit cards. The journal entry to record this sales transaction would be:

Debit Cash $172.80; debit Credit Card Expense $7.20 and credit Sales $180.

Jasper makes a $25,000, 90-day, 7% cash loan to Clayborn Company. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.

Debit Cash $25,437.50; credit Interest Revenue $437.50; credit Notes Receivable $25,000.

Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 2.5% charge on sales for using its card. On May 26, Brinker had $4,800 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?

Debit Cash $4,680; debit Credit Card Expense $120; credit Sales $4,800. Explanation Credit card fee expense: $4,800 × 0.025 = $120Cash received: $4,800 − $120 = $4,680

On July 9, Mifflin Company receives an $8,500, 90-day, 8% note from customer Payton Summers to replace an account receivable. What entry should be made by Mifflin on the maturity date assuming the maker pays in full, and no adjusting entries have been made related to the note? (Use 360 days a year.)

Debit Cash $8,670; credit Interest Revenue $170; credit Notes Receivable $8,500. Explanation 8,500 × 0.08 × 90/360 = $170 + $8,500 = $8,670

Mullis Company sold merchandise on account to a customer for $625, terms n/30. The journal entry to record the collection on account would be:

Debit Cash of $625 and credit Accounts Receivable $625.

Wickland Company installs a manufacturing machine in its production facility at the beginning of the year at a cost of $87,000. The machine's useful life is estimated to be 5 years, or 400,000 units of product, with a $7,000 salvage value. During its second year, the machine produces 84,500 units of product. What journal entry would be needed to record the machines' second year depreciation under the units-of-production method?

Debit Depreciation Expense $16,900; credit Accumulated Depreciation $16,900. Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Production of UnitsDepreciation Expense = [($87,000 − $7,000)/400,000] × 84,500 = $16,900

Victory Company purchases equipment at the beginning of the year at a cost of $15,000. The equipment is depreciated using the straight-line method and has a useful life estimated to be 7 years with a $1,000 salvage value. The journal entry to record the first year's depreciation is:

Debit Depreciation Expense $2,000, credit Accumulated Depreciation $2,000.

Havermill Company establishes a $250 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $73 for Repairs Expense, $137 for merchandise inventory, and $22 for miscellaneous expenses. The fund has a balance of $18. On October 1, the accountant determines that the fund should be increased by $50. The journal entry to record the reimbursement of the fund on September 30 includes a:

Debit to Repairs Expense for $73

On a bank reconciliation, a bank fee for check printing not yet recorded by the company is

Deducted from the book balance of cash.

Minor Company installs a machine in its factory at the beginning of the year at a cost of $135,000. The machine's useful life is estimated to be 5 years, or 300,000 units of product, with a $15,000 salvage value. During its first year, the machine produces 64,500 units of product. What journal entry would be needed to record the machine's first year depreciation under the units-of-production method?

Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Production of UnitsDepreciation Expense = [($135,000 − $15,000)/300,000] × 64,500 = $25,800

The following information is available for Montrose Company at December 31: Cash in bank account$ 8,540Petty cash$ 250Short-term investment (maturing in two months)$ 10,400Checks from customers$ 1,350Equipment$ 805Treasury bill maturing in 60 days$ 10,000Cash is register$ 290A certificate of deposit maturing in three years$ 6,000 Based on this information, determine the amount reported as Cash and Cash Equivalents on December 31. Multiple Choice

Explanation Cash and Cash equivalents = Cash in bank account $8,540 + Petty cash $250 + Short-term investment(maturing in two months) $10,400 + Treasury bills $10,000 + Checks from customers $1,350 + Cash in register $290 = $30,830

Starlight Company has the following purchases and sales during October. Using the LIFO perpetual inventory method, what amount will be reported in cost of goods sold for the 11 units that were sold? DateActivitiesUnits Acquired at CostUnits Sold at RetailOctober 1Beginning inventory8 units @ $200 = $1,600 October 2Purchase20 units @ $205 = $4,100 October 4Sales 11 units sold Multiple Choice

Explanation DateGoods PurchasedCost of Goods SoldInventory BalanceOctober 1 8 units @ $200= $ 1,600October 220 units @ $205 8 units @ $200= $ 5,70020 units @ $205October 4 11 units @ $205 = $2,2558 units @ $200= $ 3,4459 units @ $205

A total asset turnover ratio of 3.5 indicates that:

For every $1 in assets, the firm produced $3.50 in net sales during the period.

Which of the following procedures would weaken control over cash receipts that arrive through the mail?

For safety, only one person should open the mail, and that person should deposit the cash received in the bank at the end of each month

Perfection Company had cost of goods sold of $844,900, ending inventory of $60,350, and average inventory of $71,000. Its inventory turnover equals:

Inventory Turnover = Cost of Goods Sold/Average Inventory/Inventory Turnover = $844,900/$71,000 = 11.9 times

The checklist of steps necessary for approving an invoice for recording and payment, also known as the check authorization, is the:

Invoice approval.

Which of the following about the days' sales uncollected ratio is false?

It is most effective in evaluating the cash sales of a company

After companies apply one of the four costing methods, inventory is reviewed to ensure it is reported at the:

Lower of cost or market.

Honoring a note receivable indicates that the maker has:

Paid in full.

Riverboat Adventures pays $310,000 plus $15,000 in closing costs to purchase real estate. The real estate consists of land appraised at $35,000, a building appraised at $105,000, and land improvements appraised at $210,000. Compute the cost that should be allocated to the building.

Percent Allocated to Building = $105,000/($105,000 + $35,000 + $210,000) = 0.30Cost Allocated to Building = ($310,000 + $15,000) × 0.30 = $97,500

The LIFO conformity rule

Requires that when LIFO is used for tax reporting, it must also be used for financial reporting

The depreciation method that charges the same amount of expense to each period of the asset's useful life is called:

Straight-line depreciation.

Which of the following statements related to goods on consignment is false?

The consignee reports the goods in its inventory until sold.

Which of the following events would cause a bank to reduce a depositor's account?

The depositor orders new checks through the bank at a cost of $50.

The useful life of a plant asset is:

The length of time it is used in a company's operations.

One characteristic of plant assets is that they are

Used in operations.

Which of the following is not affected by an error related to ending inventory?

sales