ACCT Exam 2

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Which of the following statements about the materiality concept is not true?

Any error greater than $5,000 is considered material in a financial statement audit.

Which of the following statements is true with regards to financial statement audits?

Auditors provide reasonable assurance that statements are free from material misstatements, whether caused by errors or fraud.

Howell Company granted a sales allowance of $360 to a customer who was not totally satisfied with the quality of goods received. The customer did not return the goods and had not yet paid for them. Which of the following reflects the effects of this event on the financial statements?

C. (360) NA (360) (360) NA (360) NA

Which of the following occurs when a company replenishes its petty cash fund?

Cash decreases

Which of the following is not a motive for the embezzlement of cash by employees?

Cash is the common unit of measurement

Which of the following is not a typical document associated with a bank checking account?

Cash register tape

Which of the following is not an example of a common control activity?

Collusion

Which of the following describes an activity that increases a company's bank account balance?

Credit memo

Which of the following is not one of the nine features of an internal control system?

Customer service comment cards

An error is considered material if it would trigger an IRS audit.

False

Costs of selling inventory are product costs.

False

Gains and losses are recorded for increases and decreases in the market value of land.

False

The primary focus of financial statement audits is the discovery of fraud.

False

Which of the following items is not a product cost?

Freight cost on goods delivered FOB destination to customers

If a company is using the lower-of-cost-or-market rule and a write-down is required, how will that write-down affect the elements of the company's financial statements?

Gross margin and total assets will both decrease.

Which of the following statements regarding a multistep income statement is true?

Gross margin is calculated as sales revenue minus cost of goods sold.

Indicate whether each of the following statements is true or false. (Assume a periodic inventory system)

If the balance in ending inventory is overstated, net income will be understated. - FALSE If the balance in ending inventory is understated, retained earnings will be understated. - TRUE If the balance in ending inventory is overstated, selling and administrative expenses will not be affected. - TRUE If the balance in ending inventory is overstated, cost of goods sold will be overstated. - FALSE If the balance in ending inventory is overstated, assets will be overstated. - TRUE

Which of the following is not a common feature of an internal control system?

Implementing the most effective marketing plan

When the perpetual inventory system is used, where can the best estimate of the amount of inventory on hand be found?

In the Inventory account in the general ledger

Faust Company uses the perpetual inventory system. Faust sold goods that cost $2,300 for $3,600. The sale was made on account. What is the net effect of the sale on the company's financial statements? (Consider the effects of both parts of this event.)

Increase total assets by $1,300

Chester Company has established internal control policies and procedures in order to achieve the following objectives: 1) Effective evaluation of management performance. 2) Assure that the accounting records contain reliable information. 3) Safeguard the company's assets. 4) Assure that employees comply with company policy. Which of these objectives are achieved by accounting controls?

Objectives 2 and 3

When using a perpetual inventory system, which of the following events is an asset use transaction?

Paid cash for transportation-out costs

When a company recognizes cost of goods sold, how does that event impact the elements of the financial statements? (Ignore the effects of recognizing sales revenue.)

Stockholder's equity decreases.

Poole Company purchased two identical inventory items. One of the items, purchased in January, cost $4.50. The other, purchased in February, cost $4.75. One of the items was sold in March at a selling price of $7.50. Poole uses LIFO. Which of the following statements is true?

The amount of gross margin would be $2.75. Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Ending inventory = $4.50 (earliest purchase) Gross margin = Sales − Cost of goods sold Gross margin = $7.50 − $4.75 = $2.75

Which of the following circumstances would be a valid reason to estimate the amount of inventory that is on hand at the end of the period?

To test for financial statement manipulation

What is the effect of recording the purchase of inventory on account under the perpetual inventory system?

Total assets and total liabilities increase

Anchor Company sold merchandise with a cost of $560 to a customer for $890 on account. Due to an error, this sale was never recorded in the accounting records. What effect will the failure to make the necessary entries have on the company's financial statements?

Total assets and total stockholders' equity will be understated.

A company using a perpetual inventory system treats transportation-out as an operating expense.

True

A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory, as well as returns of inventory to suppliers.

True

Common size financial statements are prepared by converting dollar amounts to percentages.

True

During a period of rising inventory prices, a company's cost of goods sold would be higher using the LIFO cost flow method than with FIFO.

True

Preparing a bank reconciliation is a control activity.

True

Segregation of duties in an organization should be required to reduce the likelihood of theft.

True

The Internal Revenue Service allows a company to use LIFO for income tax purposes only if it also uses LIFO for financial reporting.

True

The specific identification inventory method is not practical for companies that sell many low-priced, high turnover items.

True

With a perpetual inventory system, assets and stockholders' equity increase by the amount of the gross margin when inventory is sold. (Consider the effects of both parts of this event.)

True

Zinke Company understated its ending inventory at the end of Year 1. Which of the following correctly states the effect of the error on the amounts shown on the Year 1 financial statements?

Understatement of total assets and gross margin.

What is the term used to describe a firm that primarily sells merchandise to other businesses?

Wholesale firm

Jake Co. purchased on account merchandise with a list price of $90,000. Payment terms were 1/15, n/45. If collection occurs within 18 days, what discount will Jake Co. recognize on the merchandise?

$0 Explanation The terms 1/15, n/45 indicate that the seller will allow a 1 percent discount if the purchaser pays cash within 15 days from the date of purchase. The amount not paid within the first 15 days is due at the end of 45 days from the date of purchase. In this case, Jake Co. did not meet the 15-day requirement. It took Jake Co. 18 days to pay which means Jake does not get the 1 percent discount.

Melbourne Company uses the perpetual inventory system and LIFO cost flow method. Melbourne purchased 500 units of inventory that cost $4.00 each. At a later date, the company purchased an additional 600 units of inventory that cost $5.00 each. If the company sells 800 units of inventory, what amount of ending inventory will appear on a balance sheet prepared immediately after the sale?

$1,200 Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Ending inventory units = 500 units + 600 units − 800 units sold = 300 units Ending inventory = 300 units × $4.00 (earliest purchase) = $1,200

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 500 units @ $2.60 First purchase @ May 7 600 units @ $2.80 Second purchase @ May 17 800 units @ $2.90 Third purchase @ May 23 400 units @ $3.00 Sales @ May 31 1,800 units @ $4.50 What is the amount of ending inventory assuming the FIFO cost flow method?

$1,490 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Ending inventory units = 2,300 units available for sale - 1,800 units sold = 500 units in ending inventory Ending inventory = 400 units × $3.00 per unit + 100 units × $2.90 per unit = $1,490

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,300. At the end of March, the company determined that it had outstanding checks of $1,080, deposits in transit of $680, a bank service charge of $35, and an NSF check from a customer for $220. What is the true cash balance at March 31?

$10,045 Explanation True cash balance = Unadjusted book balance of $10,300 − Service charge of $35 − NSF check of $220 = $10,045

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,400. At the end of March, the company determined that it had outstanding checks of $1,095, deposits in transit of $690, a bank service charge of $35, and an NSF check from a customer for $215. What is the true cash balance at March 31?

$10,150 Explanation True cash balance = Unadjusted book balance of $10,400 − Service charge of $35 − NSF check of $215 = $10,150

On September 30 the bank statement of Fine Company showed a balance of $13,700. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $5,550 - Outstanding checks amounted to $9,880 - A $790 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $1,310 - The bank service charge was $45 - Credit memo for $195 for the collection of one of the company's account receivable What is the true cash balance?

$10,160 Explanation True cash balance = Unadjusted bank balance of $13,700 + Deposits in transit of $5,550 − Outstanding checks of $9,880 + Error correction of $790 = $10,160

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,400. At the end of March, the company determined that it had outstanding checks of $900, deposits in transit of $600, a bank service charge of $20, and an NSF check from a customer for $200. What is the true cash balance at March 31?

$10,180 Explanation True cash balance = Unadjusted book balance of $10,400 − Service charge of $20 − NSF check of $200 = $10,180

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,500. At the end of March, the company determined that it had outstanding checks of $1,130, deposits in transit of $700, a bank service charge of $40, and an NSF check from a customer for $225. What is the true cash balance at March 31?

$10,235 Explanation True cash balance = Unadjusted book balance of $10,500 − Service charge of $40 − NSF check of $225 = $10,235

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,600. At the end of March, the company determined that it had outstanding checks of $1,145, deposits in transit of $710, a bank service charge of $40, and an NSF check from a customer for $225. What is the true cash balance at March 31?

$10,335 Explanation True cash balance = Unadjusted book balance of $10,600 − Service charge of $40 − NSF check of $225 = $10,335

On September 30 the bank statement of Fine Company showed a balance of $14,050. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $5,715 - Outstanding checks amounted to $10,170 - A $810 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $1,350 - The bank service charge was $47 - Credit memo for $205 for the collection of one of the company's account receivable What is the true cash balance?

$10,405 Explanation True cash balance = Unadjusted bank balance of $14,050 + Deposits in transit of $5,715 − Outstanding checks of $10,170 + Error correction of $810 = $10,405

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,700. At the end of March, the company determined that it had outstanding checks of $1,160, deposits in transit of $720, a bank service charge of $40, and an NSF check from a customer for $220. What is the true cash balance at March 31?

$10,440 Explanation True cash balance = Unadjusted book balance of $10,700 − Service charge of $40 − NSF check of $220 = $10,440

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,000 units @ $5.60 First purchase @ May 7 2,100 units @ $5.80 Second purchase @ May 17 2,300 units @ $5.90 Third purchase @ May 23 1,900 units @ $6.00 Sales @ May 31 6,300 units @ $7.50 What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

$10,521 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [(2,000 × $5.60) + (2,100 × $5.80) + (2,300 × $5.90) + (1,900 × $6.00)] ÷ 8,300 units = $5.83 per unit Cost of goods sold = Average cost per unit × Number of units sold Cost of goods sold = 6,300 units × $5.83 per unit = 36,729 Gross margin = Sales − Cost of goods sold Gross margin =(6,300 × $7.50) − 36,729 = $10,521

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,800. At the end of March, the company determined that it had outstanding checks of $1,195, deposits in transit of $730, a bank service charge of $45, and an NSF check from a customer for $230. What is the true cash balance at March 31?

$10,525 Explanation True cash balance = Unadjusted book balance of $10,800 − Service charge of $45 − NSF check of $230 = $10,525

Owen Company's unadjusted book balance at June 30 is $9,700. The company's bank statement reveals bank service charges of $45. Two credit memos are included in the bank statement: one for $900, which represents a collection that the bank made for Owen, and one for $50, which represents the amount of interest that Owen had earned on its interest-bearing account in June. What is the true cash balance?

$10,605 Explanation True cash balance = Unadjusted book balance of $9,700 − Service charge of $45 + Accounts Receivable Collection of $900 + Interest revenue of $50 = $10,605

At March 31, Cummins Co. had an unadjusted balance in its cash account of $11,000. At the end of March, the company determined that it had outstanding checks of $1,225, deposits in transit of $750, a bank service charge of $45, and an NSF check from a customer for $225. What is the true cash balance at March 31?

$10,730 Explanation True cash balance = Unadjusted book balance of $11,000 − Service charge of $45 − NSF check of $225 = $10,730

$10,890 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Cost of goods sold = (2,000 × $5.60) + (2,100 × $5.80) + (2,200 × $5.90) = $36,360 Gross margin = Sales − Cost of goods sold Gross margin = $47,250 − $36,360 = $10,890

At March 31, Cummins Co. had an unadjusted balance in its cash account of $11,300. At the end of March, the company determined that it had outstanding checks of $1,290, deposits in transit of $780, a bank service charge of $50, and an NSF check from a customer for $230. What is the true cash balance at March 31?

$11,020 Explanation True cash balance = Unadjusted book balance of $11,300 − Service charge of $50 − NSF check of $230 = $11,020

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,100 units @ $5.80 First purchase @ May 7 2,200 units @ $6.00 Second purchase @ May 17 2,400 units @ $6.10 Third purchase @ May 23 2,000 units @ $6.20 Sales @ May 31 6,600 units @ $7.70 What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

$11,022 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [(2,100 × $5.80) + (2,200 × $6.00) + (2,400 × $6.10) + (2,000 × $6.20)] ÷ 8,700 units = $6.03 per unit Cost of goods sold = Average cost per unit × Number of units sold Cost of goods sold = 6,600 units × $6.03 per unit = 39,798 Gross margin = Sales − Cost of goods sold Gross margin =(6,600 × $7.70) − 39,798 = $11,022

At March 31, Cummins Co. had an unadjusted balance in its cash account of $11,400. At the end of March, the company determined that it had outstanding checks of $1,325, deposits in transit of $790, a bank service charge of $55, and an NSF check from a customer for $240. What is the true cash balance at March 31?

$11,105 True cash balance = Unadjusted book balance of $11,400 − Service charge of $55 − NSF check of $240 = $11,105

At March 31, Cummins Co. had an unadjusted balance in its cash account of $11,500. At the end of March, the company determined that it had outstanding checks of $1,340, deposits in transit of $800, a bank service charge of $55, and an NSF check from a customer for $240. What is the true cash balance at March 31?

$11,205 Explanation True cash balance = Unadjusted book balance of $11,500 − Service charge of $55 − NSF check of $240 = $11,205

$11,410 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Cost of goods sold = (2,100 × $5.80) + (2,200 × $6.00) + (2,300 × $6.10) = $39,410 Gross margin = Sales − Cost of goods sold Gross margin = $50,820 − $39,410 = $11,410

On September 30 the bank statement of Fine Company showed a balance of $15,300. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $6,150 - Outstanding checks amounted to $10,800 - A $850 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $1,450 - The bank service charge was $49 - Credit memo for $225 for the collection of one of the company's account receivable What is the true cash balance?

$11,500 Explanation True cash balance = Unadjusted bank balance of $15,300 + Deposits in transit of $6,150 − Outstanding checks of $10,800 + Error correction of $850 = $11,500

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,200 units @ $6.00 First purchase @ May 7 2,300 units @ $6.20 Second purchase @ May 17 2,500 units @ $6.30 Third purchase @ May 23 2,100 units @ $6.40 Sales @ May 31 6,900 units @ $7.90 What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

$11,523 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [(2,200 × $6.00) + (2,300 × $6.20) + (2,500 × $6.30) + (2,100 × $6.40)] ÷ 9,100 units = $6.23 per unit Cost of goods sold = Average cost per unit × Number of units sold Cost of goods sold = 6,900 units × $6.23 per unit = 42,987 Gross margin = Sales − Cost of goods sold Gross margin =(6,900 × $7.90) − 42,987 = $11,523

$11,930 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Cost of goods sold = (2,200 × $6.00) + (2,300 × $6.20) + (2,400 × $6.30) = $42,580 Gross margin = Sales − Cost of goods sold Gross margin = $54,510 − $42,580 = $11,930

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,100 units @ $5.80 First purchase @ May 7 2,200 units @ $6.00 Second purchase @ May 17 2,400 units @ $6.10 Third purchase @ May 23 2,000 units @ $6.20 Sales @ May 31 6,600 units @ $7.70 What is the amount of ending inventory assuming the FIFO cost flow method?

$13,010 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Ending inventory units = 8,700 units available for sale - 6,600 units sold = 2,100 units in ending inventory Ending inventory = 2,000 units × $6.20 per unit + 100 units × $6.10 per unit = $13,010

JCS Incorporated experienced the following transactions during its first year of business. The company purchased $16,000 of merchandise from Kent Company. The company paid $2,000 for selling and administrative expenses and purchased land for $5,000. All of the merchandise purchased was sold for $30,000 cash. What is the company's gross margin?

$14,000 Explanation Gross margin = Sales − Cost of goods sold $30,000 − $16,000 = $14,000

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,200 units @ $6.00 First purchase @ May 7 2,300 units @ $6.20 Second purchase @ May 17 2,500 units @ $6.30 Third purchase @ May 23 2,100 units @ $6.40 Sales @ May 31 6,900 units @ $7.90 What is the amount of ending inventory assuming the FIFO cost flow method?

$14,070 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Ending inventory units = 9,100 units available for sale - 6,900 units sold = 2,200 units in ending inventory Ending inventory = 2,100 units × $6.40 per unit + 100 units × $6.30 per unit = $14,070

Taylor Co. had beginning inventory of $400 and ending inventory of $600. Taylor Co. had cost of goods sold amounting to $1,800. What is the amount of inventory that was purchased during the period?

$2,000 Explanation Beginning inventory + Purchases − Ending inventory = Cost of goods sold $400 + Purchases − $600 = $1,800 Purchases = $1,800 − $400 + $600 = $2,000

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 700 units @ $3.00 First purchase @ May 7 800 units @ $3.20 Second purchase @ May 17 1,000 units @ $3.30 Third purchase @ May 23 600 units @ $3.40 Sales @ May 31 2,400 units @ $4.90 What is the amount of ending inventory assuming the FIFO cost flow method?

$2,370 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Ending inventory units = 3,100 units available for sale - 2,400 units sold = 700 units in ending inventory Ending inventory = 600 units × $3.40 per unit + 100 units × $3.30 per unit = $2,370

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 400 units @ $2.40 First purchase @ May 7 500 units @ $2.60 Second purchase @ May 17 700 units @ $2.70 Third purchase @ May 23 300 units @ $2.80 Sales @ May 31 1,500 units @ $4.30 What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

$2,505 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [(400 × $2.40) + (500 × $2.60) + (700 × $2.70) + (300 × $2.80)] ÷ 1,900 units = $2.63 per unit Cost of goods sold = Average cost per unit × Number of units sold Cost of goods sold = 1,500 units × $2.63 per unit = 3,945 Gross margin = Sales − Cost of goods sold Gross margin =(1,500 × $4.30) − 3,945 = $2,505

$2,570 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Cost of goods sold = (400 × $2.40) + (500 × $2.60) + (600 × $2.70) = $3,880 Gross margin = Sales − Cost of goods sold Gross margin = $6,450 − $3,880 = $2,570

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 400 units @ $2.40 First purchase @ May 7 500 units @ $2.60 Second purchase @ May 17 700 units @ $2.70 Third purchase @ May 23 300 units @ $2.80 Sales @ May 31 1,500 units @ $4.30 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

$2.63 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [960(400 × $2.40) + 1,300 (500 × $2.60) + 1,890 (700 × $2.70) + 840(300 × $2.80)] ÷ 1,900 units = $2.63 per unit

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 500 units @ $2.60 First purchase @ May 7 600 units @ $2.80 Second purchase @ May 17 800 units @ $2.90 Third purchase @ May 23 400 units @ $3.00 Sales @ May 31 1,800 units @ $4.50 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

$2.83 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [1,300(500 × $2.60) + 1,680 (600 × $2.80) + 2,320 (800 × $2.90) + 1,200(400 × $3.00)] ÷ 2,300 units = $2.83 per unit

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 500 units @ $2.60 First purchase @ May 7 600 units @ $2.80 Second purchase @ May 17 800 units @ $2.90 Third purchase @ May 23 400 units @ $3.00 Sales @ May 31 1,800 units @ $4.50 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

Olly Company is a merchandising business that sells dog food. Based on the following information, what is the gross margin for Olly Company? Sales Revenue $ 500,000 Cash 100,000 Accounts Receivable 50,000 Inventory 25,000 Cost of goods sold 300,000 Operating expenses 40,000

$200,000 Explanation Gross margin = Sales − Cost of goods sold $500,000 − $300,000 = $200,000

When preparing its quarterly financial statements, Pace Co. uses the gross margin method to estimate ending inventory. The following information is available for the quarter ending March 31, Year 2: Beginning inventory $ 110,000 Purchases $ 385,000 Sales $ 525,000 Estimated gross margin percentage 45 % What is the estimated amount of inventory that is on hand on March 31, Year 2?

$206,250 Explanation Estimated gross margin = Sales × Estimated gross margin percentage Estimated gross margin = $525,000 × 0.45 = $236,250 Estimated cost of goods sold = Sales − Estimated gross margin Estimated cost of goods sold = $525,000 − $236,250 = $288,750 Cost of goods available for sale = Beginning inventory + Purchases Cost of goods available for sale = $110,000 + $385,000 = $495,000 Ending inventory = Cost of goods available for sale − Estimated cost of goods sold Ending inventory = $495,000 − $288,750 = $206,250

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,600 units @ $4.80 First purchase @ May 7 1,700 units @ $5.00 Second purchase @ May 17 1,900 units @ $5.10 Third purchase @ May 23 1,500 units @ $5.20 Sales @ May 31 5,100 units @ $6.70 What is the amount of cost of goods sold assuming the LIFO cost flow method?

$25,990 Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Cost of goods sold = (1,500 × $5.20) + (1,900 × $5.10) + (1,700 × $5.00) = $25,990

$3,090 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Cost of goods sold = (500 × $2.60) + (600 × $2.80) + (700 × $2.90) = $5,010 Gross margin = Sales − Cost of goods sold Gross margin = $8,100 − $5,010 = $3,090

Duke Company's unadjusted bank balance at March 31 is $3,630. The bank reconciliation revealed outstanding checks amounting to $550 and deposits in transit of $440. What is the true cash balance?

$3,520 Explanation True cash balance = Unadjusted bank balance of $3,630 + Deposits in transit of $440 − Outstanding checks of $550 = $3,520

Duke Company's unadjusted bank balance at March 31 is $3,740. The bank reconciliation revealed outstanding checks amounting to $560 and deposits in transit of $430. What is the true cash balance?

$3,610 Explanation True cash balance = Unadjusted bank balance of $3,740 + Deposits in transit of $430 − Outstanding checks of $560 = $3,610

Duke Company's unadjusted bank balance at March 31 is $3,850. The bank reconciliation revealed outstanding checks amounting to $580 and deposits in transit of $460. What is the true cash balance?

$3,730 Explanation True cash balance = Unadjusted bank balance of $3,850 + Deposits in transit of $460 − Outstanding checks of $580 = $3,730

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 700 units @ $3.00 First purchase @ May 7 800 units @ $3.20 Second purchase @ May 17 1,000 units @ $3.30 Third purchase @ May 23 600 units @ $3.40 Sales @ May 31 2,400 units @ $4.90 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

$3.23 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [2,100(700 × $3.00) + 2,560 (800 × $3.20) + 3,300 (1,000 × $3.30) + 2,040(600 × $3.40)] ÷ 3,100 units = $3.23 per unit

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,000 units @ $5.60 First purchase @ May 7 2,100 units @ $5.80 Second purchase @ May 17 2,300 units @ $5.90 Third purchase @ May 23 1,900 units @ $6.00 Sales @ May 31 6,300 units @ $7.50 What is the amount of cost of goods sold assuming the LIFO cost flow method?

$37,150 Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Cost of goods sold = (1,900 × $6.00) + (2,300 × $5.90) + (2,100 × $5.80) = $37,150

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 700 units @ $3.00 First purchase @ May 7 800 units @ $3.20 Second purchase @ May 17 1,000 units @ $3.30 Third purchase @ May 23 600 units @ $3.40 Sales @ May 31 2,400 units @ $4.90 What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

$4,008 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [(700 × $3.00) + (800 × $3.20) + (1,000 × $3.30) + (600 × $3.40)] ÷ 3,100 units = $3.23 per unit Cost of goods sold = Average cost per unit × Number of units sold Cost of goods sold = 2,400 units × $3.23 per unit = 7,752 Gross margin = Sales − Cost of goods sold Gross margin =(2,400 × $4.90) − 7,752 = $4,008

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 400 units @ $2.40 First purchase @ May 7 500 units @ $2.60 Second purchase @ May 17 700 units @ $2.70 Third purchase @ May 23 300 units @ $2.80 Sales @ May 31 1,500 units @ $4.30 What is the amount of cost of goods sold assuming the LIFO cost flow method?

$4,030 Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Cost of goods sold = (300 × $2.80) + (700 × $2.70) + (500 × $2.60) = $4,030

$4,130 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Cost of goods sold = (700 × $3.00) + (800 × $3.20) + (900 × $3.30) = $7,630 Gross margin = Sales − Cost of goods sold Gross margin = $11,760 − $7,630 = $4,130

Duke Company's unadjusted bank balance at March 31 is $4,510. The bank reconciliation revealed outstanding checks amounting to $670 and deposits in transit of $500. What is the true cash balance?

$4,340 Explanation True cash balance = Unadjusted bank balance of $4,510 + Deposits in transit of $500 − Outstanding checks of $670 = $4,340

Duke Company's unadjusted bank balance at March 31 is $4,730. The bank reconciliation revealed outstanding checks amounting to $700 and deposits in transit of $520. What is the true cash balance?

$4,550 Explanation True cash balance = Unadjusted bank balance of $4,730 + Deposits in transit of $520 − Outstanding checks of $700 = $4,550

Duke Company's unadjusted bank balance at March 31 is $4,950. The bank reconciliation revealed outstanding checks amounting to $730 and deposits in transit of $530. What is the true cash balance?

$4,750 Explanation True cash balance = Unadjusted bank balance of $4,950 + Deposits in transit of $530 − Outstanding checks of $730 = $4,750

Duke Company's unadjusted bank balance at March 31 is $5,060. The bank reconciliation revealed outstanding checks amounting to $740 and deposits in transit of $520. What is the true cash balance?

$4,840 Explanation True cash balance = Unadjusted bank balance of $5,060 + Deposits in transit of $520 − Outstanding checks of $740 = $4,840

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,100 units @ $5.80 First purchase @ May 7 2,200 units @ $6.00 Second purchase @ May 17 2,400 units @ $6.10 Third purchase @ May 23 2,000 units @ $6.20 Sales @ May 31 6,600 units @ $7.70 What is the amount of cost of goods sold assuming the LIFO cost flow method?

$40,240 Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Cost of goods sold = (2,000 × $6.20) + (2,400 × $6.10) + (2,200 × $6.00) = $40,240

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,200 units @ $6.00 First purchase @ May 7 2,300 units @ $6.20 Second purchase @ May 17 2,500 units @ $6.30 Third purchase @ May 23 2,100 units @ $6.40 Sales @ May 31 6,900 units @ $7.90 What is the amount of cost of goods sold assuming the LIFO cost flow method?

$43,450 Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Cost of goods sold = (2,100 × $6.40) + (2,500 × $6.30) + (2,300 × $6.20) = $43,450

Landis Company is preparing its financial statements. Gross margin is normally 40% of sales. Information taken from the company's records revealed sales of $25,000; beginning inventory of $2,500 and purchases of $17,500. What is the estimated amount of ending inventory at the end of the period?

$5,000 Explanation Estimated gross margin = Sales × Estimated gross margin percentage Estimated gross margin = $25,000 × 0.40 = $10,000 Estimated cost of goods sold = Sales − Estimated gross margin Estimated cost of goods sold = $25,000 − $10,000 = $15,000 Cost of goods available for sale = Beginning inventory + Purchases Cost of goods available for sale = $2,500 + $17,500 = $20,000 Ending inventory = Estimated cost of goods available for sale − Estimated cost of goods sold Ending inventory = $20,000 − $15,000 = $5,000

On September 30 the bank statement of Fine Company showed a balance of $7,650. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $3,315 - Outstanding checks amounted to $6,490 - A $570 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $790 - The bank service charge was $31 - Credit memo for $85 for the collection of one of the company's account receivable What is the true cash balance?

$5,045 Explanation True cash balance = Unadjusted bank balance of $7,650 + Deposits in transit of $3,315 − Outstanding checks of $6,490 + Error correction of $570 = $5,045

Duke Company's unadjusted bank balance at March 31 is $5,390. The bank reconciliation revealed outstanding checks amounting to $790 and deposits in transit of $560. What is the true cash balance?

$5,160 Explanation True cash balance = Unadjusted bank balance of $5,390 + Deposits in transit of $560 − Outstanding checks of $790 = $5,160

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 500 units @ $2.60 First purchase @ May 7 600 units @ $2.80 Second purchase @ May 17 800 units @ $2.90 Third purchase @ May 23 400 units @ $3.00 Sales @ May 31 1,800 units @ $4.50 What is the amount of cost of goods sold assuming the LIFO cost flow method?

$5,200 Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Cost of goods sold = (400 × $3.00) + (800 × $2.90) + (600 × $2.80) = $5,200

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 500 units @ $2.60 First purchase @ May 7 600 units @ $2.80 Second purchase @ May 17 800 units @ $2.90 Third purchase @ May 23 400 units @ $3.00 Sales @ May 31 1,800 units @ $4.50 What is the amount of cost of goods sold assuming the LIFO cost flow method?

Duke Company's unadjusted bank balance at March 31 is $5,500. The bank reconciliation revealed outstanding checks amounting to $800 and deposits in transit of $550. What is the true cash balance?

$5,250 Explanation True cash balance = Unadjusted bank balance of $5,500 + Deposits in transit of $550 − Outstanding checks of $800 = $5,250

Duke Company's unadjusted bank balance at March 31 is $5,610. The bank reconciliation revealed outstanding checks amounting to $820 and deposits in transit of $580. What is the true cash balance?

$5,370 Explanation True cash balance = Unadjusted bank balance of $5,610 + Deposits in transit of $580 − Outstanding checks of $820 = $5,370

On September 30 the bank statement of Fine Company showed a balance of $8,100. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: Deposits in transit amounted to $3,450 Outstanding checks amounted to $6,660 A $580 check was incorrectly drawn on Fine's account NSF checks returned by the bank were $820 The bank service charge was $31 Credit memo for $90 for the collection of one of the company's account receivable What is the true cash balance?

$5,470 Explanation True cash balance = Unadjusted bank balance of $8,100 + Deposits in transit of $3,450 − Outstanding checks of $6,660 + Error correction of $580 = $5,470

Duke Company's unadjusted bank balance at March 31 is $5,830. The bank reconciliation revealed outstanding checks amounting to $850 and deposits in transit of $590. What is the true cash balance?

$5,570 Explanation True cash balance = Unadjusted bank balance of $5,830 + Deposits in transit of $590 − Outstanding checks of $850 = $5,570

On September 30 the bank statement of Fine Company showed a balance of $8,450. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: Deposits in transit amounted to $3,615 Outstanding checks amounted to $6,950 A $600 check was incorrectly drawn on Fine's account NSF checks returned by the bank were $860 The bank service charge was $33 Credit memo for $100 for the collection of one of the company's account receivable What is the true cash balance?

$5,715 Explanation True cash balance = Unadjusted bank balance of $8,450 + Deposits in transit of $3,615 − Outstanding checks of $6,950 + Error correction of $600 = $5,715

Duke Company's unadjusted bank balance at March 31 is $6,270. The bank reconciliation revealed outstanding checks amounting to $910 and deposits in transit of $620. What is the true cash balance?

$5,980 Explanation True cash balance = Unadjusted bank balance of $6,270 + Deposits in transit of $620 − Outstanding checks of $910 = $5,980

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,600 units @ $4.80 First purchase @ May 7 1,700 units @ $5.00 Second purchase @ May 17 1,900 units @ $5.10 Third purchase @ May 23 1,500 units @ $5.20 Sales @ May 31 5,100 units @ $6.70 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

$5.03 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [7,680(1,600 × $4.80) + 8,500 (1,700 × $5.00) + 9,690 (1,900 × $5.10) + 7,800(1,500 × $5.20)] ÷ 6,700 units = $5.03 per unit

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,700 units @ $5.00 First purchase @ May 7 1,800 units @ $5.20 Second purchase @ May 17 2,000 units @ $5.30 Third purchase @ May 23 1,600 units @ $5.40 Sales @ May 31 5,400 units @ $6.90 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

$5.23 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [8,500(1,700 × $5.00) + 9,360 (1,800 × $5.20) + 10,600 (2,000 × $5.30) + 8,640(1,600 × $5.40)] ÷ 7,100 units = $5.23 per unit

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,000 units @ $5.60 First purchase @ May 7 2,100 units @ $5.80 Second purchase @ May 17 2,300 units @ $5.90 Third purchase @ May 23 1,900 units @ $6.00 Sales @ May 31 6,300 units @ $7.50 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

$5.83 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [11,200(2,000 × $5.60) + 12,180 (2,100 × $5.80) + 13,570 (2,300 × $5.90) + 11,400(1,900 × $6.00)] ÷ 8,300 units = $5.83 per unit

On September 30 the bank statement of Fine Company showed a balance of $8,900. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: Deposits in transit amounted to $3,750 Outstanding checks amounted to $7,120 A $610 check was incorrectly drawn on Fine's account NSF checks returned by the bank were $890 The bank service charge was $33 Credit memo for $105 for the collection of one of the company's account receivable What is the true cash balance?

$6,140 Explanation True cash balance = Unadjusted bank balance of $8,900 + Deposits in transit of $3,750 − Outstanding checks of $7,120 + Error correction of $610 = $6,140

On September 30 the bank statement of Fine Company showed a balance of $9,250. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $3,915 - Outstanding checks amounted to $7,410 - A $630 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $930 - The bank service charge was $35 - Credit memo for $115 for the collection of one of the company's account receivable What is the true cash balance?

$6,385 Explanation True cash balance = Unadjusted bank balance of $9,250 + Deposits in transit of $3,915 − Outstanding checks of $7,410 + Error correction of $630 = $6,385

On September 30 the bank statement of Fine Company showed a balance of $9,700. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: Deposits in transit amounted to $4,050 Outstanding checks amounted to $7,580 A $640 check was incorrectly drawn on Fine's account NSF checks returned by the bank were $960 The bank service charge was $35 Credit memo for $120 for the collection of one of the company's account receivable What is the true cash balance?

$6,810 Explanation True cash balance = Unadjusted bank balance of $9,700 + Deposits in transit of $4,050 − Outstanding checks of $7,580 + Error correction of $640 = $6,810

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,100 units @ $5.80 First purchase @ May 7 2,200 units @ $6.00 Second purchase @ May 17 2,400 units @ $6.10 Third purchase @ May 23 2,000 units @ $6.20 Sales @ May 31 6,600 units @ $7.70 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

$6.03 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [12,180(2,100 × $5.80) + 13,200 (2,200 × $6.00) + 14,640 (2,400 × $6.10) + 12,400(2,000 × $6.20)] ÷ 8,700 units = $6.03 per unit

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,200 units @ $6.00 First purchase @ May 7 2,300 units @ $6.20 Second purchase @ May 17 2,500 units @ $6.30 Third purchase @ May 23 2,100 units @ $6.40 Sales @ May 31 6,900 units @ $7.90 If the company uses the weighted-average inventory cost flow method, what is the average cost per unit (rounded) for May?

$6.23 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [13,200(2,200 × $6.00) + 14,260 (2,300 × $6.20) + 15,750 (2,500 × $6.30) + 13,440(2,100 × $6.40)] ÷ 9,100 units = $6.23 per unit

Sam Company reported the following amounts on its income statement: Net income $ 100,000 Cost of goods sold 400,000 Gross margin 200,000 Based on the information provided, what was the amount of sales reported on the income statement?

$600,000 Explanation Gross margin = Sales − Cost of goods sold $200,000 = X − $400,000 X = $400,000 + $200,000 Sales = $600,000

On September 30 the bank statement of Fine Company showed a balance of $10,500. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $4,350 - Outstanding checks amounted to $8,040 - A $670 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $1,030 - The bank service charge was $37 - Credit memo for $135 for the collection of one of the company's account receivable What is the true cash balance?

$7,480 Explanation True cash balance = Unadjusted bank balance of $10,500 + Deposits in transit of $4,350 − Outstanding checks of $8,040 + Error correction of $670 = $7,480

On September 30 the bank statement of Fine Company showed a balance of $10,850. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $4,515 - Outstanding checks amounted to $8,330 - A $690 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $1,070 - The bank service charge was $39 - Credit memo for $145 for the collection of one of the company's account receivable What is the true cash balance?

$7,725 Explanation True cash balance = Unadjusted bank balance of $10,850 + Deposits in transit of $4,515 − Outstanding checks of $8,330 + Error correction of $690 = $7,725

Vargas Company uses the perpetual inventory system and the FIFO cost flow method. During the current year, Vargas purchased 400 units of inventory that cost $15.00 each. At a later date during the year, the company purchased an additional 800 units of inventory that cost $18.00 each. Vargas sold 500 units of inventory for $27.00. What is the amount of cost of goods sold that will appear on the current year's income statement?

$7,800 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be charged to cost of goods sold. Cost of goods sold = (400 × $15.00) + (100 × $18.00) = $7,800

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 700 units @ $3.00 First purchase @ May 7 800 units @ $3.20 Second purchase @ May 17 1,000 units @ $3.30 Third purchase @ May 23 600 units @ $3.40 Sales @ May 31 2,400 units @ $4.90 What is the amount of cost of goods sold assuming the LIFO cost flow method?

$7,900 Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Cost of goods sold = (600 × $3.40) + (1,000 × $3.30) + (800 × $3.20) = $7,900

On September 30 the bank statement of Fine Company showed a balance of $11,300. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $4,650 - Outstanding checks amounted to $8,500 - A $700 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $1,100 - The bank service charge was $39 - Credit memo for $150 for the collection of one of the company's account receivable What is the true cash balance?

$8,150 Explanation True cash balance = Unadjusted bank balance of $11,300 + Deposits in transit of $4,650 − Outstanding checks of $8,500 + Error correction of $700 = $8,150

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,600 units @ $4.80 First purchase @ May 7 1,700 units @ $5.00 Second purchase @ May 17 1,900 units @ $5.10 Third purchase @ May 23 1,500 units @ $5.20 Sales @ May 31 5,100 units @ $6.70 What is the amount of ending inventory assuming the FIFO cost flow method?

$8,310 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Ending inventory units = 6,700 units available for sale - 5,100 units sold = 1,600 units in ending inventory Ending inventory = 1,500 units × $5.20 per unit + 100 units × $5.10 per unit = $8,310

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,600 units @ $4.80 First purchase @ May 7 1,700 units @ $5.00 Second purchase @ May 17 1,900 units @ $5.10 Third purchase @ May 23 1,500 units @ $5.20 Sales @ May 31 5,100 units @ $6.70 What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

$8,517 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [(1,600 × $4.80) + (1,700 × $5.00) + (1,900 × $5.10) + (1,500 × $5.20)] ÷ 6,700 units = $5.03 per unit Cost of goods sold = Average cost per unit × Number of units sold Cost of goods sold = 5,100 units × $5.03 per unit = 25,653 Gross margin = Sales − Cost of goods sold Gross margin =(5,100 × $6.70) − 25,653 = $8,517

$8,810 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Cost of goods sold = (1,600 × $4.80) + (1,700 × $5.00) + (1,800 × $5.10) = $25,360 Gross margin = Sales − Cost of goods sold Gross margin = $34,170 − $25,360 = $8,810

On September 30 the bank statement of Fine Company showed a balance of $12,100. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $4,950 - Outstanding checks amounted to $8,960 - A $730 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $1,170 - The bank service charge was $41 - Credit memo for $165 for the collection of one of the company's account receivable What is the true cash balance?

$8,820 Explanation True cash balance = Unadjusted bank balance of $12,100 + Deposits in transit of $4,950 − Outstanding checks of $8,960 + Error correction of $730 = $8,820

On September 30 the bank statement of Fine Company showed a balance of $12,100. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: Deposits in transit amounted to $4,950 Outstanding checks amounted to $8,960 A $730 check was incorrectly drawn on Fine's account NSF checks returned by the bank were $1,170 The bank service charge was $41 Credit memo for $165 for the collection of one of the company's account receivable What is the true cash balance?

$8,820 Explanation True cash balance = Unadjusted bank balance of $12,100 + Deposits in transit of $4,950 − Outstanding checks of $8,960 + Error correction of $730 = $8,820

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,700 units @ $5.00 First purchase @ May 7 1,800 units @ $5.20 Second purchase @ May 17 2,000 units @ $5.30 Third purchase @ May 23 1,600 units @ $5.40 Sales @ May 31 5,400 units @ $6.90 What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

$9,018 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [(1,700 × $5.00) + (1,800 × $5.20) + (2,000 × $5.30) + (1,600 × $5.40)] ÷ 7,100 units = $5.23 per unit Cost of goods sold = Average cost per unit × Number of units sold Cost of goods sold = 5,400 units × $5.23 per unit = 28,242 Gross margin = Sales − Cost of goods sold Gross margin =(5,400 × $6.90) − 28,242 = $9,018

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,700 units @ $5.00 First purchase @ May 7 1,800 units @ $5.20 Second purchase @ May 17 2,000 units @ $5.30 Third purchase @ May 23 1,600 units @ $5.40 Sales @ May 31 5,400 units @ $6.90 What is the amount of gross margin assuming the weighted-average inventory cost flow method?

On September 30 the bank statement of Fine Company showed a balance of $12,450. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $5,115 - Outstanding checks amounted to $9,250 - A $750 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $1,210 - The bank service charge was $43 - Credit memo for $175 for the collection of one of the company's account receivable What is the true cash balance?

$9,065 Explanation True cash balance = Unadjusted bank balance of $12,450 + Deposits in transit of $5,115 − Outstanding checks of $9,250 + Error correction of $750 = $9,065

On September 30 the bank statement of Fine Company showed a balance of $12,450. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: Deposits in transit amounted to $5,115 Outstanding checks amounted to $9,250 A $750 check was incorrectly drawn on Fine's account NSF checks returned by the bank were $1,210 The bank service charge was $43 Credit memo for $175 for the collection of one of the company's account receivable What is the true cash balance?

$9,065 Explanation True cash balance = Unadjusted bank balance of $12,450 + Deposits in transit of $5,115 − Outstanding checks of $9,250 + Error correction of $750 = $9,065

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,700 units @ $5.00 First purchase @ May 7 1,800 units @ $5.20 Second purchase @ May 17 2,000 units @ $5.30 Third purchase @ May 23 1,600 units @ $5.40 Sales @ May 31 5,400 units @ $6.90 What is the amount of ending inventory assuming the FIFO cost flow method?

$9,170 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Ending inventory units = 7,100 units available for sale - 5,400 units sold = 1,700 units in ending inventory Ending inventory = 1,600 units × $5.40 per unit + 100 units × $5.30 per unit = $9,170

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,700 units @ $5.00 First purchase @ May 7 1,800 units @ $5.20 Second purchase @ May 17 2,000 units @ $5.30 Third purchase @ May 23 1,600 units @ $5.40 Sales @ May 31 5,400 units @ $6.90 What is the amount of gross margin assuming the FIFO cost flow method?

$9,330 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Cost of goods sold = (1,700 × $5.00) + (1,800 × $5.20) + (1,900 × $5.30) = $27,930 Gross margin = Sales − Cost of goods sold Gross margin = $37,260 − $27,930 = $9,330

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,700 units @ $5.00 First purchase @ May 7 1,800 units @ $5.20 Second purchase @ May 17 2,000 units @ $5.30 Third purchase @ May 23 1,600 units @ $5.40 Sales @ May 31 5,400 units @ $6.90 What is the amount of gross margin assuming the FIFO cost flow method?

At March 31, Cummins Co. had an unadjusted balance in its cash account of $9,700. At the end of March, the company determined that it had outstanding checks of $950, deposits in transit of $620, a bank service charge of $25, and an NSF check from a customer for $210. What is the true cash balance at March 31?

$9,465 Explanation True cash balance = Unadjusted book balance of $9,700 − Service charge of $25 − NSF check of $210 = $9,465

At March 31, Cummins Co. had an unadjusted balance in its cash account of $9,900. At the end of March, the company determined that it had outstanding checks of $1,000, deposits in transit of $640, a bank service charge of $30, and an NSF check from a customer for $215. What is the true cash balance at March 31?

$9,655 Explanation True cash balance = Unadjusted book balance of $9,900 − Service charge of $30 − NSF check of $215 = $9,655

On September 30 the bank statement of Fine Company showed a balance of $13,250. The following information was revealed by comparing the bank statement to the cash balance in Fine's accounting records: - Deposits in transit amounted to $5,415 - Outstanding checks amounted to $9,710 - A $780 check was incorrectly drawn on Fine's account - NSF checks returned by the bank were $1,280 - The bank service charge was $45 - Credit memo for $190 for the collection of one of the company's account receivable What is the true cash balance?

$9,735 Explanation True cash balance = Unadjusted bank balance of $13,250 + Deposits in transit of $5,415 − Outstanding checks of $9,710 + Error correction of $780 = $9,735

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,000. At the end of March, the company determined that it had outstanding checks of $1,015, deposits in transit of $650, a bank service charge of $30, and an NSF check from a customer for $215. What is the true cash balance at March 31?

$9,755 Explanation True cash balance = Unadjusted book balance of $10,000 − Service charge of $30 − NSF check of $215 = $9,755

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,100. At the end of March, the company determined that it had outstanding checks of $1,030, deposits in transit of $660, a bank service charge of $30, and an NSF check from a customer for $210. What is the true cash balance at March 31?

$9,860 Explanation True cash balance = Unadjusted book balance of $10,100 − Service charge of $30 − NSF check of $210 = $9,860

At March 31, Cummins Co. had an unadjusted balance in its cash account of $10,200. At the end of March, the company determined that it had outstanding checks of $1,065, deposits in transit of $670, a bank service charge of $35, and an NSF check from a customer for $220. What is the true cash balance at March 31?

$9,945 Explanation True cash balance = Unadjusted book balance of $10,200 − Service charge of $35 − NSF check of $220 = $9,945

Vargas Company sold a piece of land for $39,000 that had originally cost $32,500. How does this business event affect the company's financial statements?

All of these answer choices are correct.

A company using the perpetual inventory system paid $250 cash to have goods delivered from one of its suppliers. How would the payment of $250 for transportation-in be classified?

An asset exchange transaction

While performing its monthly bank reconciliation, the bookkeeper for Mosaic Company discovered that a check written for $421 for advertising expense was recorded in the firm's books as $241. Which of the following shows the effect of correcting the error on the financial statements?

B. (180) NA (180) NA 180 (180) (180) OA

Keatts Company's bank statement included an NSF check written by one of its customers. What effect will recognizing the NSF check have on the company's financial statements?

B. + - = NA + NA NA - NA = NA - OA

While performing the monthly bank reconciliation, Avon Company adjusted for a bank service charge of $20. Which of the following correctly shows how the adjustment for the bank service charge affects the financial statements?

D. (20) NA (20) NA 20 (20) (20) OA

A company using the perpetual inventory system paid cash for a transportation-in cost. Which of the following choices reflects the effects of this event on the financial statements?

D. + - = NA + NA NA - NA = NA - OA

Ramirez Company returns merchandise previously purchased on account. It had not yet been paid for. Ramirez uses the perpetual inventory system. Which of the following reflects the effects on the financial statements of only the purchase return?

D. - = - + NA NA - NA = NA NA

Jasper Company accepted a check from Harp Company as payment for services rendered. Jasper's bank statement revealed that the Harp check was an NSF check. What effect will recording the NSF check have on the accounting equation of Jasper Company?

D. No effect No effect

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

Decrease total assets, gross margin, and net income

JJ Co. purchased on account merchandise with a list price of $10,000. Payment terms were 1/15, n/45. If collection occurs before the discount expires, what is the effect of the sales discount on the balance sheet?

Decreases inventory

What is the chief advantage of the periodic system?

Efficiency and ease of recording

The inventory of Don's Grocery was destroyed by a tornado on October 6 of the current year. Fortunately, some of the accounting records were at the home of one of the owners and were not damaged. The following information was available for the period of January 1 through October 6: Beginning inventory, January 1 $ 140,000 Purchases through October 6 670,000 Sales through October 6 1,100,000 Gross margin for Don's has traditionally been 30 percent of sales.

Estimated gross margin $330,000 Estimated cost of goods sold $770,000 Estimated inventory at October 6 $40,000 Explanation a. 1. Estimated gross margin: Sales × Gross margin %: $1,100,000 × .30 = $330,000 2. Estimated cost of goods sold: Sales - Gross margin: $1,100,000 - $330,000 = $770,000 Or: Sales × Cost of goods sold %: $1,100,000 × .70 = $770,000 3. Estimated inventory at October 6: Beginning inventory $ 140,000 Plus: Purchases 670,000 Goods available for sale $ 810,000 Less: Cost of goods sold (770,000 ) Ending inventory $ 40,000

What type of account is the Cost of Goods Sold account?

Expense

SX Company sold merchandise on account for $16,000. The merchandise had cost the company $6,000. What is the effect of the sale on the income statement?

Expenses increase by $6,000. Explanation Selling merchandise on account will increase revenue by $16,000, increase expenses by $6,000, and increase net income by the difference between the two of $10,000.

If prices are rising, which inventory cost flow method will produce the lowest amount of cost of goods sold?

FIFO

A bank reconciliation normally begins with the ending cash balance shown on the bank statement and reconciles it to the unadjusted cash account balance on the company's books.

False

A bank statement debit memo describes a transaction that increases a customer's account balance.

False

A common size income statement is prepared by dividing all amounts on the statement by net income.

False

A company's gross margin reported on the income statement is not affected by the inventory cost flow method it uses.

False

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

False

A well-designed system of internal controls will eliminate all fraud.

False

During a period of rising inventory prices the LIFO cost flow method will result in higher total assets than FIFO.

False

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

False

If a company uses the LIFO cost flow method, it is not required by generally accepted accounting principles to apply the lower-of-cost-or-market rule.

False

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

False

Requiring segregation of duties in a business eliminates the need for the work of one employee to serve as a check on the work of other employees.

False

Selling costs are recognized as expenses in the period when goods are sold.

False

The gross margin method of estimating inventory is not useful in detecting inventory fraud.

False

The purpose of a petty cash fund is to eliminate the need for control over a business's small cash disbursements

False

The return on sales ratio indicates the amount of each sales dollar that is left over after covering the cost of goods sold.

False

The true cash balance can only be determined if both the unadjusted bank balance and the unadjusted book balance are known.

False

To ensure proper segregation of duties, after the check is signed, an employee should record the check in the accounting records and review the appropriate supporting documents.

False

Typical adjustments to the unadjusted book balance on a bank reconciliation include bank service charges, customer NSF checks, and certified checks.

False

With a periodic inventory system, the cost of goods sold is recorded at the time of a sale of merchandise.

False

Warner Company purchased two units of a product for $36 and later purchased one more for $40. If the company uses the weighted average cost flow method, and it sold one unit of the product for $60, its gross margin would be $22.00.

False Explanation Average cost per unit = Cost of goods available for sale of [(2 × $36) + (1 × $40)] ÷ Units available for sale of 3 = $37.33 per unit Selling price of $60 − Cost of goods sold of $37.33 = $22.66

Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value?

LIFO

What happens when prices are falling?

LIFO will result in higher net income and a higher inventory valuation than will FIFO.

Assume a company uses the periodic inventory system. Which of the following accounts would not be affected when recording purchases and related transactions?

Merchandise Inventory

How are cash overages reported on the financial statements?

Miscellaneous revenue

Which of the following retailers would be expected to have the highest gross margin percentage?

Neiman Marcus

How is the net income percentage calculated?

Net Income divided by net Sales

Which of the following is an administrative control?

Performance evaluation

Which of the following statements concerning internal controls is true?

Strong internal controls provide reasonable assurance that the objectives of a company will be accomplished.

Middleton Company uses the perpetual inventory system. The company purchased an item of inventory for $130 and sold the item to a customer for $200. How will the sale affect the company's Inventory account?

The Inventory account will decrease by $130. Explanation The sale will cause the Inventory account to decrease by $130, the cost of the item sold.

Which of the following statements regarding the Securities and Exchange Commission (SEC) is not true?

The SEC is a private professional organization.

Which of the following is not required to apply the gross margin method?

The amount of inventory on hand at the end of the current period

What happens when merchandise is delivered FOB shipping point?

The buyer pays the freight cost.

What happens when a company is operating in an inflationary environment?

The company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.

On April 30, Midwest Company established a petty cash fund of $1,000. On May 1, a disbursement of $355 was made from the fund for payment of delivery expense. What is the effect of the May 1 disbursement on the financial statements?

The disbursement has no effect on the financial statements

Which of the following methods of applying the lower-of-cost-or-market rule will result in the fewest number of inventory write-downs?

The entire stock of inventory in the aggregate

Hoover Company purchased two identical inventory items. The item purchased first cost $33.00. The item purchased second cost $35.00. Then Hoover sold one of the inventory items for $62.00. Based on this information, which of the following statements is true?

The gross margin is $28.00 if Hoover uses the weighted-average cost flow method. Explanation Using weighted average, cost of goods sold is calculated by multiplying the average cost per unit by the number of units sold. If Hoover uses weighted-average, the average cost per unit is $34.00. Therefore, gross margin will be $28.00 (or Sales of $62.00 - Cost of goods sold of $34.00). The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. If Hoover uses FIFO, cost of goods sold will be $33.00 (earliest purchase) rather than $35.00. The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. If Hoover uses LIFO, cost of goods sold will be $35.00 (most recent purchase) and ending inventory will be $33.00 rather than $35.00.

What happens when merchandise is delivered FOB Destination?

The seller pays the freight cost and records an expense.

How will a certified check be shown on a company's bank reconciliation?

There is no adjustment when preparing the bank reconciliation.

Why are the inventory and cost of goods sold accounts attractive targets for managerial fraud?

These accounts are more significant than most other accounts.

Total loss $25,000 Explanation b. Loss: Total inventory $ 40,000 Less: Undamaged (15,000 ) Total loss $ 25,000

A cash shortage is treated as an expense.

True

A discount merchandiser is likely to have a higher inventory turnover than more upscale stores with higher merchandise prices.

True

A multistep income statement separates routine operating results from peripheral or nonoperating items.

True

A multistep income statement shows sales revenue, cost of goods sold, and gross margin.

True

After the adjustments identified on the bank reconciliation have been recorded, the ending cash (book) balance reflected in the company's records will equal the true cash balance.

True

Costs charged to the Merchandise Inventory account are product costs.

True

During a period of rising inventory prices, the amount of ending inventory reported on the balance sheet will be lower using the LIFO cost flow method than with FIFO.

True

Even a good system of internal controls can be circumvented by collusion among employees.

True

For a company that uses the perpetual inventory system, a physical count of the inventory can reveal the amount of inventory shrinkage the company has experienced.

True

For a petty cash fund to be most useful to a business, one of the employees of the business should be designated as responsible for the fund.

True

For financial reporting purposes, cash generally includes currency and other items that are payable on demand, such as checks, money orders, bank drafts, and certain savings accounts.

True

Generally accepted accounting principles restrict or limit a company's freedom to change inventory cost flow methods from one year to the next.

True

If a company overstates its Inventory balance at the end of Year 1 due to an error, its Retained Earnings will also be overstated on the Year 1 balance sheet.

True

International Financial Reporting Standards (IFRS) do not permit the use of the LIFO inventory cost flow method.

True

Most audits result in unqualified audit opinions.

True

Net income is not affected by a purchase of merchandise.

True

One of the disadvantages of the specific identification inventory cost flow method is that it can allow managers of a business to manipulate the amount of income the business reports.

True

What is the most favorable audit opinion that a company can receive on its financial statements?

Unqualified opinion

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 400 units @ $2.40 First purchase @ May 7 500 units @ $2.60 Second purchase @ May 17 700 units @ $2.70 Third purchase @ May 23 300 units @ $2.80 Sales @ May 31 1,500 units @ $4.30 What is the amount of ending inventory assuming the FIFO cost flow method?

$1,110 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Ending inventory units = 1,900 units available for sale - 1,500 units sold = 400 units in ending inventory Ending inventory = 300 units × $2.80 per unit + 100 units × $2.70 per unit = $1,110

At March 31, Cummins Co. had an unadjusted balance in its cash account of $11,200. At the end of March, the company determined that it had outstanding checks of $1,275, deposits in transit of $770, a bank service charge of $50, and an NSF check from a customer for $235. What is the true cash balance at March 31?

$10,915 Explanation True cash balance = Unadjusted book balance of $11,200 − Service charge of $50 − NSF check of $235 = $10,915

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 2,000 units @ $5.60 First purchase @ May 7 2,100 units @ $5.80 Second purchase @ May 17 2,300 units @ $5.90 Third purchase @ May 23 1,900 units @ $6.00 Sales @ May 31 6,300 units @ $7.50 What is the amount of ending inventory assuming the FIFO cost flow method?

$11,990 Explanation The first-in, first-out (FIFO) cost flow method requires that the cost of the items purchased first be assigned to cost of goods sold. Ending inventory units = 8,300 units available for sale - 6,300 units sold = 2,000 units in ending inventory Ending inventory = 1,900 units × $6.00 per unit + 100 units × $5.90 per unit = $11,990

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 1,700 units @ $5.00 First purchase @ May 7 1,800 units @ $5.20 Second purchase @ May 17 2,000 units @ $5.30 Third purchase @ May 23 1,600 units @ $5.40 Sales @ May 31 5,400 units @ $6.90 What is the amount of cost of goods sold assuming the LIFO cost flow method?

$28,600 Explanation The last-in, first-out (LIFO) cost flow method requires that the cost of the items purchased last be charged to cost of goods sold. Cost of goods sold = (1,600 × $5.40) + (2,000 × $5.30) + (1,800 × $5.20) = $28,600

The inventory records for Radford Co. reflected the following: Beginning inventory @ May 1 500 units @ $2.60 First purchase @ May 7 600 units @ $2.80 Second purchase @ May 17 800 units @ $2.90 Third purchase @ May 23 400 units @ $3.00 Sales @ May 31 1,800 units @ $4.50 What is the amount of gross margin assuming the weighted-average inventory cost flow method? (Round your intermediate calculations to two decimal places.)

$3,006 Explanation Average cost per unit = Total cost of the inventory available ÷ Total number of units available Average cost per unit = [(500 × $2.60) + (600 × $2.80) + (800 × $2.90) + (400 × $3.00)] ÷ 2,300 units = $2.83 per unit Cost of goods sold = Average cost per unit × Number of units sold Cost of goods sold = 1,800 units × $2.83 per unit = 5,094 Gross margin = Sales − Cost of goods sold Gross margin =(1,800 × $4.50) − 5,094 = $3,006

Duke Company's unadjusted bank balance at March 31 is $4,070. The bank reconciliation revealed outstanding checks amounting to $610 and deposits in transit of $470. What is the true cash balance?

$3,930 Explanation True cash balance = Unadjusted bank balance of $4,070 + Deposits in transit of $470 − Outstanding checks of $610 = $3,930

Duke Company's unadjusted bank balance at March 31 is $4,290. The bank reconciliation revealed outstanding checks amounting to $640 and deposits in transit of $490. What is the true cash balance?

$4,140 Explanation True cash balance = Unadjusted bank balance of $4,290 + Deposits in transit of $490 − Outstanding checks of $640 = $4,140

Misty Mountain Outfitters is a merchandiser of specialized fly fishing gear. Its cost of goods sold for Year 2 was $295,000, and sales were $690,000. The amount of merchandise on hand was $50,000, and total assets amounted to $585,000. What is the average number of days to sell inventory? (Round to the nearest day.)

62 days Explanation Inventory turnover = Cost of goods sold ÷ Inventory Inventory turnover = $295,000 ÷ $50,000 = 5.9 times Average number of days to sell inventory = 365 ÷ Inventory turnover Average number of days to sell inventory = 365 ÷ 5.9 times = 62 days

What is an outstanding check?

A check that has been issued by the company but has not been presented to the bank for payment.

Which of the following is not a common internal control procedure over cash payments?

A receipt should be provided to each cash customer

Nelson Corporation is required to record an inventory write-down of $2,500 as a result of using the lower-of-cost-or-market rule. Which of the following shows how this business event would affect the financial statements?

A. (2,500) NA (2,500) NA 2,500 (2,500) NA

In the reconciliation of the June bank statement, a deposit made on June 30 did not appear on the June bank statement. How is this deposit in transit shown on the bank reconciliation?

Added to the unadjusted bank balance.

Which of the following internal control procedures should be implemented to control cash?

All of these answer choices are correct

The lower-of-cost-or-market rule can be applied to which of the following?

All of these answer choices are correct.

What is (are) the term(s) used to describe a discount given to encourage prompt payment?

All of these answer choices are correct.

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