ACG 2021 Exam 2

The following data come from the inventory records of Donoghue ​Company: Net sales revenue $628,000 Beginning inventory $60,000 Ending inventory $45,000 Net purchases $410,000 Based on these​ facts, the gross profit for Donoghue Company is A. $203,000. B. $120,000. C. $218,000. D. $193,000.

A. $203,000. Beginning inventory + Net purchases - Ending inventory = Cost of goods sold $60,000 + $410,000 - $45,000 = $425,000 Net sales revenue - Cost of goods sold = Gross profit $628,000 - $425,000 = $203,000

Delray Legal Association performs legal services for Hanna Construction for $3,500 on account with credit terms of 3​/10, ​n/30. If Hanna pays the invoice within the discount​ period, Delray will record a debit to Cash in the amount of A. $3,395 B. $105 C. $3,500 D. $3,605

A. $3,395 Service Revenue x Discount % = Sales discount $3,500 x 3% = $105 Cash = $3,500 - $105 = $3,395

Seaside Software began January with $3,900 of merchandise inventory. During​ January, Seaside made the following entries for its inventory​ transactions: Beginning Inventory 6,200 Accounts Payable 6,200 Accounts Receivables 7,800 Sales Revenue 7,800 Cost of goods sold 5,700 Ending Inventory 5,700 How much was Seaside's inventory at the end of​ January? A. $4,400 B. $10,100 C. $0 D. $6,200

A. $4,400 Inventory​ balance: ​($3,900 + $6,200 - $5,700​) = $4,400

Which of the following statements is​ correct? A. A company must accrue for estimated future returns at the end of the period in which the related sales revenue is recognized. B. The performance obligation in a sale of products is generally satisfied when the customer orders the products. C. If a customer returns a​ product, sales revenue will be credited. D. Sales returns and allowances increase a​ company's profit.

A. A company must accrue for estimated future returns at the end of the period in which the related sales revenue is recognized.

When does the cost of inventory become an​ expense? A. When inventory is delivered to a customer B. When payment is made to the supplier C. When inventory is purchased from the supplier D. When cash is collected from the customer

A. When inventory is delivered to a customer

A​ company's beginning inventory is $100,000​, its net purchases are $290,000​, and its net sales total $470,000. Its normal gross profit percentage is 45​% of sales. Using the gross profit​ method, how much is ending​ inventory? A. $131,500 B. $180,000 C. $68,500 D. $211,500

A. $131,500 Sales revenue $470,000 Less: Estimated gross profit of 45% (211,500) Estimated cost of goods sold $258,500 Beginning inventory $100,000 Purchases 290,000 Cost of goods available 390,000 Cost of goods sold (258,500) Estimated cost of ending inventory $131,500

Which of the following costs are reported on a​ company's income statement and balance​ sheet? Income Statement Balance Sheet A. Cost of goods sold Accumulated depreciation B. Accumulated depreciation Land C. Gain on sale of land Cost of goods sold D. Goodwill Accounts payable

A. Cost of goods sold Accumulated depreciation

Smatter Corporation purchased land for a new building. Which of the following costs would not be included in the cost of the​ land? A. Cost of new parking lot constructed on the land B. Brokerage commission paid to the real estate agent who handled the land transaction C. Purchase price of the land D. Cost of demolishing an old garage located on the land

A. Cost of new parking lot constructed on the land

Which statement about depreciation is​ false? A. Depreciation should not be recorded in years in which the market value of the asset has increased. B. Depreciation is a process of allocating the cost of an asset to expense over its useful life. C. A major objective of depreciation accounting is to allocate the cost of using an asset against the revenues it helps to generate. D. Obsolescence as well as physical wear and tear should be considered when determining the period over which an asset should be depreciated.

A. Depreciation should not be recorded in years in which the market value of the asset has increased.

Total asset turnover has increased at the​ O'Neil Company since last year. This increase must mean that A. The company has become more efficient. B. The company has become more effective. C. The company has become more effective and more efficient. D. The company has neither become more effective nor more efficient.

A. The company has become more efficient.

The sum of ending inventory and cost of goods sold is A. cost of goods available​ (or cost of goods available for​ sale). B. net purchases. C. beginning inventory. D. gross profit.

A. cost of goods available​ (or cost of goods available for​ sale).

The depreciation method that does not initially use the residual value in depreciation calculations is the A. double-declining balance method. B. units-of-production method. C. direct method. D. ​straight-line method.

A. double-declining balance method.

Use the following data of Snyder ​Company: Beginning inventory 20 $100 $2,000 Purchase on July 3 60 120 7,200 Sales 65 ? ? Snyder​'s ending inventory using the FIFO method would​ be: A. $1,500. B. $1,800. C. $7,400. D. $9,200.

B. $1,800. Beginning inventory 20 × $100 = $2,000 Purchase on July 3 60 × 120 = 7,200 Cost of goods available for sale $9,200 Cost of goods sold from beginning inventory 20 × $100 = $2,000 Cost of goods sold from purchase on July 3 45 × 120 = 5,400 Less: Total cost of goods sold $(7,400) Ending inventory $1,800 Number of units sold - Beginning INventory Units = Number of units sold in 2nd layer 65 - 20 = 45

On August​ 1, 2018​, Avonette​, ​Inc., sold equipment and accepted a​ six-month, 9​%, $50,000 note receivable. How much interest does Avonette expect to collect on the maturity date​ (February 1, 2019​)? A. $3,050 B. $2,250 C. $375 D. $4,500

B. $2,250 Principal x Interest Rate % x Time = Amount of interest $50,000 x 9% x 6/12 months = $2,250

Milford Company uses the​ percent-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $140,000​, and management estimates 2​% will be uncollectible. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $3,000. The amount of expense to report on the income statement will be A. $1,500. B. $2,800. C. $8,400. D. $5,800.

B. $2,800. Credit sales x uncollectible account % = Uncollectible Account Expense $140,000 x 2% = $2,800

Bartel Company uses the aging method to adjust the allowance for uncollectible accounts at the end of the period. At December​ 31, 2018​, the balance of accounts receivable is $210,000 and the allowance for uncollectible accounts has a credit balance of $5,500 ​(before adjustment). An analysis of accounts receivable produced the following age​ groups: Current. . . . . . . . . . . . . . . .$180,000 60 days past due. . . . . . . . . .22,000 Over 60 days past due. . . . . .8,000 =$210,000 Based on past​ experience, Bartel estimates that the percentage of accounts that will prove to be uncollectible within the three age groups is 4​% of the current​ balance, 10​% of the 60 days past due​ balance, and 19​% of the over 60 days past due balance. Based on these​ facts, the adjusting entry for uncollectible accounts should be made in the amount of A. $17,420. B. $5,420. C. $16,420. D. $10,920.

B. $5,420. 180,000 x 4% = 7,200 22,000 x 10% = 2,200 8,000 x 19% = 1,520 7,200 + 2,200 + 1,520 = 10,920 10,920 - 5,500 = $5,420

Milford Company uses the​ percent-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $140,000​, and management estimates 2​% will be uncollectible. The amount of expense to report on the income statement was $2,800. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $3,000. The balance of Allowance for Uncollectible​ Accounts, after​ adjustment, will be A. $5,200. B. $5,800. C. $1,500. D. $2,800.

B. $5,800. Unadjusted Allowance for uncollectible account + Uncollectible Account Expense = Adjusted Allowance for Uncollectible Accounts $3,000 + $2,800 = $5,800

A company with net credit sales of $960,000​, beginning net receivables of $70,000​, and ending net receivables of $90,000​, has​ days' sales outstanding closest​ to: A. 36 days. B. 30 days. C. 33 days. D. 40 days.

B. 30 days. (Beginning net receivables + Ending net receivables) / 2 = Average Net Receivables ($70,000 + $90,000) / 2 = $80,000 Net Credit Sales / Average Net Receivables = Accounts Receivable Turnover $960,000 / $80,000 = 12.00 365 / Accounts Receivable Turnover = Days' Sales Outstanding (DSO) 365 / 12.00 = 30 Days

Which of the following statements regarding contracts is​ incorrect? A. A contract is an agreement between two parties that creates enforceable rights or performance obligations. B. A contract must be written to be valid. C. Identifying the contract with the customer is the first step of the revenue recognition model. D. For a business that provides​ services, the performance obligation is generally satisfied when the service provider has substantially completed the service for the customer.

B. A contract must be written to be valid.

On August​ 1, 2018​, Avonette​, ​Inc., sold equipment and accepted a​ six-month, 9​%, $50,000 note receivable. Avonette​'s ​year-end is December 31. If Avonette fails to make an adjusting entry for the accrued interest on December​ 31, 2018​, A. net income will be understated and liabilities will be overstated. B. net income will be understated and assets will be understated. C. net income will be overstated and assets will be overstated. D. net income will be overstated and liabilities will be understated.

B. net income will be understated and assets will be understated.

The word market as used in​ "the lower of cost or​ market" generally means A. retail market price. B. net realizable value. C. original cost. D. liquidation price.

B. net realizable value.

Suppose Quick Travel pays $62 million to buy Lone Moon Overnight. The fair value of Lone Moon​'s assets is $70 ​million, and the fair value of its liabilities is $24 million. How much goodwill did Quick Travel purchase in its acquisition of Lone Moon ​Overnight? A. $24 million B. $16 million C. $38 million D. $32 million

B. $16 million Purchase price paid for Lone Moon Overnight - (Sum of the market value of Lone Moon's assets - Market values of Lone Moon's liabilities) = Cost of Goodwill $62 - ($70 - $24) = $16

Suppose you buy land for $3,150,000 and spend $1,050,000 to develop the property. You then divide the land into lots as​ follows: Category Sale Price per Lot 15 Hilltop lots $520,000 15 Valley lots $280,000 How much did each Hilltop lot cost​ you? A. $98,000 B. $182,000 C. $520,000 D. $35,000

B. $182,000 % of total market value​ = Sale price per lot—Hilltop ​÷ (Sale price per lot—Hilltop ​+ Sale price per lot—​Valley) ​% of total market value​ = $520,000 ​÷ ​($520,000 ​+ $280,000​) ​= 65​% Cost per Hilltop lot​ = % of total market value​ × (Land cost​ + Development​ cost) ÷ Number of Hilltop lots Cost per Hilltop lot​ = 65​% ​× ​($3,150,000 ​+ $1,050,000​) ​÷ 15​ = $182,000

Houston Corporation acquired a machine for $26,000 and has recorded depreciation for two years using the​ straight-line method over a five​-year life and $2,000 residual value. At the start of the third year of​ use, Houston revised the estimated useful life to a total of 10 years. Estimated residual value declined to​ $0. How much depreciation should Houston record in each of the​ asset's last eight years​ (that is, year 3 through year​ 10), following the​ revision? A. $10,400 B. $2,050 C. $2,600 D. Some other amount

B. $2,050 Depreciation for 2 years​ = (Cost​ - Residual​ value) ÷ Previous useful life​ × Years used Depreciation for 2 years​ = ​($26,000 ​- $2,000​) ​÷ 5 ​× 2 ​= $9,600 New annual depreciation​ = (Cost​ - Depreciation for 2 ​years) ÷ Estimated useful life remaining New annual depreciation​ = ​($26,000 ​- $9,600​) ​÷ 8 ​= $2,050

A company purchased mineral assets holding approximately 280,000 tons of ore for $840,000. The estimated residual value of the assets is zero. During the first​ year, 42,000 tons are extracted and sold. What is the amount of depletion for the first​ year? ​ A. $14,000 B. $280,000 C. $126,000 D. Cannot be determined from the data given

C. $126,000 Cost of mineral assets ÷ Total tons of ore = Depletion rate $840,000 ÷ 280,000 = $3 Tons removed × Depletion rate = Depletion expense 42,000 × $3 = $126,000

Taylor Company purchased a machine for $9,800 on January​ 1, 2016. The machine has been depreciated using the​ straight-line method assuming it has a five​-year life with a $1,400 residual value. Taylor sold the machine on January​ 1, 2018​, for $7,600. What is the book value of the machine on December​ 31, 2017​? A. $2,100 B. $6,440 C. $8,400 D. $9,800

B. $6,440 (Cost - Residual Value) / Useful Life, in years = Annual Depreciation ($9,800 - $1,400) / 5 years = $1,680 Cost - (Depreciation, 2016 + Depreciation, 2017) = Book Value $9,800 - ($1,680 + $1,680) = $6,440

When a company expenses the cost of maintenance for its heating and cooling​ system, that cost will appear on its A. Statement of retained earnings. B. Income statement. C. Statement of​ stockholders' equity. D. Balance sheet.

B. Income statement.

An error understated Golden Flash Company​'s December​ 31, 2018​, ending inventory by​ $27,000. What effect will this error have on net income for 2019​? A. Have no effect on it B. Overstate it C. Understate it

B. Overstate it

On August​ 1, 2018​, Avonette​, ​Inc., sold equipment and accepted a​ six-month, 9​%, $50,000 note receivable. Avonette's ​year-end is December 31. How much interest revenue should Avonette accrue on December​ 31, 2018​? A. $4,500 B. $2,425 C. $1,875 D. $2,250

C. $1,875 Principal x Interest Rate % x Time = Amount of interest $50,000 x 9% x 5/12 months = $1,875

Riverwood Corporation began 2018 with a balance in Accounts Receivable of $525,000. Service​ revenue, all on​ account, for the year totaled $2,200,000. The company ended the year with a balance in Accounts Receivable of $550,000. Riverwood​'s ​bad-debt write-offs are nonexistent. How much cash did the company collect from customers in 2018​? A. $2,225,000 B. $2,200,000 C. $2,175,000 D. $2,750,000

C. $2,175,000 Beginning Accounts Receivable + Service Revenue - Ending Accounts Receivable = 2018 cash collections $525,000 + $2,200,000 - $550,000 = $2,175,000

Which of the following is included in the calculation of the quick​ (acid-test) ratio? A. Inventory and​ short-term investments B. Inventory and prepaid expenses C. Cash and accounts receivable D. Prepaid expenses and cash

C. Cash and accounts receivable

A company sells on credit terms of​ 2/10, n/30 and has​ days' sales in accounts receivable of 30.2 days. Its​ days' sales outstanding is A. too low. B. too high. C. about right. D. not able to be evaluated from the data given.

C. about right.

MultimediaDat, Inc, reported sales revenue of $600,000​, net income of $36,000​, and average total assets of $300,000. MultimediaDat's return on assets is A. 6.0​% B. 50.0​% C. 12.0​% D. 2​%

C. 12.0​% Net income ÷ Average total assets = Return on assets (ROA) $36,000 ÷ $300,000 = 12.0%

A​ company's sales are $510,000 and cost of goods sold is $400,000. Beginning and ending inventories are $24,000 and $40,000​, respectively. How many times did the company turn its inventory over during this​ period? A. 3.4 times B. 15.9 times C. 12.5 times D. 4.6 times

C. 12.5 times (Beginning inventory + Ending inventory) ÷ 2 = Average inventory ($24,000 + $40,000) / 2 = $32,000 Costs of goods sold / Average Inventory = Inventory Turnover $400,000 / $32,000 = 12.5

Trudell Corporation reported the following​ data: Freight in $23,000 Purchases 208,000 Beginning inventory 53,000 Purchase discounts 4,300 Dividends 3,000 Purchase returns 6,300 Sales revenue 360,000 Ending inventory 43,000 Trudell​'s gross profit percentage is ​ A. 64.0 B. 69.6 C. 36.0 D. 35.0

C. 36.0. Net purchases​ = Purchases​ - Purchase discounts​ - Purchase returns Net purchases​ = ​$208,000 ​- ​$4,300 ​- ​$6,300 ​= 197,400 Beginning inventory $53,000 Net purchases 197,400 Freight in 23,000 Cost of goods available 273,400 Less: Ending inventory (43,000) Cost of goods sold 230,400 (Net sales - Cost of goods sold) / Net Sales = Gross Profit Percentage ($360,000 - $230,400) / $360,000 = 36.0%

A capital expenditure A. is expensed immediately. B. is a credit-like capital​ (equity). C. adds to an asset. D. records additional capital.

C. adds to an asset.

The income statement for Natures Way Foods shows gross profit of $145,000​, operating expenses of $122,000​, and cost of goods sold of $218,000. What is the amount of net sales​ revenue? A. $485,000 B. $267,000 C. $340,000 D. $363,000

D. $363,000 Gross profit + Cost of goods sold = Net sales revenue $145,000 + $218,000 = $363,000

Use the following data of Snyder ​Company: Beginning inventory 20 $100 $2,000 Purchase on July 3 60 120 7,200 Sales 65 ? ? Snyder​'s cost of goods sold using the LIFO method would​ be: A. $7,200. B. $7,400. C. $7,475. D. $7,700.

D. $7,700. Number of units sold - Units purchased July 3 = Beginning Inventory units sold 65-60=5 Cost of goods sold purchased on July 3: 60 × $120 = $7,200 Cost of goods sold from beginning inventory: 5 × 100 = 500 $7,200 + 500 = $7,700

Under the allowance method for uncollectible​ receivables, the entry to record​ uncollectible-account expense has what effect on the financial​ statements? A. Decreases​ stockholders' equity and increases liabilities B. Decreases assets and has no effect on net income C. Increases expenses and increases​ stockholders' equity D. Decreases net income and decreases assets

D. Decreases net income and decreases assets

In a period of rising​ prices, A. net income under LIFO will be higher than under FIFO. B. LIFO inventory will be greater than FIFO inventory. C. cost of goods sold under LIFO will be less than under FIFO. D. gross profit under FIFO will be higher than under LIFO.

D. gross profit under FIFO will be higher than under LIFO.

At the beginning of last​ year, Brentwood Corporation purchased a piece of heavy equipment for $74,000. The equipment has a life of five years or 100,000 hours. The estimated residual value is $4,000. Bremond used the equipment for 23,000 hours last year and 25,000 hours this year. Depreciation expense for year two using​ double-declining-balance (DDB) and​ units-of-production (UOP) methods would be as​ follows: DDB UOP A. $16,800 $17,500 B. $16,800 $18,500 C. $17,760 $18,500 D. $17,760 $17,500

D. $17,760 $17,500 DDB rate​ = (1​ ÷ Useful life in​ years) × 2 DDB rate​ = (1​ ÷ 5​) ​× 2​ = 0.4 Year​ 1: DDB depreciation ​ = Asset book value​ × DDB rate DDB depreciation​ = $74,000 ​× 0.4 ​= $29,600 Year​ 2: Book value at beginning of year​ = $74,000 ​- $29,600 ​= $44,400 DDB depreciation​ = Asset book value​ × DDB rate DDB depreciation​ = $44,400 ​× 0.4 ​= $17,760 Depreciation per unit​ = (Cost​ - Residual​ value) × Useful life in units of production Depreciation per unit​ = ​($74,000 ​- $4,000​) ​× 100,000 ​= 0.7 UOP depreciation​ = Depreciation per units​ × Number of units​ (hours) UOP depreciation​ = 0.7 ​× 25,000 ​= $17,500

Taylor Company purchased a machine for $9,800 on January​ 1, 2016. The machine has been depreciated using the​ straight-line method assuming it has a five​-year life with a $1,400 residual value. Taylor sold the machine on January​ 1, 2018​, for $7,600. The book value as of December​ 31, 2017 is $6,440. What gain or loss should Taylor record on the​ sale? A. Gain, $800 B. Loss, $1,160 C. Loss, $520 D. Gain, $1,160

D. Gain, $1,160 Sale value - Book Value = Gain (loss) on sale $7,660 - $6,440 = $1,160

Two financial ratios that clearly distinguish a discount chain such as Walmart from a​ high-end retailer such as Gucci are the gross profit percentage and the rate of inventory turnover. Which set of relationships is most likely for​ Gucci? Gross Profit Percentage Inventory Turnover A. High High B. Low Low C. High Low D. Low High

Gross Profit Percentage Inventory Turnover C. High Low