MGMT 200 EXAM #2
Using LIFO, the amount reported for ending inventory does not differ depending on whether a company uses a periodic system or a perpetual system. A. True B. False
B. False
Knomark Inc., sold inventory for $1,200 that was purchased for $700. Knomark records which of the following when it sells inventory using a periodic inventory system? A. No entry is required for cost of goods sold and inventory. B. Debit Cost of Goods Sold $700; credit Inventory $700. C. Debit Cost of Goods Sold $1,200; credit Inventory $1,200. D. Debit Inventory $700; credit Cost of Goods Sold $700.
A.
Many intangible assets are not recorded on the balance sheet at their estimated market values A. True B. False
A.
Research and development costs should be: A. Expensed in the period incurred B. Expensed in the period they are determined to be unsuccessful C. Deferred pending determination of success D. Expensed if unsuccessful, capitalized if successful
A.
The LIFO difference (reserve) is the additional amount of inventory a company would report if it used FIFO instead of LIFO. A. True B. False
A.
The adjustment to write down inventory from cost to its lower net realizable value includes a debit to Cost of Goods Sold and a credit to Inventory. A. True B. False
A.
The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______. A. Asset; Balance sheet B. Expense; Income statement C. Liability; Balance sheet D. Revenue; Income statement
A.
The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be: A. FIFO. B. LIFO C. Weighted average D. Each method always produces a different amount
A.
The portion of cost of goods available for sale that is not assigned to ending inventory is assigned to cost of goods sold. A. True B. False
A.
Under GAAP, a company is permitted to apply the lower of cost or net realizable value rule to total inventory as compared to item by item analysis. A. True B. False
A.
Which of the following subsequent expenditures would not be capitalized? A. Unsuccessful legal defense of intangible assets B. Additions C. Improvements D. Successful legal defense of intangible assets
A.
Cedarhurst purchased land, a building, and equipment for $800,000. The estimated fair values of the land, building, and equipment are $100,000, $700,000, and $200,000, respectively. At what amount would the company record the land? A. $80,000 B. $90,000 C. $100,000 D. $800,000
A. $800,00 (purchase price) x 10%
During the first two years, Supplies, Inc. drove the company truck 15,000 and 22,000 miles, respectively, to deliver merchandise to its customers. The company originally purchased the truck for $175,000. If the truck has an estimated life of 10 years or 300,000 miles, with an estimated residual value of $25,000, what amount of deprecation expense should Supplies, Inc. record in the second year using the activity‐based method? A. $11,000 B. $18,500 C. $7,500 D. $16,000
A. $11,000 Truck cost - $175,000 Less residual value - ($25,000) Depreciable cost - $150,000 Cost per mile ($150,000/300,000 miles) $0.50 22,000 miles x $.50/mile = $11,000
Modern sold 2,300 units of inventory during the month. Ending inventory assuming FIFO would be: A. $5,140 B. $5,080 C. $5,060 D. $5,050 Date Transaction # of units Unit Cost Mar. 1 / Beginning Inventory 1000 $7.20 Mar. 10 / Purchase 600 $7.25 Mar. 16 / Purchase 800 $7.30 Mar. 23 / Purchase 600 $7.35 Mar. / Sales (2,300) Mar. 31 / Ending Inventory 700
A. $5,140 (100 × $7.30) + (600 × $7.35) = $5,140
At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be A. $6,540 B. $7,800 C. $7,140 D. $7,740
A. $6,540 ($238,000 × 3%) = $7,140
Sandburg Veterinarian reports the following information for the year: What is Sandburg's receivables turnover ratio? Net credit sales $120,000 Average accounts receivable 20,000 Cash collections on credit sales 100,000 A. 6.0 B. 5.0 C. 1.2 D. 0.2
A. - 120,000 / 20,000
Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of goods sold is $60,000. What is ending inventory? A. $20,000 B. $30,000 C. $10,000 D. $50,000
A. - B/E + Purchases - Cost of Goods
Losses on the sale of long‐term assets for cash: A. Are the excess of the book value over the cash received B. Are recorded as a credit C. Are reported on a net‐of‐tax basis if material D. Are the excess of the cash received over the book value
A. Are the excess of the book value over the cash received
One advantage of the allowance method for accounting for uncollectible accounts is that the company reports: A. Bad debt expense in the same period as the credit sale B. Greater total sales to customers C. Fewer returns by customers D. Greater total cash collected from customers
A. Bad debt expense in the same period as the credit sale
The inventory turnover ratio is measured as: A. Cost of goods sold divided by average inventory B. Average inventory divided by gross profit C. Gross profit divided by net sales D. Net sales divided by average inventory
A. Cost of goods sold divided by average inventory
Identify the likely disadvantage(s) of extending credit to customers A. Delay or failure to collect cash B. Lower profitability C. Lower revenues D. All of the other answers are disadvantages of extending credit to customers
A. Delay or failure to collect cash
The inventory cost flow assumption that generally best matches the physical flow of inventory is: A. FIFO B. LIFO C. Weighted‐average D. Lower of cost or net realizable value
A. FIFO
If A sells to B, and B obtains title while goods are in transit, the goods were shipped _______. If C sells to D, and C maintains title until the goods arrive at D's door then the goods were shipped _______. A. FOB shipping point; FOB destination B. FOB destination; FOB shipping point C. FOB destination; FOB destination D. FOB shipping point; FOB shipping point
A. FOB shipping point; FOB destination
The Sales Discounts account is an example of a contra revenue account. A. True B. False
A. True
When a company sells a $100 service with a 20% trade discount, $80 of revenue is recognized. A. True B. False
A. True
If a company has total revenues of $100,000, sales discounts of $3,000, sales returns of $4,000, and sales allowances of $2,000, the income statement will report net revenues of $91,000. A. True B. False
A. True Revenues - Discounts - Returns - Allowances
Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand. A. True B. False
B.
Davis Hardware Company uses a periodic inventory system. How should Davis record the sale of inventory costing $620 for $960 on account? A. Cost of Goods Sold - 620 Purchases - 620 Accounts Receivable - 960 Sales Revenue - 960 B. Accounts Receivable - 960 Sales Revenue - 960 C. Purchases - 620 Income - 340 Sales Revenue - 960 D. Accounts Receivable - 960 Sales Revenues - 620 Income - 340
B.
Davis Hardware Company uses a perpetual inventory system. How should Davis record the return of inventory previously purchased on account for $200? A. Inventory - 200 Accounts Payable - 200 B. Accounts Payable - 200 Inventory - 200 C. Purchase Returns - 200 Accounts Payable - 200 D. Accounts Payable - 200 Purchase Returns - 200
B.
During a period of rising prices, which inventory cost flow assumption would result in the highest cost of goods sold, and thereby the lowest net income? A. FIFO B. LIFO C. Weighted‐average D. Simple LIFO average
B.
During periods of rising costs, LIFO generally results in a higher ending inventory balance. A. True B. False
B.
Even though the percentage‐of‐receivables method and the percentage‐of‐credit‐sales method use different accounts to estimate future uncollectible accounts, the amount of bad debt expense reported in the income statement will always be the same under the two methods. A. True B. False
B.
For inventory that is shipped FOB destination, title transfers from the seller to the buyer once the seller ships the inventory. A. True B. False
B.
Good Inc., sold inventory for $1,200 that was purchased for $700. Good records which of the following when it sells inventory using a perpetual inventory system? A. No entry is required for cost of goods sold and inventory. B. Debit Cost of Goods Sold $700; credit Inventory $700. C. Debit Cost of Goods Sold $1,200; credit Inventory $1,200. D. Debit Inventory $700; credit Cost of Goods Sold $700.
B.
How much depreciation should be recorded for the first year for a delivery truck with a cost of $30,000, an expected life of six years, and an estimated residual value of $6,000? Assume the double‐declining‐balance method is used. A. $ 12,000 B. $ 10,000 C. $ 8,000 D. $ 5,000
B.
If prices were to never change, there would still be a need for alternative inventory cost methods A. True B. False
B.
In accounting for inventory, the assumed cost flow must match the physical goods flow. A. True B. False
B.
Inventory methods such as LIFO and FIFO deal more with goods flow than with cost flow. A. True B. False
B.
On September 1, 2018, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp. report during 2018? A. $20 B. $40 Interest revenue C. $30 D. $60
B.
One of the major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for: A. Current assets B. Inventory C. Selling expenses D. Deferred revenue
B.
Sales revenue less cost of goods sold is referred to as operating income A. True B. False
B.
The factors used to compute depreciation expense are an asset's: A. Cost, residual value, and physical life B. Cost, residual value, and service life C. Fair market value, residual value, and economic life D. Cost, replacement value, and service life
B.
The following information pertains to Royce, Inc., at the end of the year: Royce uses the percentage‐of‐credit‐sales method and estimates 1% of sales are uncollectible. What is the ending balance of the allowance account after the year‐end adjustment? A. $600 B. $1,000 C. $200 D. $1,200 Credit Sales $60,000 Accounts Receivable 7,000 Allowance for Uncollectible Accounts 400 Cash Sales 20,000
B.
The franchisee's initial fee is recorded as an expense on the income statement A. True B. False
B.
The inventory cost flow assumption that is least likely to match the physical flow of inventory for most companies is: A. FIFO B. LIFO C. Weighted‐average D. Specific identification
B.
The primary distinction between operating activities and nonoperating activities in a multiple‐step income statement is whether the activity is: A. A large or small dollar amount B. Part of primary business operations C. Related to current versus long‐term assets D. Reported as a revenue or an expense
B.
Using the weighted‐average cost method, the average cost of inventory is calculated as the average unit cost of inventory purchased during the year. A. True B. False
B.
We capitalize repairs and maintenance expenditures because they maintain a given level of benefits A. True B. False
B.
We record a gain if we sell an asset for less than book value A. True B. False
B.
When the value of inventory falls below its cost, companies other than those that use LIFO have the option of recording the inventory at cost or the lower net realizable value A. True B. False
B.
Which inventory cost flow assumption more realistically matches the current cost of inventory with current sales revenue? A. FIFO B. LIFO C. Weighted‐Average D. LIFO ‐ Simplified
B.
Which level of profitability is considered profit from normal operations? A. Gross profit B. Operating income C. Income before taxes D. Net income
B.
Which of the following subsequent expenditures would be capitalized? A. Ordinary repair B. Costs that increase the service life of an asset C. Routine maintenance D. Ordinary repair and routine maintenance
B.
Which of the following transactions would increase the balance of the inventory account for a company using the perpetual inventory system? A. A return of damaged inventory to the vendor B. Costs of incoming freight charges on merchandise inventory C. A purchase discount taken for prompt payment D. Shipping charges for outgoing inventory
B.
Bahama Catering purchased a commercial dishwasher by paying cash of $8,000. The dishwasher's fair value on the date of the purchase was $10,000. The company incurred $600 in transportation costs, $500 installation fees, and paid $300 annual insurance of the equipment. For what amount will Bahama record the dishwasher? A. $10,000. B. $9,100. C. $8,000. D. $9,400.
B. $8,000 + $600 + $500 = $9,100
Papercraft Corporation purchased equipment for $60,000 on January 1, 2018. The equipment is expected to have a five‐year life, with a residual value of $5,000 at the end of five years. Using the straight‐ line method, depreciation expense for 2018 would be: A. $12,000 B. $11,000 C. $60,000 D. None of these
B. ($60,000 ‐ $5,000)/5 years) = $11,000
Goods in transit shipped FOB shipping point should be included in the seller's ending inventory. A. True B. False
B. - Purchaser's Inventory
A company has the following inventory transactions: Jan. 1 / Beginning / 100 units @ $4 Jan. 15 / Purchase / 100 units @ $5 Jan. 31 / Purchase / 100 units @ $6 What would be the cost of goods sold under the FIFO method if 120 units were sold in January? A. $600 B. $500 C. $620 D. $720
B. 100 * $4 = 400 20 * $5 = 100$
During periods of consistently falling prices, the FIFO inventory method will produce the highest possible amount of net income A. True B. False
B. LIFO
Purdue Development incurred the following costs associated with the purchase of a piece of land that it will use to re‐build an office building: What amount should be recorded for the purchase of the land? A. $437,500. B. $417,500 C. $439,000 D. $419,000 Sale price of the land - $400,000 Sale of salvaged parts already on land - ($20,000) Demolition of the old building - $30,000 Ground breaking ceremony (food and supplies) - $1,500 Land preparation and leveling - $7,500 Total net costs - $419,000
B. $417,500 Total Net Costs - (Food & Supplies)
Real Angus Steakhouse purchased land for $75,000 cash. They also incurred commissions of $4,500, property taxes of $5,000, and title insurance of $800. The $5,000 in property taxes includes $4,000 in back taxes paid by Real Angus on behalf of the seller and $1,000 due for the current year after the purchase date. For what amount should Real Angus Steakhouse record the land? A. $83,500. B. $84,300. C. $85,300. D. $75,000.
B. $84,300. Cash - $75,000 Commissions - $4,500 Title Insurance - $800 Property Taxes (back taxes only) - $4,000 = Cost of Land
If a company has ending inventory of $25,000, purchases during the year of $95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000. A. True B. False
B. - B/E + Purchases - E/E
The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as: A. On‐going expense. B. An addition in the Buildings account. C. An expense in the period incurred. D. A patent.
B. An addition in the Buildings account.
The normal balance of the account "Allowance for Uncollectible Accounts" is a _______ because _______. A. Debit; it is a contra account to Revenue (a credit account) B. Credit; it is a contra account to Accounts Receivable (a debit account) C. Debit; it is an expense in the income statement D. Credit; it is a contra account to Bad Debt Expense (a debit account)
B. Credit; it is a contra account to Accounts Receivable (a debit account)
At the end of the year, Mark Inc. estimates future bad debts to be $6,500. The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year‐end adjustment. What adjustment should Mark Inc. record for the estimated bad debts at the end of the year? A. Debit Bad Debt Expense, $6,500; credit Allowance for Uncollectible Accounts, $6,500 B. Debit Bad Debt Expense, $4,000; credit Allowance for Uncollectible Accounts $4,000 C. Debit Allowance for Uncollectible Accounts, $9,000; credit Bad Debt Expense, $9,000 D. Debit Bad Debt Expense, $9,000; credit Allowance for Uncollectible Accounts, $9,000
B. Debit Bad Debt Expense, $4,000; credit Allowance for Uncollectible Accounts $4,000
A company expects 5% of its newer accounts receivable to be uncollectible and 20% of its older accounts to be uncollectible. If the company has $40,000 of newer accounts and $5,000 of older accounts, the total estimate of uncollectible accounts is $2,000. A. True B. False
B. False
A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales Allowances. A. True B. False
B. False
The Sales Returns account is an expense account A. True B. False
B. False
The net realizable value of accounts receivable is the full amount owed by customers A. True B. False
B. False
Trade discounts represent a discount offered to the purchasers for quick payment. A. True B. False
B. False
All of the following are inventory costing methods except A. last‐in, last‐out. B. average‐cost C. perpetual. D. specific identification.
C.
An increase in a company's receivables turnover ratio typically means the company is A. Having trouble paying debts as they become due. B. Less profitable. C. More effectively granting and collecting credit to customers. D. Losing customers to its competitors.
C.
During the year, Bears Inc. recorded credit sales of $500,000. Before adjustments at year‐end, Bears has accounts receivable of $300,000, of which $50,000 is past due, and the allowance account had a credit balance of $2,500. Using the aging of receivables approach, what would be the adjustment assuming Bears expects it will not collect 5% of the amount not yet past due and 20% of the amount past due? A. Bad Debt Expense 22,500 Allowance for Uncollectible Accounts 22,500 B. Bad Debt Expense 25,000 Allowance for Uncollectible Accounts 25,000 C. Bad Debt Expense 20,000 Allowance for Uncollectible Accounts 20,000 D. Allowance for Uncollectible Accounts 20,000 Bad Debt Expense 20,000
C.
Gross profit is calculated as net sales minus A. Nonoperating expenses and income tax expense. B. Operating expenses. C. Cost of goods sold. D. All of the other answers are subtracted from net sales.
C.
In a perpetual inventory system, the entry at the time of a sale to record the cost of the inventory sold includes a: A. Debit to Accounts Receivable B. Credit to Cost of Goods Sold C. Debit to Cost of Goods Sold D. Not recorded at the time of the sale
C.
In accounting, goodwill A. May be recorded whenever a company achieves a level of net income that exceeds the industry average. B. Is amortized over its useful life. C. May be recorded when a company purchases another business. D. Must be expensed in the period it is recorded because benefits from goodwill are difficult to identify.
C.
Inventory does not include A. Materials used in the production of goods to be sold. B. Assets intended to be sold in the normal course of business. C. Equipment used in the manufacturing of assets for sale. D. Assets currently in production for normal sales.
C.
LIFO is considered an income statement approach for reporting inventory because it: A. Always results in a higher amount of net income being reported. B. Better approximates the value of ending inventory C. Better approximates inventory cost necessary to generate revenue. D. Always results in a lower amount of net income being reported
C.
Morgan Pharmaceutical spends $50,000 this year in research and development for a new drug to cure liver damage. By the end of the year, management feels confident that the new drug will gain FDA approval and lead to higher future sales. What impact will the $50,000 spending have on this year's financial statements? A. Increase Assets B. Decrease Revenues C. Increase Expenses D. Increase Revenues
C.
The direct write‐off method is not normally an acceptable method for GAAP because it fails to report: A. Revenue from the sale of goods or services to customers B. Cash collected from customers C. Accounts receivable for their net realizable value D. The amounts receivable from customers
C.
Amalgamated sold 700 units of inventory during the month. Cost of goods sold assuming LIFO would be: A. $1,730 B. $1,700 C. $1,720 D. $1,710 Date Transaction # of units Unit Cost April 1 / Beginning Inventory 500 $2.40 April 20 / Purchase 400 $2.50
C. $1,720 (300 * $2.40) + (400 * $2.50)
At what amount would LePage's report ending inventory using FIFO cost flow assumptions? A. $55 B. $170 C. $110 D. $70 Date Quantity Price March 1 / Beginning Inventory 20 $2 March 7 / Purchase 15 $3 March 11 / Sale (25) $7 March 12 /Purchase 20 $4 Ending inventory 30
C. $110 ($3 * 10)+($4 * 20)
Capital Construction purchased a 3‐acre tract of land for a building site for $350,000. The company demolished the old building at a cost of $12,000, but was able to sell scrap from the building for $1,500. The cost of title insurance was $900 and attorney fees for reviewing the contract was $500. Property taxes paid were $3,000, of which $250 covered the period after the purchase date. The capitalized cost of the land is: A. $366,400 B. $366,150 C. $364,650 D. $231,150
C. $364,650 Purchase price - $350,000 Demolition costs of old building - 12,000 Less building scrap sold - (1,500) Title insurance - 900 Legal fees - 500 Property taxes ($3,000 less taxes after the purchase date of $250) - 2,750 = Total cost of land $364,650
A company has the following inventory transactions: Jan. 1 / Beginning / 100 units @ $4 Jan. 15 / Purchase / 100 units @ $5 Jan. 31 / Purchase / 100 units @ $6 What would be the cost of goods sold under the FIFO method if 120 units were sold in January? A. $600 B. $500 C. $700 D. $720
C. $720 100 * $6 = $600 20 * $5 = $120
Amalgamated Corporation creates the following accounts receivable aging report at the end of the year: Prior to adjusting entries, the Allowance for Uncollectible Accounts has a debit balance of $500. The year‐end adjustment would include a A. Credit to Allowance for Uncollectible Accounts for $1,200 B. Debit to Bad Debt Expense for $700 C. Debit to Bad Debt Expense for $1,700 D. Debit to Bad Debt Expense for $1,200
C. Debit to Bad Debt Expense for $1,700 = Reserve Needed + Debit Balance
Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect will recording the estimate of uncollectible accounts have on the accounting equation? A. Increase liabilities and decrease stockholders' equity B. Decrease assets and decrease liabilities C. Decrease assets and decrease stockholders' equity D. Increase assets and decrease stockholders' equity
C. Decrease assets and decrease stockholders' equity
On January 1, 2016, Jacob Inc. purchased a commercial truck for $48,000 and uses the straight‐line depreciation method. The truck has a useful life of eight years and an estimated residual value of $8,000. On December 31, 2017, Jacob Inc. sold the truck for $43,000. What amount of gain or loss should Jacob Inc. record on December 31, 2017? A. Gain, $22,000 B. Loss, $18,000 C. Gain, $5,000 D. Loss, $3,000
C. Gain, $5,000
The purpose of recording an allowance for uncollectible accounts is to: A. Record the sales returns and allowances B. Report net sales conservatively C. Report accounts receivable at net realizable value D. Report accounts receivable for the total amount of sales in the period
C. Report accounts receivable at net realizable value
LePage's Inc. shipped the wrong color of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a: A. Trade discount B. Sales discount C. Sales allowance D. Sales return
C. Sales allowance
Which of the following computations would be used to compute Net Revenue? A. Total Revenue + Accounts Receivable - Sales Discounts - Sales Allowances B. Net Revenue + Sales Allowances - Sales Discounts C. Total Revenue - Sales Discounts - Sales Allowances D. Net Income - Change in Accounts Receivable
C. Total Revenue - Sales Discounts - Sales Allowances
Costs that are expensed when incurred are called? A. Product costs B. Direct costs C. Inventoriable costs D. Period costs E. Indirect costs
D.
Suppose Company A places an order with Company B on May 12. On May 14, Company B ships the ordered goods to Company A with terms FOB destination. The goods arrive at Company A on May 17. Company A begins selling the goods to customers on May 19 and pays Company B on May 20. When would Company A record the cost of inventory? A. May 12 B. May C. May 19 D. May 17
D.
The choice of inventory cost flow assumptions affects which of the following amounts? A. Inventory. B. Cost of goods sold. C. Gross profit. D. All of the other answers are affected by the inventory cost flow assumption.
D.
The practice of using the lower of cost and net realizable value to evaluate inventory reflects which of the following accounting principles? A. Matching principle B. Materiality C. Conservatism D. Answers A and C
D.
Which of the following would be recorded as land improvements? A. Property taxes. B. Title insurance. C. Real estate commissions. D. Adding a parking lot.
D.
Bricktown Exchange purchases a copyright for $50,000. The copyright has a remaining legal life of 25 years, but only an expected useful life of five years with no residual value. Assuming the company uses the straight‐line method, what is the amortization expense for the first year? A. $0 B. $2,000 C. $3,333 D. $10,000
D. $50,000/5 years = $10,000
Wiley Company purchased new equipment for $60,000. Wiley paid cash for the equipment. Other costs associated with the equipment were: transportation costs, $1,000; sales tax paid $3,000; and installation cost, $2,500. The cost recorded for the equipment was: A. $60,000 B. $61,000 C. $64,000 D. $66,500
D. $60,000 + $1,000 + $3,000 + $2,500
Consider the following year‐end information for Amalgamated Corporation: What amount will Amalgamated report for operating income? A. $100,000 B. $300,000 C. $500,000 D. $200,000 Cost of goods sold - $500,000 Sales revenue - 1,000,000 Non operating expenses - 100,000 Operating expenses - 300,000 Income tax expense - 100,000
D. Sales - C.O.G = Gross Profit Gross P - Op. Expenses = Income
The amount to report for ending inventory using the lower of cost and net realizable value is: A. $1,600 B. $1,700 C. $2,000 D. $1,300 Item # of units Cost Net Realizable Value A 100 $4 $8 B 150 $8 $6
D. $1,300 - (100 * $4) + (150 * $6)
At December 31, Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments. An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected. The balance of Allowance for Uncollectible Accounts after adjustment will be: A. $1,000 B. $16,000 C. $14,000 D. $15,000
D. $15,000 ($300,000 × 5%) = $15,000
Crimson Inc. recorded credit sales of $750,000, of which $600,000 is not yet due, $100,000 is past due for up to 180 days, and $50,000 is past due for more than 180 days. Under the aging of receivables approach, Crimson Inc. expects it will not collect 1% of the amount not yet due, 10% of the amount past due for up to 180 days, and 20% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,000 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account? A. $29,000 B. $28,000 C. $27,000 D. $26,000
D. $26,000 600k * 1% 100k * 10% 50k * 20%
Amalgamated sold 700 units of inventory during the month. Ending inventory assuming LIFO would be: A. $500 B. $490 C. $470 D. $480 Date Transaction # of units Unit Cost April 1 / Beginning Inventory 500 $2.40 April 20 / Purchase 400 $2.50 Sale 700 Ending inventory 200
D. $480 200 * 2.40
Amalgamated Company has the following information: What is the amount of net revenues for Amalgamated? Total revenues - $860,000 Sales returns and allowances - $50,000 Sales discounts - $30,000 Ending inventory - $100,000 A. $330,000 B. $230,000 C. $680,000 D. $780,000
D. $780,000 Revenues - Discounts - Returns - Allowances
Given the information in the table below, what is the company's gross profit? A. $280,000 B. $170,000 C. $50,000 D. $100,000 Sales revenue - $350,000 Accounts receivable - $280,000 Ending inventory - $230,000 Cost of goods sold - $180,000 Sales returns - $50,000 Sales discount - $20,000
D. - Sales - Returns - Discounts - C.O.G. = Gross Profit
Which of the following items are classified as receivables? A. Tax refund claims B. Amounts owed by customers C. Amounts loaned and expected to be collected D. All of the other answers are classified as receivables
D. All of the other answers are classified as receivables
The account "Allowance for Uncollectible Accounts" is classified as a(n): A. Liability account in the balance sheet B. Contra revenue to credit sales in the income statement C. Expense in the income statement D. Contra asset to accounts receivable in the balance sheet
D. Contra asset to accounts receivable in the balance sheet
Credit sales are recorded as A. Debit Cash, credit Deferred Revenue B. Debit Service Revenue, credit Accounts Receivable C. Debit Cash, credit Service Revenue D. Debit Accounts Receivable, credit Service Revenue
D. Debit Accounts Receivable, credit Service Revenue
Identify the condition(s) that must exist for a sale and the related receivable to be recognized. A. Collection of cash is probable B. The company must have collected cash from at least one previous sale to the customer C. Goods or services have been provided to the customer D. Two of the other answers are conditions that must exist
D. Two of the other answers are conditions that must exist
Which of the following is not a period cost? A. Legal costs B. Public relations costs C. Sales commissions D. Wages of assembly‐line workers E. The salary of a company's chief financial officer (CFO).
D. Wages of assembly‐line workers
Which of the following statements is true? A. Product costs affect only the balance sheet B. Product costs affect only the income statement C. Period costs affect only the balance sheet D. Neither product costs nor period costs affect the Statement of Retained Earnings. This can also be a true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation) E. Product costs eventually affect both the balance sheet and the income statement.
E.
Costello Company purchased a computer that cost $10,000. It had an estimated useful life of 5 years and no residual value. The computer was depreciated by the straight‐line method and was sold at the end of the second year of use for $5,000 cash. Costello should record A. a loss of $1,000 B. a gain of $1,000 C. neither a gain nor a loss ‐ the computer was sold at its book value D. neither a gain nor a loss ‐ the gain that occurred in this case would not be recognized
A.
Under the allowance method, when a company writes off an account receivable as an actual bad debt, it records an expense A. True B. False
B. False
A business may use the periodic or perpetual inventory systems for different types of inventory. A. True B. False
A.
A company's ratio of net sales (cash and credit sales) to average accounts receivable can be interpreted as management's ability to: A. Collect cash from all sales to customers B. Effectively market its products and services C. Generate profits for investors D. Reduce costs of selling products and services to customers
A.
Accounts Payable - $55,000 Land - $90,000 Inventory - $10,500 Accounts Receivable - $7,500 Equipment - $8,000 Deferred Revenue - $58,500 Short‐term Investments - $20,000 Patents - $75,000 What is the amount of property, plant & equipment A. $98,000 B. $165,000 C. $90,000 D. $110,000
A.
Ace Bonding Company purchased inventory on account. The inventory costs $2,000 and is expected to sell for $3,000. How should Ace record the purchase using a periodic inventory system? A. Purchases - 2,000 Accounts Payable - 2,000 B. Cost of Goods Sold - 2,000 Deferred Revenue - 1,000 Sales Revenue - 3,000 C. Inventory - 2,000 Accounts Payable - 2,000 D. Cost of Goods Sold -2,000 Gain -1,000 Accounts Payable -3,000
A.
At the time inventory is sold, cost of goods sold is recorded under the perpetual inventory system. A. True B. False
A.
Book value or carrying value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation A. True B. False
A.
Cost of goods sold is: A. Reported in the income statement B. Reported in the balance sheet C. A current asset D. The cost of inventory on hand at the end of the period
A.
Land improvements are recorded separately from the land itself because, unlike land, these assets are subject to depreciation. A. True B. False
A.
Which of the following statements is true with respect to the percentage‐of‐credit‐sales method for estimating uncollectible accounts? A. The amount recorded for bad debt expense does not depend on the balance of the allowance for uncollectible accounts B. This method is referred to as the balance sheet approach C. This method does not allow for future uncollectible accounts D. Under this method, bad debt expense is recorded at the time of an actual bad debt
A. The amount recorded for bad debt expense does not depend on the balance of the allowance for uncollectible accounts
For most companies, actual physical flow of their inventory follows LIFO. A. True B. False
B.
A perpetual inventory system measures cost of goods sold by: A. Estimating the amount of inventory sold. B. Making entries to the inventory account for each purchase and sale. C. Counting inventory at the end of the period. D. Debiting cost of goods sold for all purchases of inventory.
B.
An overstatement of ending inventory in one period results in A. an overstatement of the ending inventory of the next period. B. an understatement of gross margin of the next period. C. an overstatement of gross margin of the next period. D. no effect on gross margin of the next period.
B.
During periods of rising costs, FIFO generally results in a higher cost of goods sold. A. True B. False
B.
When customers purchase products on account, Knomark, Inc. offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a: A. Bad debt B. Sales discount C. Sales return D. Sales allowances
B. Sales discount
A note receivable is reported in the balance sheet A. Always as a current asset B. Always as a long‐term asset C. As either a current asset or long‐term asset depending on the expected collection date D. As a contra asset
C.
Item # of units Cost Net Realizable Value A 100 $4 $8 B 150 $8 $6 The year‐end adjustment using the lower of cost and net realizable value would include: A. A credit to Inventory for $300 B. A debit to Cost of Goods Sold for $400 C. A debit to Inventory for $500 D. A credit to Cost of Goods Sold for $700
Inventory Cost = (100*4) + (150*8) = $1600 $1600 - NRV = $300 A. A credit to Inventory for $300
