Multiple Choice CH 4 & 7

Why is it necessary to make adjustments to revenue accounts at the end of the accounting period?

Revenues earned at the end of the period, but not yet billed to Accounts Receivable, should be recorded as a revenue. AND Payments received in advance, and originally recorded as a liability, should be reduced for any portion earned during the current period.

As of December 31, the unadjusted balance in Unearned Revenue contains $5,600 for unredeemed gift cards. An analysis of the monthly sales indicates that $3,200 worth of gift cards were redeemed during the month but not yet recorded. How will these transactions affect the adjustments at the end of the period? (Check all that apply.)

Sales Revenue needs to be increased by the amount of gift cards redeemed during the month. AND Unearned Revenue needs to be decreased by the amount of gift cards redeemed during the month.

When inventory is sold, the cost of inventory is recognized as a(n) ___________ along with the related sales revenue. (Enter one word per blank)

expense

Assuming sales remain unchanged, if Cost of Goods Sold increases then Gross Profit?

Decreases

Define weighted Average

Matches the average cost of each unit of inventory with sales

Where is earnings per share disclosed in the financial statements? Multiple choice question.

On the income statement

Supplies

The balance sheet

Gross profit is on the Blank______ and equals Blank______

income statement; net sales minus cost of goods sold

Dividends

matches Choice The statement of stockholders' equity

FIFO uses the Blank______ cost for Cost of Goods Sold on the income statement and the Blank______ cost for Inventory on the balance sheet.

oldest; newest

Supplies expense

The income statement

Which inventory system requires purchases of merchandise to be recorded in the inventory account instead of the purchases account? a. The periodic inventory system b. The perpetual inventory system

The perpetual inventory system would be the one

Which of the following statements are true regarding inventory freight costs? (Check all that apply.)

The seller should record freight-out as a selling expense. The purchaser should record freight-in as an asset, Inventory.

The journal entry to record the payment of cash for the shipping costs of purchased merchandise will cause Blank______.

one asset to increase and another asset to decrease

The ________ inventory system uses separate accounts for these items and records cost of goods sold at the end of the accounting period. (Enter one word per blank.)

periodic inventory system

In which of the following ways does a periodic system differ from a perpetual system? (Check all that apply.)

Cost of Goods Sold is not updated until the end of the accounting period in a periodic system. Inventory is not updated until the end of the accounting period in a periodic system.

Consider the following information: beginning inventory 10 units @ $20 per unit; first purchase, 35 units @ 22 per unit; second purchase, 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the FIFO method of inventory costing? a. 1,090 b. 1,060 c. 1,180 d. 1,200

a. 1,090

Which of the following is not a component of the cost of manufactured inventory? a. Administrative overhead b. Direct Labor c. Raw materials d. Factory overhead

a. Administrative overhead

Of the 4 companies listed below, which company is more likely to use specific identification to value its inventory and cost of goods sold? a. Custom home builder b. Bulk candy merchandiser c. Dog biscuit manufacturer d. Fast food restaurant

a. Custom home builder

According to GAAP, what ratio must be reported on the financial statements or in the notes to the statements? a. Earnings per share ratio b. Return on equity ratio c. Net Profit Margin Ratio d. Current Ratio

a. Earnings per share ratio

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) Blank______. (Check all that apply.) a. decrease in stockholders' equity b. increase in assets c. decrease in assets d. increase in liabilities

increase in assets and liabilities

Using a perpetual inventory system, the effect on the accounting equation of purchasing merchandise on account includes a(n) Blank______. (Check all that apply.)

increase in liabilities increase in assets

True or false: GAAP requires that a business must use an inventory accounting method that is the same as the physical flow of goods in and out of the business.

False Reason: A business may use specific identification, or it may use a cost flow assumption (LIFO, FIFO, or weighted average) that does not mimic the physical flow of goods.

__________ profits equals net sales minus cost of goods sold?

GROSS

The ________ inventory system records all inventory-related transactions in the inventory account (e.g. transportation, purchase returns and allowances, purchase discounts) and reduces inventory at the time of sale.

Perpetual inventory system

Which inventory system requires that the inventory account be updated at the time merchandise is sold? a. Periodic system b. Both perpetual and periodic systems c. Perpetual system

Perpetual system

Where is accumulated depreciation??

the balance sheet

Earnings per share is disclosed at the bottom of the?

Income Statement

Where is inventory located on the financial statements?

Balance sheet as a current asset

Net income

Choice Both the income statement and the statement of stockholders' equity

Which account is least likely to appear in an adjusted journal entry? a. Cash b. Interest Receivable c. Property tax expense d. Salaries Payable

a. Cash

if the ending balance in accounts payable decreases from one period to the next, which of the following is true? a. Cash payments to suppliers exceeded current period purchases. b. Cash payments to suppliers were less than current period purchases c. Cash receipts from customers exceeded cash payments to suppliers d. Cash receipts from customers exceeded current period purchases

a. Cash payments to suppliers exceeded current period purchases.

Adjustments ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.

asset

Unearned Revenue should be reduced and Revenue increased for the amount of revenue during the period. (Enter only one word per blank.)

recognized

Accrual adjustments to record amounts earned but not yet collected include a credit to a(n) _______ account. (Only one word per blank.)

revenue

Inventory is expensed when? a. moved to work in process b. moved to finished goods c. purchased d. sold

sold

Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following on the balance sheet? (Check all that apply.)

-Supplies will be overstated. -Retained earnings will be overstated. -Current assets will be overstated.

Adjusting entries Blank______.

-Update the accounts to their proper balances -are needed in order to measure the period's net income or loss

Using a perpetual inventory system, when a company records a sale of merchandise, it must also record Blank______. (Check all that apply.) Multiple select question. 1.Cost of Goods Sold, which will be reported on the income statement 2. a decrease in its inventory 3. an increase in its inventory 4. Cost of Goods Sold, which will be reported on the balance sheet

1. Cost of Goods Sold, which will be reported on the income statement 2. a decrease in its inventory

Sales revenue equals the number of units sold multiplied by the sales __________ and cost of goods sold equals the same number of units sold multiplied by the unit ___________

1. price 2. cost

BLANK adjustments involve adjusting entries where the revenue has been earned or the expense has been incurred, and the cash will be collected or paid in the future. (Enter one word per blank.)

Accrued adjustments

How does the timing of adjusting entries differ from the accounting for daily transactions?

Adjustments are made at the end of the accounting period to update accounts for reporting purposes.

Why are the adjustments important to the preparation of the financial statements? (Check all that apply.)

Adjustments ensure that the balance sheet reports all of the economic resources the company owns and all of the obligations the company owes. Unadjusted financial statements could present a misleading and incomplete picture of the company's financial results. Adjustments ensure that the revenues earned and expenses incurred during the period are reflected in the income statement.

Why is the Unearned Revenue account reduced during the adjustment process?

As the revenue is earned, it is removed from the Unearned Revenue account and transferred into a revenue account.

On June 1, 2022, Oakcrest Company signed a three year $110,000 note payable with 9% interest. Interest is due on the June 1 of each year beginning in 2023. What amount of interest expense should be reported on the income statement for the year ended December 31, 2022? a. 5,250 b. 9,900 c. 4,950 d. 5,775

B. $5,775

Failure to make an adjusting entry to recognize accrued salaries payable would cause which of the following? a. An understatement of expenses, liabilities, and stockholders equity b. An understatement of expenses and liabilities and an overstatement of stockholders equity c. An overstatement of assets and stockholders equity d. An overstatement of assets and liabilities

B. An understatement of expenses and liability and an overstatement of stockholders' equity... An accounting for those entries also which are due to be paid or received in cash.If this entry is not passed, the expenses are understated; liabilities in the form of Salary Payable are understated and stockholder's equity is overstated.

On October 1, 2023, the 12,000 Premium on a one-year insurance policy for the building was paid and recorded as Prepaid Insurance Expense. On December 31, 2023 (end of the accounting period), what adjusting entry is needed? a. Insurance Expense (+E);Debit (+2,000) and Prepaid Insurance expense (-A); Credit 2,000 b. Insurance Expense (+E) Debit (+3,000); Prepaid insurance expense (-A) Credit 3,000 c.Prepaid insurance expense (+A) Debit 3,000; Insurance expense (-E) Credit 3,000 d. Prepaid insurance expense (+A) Debit: 9,000; Insurance Expense (-E) Credit: 9,000

B.Insurance Expenses(+E) 3000Prepaid Insurance(-A) 3000

Match the financial statement line item with the financial statements on which the item would appear. Retained earnings

Both the statement of stockholders' equity and the balance sheet

Which inventory costing method uses the oldest cost for Cost of Goods Sold on the income statement and the newest cost for Inventory on the balance sheet? a. Specific identification b. LIFO c. FIFO d. Weighted average

FIFO

Which of the following statements is correct?

Financial statements are prepared after adjustments to ensure that all accounts have been brought to their correct balance.

Which of the following income statement line items are affected by the inventory method chosen? (Select all that apply.) Gross Profit Income Tax Expense Income before Income Tax Expense Net Income Income from Operations Sales

Gross Profit Income Tax Expense Income before Income Tax Expense Net Income Income from Operations

Where is depreciation expense??

Income statement

Define Specific identification

Matches the expense of a particular item made with the sale of that item

define FIFO

Matches the expense of the first item purchased with sales

Define Lifo

Matches the expense of the last items purchased with sales

Which of the following statements is incorrect regarding the need to make accrual adjustments at the end of the accounting period?

The Cash account should be adjusted for the effects of accrued revenues and expenses during the accounting period.

If there is an error in recording an adjusting entry on the income statement causing Net Income to be overstated, then ______. Total stockholders' equity on the balance sheet will be overstated Retained Earnings on the statement of stockholders' equity will be overstated Total assets on the balance sheet will understated Cash on the balance sheet will be overstated

Total stockholders' equity on the balance sheet will be overstated Retained Earnings on the statement of stockholders' equity will be overstated

If there is an error in recording an adjusting entry on the income statement causing Net Income to be overstated, then

Total stockholders' equity on the balance sheet will be overstated AND Retained Earnings on the statement of stockholders' equity will be overstated

Which of the following is false regarding a perpetual inventory system? a. Physical counts are not needed because records are maintained on a transaction by trainsation basis b. The balance in the inventory account is updated with each inventory purchase and sales transaction c. cost of goods sold is increased as sales are recorded d. Managers are regularly informed about low or excess stock information

a. Physical counts are not needed since records are maintained on a transaction-by-transaction basis.

The inventory method that matches physical flows to the cost flows is ______. a. specific identification b. last-in, first out c. first-in, first-out d. weighted-average

a. specific identification

The specific identification method Blank______. a. would be beneficial to a company that makes fine jewelry b. is not an acceptable method of accounting c. would be beneficial to a company that makes inexpensive products with high sales volume d. matches each unit of inventory with its actual cost

a. would be beneficial to a company that makes fine jewelry d. matches each unit of inventory with its actual cost

If a company debits Interest Receivable and credits Interest Revenue, it must be recording ______.

amounts earned from its investments but not yet collected

if a company debits Interest Receivable and credits Interest Revenue, it must be recording ______.

amounts earned from its investments but not yet collected

On the balance sheet, accounts receivable represents?

amounts not yet collected from customers Accounts receivable represent amounts customers owe the company from sales made to the customer on account. Accounts payable would be the amounts owed for purchases made on account, i.e., when the company buys, not sells, goods on account.

The assumption that a company makes about its inventory cost flow has Blank______

an effect on the company's balance sheet and an effect on the company's income statement

Specific _________ is the inventory costing method where the assumed flow of goods is the same as the physical flow of goods and the cost of each inventory item sold equals its actual cost. (Enter one word per blank.)

identification

Consider the following information: beginning inventory, 10 units @ $20 per unit; first purchase, 35 units @ $22 per unit; second prucahse, 40 units @ $24 per unit; 50 units were sold. What is cost of goods sold using the LIFO method of inventory costing? a. 1,090 b. 1,060 c. 1,180 d. 1,200

c. 1,180

ending inventory, $24,000; sales, $250,000; beginning inventory, $30,000; selling and adminsitrative expenses, $70,000; and purchases, $90,000. What is the cost of goods sold? a. 86,000 b. 94,000 c. 96,000 d. 84,000

c. 96,000

Which of the following would NOT appear in a closing entry? a. Salary Expense b. Interest Income c. Accumulated Depreciation d. Retained Earnings

c. Accumulated Depreciation

An increasing inventory turn over ratio? a. indicates a longer time span between the ordering and receing of inventory b. indicates a shorter time span between the ordering and receiving of invetory c. indicates a shorter time span between the purchase and sale of inventory d. Indicates a longer time span between the pruchase and sale of inventory

c. Indicates a shorter time span between the purchase and sale of inventory.

Which inventory method provides a better matching of current costs with sales revenue on the income statement and outdated values for inventory on the balance sheet? a. FIFO b. Average Cost c. LIFO d. Specific identification

c. LIFO

If a company is successful in acquiring several large buildings at the end of the year, what is the effect on the total asset turnover ratio? a. The ratio will increase b. the ratio will not change c. The ratio will decrease d. Either a or c

c. The ratio will decrease

Which of the following regarding the lower cost or net realizable value (NRV) rule for inventory are true? a. The lower cost or NRV rule is an example of the historical cost principal b. When the net realizable value of inventory drops below the cost shown in the financial records, net income is reduced c. When the net realizable value of inventory drops below the cost shown in the financial records, total assets are reduced 1. a 2. b c. a and c d. all 3

c. a and c The lower cost or NRV rule is an example of the historical cost principal When the net realizable value of inventory drops below the cost shown in the financial records, total assets are reduced

At the beginning of the current year. Donna Company has $1,000 of supplies on hand. During the current year, the company purchased supplies amounting to $6,400 (paid for in cash and debited to Supplies). At the end of the current year, a count of supplies reflected $2,000. The adjusting entry Donna Company would record at the end of the current year to adjust the Supplies account would include a a. Debit to Supplies for $2,000 b. Credit to Supplies Expense for $5,400 c. Credit to Supplies for $5,400 d. Debit to Supplies Expense for $4,000

c. a credit to supplies for $5,400

Inventory is initially recorded at _____.

cost

Inventory is a _______ asset because it normally is used or converted into cash within one year or the next operating cycle. (Enter only one word per blank.)

current asset

The inventory costing method selected by a company will affect? a. the balance sheet b. the income statement c. the statement of retained earnings d. All of the above

d. All of the above

JJ Company owns a building. Which of the following statements regarding depreciation as used by accountants is FALSE? a. As depreciation is recorded, the stockholder's equity is reduced. b. depreciation is an estimated expense to be recorded over the building's estimated useful life c. As depreciation is recorded the net book value of the asset is reduced d. As the value of the building decreases over time it "depreciates"

d. As the value of the building decreases over time it "depreciates"

An adjusted trial balance? a. Shows the ending account balances in a "debit" and "credit" format before posting the adjusting journal entries b. Is prepared after closing entries have been posted c. Shows the ending account balances resulting from the adjusting journal entries in a "debit" and "credit" format. d. Is a tool used by financial analysts to review the performance of publicly traded companies

d. Shows the ending balances resulting from the adjusting journal entires in a debit and credit format

Inventory costs are reduced by? a. Raw materials b. Selling commissions c. purchases of inventory on account d. purchase discounts

d. purchase discounts

Balance sheet accounts, such as Supplies or Prepaid rent, ___________ as a result of deferral adjustments a. INCREASE b. DECREASE

decrease

Prepaid expenses, such as Prepaid Rent, should be ______ by the benefits that were used up during the accounting period.

decreased

A company had beginning inventory of 5 units that cost $10 each. During the month, 15 units were purchased for $11 each. The company sold 12 units during the month and had 8 remaining in ending inventory. If the company uses FIFO to calculate cost of goods sold, then its gross profit will be $5 ________ than if it had used LIFO.

higher

Boopsie Agin, the company's bookkeeper, recorded the purchase of merchandise on account with a debit to Cost of Goods Sold and a credit to Cash. As a result, Blank______. (Check all that apply.) assets are overstated stockholders' equity is understated liabilities are understated stockholders' equity is overstated assets are understated liabilities are overstated

stockholders' equity is understated, assets are understated

Sales revenue on the income statement equals?

the number of units sold times the sales price