Accounting HW Questions
When inventory costs are rising, the _____ results in a higher reported inventory. Multiple Choice A)weighted-average method B)FIFO method C)LIFO method
B)FIFO method
On January 1, Year 1, Alpha Corporation accepts a $10,000 three-month, nine percent promissory note from one of its customers. How much interest will be collected at the maturity date of the note? Multiple Choice A)$75 B)$450 C)$225 D)$900
C)$225
A company that returns items that were previously purchased on account will debit: Multiple Choice A)Cash B)Accounts Receivable C)Accounts Payable D)Inventory
C)Accounts Payable
For the current year, Delta Corporation has beginning and ending inventories of $80,000 and $100,000, respectively. Cost of goods sold for the year is $450,000. What is the company's average days in inventory? Multiple Choice A)5 days B)73 days C)64.9 days D)4.5 days
B)73 days
The LIFO method assumes that: Multiple Choice A)each unit of inventory can be matched with its actual cost. B)the last units purchased are the first ones sold. C)the cost of goods sold consists of a random mixture of all goods available for sale. D)the first units purchased are the first ones sold.
B)the last units purchased are the first ones sold.
The LIFO conformity rule requires that _____. Multiple Choice A)LIFO can only be used when it matches actual flow of inventory B)all companies use LIFO C)a company that uses LIFO for tax reporting to also use LIFO for financial reporting D)LIFO amounts must equal FIFO amounts for ending inventory
C)a company that uses LIFO for tax reporting to also use LIFO for financial reporting
A high inventory turnover ratio generally indicates that the company's inventory policies are effective.
True
Companies that report inventory using the LIFO method must report the difference between the LIFO cost and FIFO cost of its inventory. This difference is commonly called the LIFO reserve.
True
Credit sales involve benefits and costs. A benefit of selling on credit is that the seller makes it more convenient for customers to purchase goods and services. A cost of selling on credit is that there is a delay in collecting cash from customers.
True
The allowance method requires managers to estimate future uncollectible accounts and to record that estimate in the current year.
True
The balances in sales returns, allowances, and discounts are subtracted from total revenues when calculating net revenues.
True
The costs of beginning inventory plus additional purchases during the year make up the cost of inventory available for sale.
True
The journal entry to reestablish an account receivable previously written off has no effect on net accounts receivable.
True
When inventory costs are rising, LIFO results in lower tax expense when compared to FIFO.
True
Net credit sales for Turner Company are $200,000 for the year and the average accounts receivable balance is $20,000. What is the company's average collection period? (Use 365 days in a year.) Multiple Choice A)36.5 days B)548 days C)54.8 days D)5 days
A)36.5 days
For the current year, Theta Corporation has beginning and ending inventories of $40,000 and $60,000, respectively. Cost of goods sold for the year is $240,000. What is the company's inventory turnover ratio? Multiple Choice A)4.8 times B)6 times C)2.4 times D)4 times
A)4.8 times
Net credit sales for Winner Company are $100,000 for the year. The Accounts Receivable account had a balance of $15,000 at the beginning of the year and $25,000 at the end of the year. What is the company's receivables turnover ratio? Multiple Choice A)5.0 B)2.0 C)0.2 D)4.0
A)5.0
How are trade discounts recognized? Multiple Choice A)By recording the sale at a discounted price B)By debiting the Trade Discounts account C)By subtracting them from total revenues at the end of the period D)By using contra revenue accounts
A)By recording the sale at a discounted price
A supplier offers a company terms 3/10, n/30 for a $10,000 purchase on account on January 1. The company uses a perpetual inventory system to record transactions. If the company makes the payment on January 10, the entry to record the payment will include a: Multiple Choice A)Credit to Inventory for $300 B)Credit to Cash for $10,000 C)Debit to Accounts Payable for $9,700 D)Debit to Accounts Payable for $300
A)Credit to Inventory for $300
A company will debit ___________ when recording a credit sale. Multiple Choice: A)Cash B)Accounts Payable C)Accounts Receivable D)Sales Revenue
Accounts Receivable
Account(s) with a normal credit balance include: (Select all that apply.) Check All That Apply Accounts Receivable Allowance for Uncollectible Accounts Bad Debt Expense Cash Sales Revenue
Allowance for Uncollectible Accounts Sales Revenue
During its first year of operations, Ellison, Incorporated bills customers $18,000 for the services it provided. At the end of the year, $6,000 remains due from customers. The company's credit manager estimates that 10% of the total year-end accounts receivable will not be collected. The company's estimate of uncollectible accounts is: Multiple Choice A)$12,000 B)$600 C)$6,000 D)$18,000
B)$600
Trivia Company reports a gross profit of $100, income tax expense of $15, selling, general, and administrative expenses of $35, nonoperating revenues of $10, and nonoperating expenses of $15. What is the company's operating income? Multiple Choice A)$45 B)$65 C)$60 D)$50
B)$65
A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 24. The journal entry for the receipt of payment will include a: Multiple Choice A)debit to Cash for $980 B)credit to Accounts Receivable for $1,000 C)debit to Sales Discounts for $20 D)credit to Sales Discounts for $20
B)credit to Accounts Receivable for $1,000
On September 1, Year 1, Sigma Corporation accepts a $100,000 six-month, nine percent promissory note from one of its clients. The transaction recorded by the company on March 1, Year 2, the maturity date, will involve all of the following except a _____. Multiple Choice A)credit to Notes Receivable for $100,000 B)credit to Interest Revenue for $4,500 C)debit to Cash for $104,500 D)credit to Interest Receivable for $3,000
B)credit to Interest Revenue for $4,500
A _____________ inventory system is one that is continually updated to reflect inventory purchases and sales. Multiple Choice A)transitional B)perpetual C)periodic D)technical
B)perpetual
During its first year of operations, Kimbrough Corporation sold $14 million worth of goods on account. At the end of the year, $5 million remains due from customers. If the company estimates that 20% of the total year-end accounts receivable will not be collected, it will record a: Multiple Choice A)debit to Bad Debt Expense for $5 million B)debit to Bad Debt Expense for $14 million C)credit to Allowance for Uncollectible Accounts for $1 million D)credit to Allowance for Uncollectible Accounts for $5 million
C)credit to Allowance for Uncollectible Accounts for $1 million
Using the aging method, Carlton Company calculates the estimated ending balance in the Allowance for Uncollectible Accounts to be $12,000. Prior to adjusting entries, the Allowance for Uncollectible Accounts has a credit balance of $3,000. The year-end adjustment would include a: Multiple Choice A)credit to Allowance for Uncollectible Accounts for $12,000 B)debit to Bad Debt Expense for $12,000 C)debit to Bad Debt Expense for $9,000 D)credit to Allowance for Uncollectible Accounts for $15,000
C)debit to Bad Debt Expense for $9,000
On November 5, Phelps Outerwear sells a coat on account to a customer for $200. On November 15, the customer decides to return the coat to the retailer. The journal entry on November 15 will include a: Multiple Choice A)credit to Accounts Payable B)credit to Sales Revenue C)debit to Sales Returns D)debit to Sales Revenue
C)debit to Sales Returns
Accountants often call FIFO the balance-sheet approach because _____. Multiple Choice A)it better approximates actual cost of goods sold for most companies, because most companies' actual physical flow follows FIFO B)the amount of ending inventory appears in the balance sheet C)the amount it reports for ending inventory better approximates the current cost of inventory D)the amount it reports for cost of goods sold more realistically matches the current costs of inventory needed to produce current revenues
C)the amount it reports for ending inventory better approximates the current cost of inventory
On September 1, Year 1, Dallas Corporation accepts a $30,000 six-month, 12 percent promissory note from one of its clients. The year-end adjustment to accrue interest revenue on December 31, Year 1 will include a _____. Multiple Choice A)$300 debit to Interest Receivable B)$1,800 debit to Interest Receivable C)$1,800 credit to Interest Revenue D)$1,200 credit to Interest Revenue
D)$1,200 credit to Interest Revenue
Travis Corporation begins the year with $50,000 of tire inventory. The company purchases tires worth $150,000 during the year. At the end of the year, the purchase cost of remaining inventory is $30,000. What is the cost of goods sold? Multiple Choice A)$80,000 B)$200,000 C)$120,000 D)$170,000
D)$170,000
Dane Stores begins the year with $30,000 of DVD inventory. It purchases DVDs worth $80,000 during the year. The cost of goods sold for the year is $70,000. What is the amount of ending inventory? Multiple Choice A)$10,000 B)$20,000 C)$30,000 D)$40,000
D)$40,000
Which of the following is an example of a nonoperating expense for a merchandising company? Multiple Choice A)Advertising expense B)Depreciation expense C)Supplies expense D)Interest expense
D)Interest expense
A company makes a credit sale for $500. Future collection from the customer is probable. The company will not record revenue from the transaction until it collects cash from the customer.
False
A company's decision to offer discounts for early payment has the potential to increase sales volume, but comes at the cost of slower cash collection.
False
A gross profit ratio of 32% indicates that for every $1 of net sales, the company spends $0.32 on inventory.
False
A debit balance in the Allowance for Uncollectible Accounts before year-end adjustment indicates that the company wrote off more bad debts in the current year than it had estimated.
True
Due to technological advances in recent years, most companies use a perpetual inventory system to track inventory purchases and sales.
True
FOB shipping point means title passes when the seller ships the inventory, not when the buyer receives it.
True
In the percentage-of-receivables method, a higher percentage uncollectible is generally used for "old" accounts than for "new" accounts.
True
The allowance method is required by GAAP for financial reporting purposes.
True
Trade discounts represent: Multiple Choice A)a reduction in the listed price of a good or service. B)a reduction in the customer's balance owed because of a deficiency in the company's good or service. C)a reduction in the amount to be received from a credit customer if collection occurs within a specified period of time. D)a return of products by a customer.
a reduction in the listed price of a good or service.
A company sells goods to a customer on account for $800, terms 3/10, n/30. The customer pays within the discount period. On the date of payment, the company will debit: Multiple Choice A)Sales Discounts for $24 B)Accounts Receivable for $776 C)Sales Revenue for $800 D)Cash for $800
A)Sales Discounts for $24
The percentage increase in receivables for Petro Corporation is greater than the percentage increase in sales. Which of the following conclusions can be drawn from this information? Multiple Choice A)The average collection period will increase B)The receivables turnover ratio for the company will increase C)The company's payment terms for customers are becoming very stringent D)The company will see a decrease in sales returns and bad debts
A)The average collection period will increase
On May 1, Arden Wholesale sells $800 worth of goods on account to an out-of-state customer. Upon receiving the order on May 7, the customer notifies Arden that approximately 5% of the goods arrived damaged. As a result, Arden reduces the amount owed by the customer by $50. The journal entry by Arden Wholesale on May 7 will include a: Multiple Choice A)credit to Accounts Receivable B)credit to Sales Allowances C)debit to Sales Discounts D)debit to Sales Revenue
A)credit to Accounts Receivable
The weighted-average method assumes that: Multiple Choice A)the cost of goods sold consists of a random mixture of all goods available for sale. B)the last units purchased are the first ones sold. C)each unit of inventory can be matched with its actual cost. D)the first units purchased are the first ones sold.
A)the cost of goods sold consists of a random mixture of all goods available for sale.
According to the allowance method, writing off an account receivable will include a: Multiple Choice A)credit to Allowance for Uncollectible Accounts B)credit to Accounts Receivable C)credit to Cash D)debit to Bad Debt Expense
B)credit to Accounts Receivable
At the end of Year 1, Fulton Corporation estimates uncollectible accounts to be $10,000. Actual bad debts during Year 2 totaled $12,000. This indicates that management's estimate of uncollectible accounts in Year 1 was: Multiple Choice A)fraudulent. B)too low. C)too high.
B)too low.
Which of the following is true of a period of falling inventory costs? Multiple Choice A)LIFO will result in lower tax payments than FIFO. B)LIFO will report higher cost of goods sold than FIFO. C)LIFO will report higher gross profit than FIFO. D)FIFO will report higher ending inventory than LIFO.
C)LIFO will report higher gross profit than FIFO.
Which of the following is an advantage of using LIFO in a period of rising costs? Multiple Choice A)Results in lower cost of goods sold B)Results in higher reported profit C)Results in lower taxes D)Results in higher ending inventory
C)Results in lower taxes
A company has total sales revenue of $500,000 for the year. Sales discounts, returns, and allowances total $50,000 and the cost of goods sold is $300,000. What is the company's gross profit ratio? Multiple Choice A)44.44% B)60% C)40% D)33.33%
D)33.33%
Beta Corporation wrote off $100,000 due from a specific client in March. However, this client was able to make a partial payment of $15,000 in June. Recording this cash collection will involve all of the following accounts except: Multiple Choice A)Allowance for Uncollectible Accounts B)Cash C)Accounts Receivable D)Bad Debt Expense
D)Bad Debt Expense
Delta Company performed $20,000 of services on account and recorded the amount due as a typical account receivable. Over time, it became apparent that the customer would not be able to pay quickly, so Delta required the customer to sign a six-month, 11 percent promissory note on February 1, Year 2. The company then reclassified the existing account receivable as a note receivable. Which of the following will result from this action? Multiple Choice A)Both assets and liabilities decrease B)Both assets and revenues decrease C)Revenues decrease and liabilities increase D)No impact on the accounting equation
D)No impact on the accounting equation
Sales Returns is an example of a(n) ____________ account, which is used to keep a record of reductions from revenue due to sales returns separate from total revenue itself. Multiple Choice A)revenue B)contra asset C)asset D)contra revenue
D)contra revenue
On September 1, Year 1, a company collects a $5,000 six-month, five percent promissory note. The entry to record the collection at maturity date will include a: Multiple Choice A)debit to Interest Receivable for $250 B)credit to Notes Receivable for $5,125 C)debit to Cash for $5,000 D)credit to Interest Revenue for $125
D)credit to Interest Revenue for $125
A company performs $1,000 worth of services on account on March 1, with the terms 2/10, n/30. The customer makes payment on March 6. The journal entry for the receipt of payment will include a: Multiple Choice A)debit to Sales Discounts for $980 B)credit to Accounts Receivable for $980 C)credit to Service Revenue for $980 D)debit to Cash for $980
D)debit to Cash for $980
On January 1, Year 1, Boyd Corporation accepts a $10,000 three-month, nine percent promissory note from one of its customers. To record acceptance of the note, the company will record a: Multiple Choice A)debit to Accounts Receivable for $10,000 B)debit to Accounts Receivable for $10,225 C)credit to Service Revenue for $10,225 D)debit to Notes Receivable for $10,000
D)debit to Notes Receivable for $10,000
Under the allowance method, companies are required to estimate future uncollectible accounts and record those estimates in the current year. Estimated uncollectible accounts: Multiple Choice A)increase total assets and decrease net income. B)increase total assets and increase net income. C)decrease total assets and increase net income. D)decrease total assets and decrease net income.
D)decrease total assets and decrease net income.
Under the allowance method, the write-off of accounts receivable: Multiple Choice A)decreases total assets. B)decreases total expenses. C)decreases total revenues. D)has no effect on total assets or net income.
D)has no effect on total assets or net income.
The FIFO method assumes that: Multiple Choice A)the last units purchased are the first ones sold. B)the cost of goods sold consists of a random mixture of all goods available for sale. C)each unit of inventory can be matched with its actual cost. D)the first units purchased are the first ones sold.
D)the first units purchased are the first ones sold.
An appropriate use of the specific identification method is in accounting for low-cost, similar inventory items that are difficult to separately identify.
False
Collecting cash on an account previously written off increases total assets but has no effect on net income.
False
Company A and Company B operate in the same industry and region. Compared to Company B, Company A has a low receivables turnover ratio and a correspondingly high average collection period. From this information, we can conclude that Company A is managing its receivables better than Company B.
False
The cost of freight-in is initially added to the balance of the Cost of Goods Sold account.
False
The multiple-step income statement begins by reporting that a company's sales revenues minus cost of goods sold equals net income.
False