Accounting Test 3 (Ch. 5-6)

If cost of goods sold under FIFO was $24,000 and was $30,000 under LIFO, assuming a tax rate of 30%, how much tax savings resulted from using LIFO?

($30,000 - $24,000) = $6,000 × 30% = $1,800

Chump Corp. uses a periodic inventory system. The company had the following data for the month of April:April 1 On hand, 30 units @ $6 each$ 180 19 Purchased 270 units @ $9 each 2,430Cost of goods available for sale$2,610 30 On hand, 60 units If Chump Corp.. uses the FIFO method, how much is cost of goods sold for April?

30 units + 270 units - 60 units = 240 units sold30 units @ $6 + 210 units @ $9 = $180 + $1,890 = $2,070

If Chump Corp. uses the LIFO method, how much is inventory on the balance sheet as of April 30?

300 units total - 60 units in final inventory = 240 units sold270 units @ $9 each = $2,430 - 240 units sold @ $9 each = $2,160 = $27030 units @ $6 = $180 Value of 60 units in final inventory = $270 + $180 = $450

Ace, Inc. purchased merchandise from Zebra Company on July 15, 2017. The goods were shipped the same day. The merchandise's selling price was $5,000. The credit terms were 1/10, n/30. The shipping terms were FOB shipping point. Ace received the merchandise on July 20, 2017. Ace paid the amount due on July 31, 2017.Who is responsible for payment of the transportation costs on the merchandise sold by Zebra Company to Ace, Inc.?

Ace, Inc.

Acme Company's Cash account had a balance of $1,924 on August 31. This included a bank deposit of $174 that was in transit. The August 31 bank statement contained the following information:Bank statement balance$2,178NSF check32Bank service charge14Collection of notes receivable136Acme also had checks outstanding of $338. What is Acme's adjusted cash balance at August 31?

Bank balance +Deposit in transit -outstanding checks =$2,178 + $174 - $338 = $2,014ORBook balance + Note receivable - NSF check - Service Charge = $1,924 + $136- $32 - $14 = $2,014

Which of the following represents a group composed of key officers of a corporation and outside members responsible for the general oversight of the affairs of the company?

Board of directors

Which of the following is a sound internal control procedure for cash disbursements?

Comparing purchase requisitions, purchase orders, receiving reports, and invoices

While reconciling the checking account, an accountant with Barber Corporation noticed that an error had been made in recording a check received by the company. Barber recorded the receipt as $903 and the correct amount of the check was $309. Which of the following reconciling adjustments is required?

Deduct ($903 - $309) = $594 from the company's book balance.

For which type of inventory would a company most likely use the specific identification method?

High value items, such as automobiles.

Which of the following statements regarding limitations on internal control is true

Human errors can weaken an internal control system.

Which internal control procedure is followed when a physical count of inventory is performed in a perpetual inventory system?

Independent verification

When did title to the merchandise transfer from Zebra Company to Ace, Inc.?

July 15

Allowing only certain employees to order goods and services for the company is an example of what internal control procedure?

Proper authorizations

Which internal control procedure is followed when storage areas are secured with limited access?

Safeguarding assets and records

Which internal control procedure is violated when the cashier at the checkout stand also records the daily receipts in the journal?

Segregation of duties

Binkie, Inc. has an inventory turnover ratio of 4 times. If its cost of goods sold is $200,000, then

The average inventory = $200,000÷ 4 = $50,000

Anderson Corp. sold merchandise to a customer on credit. The invoice amount was $5,000; the invoice date was December 10; credit terms were 1/10, n/30. Which one of the following statements is true?

The customer should pay $5,000 if the invoice is paid on December 21.

When the market value of inventory items has declined below its cost, which method would be the most appropriate in complying with GAAP?

The lower of cost or market.

Which inventory costing method assigns the same cost to all units whether sold or left in ending inventory?

Weighted average cost

If Chump Corp. uses the weighted average cost method, how much is cost of goods sold for April?

Weighted average price per unit = Total value of units for sale ÷ Total number of units available for sale$2,610 ÷ 300 units = $8.70 per unit Cost of units sold = Number of units sold x Cost per unit = 240 units sold x $8.70 = $2,088

Which of the following is another term for the invoice approval form?

a voucher

The department in an organization that is responsible for preparing the invoice approval form to document all of the information about a particular purchase is the

accounting department

When preparing a bank reconciliation, deposits in transit are

added to the bank statement balance.

Which of the following represents the subset of board of directors that acts as a direct contact between stockholders and the independent accounting firm?

audit committee

Which of the following assets is considered the most liquid?

cash

Administrative controls are

concerned with efficient operations and adherence to managerial policies.

When preparing a bank reconciliation, NSF checks are

deducted from the company's book balance

Deposits made by a company but not yet reflected on a bank statement are called

deposits in transit

The Sarbanes-Oxley Act requires that the audit committee be composed of

entirely outside members of the board of directors.

The form sent by the seller to the buyer as evidence of a sale is called a(n)Answer: invoice

invoice

Annual reports must include an internal control report. In this report, which group has the primary responsibility for establishing and maintaining an adequate control structure and procedures for financial reporting?

management

The recognition of cost of goods sold as an expense in the same period that sales revenue is recognized from the sale of merchandise is a good example of the

matching principle.

A company fails to record one storeroom full of inventory in its year-end inventory records. As a result, this will cause an

overstatement of cost of goods sold for the current year

Transportation-in is

part of cost of goods purchased

When an inventory system updates the Inventory account after each sale or purchase of merchandise, this is known as a(n)

perpetual system

Segregation and rotation of duties is most effective in

preventing collusion

The notification accompanying a check that indicates the specific invoice being paid is called a

remittance advice.

At the year-end inventory count, if goods in transit are shipped FOB shipping point, they should be included in the inventory count of

the buyer