ACCT 2301 Exam 2 Review

Using the percentage-of-receivables method for recording bad debt expense, estimated uncollectible accounts are $32,000. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment, what is the amount of bad debt expense for that period?

$32,000 + $8,000 = $40,000.

Using the percentage-of-receivables basis, the uncollectible accounts for the year is estimated to be $38,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit before adjustment, what is the amount of bad debt expense for the period?

$38,000 - $7,000 = $31,000.

Priscilla has the following inventory information. July 1 Beginning Inventory 20 units at $19 $ 380 7 Purchases 70 units at $20 1,400 22 Purchases 10 units at $23 230 $2,010 A physical count of merchandise inventory on July 31 reveals that there are 35 units on hand. Using the LIFO inventory method, the amount allocated to cost of goods sold for July is

$380 + [(35 - 20) × $20] = $680; $2,010 - $680 = $1,330.

Effie Company uses a periodic inventory system. Details for the inventory account for the month of January, 2015 are as follows: Units Per unit price Total Balance, 1/1/15 200 $5.00 $1,000 Purchase, 1/15/15 100 5.30 530 Purchase, 1/28/15 100 5.50 550 An end of the month (1/31/15) inventory showed that 160 units were on hand. If the company uses FIFO, what is the value of the ending inventory?

$550 + [(160 - 100) × $5.30] = $868

XYZ Company accepted a national credit card for a $4,000 purchase. The cost of the goods sold is $2,400. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income?

($4,000 - $2,400) - ($4,000 × .03) = $1,480.

Syfy Company on July 15 sells merchandise on account to Eureka Co. for $5,000, terms 2/10, n/30. On July 20 Eureka Co. returns merchandise worth $2,000 to Syfy Company. On July 24 payment is received from Eureka Co. for the balance due. What is the amount of cash received?

($5,000 - $2,000) × .98 = $2,940.

A company has net credit sales of $750,000 for the year and it estimates that uncollectible accounts will be 2% of sales. If Allowance for Doubtful Accounts has a credit balance of $2,000 prior to adjustment, its balance after adjustment will be a credit of

($750,000 × .02) + $2,000 = $17,000.

Eneri Company's inventory records show the following data: Units Unit Cost Inventory, January 1 10,000 $9.20 Purchases: June 18 9,000 8.00 November 8 6,000 7.00 A physical inventory on December 31 shows 4,000 units on hand. Eneri sells the units for $13 each. The company has an effective tax rate of 20%. Eneri uses the periodic inventory method. Under the LIFO method, cost of goods sold is

4,000 × $9.20 = $36,800; $206,000 - $36,800 = $169,200.

Moroni Industries has the following inventory information. July 1 Beginning Inventory 40 units at $120 5 Purchases 240 units at $112 14 Sale 160 units 21 Purchases 120 units at $115 30 Sale 140 units Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a LIFO basis?

40 + 240 + 120 - (160 + 140) = 100; (40 × $120) + [(100 - 40) × $112] = $11,520.

When an account becomes uncollectible and must be written off,

Accounts receivable should be credited

Farr Co. elects to use the percentage-of-sales basis in 2017 to record bad debt expense. It estimates that 2% of net credit sales will become uncollectible. Sales revenues are $865,000 for 2017, sales returns and allowances are $54,900, and the allowance for doubtful accounts has a credit balance of $9,000.

Bad Debts Expense [($865,000 - $54,900) × 2%] = $16,202

The time period assumption is used under

Both IFRS and GAAP

Two categories of expenses for merchandising companies are

Cost of goods sold and operating expenses

The cost of goods available for sale is allocated between

Ending inventory and cost of goods sold

Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

FIFO will have the highest ending inventory.

Jackson Cement Corporation reported $35 million for sales when it only had $20 million of actual sales. Which of the following qualities of useful information has Jackson most likely violated?

Faithful Representation

A periodic inventory system requires a detailed inventory record of inventory items.

False

Generally accepted accounting principles require that the direct write-off method be used for financial reporting purposes if it is also used for tax purposes.

False

Sales minus operating expenses equals gross profit

False

Sales revenues are recognized during the period cash is collected from the buyer.

False

The revenue recognition principle dictates that revenue be recognized in the accounting period in which cash is received.

False

The specific identification method of inventory valuation is desirable when a company sells a large number of low-unit cost items.

False

To be faithfully representative, accounting information should predict future events, confirm prior expectations, and be reported on a timely basis.

False

International standards are developed by the

ISAB

In a perpetual inventory system, a return of defective merchandise by a purchaser is recorded by crediting

Inventory

In a perpetual inventory system, the amount of the discount allowed for paying for merchandise purchased within the discount period is credited to

Inventory

Which one of the following is not an objective of a system of internal controls?

Overstate liabilities in order to be conservative

The body of theory underlying accounting is not based on

Physical Laws of Nature

Financial information that is capable of making a difference in a decision is

Relevant

Net sales is sales revenue less

Sales discounts and sales returns allowance

Selection of an inventory costing method by management does not usually depend on

The fiscal year end

A company's unadjusted balance in Inventory will usually not agree with the actual amount of inventory on hand at year-end.

True

If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements.

True

Merchandisers apply the revenue recognition principle by recognizing sales revenues when the performance obligation is satisfied.

True

Under a perpetual inventory system, inventory shrinkage and lost or stolen goods are more readily determined.

True

On October 1, 2015, Milago Company sells (factors) $700,000 of receivables to Beanfield Factors, Inc. Beanfield assesses a service charge of 3% of the amount of receivables sold. The journal entry to record the sale by Milago will include

a debit of $21,000 to Service Charge Expense. $700,000 × .03 = $21,000.

Cost of goods sold is determined only at the end of the accounting period in

a periodic inventory system

Trade accounts receivable are valued and reported on the balance sheet

at net realizable value

Cost of goods sold is computed from the following equation:

beginning inventory + cost of goods purchased - ending inventory.

An employee authorized to sign checks should not record

cash disbursement transactions

Under a consignment arrangement, the

consignor has ownership until goods are sold to a customer

Inventoriable costs include all of the following except the

costs of the purchasing and warehousing departments.

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a

debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

If a company fails to record estimated bad debts expense,

expenses are understated

Income from operations will always result if

gross profit exceeds operating expenses.

Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them

increases the potential for errors and fraud.

The conceptual framework that underlies IFRS

is very similar to that used to develop GAAP

If employees are bonded

it means they have been insured against misappropriation of assets.

Sales revenue

may be recorded before cash is collected.

Claims for which formal instruments of credit are issued as proof of the debt are

notes recievable

Two bases for estimating uncollectible accounts are:

percentage of receivables and percentage of sales

A sales invoice is a source document that

provides evidence of credit sales.

A Classified balance sheet is

required under IFRS with certain variations in format as compared to GAAP

Major advantages of credit cards to the retailer include all of the following except the

retailer receives more cash from the credit card issuer

For companies that use a perpetual inventory system, all of the following are purposes for taking a physical inventory except

to determine ownership of the goods

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

true

If the unit price of inventory is increasing during a period, a company using the LIFO inventory method will show less gross profit for the period, than if it had used the FIFO inventory method

true

If a company determines cost of goods sold each time a sale occurs, it

uses a perpetual inventory system

The revenue recognition principle dictates that revenue should be recognized in the accounting records

when the performance obligation is satisfied.

Inventory items on an assembly line in various stages of production are classified as

work in progress