Intermediate Accounting Exam

An argument against use of the lower of cost or net realizable value rule is its lack of: A) Relevance. B) Reliability. C) Consistency. D) Objectivity.

C

In question 10, if the transfer were made with recourse but is still accounted for as a sale, what amount of loss on sale of receivables would the company record in June assuming the estimated recourse liability is $2,000? $6,500 $8,000 $4,000 Zero.

The recourse liability would add a credit of $2,000 which would increase the loss from $6,000 to $8,000

The gross profit method can be used in all of the following situations except: A) In determining the cost of inventory destroyed in a fire. B) In the preparation of annual financial statements. C) In budgeting and forecasting. D) The gross profit method can be used in all of these situations.

B The gross profit method of estimating inventory is not allowed for the preparation of annual financial statements

The records of California Marine Products, Inc., revealed the following information related to inventory destroyed in an earthquake: Inventory, beginning of period $300,00 Purchases to date of earthquake 160,000 Net sales to date of earthquake 450,000 Gross profit ratio 30% The estimated amount of inventory destroyed by the earthquake is: $325,000 $145,000 $10,000 All of these answer choices are incorrect.

145,000 $300,000 (beginning balance) + $160,000 (purchases) - $315,000 (estimated cost of sales: $450,000 × 0.70).

At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of the factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June? $6,000 $4,500 $1,500 Zero.

$200,000 × 3% = $6,000

The Reingold Hat Company uses the allowance method to account for bad debts. During 2018, the company recorded $800,000 in credit sales. At the end of 2018, account balances were: Accounts receivable, $120,000; Allowance for uncollectible accounts, $3,000 (credit). If bad debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a debit to bad debt expense of: Zero. $27,000 $21,000 $24,000

$800,000 × 3% = $24,000

For its 2018 fiscal year, the King Pharmaceutical Company reported sales of $10,500,000, cost of goods sold of $6,300,000, and net income of $525,000. The company's gross profit ratio for the year is: 40% 60% 5% 67%

($10,500,000 - $6,300,000) ÷ $10,500,000=40%

The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2018: COST RETAIL Inventory 1/1/2018 $390,000 $650,000 Net purchases 1,402,000 1,835,000 Net markups 75,000 Net markdowns 45,000 Net sales 1,845,000 Assume that on 1/1/2018 Toso adopted the dollar-value LIFO retail inventory method and that the retail price index at the end of 2018 is 1.02. Toso's inventory at December 31, 2018, is estimated at: $477,392 $469,000 $395,262 $405,035

395262 Ending inventory at retail: $670,000 [$650,000 (beginning inventory) + $1,835,000 (net purchases) + $75,000 (net markups) - $45,000 (net markdowns) - $1,845,000 (net sales)]. Ending inventory at retail at 1/1/2018 retail prices: $656,863 ($670,000 ÷ 1.02). The current year's layer at 1/1/2018 retail prices: $6,863 ($656,863 - $650,000). Cost ratio: 75.17% [$1,402,000 (net purchases at cost)] ÷ [$1,835,000 (net purchases at retail) + $75,000 (net markups) - $45,000 (net markdowns)]. Ending inventory at cost: $390,000 (beginning inventory at cost) + $5,262 ($6,863 × 1.02 × 75.17%)

The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2018: COST RETAIL Inventory 1/1/2018 $390,000 $650,000 Net purchases 1,402,000 1,835,000 Net markups 75,000 Net markdowns 45,000 Net sales 1,845,000 Applying the LIFO retail inventory method, Toso's inventory at December 31, 2018, is estimated at: $477,392 $469,000 $395,159 $405,035

405,035 Ending inventory at retail: $670,000 [$650,000 (beginning inventory) + $1,835,000 (net purchases) + $75,000 (net markups) - $45,000 (net markdowns) - $1,845,000 (net sales)]. The current year's layer: $20,000 ($670,000 - $650,000). Cost ratio: 75.17% [$1,402,000 (net purchases at cost)] ÷ [$1,835,000 (net purchases at retail) + $75,000 (net markups) - $45,000 (net markdowns)]. Ending inventory at cost: $390,000 (beginning inventory at cost) + $15,035 ($20,000 x 75.17%).

Esquire Corp. uses the periodic inventory system. During its first year of operations, Esquire made the following purchases (list in chronological order of acquisition): •20 units at $50 •35 units at $40 •85 units at $30 Sales for the year totaled 135 units, leaving 5 units on hand at the end of the year. Ending inventory using the FIFO method is $150 $177 $250 $1,540

5 units × $30 = $150

In 2018, the Robinson Company switched its inventory method from FIFO to average cost. Inventories at the end of 2017 were reported in the balance sheet at $22 million. The company's tax rate is 40%.Assume that 2018's ending inventory is $23 million using average cost, and would have been $26 million if the company had not switched from the FIFO method. The effect of the change in method on 2018 net income is a: rev: 05_03_2019_QC_CS-167877, 10_31_2019_QC_CS-188694 A) $600,000 decrease. B) $1,000,000 decrease. C) $1,800,000 decrease. D) $3,000,000 decrease

A The average cost inventory increased by $3 million ($23 million - $20 million). FIFO inventory would have increased by $4 million ($26 million - $22 million). Thus, cost of goods sold under average cost is $1 million greater than under FIFO. This reduces income before taxes by $1 million, and net income by $600,000.

A company uses the gross method to account for cash discounts offered to its customers. If payment is made before the discount period expires, which of the following is correct? A) Sales discounts is debited for the amount of discounts taken by customers. B) Sales discounts is credited for the amount of discounts taken by customers. C) Interest expense is debited for the amount of discounts taken by customers. D) Accounts receivable is credited for the amount of discounts taken by customers.

A The sales discounts account is contra to revenue, reducing it to the amount collected net of discount

The following data are available for the Hunting Balloon Company: Sales for the current year$1,500,000 Cost of goods sold for the current year 1,200,000 Accounts receivable, beginning of year 140,000 Accounts receivable, end of year 160,000 The accounts receivable turnover ratio for the current year is: 8.00 10.71 10.00 9.375

Accounts receivable turnover = sales revenue ÷ average accounts receivable balance, so accounts receivable turnover = $1,500,000 ÷ ((140,000 + 160,000) ÷ 2) = 10.0.

At January 1, 2016, Simpson Co. had a credit balance of $260,000 in its allowance for uncollectible accounts. Based on past experience, 2 percent of Simpson's credit sales have been uncollectible. During 2016, Simpson wrote off $325,000 of accounts receivable. Credit sales for 2016 were $9,000,000. In its December 31, 2016, balance sheet, what amount should Simpson report as allowance for uncollectible accounts? $115,000 $180,000 $245,000 $440,000

Allowance for uncollectible accounts, beginning balance$260,000 Add: Bad debt expense (2% × $9,000,000) 180,000 Less: Write-offs (325,000) Allowance for uncollectible accounts, ending balance$115,000

Meteor Co. purchased merchandise on March 4, 2016, at a price of $50,000, subject to credit terms of 2/10, n/30. Meteor uses the net method for recording purchases and uses a periodic inventory system Prepare the journal entry to record the appropriate payment if the entire invoice is paid on April 2, 2016

April 02, 2016 Accounts payable 49,000 Interest expense 1,000 Cash 50,000

Alvin Electronics is in the process of reconciling its bank account for the month of November. The following information is available: Balance per bank statement$8,325 Outstanding checks 2,400 Deposits outstanding 1,215 Bank service charges for November 35 Check written by Alvin for $300 but recorded incorrectly byAlvin as a $30 disbursement. What should be the corrected cash balance at the end of November? Multiple Choice $6,870 $7,140 $6,835 $7,105

B $8,325 - 2,400 + 1,215 = $7,140. The bank charges and correct amount of the Alvin check are already included in the balance per bank statement.

Which of the following might be classified as a cash equivalent? A) Cash in a checking account. B) 30-day treasury bill. C) Money orders waiting to be deposited. D) 120-day treasury bill.

B A 30-day treasury bill is short-term enough to be viewed as almost as liquid as cash.

Which of the following is true about cash reporting under IFRS? A) Cash accounts are typically viewed as investments, with overdrafts treated as unrealized losses. B) Overdrafts in one cash account can typically be offset against positive balance in other cash accounts. C) Overdrafts are typically treated as current liabilities, regardless of the existence of other cash accounts. D) Cash accounts are typically viewed as immaterial.

B Offsetting typically is allowed under IFRS, but not under U.S. GAAP.

Jansen Company's general ledger showed a checking account balance of $25,520 at the end of May 2016. The May 31 cash receipts of $2,510, included in the general ledger balance, were placed in the night depository at the bank on May 31 and were processed by the bank on June 1. The bank statement dated May 31, 2016, showed bank service charges of $55. All checks written by the company had been processed by the bank by May 31 and were listed on the bank statement except for checks totaling $2,060. Required: Prepare a bank reconciliation as of May 31, 2016

Bank Balance to Corrected BalanceBalance per bank statement$25,015 Add: Deposits outstanding2,510 Less: Checks outstanding(2,060) Corrected cash balance$25,465 Book Balance to Corrected Balance Balance per books$25,520 Less: Service charges(55) Corrected cash balance $25,465 Balance per books$25,520 Deduct: Deposits outstanding (2,510) Add: Checks outstanding 2,060 Deduct: Bank service charges (55) Balance per bank$25,015

California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2016. In preparing its insurance claim on the inventory loss, the company developed the following data: Inventory January 1, 2016, $440,000; sales and purchases from January 1, 2016, to May 1, 2016, $1,220,000 and $895,000, respectively. California consistently reports a 35% gross profit. The estimated inventory on May 1, 2016, is: $544,000. $542,000. $507,000. $602,000.

Beginning inventory $440,000 Plus: Net purchases 895,000 Goods available for sale 1,335,000 Less: Cost of goods sold: Net sales $1,220,000 Less: Estimated gross profit (427,000) Estimated cost of goods sold (793,000) Estimated ending inventory $542,000

On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available: Sales, January 1 through July 8 $686,000 Inventory, January 1 141,000 Purchases, January 1 through July 8 644,000 Gross profit ratio. 23% What is the estimated inventory on July 8 immediately prior to the fire? $148,120. $528,220. $256,780. $258,380.

Beginning inventory plus purchases $785,000 Less: Estimated cost of goods sold ($686,000 × [1-.23]) 528,220 Estimated ending inventory $256,780

Cinnamon Buns Co. (CBC) started 2016 with $53,000 of merchandise on hand. During 2016, $294,000 in merchandise was purchased on account with credit terms of 1/10 n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $10,700. Merchandise with an invoice amount of $3,400 was returned for credit. Cost of goods sold for the year was $311,000. CBC uses a perpetual inventory system.Assuming CBC uses the gross method to record purchases, ending inventory would be: $43,300. $40,394. $40,360. $29,694.

Beginning inventory$53,000 Inventory purchased 294,000 Freight 10,700 Merchandise returned(3,400) Discounts [($294,000 - 3,400) × 1%)] (2,906) Cost of goods available for sale$351,394 Cost of goods sold 311,000 Ending inventory $ 40,394

The Jackson Company incorrectly omitted $100,000 of merchandise from its 2018 ending inventory. In addition, a merchandise purchase of $40,000 was incorrectly recorded as a $4,000 debit to the purchases account. As a result of these errors, 2018 before-tax income is: A) Overstated by $64,000. B) Understated by $136,000. C) Understated by $64,000. D) Overstated by $136,000.

C By itself, the $100,000 omitted inventory would cause cost of goods sold to be overstated (and income understated) by $100,000. By itself, the misrecorded purchase would cause cost of goods sold to be understated (and income overstated) by $36,000. The net effect is to understate income by $64,000.

Which of the following is true regarding accounting for transfers of receivables under IFRS? A) Transfers of receivables can never be treated as a sale of receivables B) Transfers of receivables can never be treated as a secured borrowing C) Whether the risks and rewards of ownership have been transferred is sometimes the key factor for determining how to account for a transfer of receivables. D) none of the above are true.

C IFRS focuses on transfer of risks and rewards of ownership, and only considers control if it is not clear whether that transfer has occurred.

The difference in the calculation of the cost-to-retail percentage applying the LIFO method and the average cost method is that the average cost method: A) Excludes beginning inventory. B) Excludes markdowns. C) Includes beginning inventory. D) Includes markdowns.

C In the LIFO method, the cost-to-retail percentage is only computed on the current year's purchases.

Allister Company does not use the allowance method to account for bad debts and instead any bad debts that do arise are written off as bad debt expense. What problem might this create if bad debts are material? A) Receivables likely will be understated. B) No problems are created. C) Receivables likely will be overstated. D) The matching principle is violated when the write-off occurs in the same period that the receivable is initially recorded.

C Receivables will be overstated because not accruing bad debts will result in the receivables being stated at an amount that is greater than the amount expected to be collected.

The replenishment of a petty cash fund might include which of the following? A) A debit to cash. B) A debit to petty cash. C) A debit to office supplies expense. D) A credit to petty cash.

C Recording expenses occurs at the time the petty cash fund is replenished.

In a bank reconciliation, deposits outstanding are: A) Subtracted from the bank balance. B) Added to the book balance. C) Added to the bank balance. D) Subtracted from the book balance.

C The bank balance doesn't include deposits outstanding, so they must be added to determine the true cash balance

Gar Co. factored its receivables without recourse with Ross Bank. Gar received cash as a result of this transaction, which is best described as a A) Loan from Ross collateralized by Gar's accounts receivable. B) Loan from Ross to be repaid by the proceeds from Gar's accounts receivables. C) Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross. D) Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts retained by Gar.

C The key phrase is "without recourse" which means that Gar Co. has transferred the collection risk to Ross Bank. Ross does not have any recourse against Gar Co. if the accounts are not collected. Thus, Gar has sold the accounts receivable to Ross Bank and has also transferred the risk associated with collection.

A company uses the allowance method to account for bad debts. What is the effect on each of the following accounts of the collection of an account previously written off? Allowance for Uncollectible Accounts Bad Debt Expense A) Increase Decrease B) No effect Decrease C) Increase No effect D) No effect No effect

C The reinstatement of a previously written off account increases the allowance account. The collection of the reinstated account does not affect the allowance account. The net effect of the reinstatement and collection is an increase in the allowance account. Neither the reinstatement nor the subsequent collection of the account has any effect on the expense.

Bren Co.'s beginning inventory on January 1 was understated by $26,000, and its ending inventory on December 31 was overstated by $52,000. As a result, Bren's cost of goods sold for the year was A) Understated by $26,000. B) Overstated by $78,000. C) Understated by $78,000. D) Overstated by $26,000.

C The understatement of beginning inventory and the overstatement of ending inventory both cause the cost of goods sold to be understated. The total understatement is $78,000 ($26,000 + 52,000).

Samson Wholesale Beverage Company regularly factors its accounts receivable with the Milpitas Finance Company. On April 30, 2016, the company transferred $920,000 of accounts receivable to Milpitas. The transfer was made without recourse. Milpitas remits 85% of the factored amount and retains 15%. When Milpitas collects the receivables, it remits to Samson the retained amount less a 2% fee (2% of the total factored amount). Samson estimates the fair value of the last 15% of its receivables to be $72,000. Required: Prepare journal entries for Samson Wholesale Beverage for the transfer of accounts receivable on April 30 assuming the sale criteria are met

Cash 782,000 Loss on sale of receivables 84,400 Receivable from factor 53,600 Accounts receivable 920,000

Delta Automotive Corporation has the following assets listed in its 12/31/2016 trial balance: Cash in bank—checking account$33,500 U.S. Treasury bills (mature in 60 days)* 6,000 Cash on hand (currency and coins) 2,450 U.S. Treasury bills (mature in six months)* 21,000 Undeposited customer checks 2,940 *Purchased on 11/30/16 Required: Determine the correct balance of cash and cash equivalents to be reported in the current asset section of the 2016 balance sheet.

Cash in bank—checking account $33,500 U.S. treasury bills 6,000 Cash on hand 2,450 Undeposited customer checks 2,940 Total$44,890 The $21,000 in 6-month treasury bills should be classified as a current asset along with other temporary investments.

Fad City sells novel clothes that are subject to a great deal of price volatility. A recent item that cost $21.60 was marked up $12.50, marked down for a sale by $5.30 and then had a markdown cancellation of $4.60. The latest selling price is: $35.00. $38.70. $33.40. $26.90.

Cost $21.60 Initial markup 12.50 Markdown (5.30) Markdown cancellation. 4.60 Selling price $33.40

In applying LCM, market cannot be: A) Less than net realizable value. B) Greater than the normal profit. C) Less than the normal profit margin. D) Greater than net realizable value.

D

In 2018, the Robinson Company switched its inventory method from FIFO to average cost. Inventories at the end of 2017 were reported in the balance sheet at $22 million. If the average cost method had been used, 2017 ending inventory would have been $20 million. The company's tax rate is 40%. The adjustment to 2018's beginning retained earnings would be: A) Zero. B) A $2 million decrease. C) A $1.2 million increase. D) A $1.2 million decrease.

D Cost of goods sold would have been higher by $2 million, reducing pretax income by $2 million. Of that, taxes would have been reduced by $0.8 million, leaving a $1.2 million decrease in income.

For companies that use FIFO, average cost, or any method other than LIFO or retail inventory method, inventory is valued at: A) Replacement cost. B) Net realizable value. C) Cost. D) The lower of cost or net realizable value.

D GAAP requires inventory to be valued at the lower of cost or net realizable value for companies that use FIFO, average cost, or any cost method other than LIFO or retail inventory method.

An internal control system is designed to do all but which of the following? A)Promote operational efficiency. B)Safeguard assets. C)Encourage adherence to company policies. D)Assure the promotion of the most qualified employees.

D Human resource evaluations should help assure that the most qualified employees get promoted. That is not a role of the internal control system.

LIFO liquidation profits occur when: A) Costs are rising and inventory quantity increases. B) Costs decline. C) Costs increase. D) Costs are rising and inventory quantity declines.

D If the quantity of inventory declines from the previous period and costs are rising, then some of the unit costs assigned to cost of goods sold are older costs which are lower. These lower costs mean a lower cost of goods sold and a higher net income and a LIFO liquidation profit

When reporting inventory using the lower of cost or market, market should not be less than: A) Replacement cost. B) Net realizable value. C) Selling price. D) Net realizable value less a normal profit margin.

D Market is the inventory's current replacement cost (by purchase or reproduction) except that market should not be less than net realizable value reduced by an allowance for an approximately normal profit margin (this forms a "floor" on market)

In a bank reconciliation, NSF checks are: A) Subtracted from the bank balance. B) Added to the book balance. C)Added to the bank balance. D) Subtracted from the book balance.

D The bank balance needs to be reduced by NSF checks, as it includes those amounts but should exclude them.

The difference in the calculation of the cost-to-retail percentage applying the conventional retail method and the average cost method is that the average cost method: A) Excludes beginning inventory. B) Excludes markdowns. C) Includes markups. D) Includes markdowns.

D The conventional retail method includes net markups, but excludes net markdowns. The average cost method includes both net markups and net markdowns.

The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2018: COST RETAIL Inventory 1/1/2018 $390,000 $650,000 Net purchases 1,402,000 1,835,000 Net markups 75,000 Net markdowns 45,000 Net sales 1,845,000 Applying the conventional retail inventory method, Toso's inventory at December 31, 2018, is estimated at: $477,392 $469,000 $395,159 $405,035

Ending inventory at retail: $670,000 [$650,000 (beginning inventory) + $1,835,000 (net purchases) + $75,000 (net markups) - $45,000 (net markdowns) - $1,845,000 (net sales)]. Cost ratio = 70% [$390,000 (beginning inventory) + $1,402,000 (net purchases)] ÷ [$650,000 (beginning inventory) + $1,835,000 (net purchases) + $75,000 (net markups)]. Ending inventory at cost: $670,000 × 70% = $469,000

The Toso Company uses the retail inventory method. The following information is available for the year ended December 31, 2018: COST RETAIL Inventory 1/1/2018 $390,000 $650,000 Net purchases 1,402,000 1,835,000 Net markups 75,000 Net markdowns 45,000 Net sales 1,845,000 Applying the average cost retail inventory method, Toso's inventory at December 31, 2018, is estimated at: $477,392 $469,000 $395,159 $405,035

Ending inventory at retail: $670,000 [$650,000 (beginning inventory) + $1,835,000 (net purchases) + $75,000 (net markups) - $45,000 (net markdowns) - $1,845,000 (net sales)]. Cost ratio = 71.25% [$390,000 (beginning inventory) + $1,402,000 (net purchases)] ÷ [$650,000 (beginning inventory) + $1,835,000 (net purchases) + $75,000 (net markups) - $45,000 (net markdowns)]. Ending inventory at cost: $670,000 × 71.2525% = $477,392.

Shown below is activity for one of the products of Denver Office Equipment: January 1 balance, 700 units @ $55 $38,500Purchases: January 10: 700 units @ $60 January 20: 1,100 units @ $62Sales: January 12: 1,000 units January 28: 840 units Required:Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses FIFO.

FIFO Beginning inventory700 @$55 $38,500 January 10 purchase700 @$60 42,000 January 20 purchase1,100 @$62 68,200 Total available2,500 148,700 Units sold (800 + 750) 1,840 Ending inventory660 @$62 40,920 Cost of goods sold $107,780

Harmon Sporting Goods received a $60,000, 6-month, 10% note from a customer. Four months after receiving the note, it was discounted at a local bank at a 12% discount rate. The cash proceeds received by Harmon were: $63,000 $64,680 $61,740 $67,200

Face amount ($60,000) + interest to maturity ($60,000 × 10% × ½ year = $3,000) = maturity value ($63,000). Maturity value ($63,000) - discount ($63,000 × 12% × 2/12 year = $1,260) = $61,740

Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a desired amount based on an aging of accounts receivable. At the beginning of 2018, the allowance account had a credit balance of $18,000. During 2018, credit sales totaled $480,000 and receivables of $14,000 were written off. The year-end aging indicated that a $21,000 allowance for uncollectible accounts was required. Enchill's bad debt expense for 2018 would be: $17,000 $2,600 $21,000 $14,400

Focusing on the allowance account, $18,000 - 14,000 + total bad debt expense = $21,000, so bad debt expense = $17,000

Meteor Co. purchased merchandise on March 4, 2016, at a price of $50,000, subject to credit terms of 2/10, n/30. Meteor uses the net method for recording purchases and uses a periodic inventory system. Required:1. Prepare the journal entry to record the purchase.

March 04, 2016 Purchases 49,000 Accounts payable 49,000

Meteor Co. purchased merchandise on March 4, 2016, at a price of $50,000, subject to credit terms of 2/10, n/30. Meteor uses the net method for recording purchases and uses a periodic inventory system Prepare the journal entry to record the appropriate payment if the entire invoice is paid on March 11, 2016.

March 11, 2016 Accounts payable 49,000 Cash 49,000

The following information pertains to one item of inventory of the Simon Company: Per unit Cost $200 Replacement cost 170 Selling price 190 Disposal costs 10 Normal profit margin 30 Using the lower of cost or market, this item should be valued at: $150 $200 $170 $190

Market = replacement cost ($170), which is below the ceiling ($190 - $10 = $180) and above the floor ($190 - $10 - $30 = $150)

Montana Co. has determined its year-end inventory on a FIFO basis to be $634,000. Information pertaining to that inventory is as follows: Selling price $610,000 Costs to sell 38,000 Replacement cost. 550,000 What should be the reported value of Montana's inventory? $572,000. $595,000. $550,000. $610,000.

NRV = $572,000 which is less than cost.

The following information pertains to one item of inventory of the Simon Company: Per unit Cost$180 Replacement cost 150 Selling price 195 Costs to sell 35 Applying the lower of cost or net realizable value rule, this item should be valued at: $150 $180 $160 $195

NRV of $160 ($195 - 35) is lower than cost of $180

Moss Co. has determined its year-end inventory on a FIFO basis to be $400,000. Information pertaining to that inventory is as follows: Estimated selling price$408,000 Estimated costs to sell 20,000 What should be the book value of Moss's inventory? $408,000 $380,000 $388,000 $400,000

Net realizable value = 388,000 ($408,000 selling price − $20,000 costs to sell.) The inventory would be valued at $388,000, the net realizable value, as it is lower than the $400,000 FIFO cost.

Jasper Company uses the allowance method to account for bad debts. During 2018, the company recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling $5,000. These transactions caused a decrease in working capital (current assets minus current liabilities) of: $7,000 $5,000 $9,000 $14,000

Recording bad debt expense will credit the allowance for bad debts for $9,000, and writing off bad debts will debit it for $5,000 as well as crediting accounts receivable, so the net decrease in working capital will be $9,000 + 5,000 - 5,000 = $9,000.

West Company had the following account balances at December 31, 2016, before recording bad debt expense for the year: Accounts receivable$ 900,000 Allowance for uncollectible accounts (credit balance) 16,000 Credit sales for 20161,750,000 West is considering the following methods of estimating bad debts for 2016: •Based on 2% of credit sales •Based on 5% of year-end accounts receivable What amount should West charge to bad debt expense at the end of 2016 under each method? Percentage ofCredit Sales Percentage of Accounts Receivable $35,000 $29,000 $35,000. $45,000 $51,000 $29,000 $51,000. $45,000

The estimate using the income statement approach is: $1,750,000 × 2% = $35,000 The estimate using the balance sheet approach is: Required ending balance ($900,000 × 5%)$45,000 Less: Allowance for uncollectible accounts before recording bad debt expense (16,000) Bad debt expense $29,000

The following information pertains to one item of inventory of the Simon Company: Per unit Cost $180 Replacement cost 150 Selling price 195 Costs to sell 35 What should be the book value of Simon's inventory if the company prepares its financial statements according to International Financial Reporting Standards?

Under IFRS, inventory is reported using the lower of cost or net realizable value. NRV of $160 ($195 - $35) is lower than cost of $180.

Dixon Menswear Shop regularly buys shirts from Colt Company. Dixon purchased shirts from Colt on May 27, and received an invoice with a list price amount of $3,600 and payment terms of 2/10, n/30. Dixon uses the net method to record purchases. Dixon should record the purchase at $3,430 $3,500 $3,528 $3,600

Under the net method, purchases are recorded net of the discount: $3,600 × 98% = $3,528