Jeff Knight Chapter 4-7

The Miller Company earned $109,000 of revenue on account during 2016. There was no beginning balance in the accounts receivable and allowance accounts. During 2016 Miller collected $75,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. The amount of uncollectible accounts expense recognized on the 2016 income statement was

Correct: $3,270 ***$109,000 revenue on account × 3% = $3,270***

The Miller Company earned $109,000 of revenue on account during 2016. There was no beginning balance in the accounts receivable and allowance accounts. During 2016 Miller collected $75,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account. The net realizable value of Miller's receivables at the end of 2016 was

Correct: $30,730 ***$0 beginning balance + $109,000 revenue on account - $75,000 collections = $34,000 ending accounts receivable balance; $0 beginning balance + $3,270 uncollectible accounts expense - $0 write-offs = $3,270 ending allowance for doubtful accounts balance; $34,000 - $3,270 = $30,730 net realizable value***

Rosewood Company made a loan of $10,400 to one of the company's employees on April 1, 2016. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report in 2016 and 2017, respectively would be:

Correct: $468, $156 ***$10,400 × 6% × 9/12 months = $468 interest revenue in April - December, 2016; $10,400 × 6% × 3/12 months = $156 interest revenue in January - March, 2017***

Glasgow Enterprises started the period with 60 units in beginning inventory that cost $2.20 each. During the period, the company purchased inventory items as follows Purchase # of Items Cost 1 270 $2.70 2 185 $2.80 3 55 $3.20 Glasgow's cost of goods sold under FIFO would be:

Correct: $753 ***(60 × $2.20) + (230 × $2.70) = $753***

Ballard Company uses the perpetual inventory system. The company purchased $9,700 of merchandise from Andes Company under the terms 3/10, net/30. Ballard paid for the merchandise within 10 days and also paid $420 freight to obtain the goods under terms FOB shipping point. All of the merchandise purchased was sold for $18,400 cash. The amount of gross margin for this merchandise is:

Correct: $8,571 ***Sales $18,400 - Cost of goods sold ($9,700 x 0.97 + $420) = $8,571 Gross margin***

Anton Co. uses the perpetual inventory method. Anton purchased 880 units of inventory that cost $6 each. At a later date the company purchased an additional 960 units of inventory that cost $8 each. If Anton uses the FIFO cost flow method and sells 1,300 units of inventory, the amount of cost of goods sold will be

Correct: $8,640 ***(880 × $6) + (420 × $8) = $8,640***

At March 31, Cummins Co. had a balance in its cash account of $11,200. At the end of March the company determined that it had outstanding checks of $1,275, deposits in transit of $770, a bank service charge of $50, and an NSF check from a customer for $235. The true cash balance at March 31 is:

Correct: 10,915 ***$11,200 unadjusted book balance - $50 service charge - $235 NSF check = $10,915 true cash balance***

The April 30, 2016 bank statement for Trimble Corporation shows an ending balance of $39,603. The unadjusted cash account balance was $33,150. The accountant for Trimble gathered the following information: 1. There was a deposit in transit for $5,232 2. The bank statement reports a service charge of $159 3. A credit memo included in the bank statement shows interest earned of $735 4. Outstanding checks totaled $13,479 5. The bank statement included a $2,370 NSF check deposited in April. What is the true cash balance as of April 30, 2016?

Correct: 31,356 Correct: $31,356 **$39,603 unadjusted bank balance + $5,232 deposit in transit - $13,479 outstanding checks = $31,356 true cash balance. Alternatively, $33,150 unadjusted book balance - $159 service charge + $735 interest revenue - $2,370 NSF check = $31,356.**

Gross Company established a $250 petty cash fund on January 1, 2016. On March 1, 2016 the fund contained $160 in receipts for miscellaneous expenses and $85 in cash. The entries necessary to replenish the petty cash fund will

Correct: Decrease assets by $165 ***The entry to replenish the petty cash account will decrease assets (cash) by $165, increase miscellaneous expenses by $160 and increase cash short by $5. Total equity will decrease by $165.***

Faust Company uses the perpetual inventory method. Faust sold goods that cost $6,400 for $10,800. If the sale was made on account, the net effect of the sale will:

Correct: Increase total assets by Correct: $4,400. ***The sale will increase assets (accounts receivable) and equity (sales revenue) by $10,800 and it will decrease assets (inventory) and equity (increase cost of goods sold) by $6,400. The net effect is an increase to total assets and total equity of $4,400***

The amount of accounts receivable that is actually expected to be collected is known as:

Correct: Net realizable value Correct: Net realizable value ***Net realizable value is calculated as the general ledger accounts receivable balance (what has been billed to customers, but not yet collected) minus allowance for doubtful accounts (the estimate of what a company believes is uncollectible).***

Which one of the following is not an accurate description of the Allowance for Doubtful Accounts?

Correct: The account is a temporary account ***Allowance for doubtful accounts is a contra account that decreases the net realizable value of a company's receivable. It is increased when a company estimates uncollectible accounts expense***

Middleton Company uses the perpetual inventory method. The company purchased an item of inventory for $100 and sold the item to a customer for $170. What effect will the sale have on the company's inventory account?

Correct: The account will decrease by $100 **The sale will cause the inventory account to decrease by $100, the cost of the item sold.**

The Wilson Company purchased $38,000 of merchandise from the Poole Wholesale Company. Wilson also paid $3,100 for freight costs to have the goods shipped to its location. Which of the following statements regarding the necessary entries for the transactions is true? Wilson uses the perpetual inventory system

Correct: Total debits to the inventory account would be $41,000 ***The inventory account would be debited (increased) by both the inventory purchase and the payment for transportation-in.***

Which of the following is considered a product cost?

Correct: Transportation cost on goods shipped to customers ---Transportation cost on goods received from suppliers. ---Transportation cost on goods shipped to customers. ---Salaries paid to employees of a retailer. ---Utility expense for the current month. ***Transportation cost on purchased goods is a product cost that increases the merchandise inventory account, and is reported as a component of cost of goods sold on the income statement***

Product costs are matched against sales revenue

Correct: When the merchandise is sold. ***Product costs are matched against sales revenue (recognized as expenses) when merchandise is sold. The expense is called cost of goods sold.***