Accounting 230 Chapter 5,6,7

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Self-Test Questions

Which of the following statements about a periodic inventory system is true?

Companies determine cost of goods sold only at the end of the accounting period

Which of the following items does not result in an adjustment in the Inventory account under a perpetual system?

Payment of freight costs for goods shipped to a customer.

Which sales accounts normally have a debit balance?

Sales discounts and Sales returns and allowances.

A company makes a credit sale of $750 on June 13, terms 2/10, n/30, on which it grants a return of $50 on June 16. What amount is received as payment in full on June 23?

$686.((750-50)x.98)

To record the sale of goods for cash in a perpetual inventory system

two journal entries are necessary: one to record the receipt of cash and sales revenue, and one to record the cost of goods sold and reduction of inventory.

Gross profit will result if

sales revenues are greater than cost of goods sold.

If sales revenues are $400,000, cost of goods sold is $310,000, and operating expenses are $60,000, what is the gross profit?

$90,000.(400,000-310,000)

The multiple-step income statement for a merchandising company shows each of these features

gross profit, cost of goods sold, a sales revenue section

If beginning inventory is $60,000, cost of goods purchased is $380,000, and ending inventory is $50,000, what is cost of goods sold under a periodic system?

$390,000. (60,000+380,000-50,000)

Bufford Corporation had reported the following amounts at December 31, 2012: Sales revenue $184,000; ending inventory $11,600; beginning inventory $17,200; purchases $60,400; purchase discounts $3,000; purchase returns and allowances $1,100; freight-in $600; freight-out $900. Calculate the cost of goods available for sale.

$74,100. (17200+(60400-3000-1100+600))

Which of the following would affect the gross profit rate? (Assume sales remains constant.)

An increase in cost of goods sold.

The gross profit rate is equal to:

net sales minus cost of goods sold, divided by net sales.

During the year ended December 31, 2012, Bjornstad Corporation had the following results: Sales revenue $267,000; cost of good sold $107,000; net income $92,400; operating expenses $55,400; net cash provided by operating activities $108,950. What was the company's profit margin ratio?

34.6%. (92,400/267,000)

A quality of earnings ratio:

that is less than 1 indicates that a company might be using aggressive accounting tactics.

When goods are purchased for resale by a company using a periodic inventory system:

purchases on account are debited to Purchases.

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

Inventory

The cost of goods sold is determined and recorded each time a sale occurs in:

a perpetual inventory system only.

The multiple-step income statement for a merchandiser shows each of the following features except:

investing activities section.

Which of the following would not be included in the definition of inventory under IFRS?

Used office equipment held for sale by the human relations department of a plastics company.

Which of the following would not be a line item of a company reporting costs by nature?

Manufacturing expense.

Which of the following would not be a line item of a company reporting costs by function?

Utilities expense.

Which of the following would be included in the definition of inventory under IFRS?

Photocopy paper held for sale by an office-supply store, Stereo equipment held for sale by an electronics store

Which of the following would be a line item of a company reporting costs by nature?

Depreciation expense, Salaries expense, Interest expense.

Which of the following would be a line item of a company reporting costs by function?

Administration, manufacturing, Distribution

When is a physical inventory usually taken?

When a limited number of goods are being sold or received and At the end of the company's fiscal year.

Which of the following should not be included in the physical inventory of a company?

Goods held on consignment from another company

Which of the following should be included in the physical inventory of a company?

Goods shipped on consignment to another company and Goods in transit from another company shipped FOB shipping point.

As a result of a thorough physical inventory, Railway Company determined that it had inventory worth $180,000 at December 31, 2012. This count did not take into consideration the following facts: Rogers Consignment store currently has goods worth $35,000 on its sales floor that belong to Railway but are being sold on consignment by Rogers. The selling price of these goods is $50,000. Railway purchased $13,000 of goods that were shipped on December 27, FOB destination, that will be received by Railway on January 3. Determine the correct amount of inventory that Railway should report.

$215,000. (180+35)

Kam Company has the following units and costs: Inventory, Jan. 1, 8,000, 11. Purchase, June 19 13,000 12. Purchase, Nov. 8 5,000 13. If 9,000 units are on hand at December 31, what is the cost of the ending inventory under FIFO?

$113,000.(5,000 x $13)+(4,000 x $12)

From the data in question 4, what is the cost of the ending inventory under LIFO?

$100,000.(8,000x$11)+(1000x$12)

Davidson Electronics has the following:Inventory, Jan. 1 5,000

$8. Purchase, April 2 15,000 $10. Purchase, Aug. 28 20,000 $12. If Davidson has 7,000 units on hand at December 31, the cost of ending inventory under the average-cost method is: $75,250.((5,000x8)+(15000x10)+(20000x12))/40,000= 10.75x10000

In periods of rising prices, LIFO will produce:

lower net income than FIFO.

Considerations that affect the selection of an inventory costing method do not include:

perpetual versus periodic inventory system.

Considerations that affect the selection of an inventory costing method do include:

tax effects, balance sheet effects, income statement effects.

The lower-of-cost-or-market rule for inventory is an example of the application of:

the conservatism constraint.

Which of these would cause the inventory turnover ratio to increase the most?

Decreasing the amount of inventory on hand and increasing sales.

Carlos Company had beginning inventory of $80,000, ending inventory of $110,000, cost of goods sold of $285,000, and sales of $475,000. Carlos's days in inventory is:

121.7 days.(285000/((80000+110000)/2)=3; 365/3)

The LIFO reserve is:

the difference between the value of the inventory under LIFO and the value under FIFO.

In a perpetual inventory system:

FIFO cost of goods sold will be the same as in a periodic inventory system.

Fran Company's ending inventory is understated by $4,000. The effects of this error on the current year's cost of goods sold and net income, respectively, are:

overstated and understated.

Harold Company overstated its inventory by $15,000 at December 31, 2012. It did not correct the error in 2012 or 2013. As a result, Harold's stockholders' equity was:

overstated at December 31, 2012, and properly stated at December 31, 2013.

Goods in transit should be included in the inventory of the buyer when the:

terms of sale are FOB shipping point.

Understating ending inventory will overstate:

cost of goods sold.

Which of the following should not be included in the inventory of a company using IFRS?

Goods held on consignment from another company.

Which of the following should be included in the inventory of a company using IFRS?

Goods shipped on consignment to another company and Goods in transit from another company shipped FOB shipping point.

Which method of inventory costing is prohibited under IFRS?

LIFO.

Specific identification:

must be used under IFRS if the inventory items are not interchangeable.

Which of the following are elements of the fraud triangle?

Rationalization, Financial pressure, and Opportunity.

Which of the following is not an element of the fraud triangle?

Segregation of duties.

Internal control is used in a business to enhance the accuracy and reliability of its accounting records andto:

safeguard its assets.

The principles of internal control include:

establishment of responsibility, documentation procedures, and independent internal verification.

Physical controls do include:

safes and vaults to store cash,locked warehouses for inventories, bank safety deposit boxes for important papers.

Which of the following are results of the Sarbanes-Oxley Act?

All publicly traded companies must maintain adequate internal controls, The Public Company Accounting Oversight Board was created to establish auditing standards and regulate auditor activity, Corporate executives and boards of directors must ensure that controls are reliable and effective, and they can be fined or imprisoned for failure to do so.

Permitting only designated personnel such as cashiers to handle cash receipts is an application of the principle of:

establishment of responsibility.

The use of prenumbered checks in disbursing cash is an application of the principle of:

documentation procedures.

The control features of a bank account include:

minimizing the amount of cash that must be kept on hand. providing a double record of all bank trans actions. safeguarding cash by using a bank as a depos itory.

Which of the following control activities are relevant when a company uses a computerized (rather than manual) accounting system?

Establishment of responsibility.Segregation of duties.Independent internal verification.

In a bank reconciliation, deposits in transit are:

added to the bank balance.

Which of the following items in a cash drawer at November 30 is not cash?

A customer check dated December 1.

Which statement correctly describes the reporting of cash?

Cash is listed first in the current assets section.

Which of the following would not be an example of good cash management?

Invest temporary excess cash in stock of a small company.

Which of the following are examples of good cash management?

Provide discounts to customers to encourage early payment. Carefully monitor payments so that payments are not made early. Employ just-in-time inventory methods to keep inventory low.

Which of the following is not one of the sections of a cash budget?

Cash from operations section.

Which of the following are from the sections of a cash budget?

Cash receipts section, Cash disbursements section, Financing section.

A check is written to replenish a $100 petty cash fund when the fund contains receipts of $94 and $2 in cash. In recording the check:

Cash Over and Short should be debited for $4.

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