ACCTG 1 Lecture Notes - Lecture 25: Retained Earnings, Income Statement, European Cooperation In Science And Technology
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Periodic inventory system. Each of the following four horizontal lines represents data taken from a separate multiple-step income statement. Insert the missing amounts in the space (empty box) provided. Indicate any net loss by placing brackets around the amount.
Hint: Not all parts of the income statement are shown, so be careful with your arithmetic.
| Beginning Inventory | Purchases | Cost of Goods Available for Sale | Ending Inventory | Cost of Goods Sold | |
| a. | $180,000 | $325,000 | $80,000 |
| Sales (Revenue) | Cost of Goods Sold | Gross Profit | Operating Expenses | Net Income | |
| b. | $240,000 | $145,000 | $32,000 |
| Revenue (Sales) | Cost of Goods Available for Sale | Ending Inventory | Cost of Goods Sold | Gross Profit | Operating Expenses | Net Income | |
| c. | $515,000 | $240,000 | $145,000 | $225,000 | $145,000 |
. For each question below, circle the best answer from the choices given. (
1 : Under the periodic inventory system the purchases of merchandise are recorded at their selling prices.
a. True b. False
2 : Inventory shrinkage does not include the loss of merchandise through shoplifting.
a. True b. False
3 : Only under the periodic inventory system is a physical count of the inventory necessary.
a. True b. False
4 : It is not possible to have more inventory at the end of a period then at the beginning of a period.
a. True b. False
5) True and false. Indicate whether each of the following is True (T) or False (F). (5 POINTS)
T F 1. US Treasury bills that mature within 120 days are cash equivalents.
T F 2. Financial assets describe not just cash, but all assets that are easily and directly convertible into known amounts of cash.
T F 3. Good cash mgmt. dictates that any cash and checks received each day should be deposited the same day.
T F 4. The income statement approach to estimating Bad debts Expense emphasizes the aging of accounts receivable and the adjustment of the Allowance for Doubtful Accounts account to the level of the estimated uncollectible amount.
T F 5. When I use the allowance method for accounts receivable, I will recognize a Bad Debt Expense at the same time the account is taken off the Accounts Receivable Subsidiary Ledger.
. For each question below, circle the best answer from the choices given.
1. Which of the following items would cause the ending balance on the bank statement to be larger than the ending balance of cash shown in the accounting records (checkbook)?
A) Bank service charges.
B) Deposits in transit.
C) Outstanding checks.
D) NSF check from one of the depositor's customers.
2. When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the companyâs records are:
A) To correct errors made by the bank in recording the dollar amounts of cash transactions during the period.
B) To reconcile items explaining the difference between the balance per books and the balance per bank stmt.
C) To record outstanding checks and bank service charges.
D) To record items explaining the difference between the balance per accounting records and the adj. cash bal.
3. The Allowance for Doubtful Accounts represents:
A) Cash set aside to make up for bad debt losses.
B) The amount of uncollectible accounts written off to date.
C) The difference between total credit sales and collections on credit sales.
D) The difference between the face value of A/R and the net realizable value of A/R.
4. In preparing a bank reconciliation, a service charge shown on the bank statement should be:
A) Added to the balance per the bank statement.
B) Deducted from the balance per the bank statement.
C) Added to the balance per the depositor's records.
D) Deducted from the balance per the depositor's records.
5. During preparation of a bank reconciliation, outstanding checks should be:
A) Added to the balance per the bank statement.
B) Deducted from the balance per the bank statement.
C) Added to the balance per the depositor's records.
D) Deducted from the balance per the depositor's records.
Bank reconciliation. Indicate what effect each situation will have on the bank reconciliation process (Match the situation with the bank reconciliation process below by placing the number of the process next to the situation). Note that there are more situations than processes, so some processes may be used more than once, but not all processes have to be used. Only one process is required for each situation. Hint: Determine if Cash is increasing or decreasing
Process
Deduct from bank balance 2. Add to bank balance
3. Deduct from checkbook balance 4. Add to checkbook balance
Situation
_______ Bank received $2,750 from one of your customers (Terms: Cash in advance)
_______ Bank collection (wire) fee was $15
_______ Check number 111 was outstanding for $55
_______ A $400 check was written, but recorded on the books as $40
_______ Interest received from your bank for the month was $16.55
QUESTION 6
Which of the following statements is not true regarding prepaidexpenses?
Prepaid expenses represent assets. | ||
Prepaid expenses are shown in a special section of the incomestatement. | ||
Prepaid expenses become expenses only as goods or services areused up. | ||
Prepaid expenses appear in the balance sheet. |
4 points
QUESTION 7
The balance of an unearned revenue account:
Appears in the balance sheet as a component of stockholders'equity. | ||
Appears in the income statement along with other revenueaccounts. | ||
Appears in a separate section of the income statement forrevenue not yet earned. | ||
Appears in the liability section of the balance sheet. |
4 points
QUESTION 8
As of January 31, Hudson Corporation owes $600 to U-Rent-It forequipment used during January. If no adjustment is made for thisitem at January 31, how will Hudson's financial statements beaffected?
Cash will be overstated at January 31. | ||
Net income for January will be overstated. | ||
Stockholders' equity will be understated. | ||
The financial statements will be accurate since the $600 doesnot have to be paid yet. |
4 points
QUESTION 9
The accountant for the Linville Company forgot to make anadjusting entry to record revenue earned but not yet billed tocustomers. The effect of this error is:
An overstatement of assets. | ||
An overstatement of stockholders' equity. | ||
Understatement of both assets and stockholders' equity | ||
Overstatement of both assets and stockholders' equity. |
4 points
QUESTION 10
An adjusting entry involving recognition of unrecorded revenueis necessary at the end of March in which of the followingsituations?
Financial Consultants received payment in February forconsulting services rendered in March. | ||
Financial Consultants began working for a client on March 15;bills will be sent monthly beginning April 15. | ||
Financial Consultants made payment in January for office rentfor the first three months of the year. | ||
On March 31, a major customer paid his bill for a consulting jobcompleted in February. |
4 points
QUESTION 11
Which of the following entries causes an immediate decrease inassets and in stockholders' equity?
The entry to record depreciation expense. | ||
The entry to record revenue earned but not yet received. | ||
The entry to record the earned portion of rent received inadvance. | ||
The entry to record accrued wages payable. |
4 points
QUESTION 12
The CPA firm auditing Greer Company found that net income hadbeen overstated. Which of the following errors could be thecause?
Failure to record depreciation expense for the period. | ||
No entry made to record purchase of land for cash on the lastday of the year. | ||
Failure to record payment of an account payable on the last dayof the year. | ||
Failure to make an adjusting entry to record revenue which hadbeen earned but not yet billed to customers. |
