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ACC 131 Study Guide - Midterm Guide: Perpetual Inventory, Intangible Asset, Inventory Turnover

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violetllama898
15 Nov 2016
School
ISU
Department
Accounting
Course
ACC 131
Professor
Seipp

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Document Summary

Please note that the exam may include some or all of the following topics. Although this study covers the majority of the exam, it may not be all inclusive. Chapter 6 (10 conceptual multiple choice and 4 multiple choice problems) How is cost of goods sold calculated: beginning inventory + purchases = cost of goods available for sale ending inventory = cost of goods sold. Be able to interpret shipping terms (2/10, n /30; n/15; 1/15, n/45, etc. : 2% discount if payment is made in 10 days, otherwise full invoice is due within 30 days/ 15 days/45-days period. Be able to calculate ending inventory and cost of goods sold using fifo, lifo and moving average methods (perpetual inventory system only) What are the acceptable methods of inventory costing: specific identification, fifo (first in, first out, lifo (last in, first out, average cost.

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Related Questions

Use the following information toanswer the next 11 questions. SELECT ALL ANSWERS THATAPPLY.

On May I. Sam Company sold $5,000of inventory to Bob Company. The sale was made on account and Samgranted Bob credit terms of 2/10. n/30. The inventory cost SamCompany $3,000. On May 3, Bob returned $1,000 of the inventory toSam. (The inventory returned by Bob cost Sam $600.) On May 9, Bobpaid Sam in full for the amount due.

1. What account will Bob debit on May I if the periodicinventory system is used?

A) Accounts Payable

B) Cost of Goods Sold

c) Merchandise Inventory

D) Purchases

E) None of the above

2. What account will Bob debit on May I if the perpetualinventory system is used?

A) Accounts Payable

B) Cost of Goods Sold

C) Merchandise Inventory

D) Purchases

E) None of the above

3. What account will Sam debit on May l if the periodicinventory system, is used?

A) Accounts Payable

B) Cost of Goods Sold

C) Merchandise Inventory

D) Purchases

E) None of the above

4. What account will Sam debit on May I if the perpetualinventory system is used?

A) Accounts Payable

B) Cost of Goods Sold

C) Merchandise Inventory

D) Purchases

E) None of the above

5. What journal entry will Bob record on May 3 if the periodicinventory system is used?

A) debit Accounts Payable, $1,000; credit Merchandise Inventory,$1,000.

B) debit Accounts Payable, $1,000; credit Purchases, $1,000.

C) debit Accounts Payable, $1,000; credit Purchase Discounts,$1,000.

D) debit Accounts Payable, $1,000; credit Purchase Returns andAllowances, $1,000.

E) debit Merchandise Inventory; $600; credit Cost of Goods Sold,$600.

6. what journal entry will Bob record on May 3 if the perpetualinventory system is used?

A) debit Accounts Payable, $1,000; credit Merchandise Inventory,$1,000.

B) debit Accounts Payable, $1,000; credit Purchases, $1,000.

C) debit Accounts Payable, $1,000; credit Purchase Discounts,$1,000.

D) debit Accounts Payable, $1,000; credit Purchase returns andAllowances, $1,000.

E) debit Merchandise Inventory; $600; credit Cost of Goods Sold,$600.

7. what journal entry will Sam record on May 3 if the periodicinventory system is used?

A) debit Merchandise Inventory, $600; credit Cost of Goods Sold,$600.

B) debit Sales, $1,000; credit Accounts Receivable, $1,000.

C) debit Sales, $1,000; credit Cash, $1,000.

D) debit Sales Returns and Allowances, $1,000; credit AccountsReceivable, $1,000.

E) debit Sales Returns and Allowances, $1,000; credit Cash,$1,000.

problem 4-26A Comprehensive cycle problem: Perpetual system LO4-2,

At the beginning of 2016, the Redd Company had the followingbalances in Its accounts:

cash 6.900

Inventory 15,000

Land 7,000

Common Stock 15,000

Retaind Earnings 13,900
l . purchased inventory that cost $5,200 on account from RossCompany under terms 1/10. 11/30. The merchandise was delivered FOBshipping point. Freight costs of S]90 '*ere paid incash.During 2016, the company experienced the followingevents:

2. Returned $400 of the inventory that it had purchased becausethe inventory was damaged In transit. The seller agreed to pay thereturn freight cost.

3. Paid the amount due on its account payable to Ross Companywithin the cash discount period.

4. Sold inventory that had cost $6,800 for $12, 100 on account,under terms 2/10, n/45.

5. Received merchandise returned from a customer. Themerchandise originally cost $900 and was sold to the customer for$1 ,680 cash, The customer was paid Sl ,680 cash for the returnedmerchandise.

6. Delivered goods FOB destination in Event 4. Freight costs of$140 were paid in cash.

7. Collected the amount due on the account receivable within thediscount period.

8. Sold the land for $8,500.

9. Recognized accrued interest income of $600.

10. Took a physical count indicating that $13,400 of inventorywas on hand at the end of the accounting period.

used, When an event has more than one part, use letters todistinguish the etyeets of each part. The first event is recordedas an example

b. Record the events in general journal format.

c. Open ledger T-accounts, and post the beginning balances andthe events to the accounts.

Prepare a multistep income statement, a statement of changes instockholders' equity, a bal. ance sheet, and a statement of cashflows.

e. Record and post the closing entries, and prepare apost-closing trial balance.

Financial Accounting, 14th Edition

Carl S. Warren; Jim Reeve; Jonathan Duchac

Final_Multiple choice

1. The primary objectives of control over inventory are

a.safeguarding the inventory from damage and maintainingconstant observation of the inventory

b.reporting inventory in the financial statements

c.maintaining constant observation of the inventory andreporting inventory in the financial statements

d.safeguarding inventory from damage and reporting inventory inthe financial statements

2. When merchandise sold is assumed to be in the order in whichthe purchases were made, the company is using

a.first-in, last-out

b.first-in, first-out

c.last-in, first-out

d.average cost

3. Use the information below to answer the followingquestion.


The Boxwood Company sells blankets for $60 each. The following wastaken from the inventory records during May. The company had nobeginning inventory on May 1.

Date Blankets Units Cost
May 3 Purchase 5 $20
10 Sale 3
17 Purchase 10 $24
20 Sale 6
23 Sale 3
30 Purchase 10 $30


Assuming that the company uses the perpetual inventory system,determine the gross profit for the sale of May 23 using the FIFOinventory cost method.

a.$72

b.$108

c.$180

d.$120

4.If merchandise inventory is being valued at cost and thepurchase price is steadily falling, which method of costing willyield the largest net income?

a.FIFO

b.LIFO

c.average cost

d.weighted average

5.Stevens Company started the year with an inventory cost of$145,000. During the month of January, Stevens purchased inventorythat cost $53,000. January sales totaled $140,000. Estimated grossprofit is 35%. The estimated ending inventory as of January 31is

a.$58,000

b.$107,000

c.$69,300

d.$91,000

6. Which one of the following below is not anelement of internal control?

a.risk assessment

b.cost-benefit considerations

c.monitoring

d.information and communication

7. A check drawn by a company for $340 in payment of a liabilitywas recorded in the journal as $430. What entry is required in thecompany's accounts?

a.debit Cash; credit Accounts Receivable

b.debit Accounts Receivable; credit Cash

c.debit Accounts Payable; credit Cash

d.debit Cash; credit Accounts Payable

8. A bank reconciliation should be prepared

a.to explain any difference between the company's balance perbooks with the balance per bank

b.by the company's bank

c.whenever the bank refuses to lend the company money

d.by the person who is authorized to sign checks

9.

Pilger Corporation has cash on hand at year-end of $201,000 anda negative cash flow from operations of $144,000. What is the ratioof cash to monthly cash expenses?

a.1.4 months

b.7.2 months

c.12.0 months

d.16.8 months

10. When does an account become uncollectible?

a.when accounts receivable is converted into notesreceivable

b.when a discount is availed on notes receivable

c.at the end of the fiscal year

d.there is no general rule for when an account becomesuncollectible

11.On the balance sheet, the amount shown for the Allowance forDoubtful Accounts is equal to the

a.total estimated uncollectible accounts as of the end of theyear

b.sum of all accounts that are past due

c.total of the accounts receivables written-off during theyear

d.uncollectible accounts expense for the year

12. Allowance for Doubtful Accounts has a debit balance of $600at the end of the year (before adjustment), and an analysis ofaccounts in the customers ledger indicates uncollectiblereceivables of $13,000. Which of the following entries records theproper adjusting entry for bad debt expense?

a.debit Allowance for Doubtful Accounts, $600; credit Bad DebtExpense, $600

b.debit Bad Debt Expense, $600; credit Allowance for DoubtfulAccounts, $600

c.debit Bad Debt Expense, $13,600; credit Allowance for DoubtfulAccounts, $13,600

d.debit Bad Debt Expense, $12,400; credit Allowance for DoubtfulAccounts, $12,400

13. When comparing the direct write-off method and the allowancemethod of accounting for uncollectible receivables, a majordifference is that the direct write-off method

a.is used primarily by small companies with few receivables

b.is used primarily by large companies with many receivables

c.uses an allowance account

d.uses a percentage of sales method to estimate uncollectibleaccounts

14. Accumulated Depreciation

a. is used to show the amount of cost expiration ofintangibles

b.is used to show the amount of cost expiration of naturalresources

c.is the same as Depreciation Expense

d.is a contra asset account

15. Equipment with a cost of $220,000 has an estimated residualvalue of $30,000 and an estimated life of 10 years or 19,000 hours.It is to be depreciated by the straight-line method. What is theamount of depreciation for the first full year, during which theequipment was used 2,100 hours?

a.$19,000

b.$21,000

c.$30,000

d.$22,000

16. The process of transferring the cost of metal ores and otherminerals removed from the earth to an expense account is called

a.depreciation

b.depletion

c.amortization

d.deferral

17. The Bacon Company acquired new machinery with a price of$15,200 by trading in similar old machinery and paying $12,700. Theold machinery originally cost $9,000 and had accumulateddepreciation of $5,000. In recording this transaction, BaconCompany should record

a.a loss of $1,500

b.the new machinery at $12,700

c.a gain of $1,500

d.the new machinery at $16,700

18. Assuming a 360-day year, when a $50,000, 90-day, 9%interest-bearing note payable matures, total payment will be

a.$54,500

b.$4,500

c.$1,125

d.$51,125

19. Which of the following is required to be withheld fromemployee's gross pay?

a.only federal income tax

b.both federal and state unemployment compensation taxes

c.only state unemployment compensation tax

d.only federal unemployment compensation tax

20. Hall Company sells merchandise with a one-year warranty. Inthe current year, sales consisted of 4,500 units. It is estimatedthat warranty repairs will average $10 per unit sold, and 30% ofthe repairs will be made in the current year and 70% in the nextyear. In the current year's income statement, Hall should showwarranty expense of

a.$45,000

b.$0

c.$13,500

d.$31,500

21. Which of the following below is not acharacteristic of a limited liability company?

a.limited legal liability

b.unlimited life

c.taxable

d.moderate ability to raise capital

22. Seth and Beth have original investments of $50,000 and$100,000 respectively in a partnership. The articles of partnershipinclude the following provisions regarding the division of netincome: interest on original investment at 10%; salary allowancesof $27,000 and $18,000, respectively; and the remainder to bedivided equally. How much of the net income of $42,000 is allocatedto Seth?

a.$20,000

b.$23,000

c.$32,000

d.$0

23. Which of the following is not a rightpossessed by common stockholders of a corporation?

a.the right to share in assets upon liquidation

b.the right to receive a minimum amount of dividends

c.the right to sell their stock to anyone they choose

d.the right to vote in the election of the board ofdirectors

24. The charter of a corporation provides for the issuance of100,000 shares of common stock. Assume that 45,000 shares wereoriginally issued and 5,000 were subsequently reacquired. What isthe amount of cash dividends to be paid if a $2 per share dividendis declared?

a.$80,000

b.$100,00

c.$90,000

d.$10,000

25.Which statement below is not a reason for acorporation to buy back its own stock?

a.to increase the shares outstanding

b.for supporting the market price of the stock

c.resale to employees

d.bonus to employees