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ADM 1340 Lecture 11: ADM 1340 - Lecture 11 - Reporting & Analyzing Inventory

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orangecamel139
11 Feb 2019
School
University of Ottawa
Department
Administration
Course
ADM 1340
Professor
Qiu Chen

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ADM 1340 Lecture Notes - Lecture 10: Inventory Turnover

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ADM 1340 Lecture 11: ADM 1340 - Lecture 11 - Reporting & Analyzing Inventory

16

ADM 1340 Lecture Notes - Lecture 16: Matching Principle, Accounts Receivable, Current Asset

Document Summary

She is sending you an email about assignment #2. This chapter is the second part of the last chapter we covered which is the differences between perpetual and periodic accounting periods. We are continuing this today emphasizing on the cost of goods and inventory (dollar amount) under periodic matters. e. g. you are a souvenir store, you sell baseball caps (slide 4). At the beginning of the inventory you have 1000 caps. In this accounting period, you purchased an additional 5 batches with an increase in unit costs (4, 6, 5, 7). Remember they are the same hat, you just pile them up in the warehouse and take out one cap when selling it to the customer. At the end of this period, you sold 15,000 units. Cost of goods sold = 15,000 x unit cost (but you do not know this right now) Cost of ending inventory = 500 unit (but you do not know this right now either)

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Related Questions

All questions have to do with cost accounting systems,more in particular, process cost systems.

Complete each of the following statements by writing theappropriate words or amounts in the answers blanks.

1-5. Identify whether the process cost or job order cost systemwould be more appropriate for each of the followingbusinesses:
1. accounting firm 1. ____
2. breakfast cereal manufacturer 2. ____
3. ship construction 3. ____
4. pharmaceuticals company 4. ____
5. computer chip manufacturer 5. ____

6. The number of units that could have been completed within agiven accounting period with respect to direct materials andconversion costs is the 6. ____

7. Direct labor and factory overhead are referred to as 7.____

8–9. Oslo Manufacturing incurred $72,000 of direct materialscosts, direct labor costs of $24,500, and factory overhead of$20,500. If 1,000 direct materials equivalent units and 900conversion equivalent units were manufactured, then:
8. The equivalent unit cost for direct materials is 8. $____
9. The equivalent unit cost for conversion is 9. $____

10. The periodic report prepared for each processing department,summarizing (1) the units for which the department is responsibleand their disposition and (2) the costs charged the department andtheir allocation, is termed the 10. ____

11. The method of inventory costing that assumes the unitproduct costs should be determined separately for each period inthe order in which the costs were incurred is 11. ____

12–15. In a process cost system, the cost of goods completed andthe ending inventory valuation are determined by using thefollowing four steps:
12. ____
13. ____
14. ____
15. ____

16–17. The transferred costs of completed production inDepartment A using a process cost system include:
16. ____
17. ____

18–20. The three categories of units to be assigned cost for anaccounting period in a process cost system are:
18. ____
19. ____
20. ____

21–24. Department W had 8,000 units in work in process that were30% converted at the beginning of the period at a cost of $16,400.During the period, 15,000 units of direct materials were added at acost of $48,000, 16,000 units were completed, and 7,000 units were40% completed. The first-in, first-out cost method is used and allmaterials are added at the beginning of the process. Direct laborwas $30,000, and factory overhead was $54,000 during theperiod.
21. The number of equivalent units of conversion for the period was21. ____
22. The total conversion costs for the period were 22. $____
23. The conversion cost of the units started and completed duringthe period was 23. $____
24. The conversion cost of the 7,000 units in process at the end ofthe period was 24. $____

Indicate the titles of the accounts to be debited and creditedin recording the selected transactions given below by inserting theletter or letters of the account titles listed in the appropriatecolumns. (Do not record the amounts.)

ACCOUNTS

A. Accounts Payable E. FactoryOverhead–Department A I. Sales

B. Accounts Receivable F.Factory Overhead–Department B J. Wages Payable

C. Cash G. Finished GoodsK. Work in Process–Department A

D. Cost of Goods Sold H.Materials L. Work inProcess–Department B

TRANSACTIONS

Debit

Credit

0. Paid cash for wages owed, $47,000.............................................................

J

0. ____

C

0. ____

1-2. Materials requisitioned for use in Department A,$36,000, of which $31,500 entered directly into the product.....................................................


1. ____


2. ____

3-4. Labor in Department A, $13,000, was used directlyin the manufacture of the product.....................................................................................................


3. ____


4. ____

5-6. Factory overhead applied to production inDepartment A, $6 per machine hour.....................................................................................................


5. ____


6. ____

7-8. Goods finished in Department A and transferred toDepartment B,

$79,000...............................................................................................................


7. ____


8. ____

9-10. Goodsfinished in Department B and transferred to finished goods,$114,000.............................................................................................................


9. ____


10. ____

11-12. Cost of finishedgoods sold, $126,374.........................................................

11. ____

12. ____
Answers to the 30multiple choice questions 2 points each, 30questions, for 60 point total
60 points
< please record 1) From an internal control standpoint, the asset mostsusceptible to improper diversion and use is
answer here a. prepaid insurance.
b. cash.
c. Equipment
d. Investments
2) Jolene is warehouse custodian and alsomaintains the accounting record of the inventory held at thewarehouse. An assessment of this situation indicates
a. documentation procedures are violated.
b. independent internal verification is violated.
c. segregation of duties is violated.
< please record d. establishment of responsibility is violated.
answer here
3) Internal control is defined, in part, as a planthat safeguards
a. all balance sheet accounts.
b. assets.
c. liabilities.
d. capital stock.
4) The control principle related to nothaving the same person authorize and pay for goods is known as
a. establishment of responsibility.
b. independent internal verification.
< please record c. segregation of duties.
answer here d. rotation of duties.
5) Two individuals at a retail store work thesame cash register. You evaluate this situation as
a. a violation of establishment of responsibility.
b. a violation of segregation of duties.
c. supporting the establishment of responsibility.
< please record d. supporting internal independent verification.
answer here
6) Having different individuals receive cash,record cash receipts, and hold the cash is an example of
a. establishment of responsibility.
b. segregation of duties.
c. documentation procedures.
d. independent internal verification.
7) An adjusting entry is not required for
a. outstanding checks.
b. collection of a note by the bank.
c. NSF checks.
d. bank service charges.
8) If a check correctly written and paid bythe bank for $591 is incorrectly recorded on the company's booksfor $519,
the appropriate treatment on the bankreconciliation would be to
a. deduct $72 from the book's balance.
b. add $72 to the book's balance.
c. deduct $72 from the bank's balance.
d. deduct $591 from the book's balance.
9) During 2013, Parker Enterprises generatedrevenues of $60,000. The company's expenses were as follows:
cost of goods sold of $30,000, operatingexpenses of $12,000 and a loss on the sale of equipment of$2,000.
Parker's gross profit is:
a. $16,000.00
b. $18,000.00
c. $30,000.00
d. $60,000.00
10) A primary difference between a periodicand perpetual inventory system is that a periodic system:
a. determines the inventory on hand only at the end ofthe accounting period.
b. provides better control over inventories.
c. records the cost of goods sold after each saletransaction.
d. keeps a record showing the merchandise inventory onhand at all times.
11) A decline in a company's gross profitcould be caused by all of the following except:
a. selling products using a lower markup.
b. clearance of discontinued inventory.
c. paying lower prices to its suppliers.
d. increasing competition resulting in a lower sellingprice.
12) South Company uses the perpetual inventorysystem. South's goods in transit at December 31 include:
Sales made by South Purchases made by South
(1) FOB destination (3) FOB destination
(2) FOB shipping point (4) FOB shipping point
Which itemsshould be included in South's inventory at December 31?
a. (2) and (3)
b. (1) and (4)
c. (1) and (3)
d. (2) and (4)
13) In periods of rising prices, the inventorymethod which results in the greatest net income is the:
a. LIFO method.
b. FIFO method.
c. Weighted Average method.
d. Lower of Cost or Market method.
14) The following information was available for RawleyCompany at December 31, 2008:
inventory (Jan .01) $80,000; inventory (Dec. 31)$120,000; cost of goods sold $600,000;
accounts receivable $73,000; and sales$900,000.
Rawley's inventory turnover in 2008 was:
a. 9.00 times.
b. 7.50 times.
c. 6.00 times.
d. 5.00 times.
15) A petty cash fund of $200 is replenishedwhen the fund contains $5 in cash and receipts for $193.
The entry to replenish the fund would:
a. credit Cash Over and Short for $2.
b. credit Miscellaneous Revenue for $2.
c. debit Cash Over and Short for $2.
d. debit Miscellaneous Expense for $2.
16) An item is considered material if
a. it doesn't costs a lot of money.
b. it is of a tangible good intended for re-sale.
c. it is likely to influence the decision of aninvestor or creditor.
d. the cost of reporting the item is greater than itsbenefits.
17) Receivables might be sold to
a. lengthen the cash-to-cash operating cycle.
b take advantage of deep discounts on the cashrealizable value of receivables.
c. generate cash quickly.
d. finance companies at an amount greater than cashrealizable value.
18) If the amount of uncollectible accountexpense is understated at year end:
a. net income will be understated.
b. stockholders' equity will be understated.
c. allowance for doubtful accounts will be overstated.
d. net accounts receivable will be overstated.
19) A debit balance in the Allowance for DoubtfulAccounts
a. is the normal balance for that account.
b. indicates that actual bad debt write-offs haveexceeded previous provisions for bad debts.
c. indicates that actual bad debt write-offs have beenless than what was estimated.
d. cannot occur if the percentage of sales method ofestimating bad debts is used.
20) Bad Debts Expense is considered
a. an avoidable cost in doing business on a credit basis.
b. an internal control weakness.
c. a necessary risk of doing business on a credit basis.
d. avoidable unless there is a recession.
21) The best managed companies will have
a. no uncollectible accounts.
b. a very strict credit policy.
c. a very lenient credit policy.
d. some accounts that will prove to be uncollectible.
22) Two methods of accounting for uncollectibleaccounts are the
a. allowance method and the accrual method.
b. allowance method and the net realizable method.
c. direct write-off method and the accrual method.
d. direct write-off method and the allowance method.
23) When the allowance method of accountingfor uncollectible accounts is used, Bad Debts Expense isrecorded
a. in the year after the credit sale is made.
b. in the same year as the credit sale.
c. as each credit sale is made.
d. when an account is written off as uncollectible.
24) Allowance for Doubtful Accounts on the balancesheet
a. is offset against total current assets.
b. increases the cash realizable value of accountsreceivable.
c. appears under the heading "Other Assets."
d. is offset against accounts receivable.
25) In reviewing the accounts receivable, thecash realizable value is $14,000 before the write-off of a $1,500account.
What is the cash realizable value after thewrite-off?
a. $1,500
b. $12,500
c. $14,000
d. $15,500
26) The maturity value of a $60,000, 10%, 60-day notereceivable dated July 3 is
a. $60,000
b. $61,000
c. $66,000
d. $70,000
27) The interest on a $10,000, 10%, 1-year notereceivable is
a. $1,000
b. $10,000
c. $10,100
d. $11,000
28) The maturity value of a $60,000, 8%, 3-month notereceivable is
a. $60,400
b. $60,480
c. $61,200
d. $64,800
29) Notes receivable are recorded in the accounts at
a. cash (net) realizable value.
b. face value.
c. gross realizable value.
d. maturity value.
30) Which of the following are also called tradereceivables?
a. Accounts receivable
b. Other receivables
c. Advances to employees
d. Income taxes refundable

Question 1

The balance of a control account in the general ledger

must equal the amount of total assets.

must equal the composite balance of individual accounts in arelated subsidiary ledger.

is always greater than the composite balance of individual accountsin a related subsidiary ledger.

must always be zero.
Question 2

The Foreign Corrupt Practices Act requires that all U.S.corporations under the juris-diction of the Securities and ExchangeCommission

have at least one foreign subsidiary.

must file reports with the National Commission on FraudulentFinancial Reporting.

maintain accounting records of foreign branches and subsidiaries inthe local foreign currency.

maintain an adequate system of internal control.

Question 3

Holliday Company's inventory records show the following data:
Units Unit Cost
Inventory, January 1 5,000 $9.00
Purchases: June 18 4,500 8.00
November 8 3,000 7.00

A physical inventory on December 31 shows 2,000 units on hand.Holliday sells the units for $12 each. The company has an effectivetax rate of 20%. Holliday uses the periodic inventory method.
Under the FIFO method, the December 31 inventory is valued at

$14,000.

$15,000.

$18,000.

$14,500.

Question 4

#4 A $100 petty cash fund has cash of $15 and receipts of $80. Thejournal entry to replenish the account would include a creditto

Cash for $85.

Cash for $80.

Petty Cash for $85.

Cash Over and Short for $5.

Question 5

Lee Industries had the following inventory transactions occurduring 2010:
Units Cost/unit
2/1/10 Purchase 18 $45
3/14/10 Purchase 31 $47
5/1/10 Purchase 22 $49

The company sold 51 units at $63 each and has a tax rate of 30%.Assuming that a periodic inventory system is used, what is thecompany's gross profit using FIFO? (rounded to whole dollars)

$772

$848

$2,441

$2,365








# 6 Wright sells softball equipment. On November 14, they shipped$1,000 worth of softball uniforms to Paola Middle School, terms2/10, n/30. On November 21, they received an order from DouglasHigh School for $600 worth of custom printed bats to be produced inDecember. On November 30, Paola Middle School returned $100 ofdefective merchandise. Wright has received no payments from eitherschool as of month end. What amount will be recognized as netaccounts receivable on the balance sheet as of November 30?

$1,500

$1,000

$1,600

$900

Question 7

Two individuals at a retail store work the same cash register. Youevaluate this situation as

a violation of establishment of responsibility.

supporting internal independent verification.

a violation of segregation of duties.

supporting the establishment of responsibility.

Question 8

Kershaw Bookstore had 500 units on hand at January 1, costing $18each. Purchases and sales during the month of January were asfollows:
Date Purchases Sales
Jan. 14 375 @ $28
17 250 @ $20
25 250 @ $22
29 250 @ $32

Kershaw does not maintain perpetual inventory records. According toa physical count, 375 units were on hand at January 31.

The cost of the inventory at January 31, under the LIFO methodis:

$8,000.

$6,750.

$7,750.

$1,000.



Question 9

A company has an average inventory on hand of $40,000 and the daysin inventory is 73 days. What is the cost of goods sold?

$2,920,000

$1,460,000

$200,000

$400,000
Question 10

An aging of a company's accounts receivable indicates that $9,000are estimated to be uncollectible. If Allowance for DoubtfulAccounts has a $1,100 credit balance, the adjustment to record baddebts for the period will require a

debit to Allowance for Doubtful Accounts for $7,900.

debit to Bad Debts Expense for $7,900.

debit to Bad Debts Expense for $9,000.

credit to Allowance for Doubtful Accounts for $9,000.
# 11 The accountant at Reber Company has determined that incomebefore income taxes amounted to $6,750 using the FIFO costingassumption. If the income tax rate is 30% and the amount of incometaxes paid would be $225 greater if the LIFO assumption were used,what would be the amount of income before taxes under the LIFOassumption?

$6,525

$6,975

$7,500

$6,090

Question 12

Tyler, Inc. had the following bank reconciliation at March 31.2010:
Balance per bank statement, 3/31/10 $37,200
Add: Deposit in transit 10,300
47,500
Less: Outstanding checks 12,600
Balance per books, 3/31/10 $34,900

Data per bank for the month of April 2010 follow:
Deposits $46,700
Disbursements 49,700

All reconciling items at March 31, 2010 cleared the bank in April.Outstanding checks at April 30, 2010 totaled $6,000. There were nodeposits in transit at April 30, 2010. What is the cash balance perbooks at April 30, 2010?

$28,200

$31,900

$34,200

$38,500




Question 13

Which of the following is not an advantage of a subsidiaryledger?

Helps locate errors in individual accounts.

Puts greater detail in the general ledger.

Makes possible a division of labor.

Shows transactions affecting one customer or one creditor in asingle account.



Question 14

The use of special journals to record transactions

can save time in the posting process.

eliminates the need for a general ledger.

should only be used if the volume of transactions is small.

eliminates the need for a general journal.

Question 15

On March 1, 2010, Joe Miles purchased a suit at Calvin's FineApparel Store. The suit cost $250 and Joe used his Calvin creditcard. Calvin charges 2% per month interest if payment on creditcharges is not made within 30 days. On April 30, 2010, Joe had notyet made his payment. What entry should Calvin make on April30th?

Bad Debts Expense 245
Interest Expense 5
Accounts Receivable 250


Accounts Receivable 5
Interest Revenue 5


Accounts Receivable 255
Interest Revenue 5
Sales 250


Uncollectible Account 250
Accounts Receivable 250






Question 16

A company just starting business made the following four inventorypurchases in June:
June 1 150 units $390
June 10 200 units 585
June 15 200 units 630
June 28 150 units 495
$2,100

A physical count of merchandise inventory on June 30 reveals thatthere are 200 units on hand. Using the average-cost method, theamount allocated to the ending inventory on June 30 is

$1,500.

$575.

$600.

$2,100.



Question 17

A sales journal is used to record

only cash sales of merchandise.

credit sales of merchandise, sales returns and allowances, andsales discounts.

sales of all assets on credit and for cash.

only credit sales of merchandise.

Question 18

Assume the following sales data for a company:
2011 $945,000
2010 845,000
2009 650,000

If 2009 is the base year, what is the percentage increase in salesfrom 2009 to 2010?

130%

23%

30%

77%




Question 19

Rodgers Company lends Lanier Company $30,000 on April 1, acceptinga four-month, 9% interest note. Rodgers Company prepares financialstatements on April 30. What adjusting entry should be made beforethe financial statements can be prepared?

Notes Receivable 30,000
Cash 30,000


Interest Receivable 225
Interest Revenue 225


Cash 225
Interest Revenue 225


Interest Receivable 900
Interest Revenue 900




Question 20

Walker Clothing Store had a balance in the Accounts Receivableaccount of $390,000 at the beginning of the year and a balance of$410,000 at the end of the year. Net credit sales during the yearamounted to $2,000,000. The average collection period of thereceivables in terms of days was

30 days.

146 days.

73 days.

365 days.
Question 21

If a check correctly written and paid by the bank for $428 isincorrectly recorded on the company's books for $482, theappropriate treatment on the bank reconciliation would be to

deduct $54 from the bank's balance.

deduct $428 from the book's balance.

add $54 to the bank's balance.

add $54 to the book's balance

Question 22

The current assets of Kile Company are $150,000. The currentliabilities are $100,000. The current ratio expressed as aproportion is

$150,000 ÷ $100,000.

150%.

.67 : 1

1.5 : 1



Question 23

Accounts Receivable and Accounts Payable are examples of

subsidiary ledger accounts.

both nominal accounts and controlling accounts.

nominal accounts.

controlling accounts

Question 24

Hahn Company uses the percentage of sales method for recording baddebts expense. For the year, cash sales are $500,000 and creditsales are $2,000,000. Management estimates that 1% is the salespercentage to use. What adjusting entry will Hahn Company make torecord the bad debts expense?

Bad Debts Expense 20,000
Allowance for Doubtful Accounts 20,000


Bad Debts Expense 20,000
Accounts Receivable 20,000


Bad Debts Expense 25,000
Accounts Receivable 25,000


Bad Debts Expense 25,000
Allowance for Doubtful Accounts 25,000




Question 25

A successful grocery store would probably have

a high inventory turnover.

low volume.

zero profit margin.

a low inventory turnover.
Question 26

Richmond's Wholesale uses a sales journal. An entry in this journalrepresents a

debit to Cash; credit to Sales.

debit to Accounts Payable; credit to Sales Returns andAllowances.

debit to Accounts Receivable; credit to Sales.

debit to Sales Discounts; credit to Cash.



Question 27

In the month of November, Coler Company Inc. wrote checks in theamount of $9,250. In December, checks in the amount of $12,658 werewritten. In November, $8,468 of these checks were presented to thebank for payment, and $10,883 were presented in December. What isthe amount of outstanding checks at the end of November?

$1,775

$782

$3,550

$2,557
Question 28

On February 1, Platt Company received a $9,000, 10%, four-monthnote receivable. The cash to be received by Platt Company when thenote becomes due is

$9,000.

$9,300.

$9,900.

$300.
Question 29

Gold Clothing Store had a balance in the Accounts Receivableaccount of $820,000 at the beginning of the year and a balance of$880,000 at the end of the year. Net credit sales during the yearamounted to $7,650,000. The receivables turnover ratio was

4.5 times.

8.7 times.

9.3 times.

9.0 times.
Question 30

Widner Company understated its inventory by $10,000 at December 31,2010. It did not correct the error in 2010 or 2011. As a result,Widner's owner's equity was:

overstated at December 31, 2010, and overstated at December 31,2011.

understated at December 31, 2010, and overstated at December 31,2011.

understated at December 31, 2010, and properly stated at December31, 2011.

understated at December 31, 2010, and understated at December 31,2011.