ACCT 2001 Chapter : ACCT 2001 Chapter 6 Class Notes

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15 Mar 2019

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Perpetual system: check accuracy of inventory records, determine amount of inventory lost (wasted raw materials, shoplifting, or employee theft). Periodic system: determine the inventory on hand, determine the cost of goods sold for the period. Involves counting, weighing, or measuring each kind of inventory on hand. When the business is closed or business is slow. Determining ownership of goods: count all goods company has legal title too: goods on hand, goods in transit. Legal title is determined by the terms of the sale. Goods held for sale by one party although ownership of the goods is retained by another party. Unit costs can be applied to quantities on hand using the following costing. Don"t have to match what actually happened. Illustration: assume that crivitz tv company purchases three identical 50-inch tvs on different dates at costs of , , and . During the year crivitz sold two sets at ,200 each. These facts are summarized below: specific identification:

Related Questions

Yang Corporation uses the periodic inventory system. Thefollowing sales and purchases of the same product were made during20x1 at Yang Corporation. The opening inventory consisted of 50units at $2 each.

	Purchases		Sales
Date	Units	$ per unit	Date	Units	Unit $Price	Total
March 15	200	3	April 25	250*	5
June 15	600	5	June 30	500**	6

*for specific identification, sold 50 units of opening inventoryand 200 units of March 15 purchase

**for specific identification, sold 500 units of June 15purchase

Requirements:

1. Calculate cost of goods sold and the cost of ending inventoryunder FIFO, LIFO, specific identification, and weighted averageinventory cost flow assumptions. Use the student template #1

2. Calculate and compare the effect on profit of the fourinventory cost flow assumptions.

ACT300 Principlesof Accounting I
Module 4: Critical ThinkingTemplate Option #1


	FIFO	Units	Cost per unit	Sale per Unit	Totals
	Beginning Inventory	-	$0.00	$0.00	$0
	Purchases and Sales
	Mar 15-Purchase	-	$0.00	$0.00	$0	Data from the problem
	April 25-Sale	-	$0.00	$0.00	0	The opening inventory consisted of 50 units at $2each.
	Jun 15-Purchase	-	$0.00	$0.00	0
	Jun 30-Sale	-	$0.00	$0.00	0		Purchases		Sales
	Cost of Goods Available for Sale	-	$0.00	$0.00	$0	Date	Units	$ per unit	Date	Units	Unit $Price
	Cost of Goods Sold (COGS)	-	$0.00	$0.00	0	15-Mar	200	3	25-Apr	250*	5
	Ending Inventory	-	$0.00	$0.00	$0	15-Jun	600	5	30-Jun	500**	6

	COGS Calculation	Units	COGS	SalesTotals	Gross Profit
	Beginning Inventory	-	$0.00	$0.00	$0
	Purchases - Mar 15	-	$0.00	$0.00	$0
	Sale - April 25	-	$0.00	$0.00	$0
	Purchases - June 15		$0.00	$0.00	$0
	Sale - June 30		$0.00	$0.00	$0
			.	.
	Totals	-	$0.00	$0.00	$0

scarletreindeer725

MATCHING

____ 1. Accelerated Depreciation

____ 2. Double Declining-Balance Method

____ 3. FIFO Method

____ 4. Internal Control System

____ 5. LIFO Method

____ 6. Periodic System

____ 7. Perpetual System

____ 8. Sarbanes-Oxley Act

____ 9. Straight-Line Method

____ 10. Time Value of Money

A. Policies and procedures necessary to ensure the safeguardingof an entityâs assets, the reliability of its accounting
records, and theaccomplishment of overall company objectives..

B. An inventory costing method that assigns the most recentcosts to ending inventory.

C. An inventory costing method that assigns the most recentcosts to cost of goods sold.

D. The system in which the Inventory account is updated at theend of the period.

E. The system in which the Inventory account is increased at thetime of each purchase of merchandise and
decreased at the time of eachsale.

F. A method by which the same dollar amount of depreciation isrecorded in each year of asset use.

G. The concept that indicates that people should prefer toreceive an immediate amount at the present time over an
equal amount in the future.
H. An act of Congress in 2002 intended to bring reform to corporateaccountability and stewardship in the wake of a

number of major corporatescandals.

I. A term that refers to several methods by which a higheramount of depreciation is recorded in the early years of

an assetâs life and a lower amount isrecorded in the later years.

J. A method by which depreciation is recorded at twice thestraight-line rate, but the depreciable balance is reduced
in each period.

SHORTANSWER

Please give a brief answer to each ofthe following questions.

1. 1.Why are shipping terms such asFOB shipping point or FOB destination point, important in decidingownership of inventory
at the end of the year?

2. 2. An effective system of internalcontrol is critical to protecting a companyâs investment in threeof its major assets: cash,
accounts receivable, andinventory. For each of the three assets, describe briefly how acompany might protect that asset.

W 3. What is a cash equivalent? Whyis it included with cash on the balance sheet?

4. 4 Define the termgoodwill. Give an example of a transaction that wouldresult in the recording of goodwill on the balance

sheet.

5. 5 What is a contingent liability?Give an example of a contingent liability.

pearzebra975

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

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ACCT 2001 Chapter : ACCT 2001 Chapter 6 Class Notes

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