ACCT20100 Chapter Notes - Chapter 7: Income Statement
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17 accounting 1 questions! HELP
9. The following amounts and costs of platters were availablefor sale by Corpus Christy Ceramics during 2016:
Beginning inventory | 10 units at $41 |
First purchase | 15 units at $55 |
Second purchase | 30 units at $70 |
Third purchase | 25 units at $65 |
Corpus Christy Ceramics has 35 platters on hand at the end ofthe year.
What is the dollar amount of inventory at the end of the yearaccording to the weighted-average cost method?
Select one:
A. $4,340
B. $9,920
C. $3,465
D. $6,200
32. Santa Fe Corporation uses the perpetual inventory method. OnMarch 1, it purchased $60,000 of merchandise inventory, terms 2/10,n/30. On March 3, Santa Fe returned goods (not damaged) that cost$6,000. On March 9, Santa Fe paid the supplier.
On March 9, Santa Fe should credit:
Select one:
A. Purchase discounts for $1,200
B. Purchase discounts for $1,080
C. Inventory for $1,080
D. Inventory for $1,200
33. Rocky Company has beginning equity of $600,000, net incomeof $100,000, dividends of $60,000 and investments by owners inexchange for stock of $20,000. Its ending equity is:
Select one:
A. $660,000
B. $480,000
C. $536,000
D. $446,000
35. On September 1, 2016, Chopper, Inc. reported RetainedEarnings of $272,000. During the month of September, Choppergenerated revenues of $40,000, incurred expenses of $24,000,purchased equipment for $10,000 and paid dividends of $12,000.
What is the balance in Retained Earnings on September 30,2016?
Select one:
A. $272,000 debit
B. $276,000 credit
C. $ 16,000 credit
D. $274,000 credit
36. Savannah Company purchases $120,000 of inventory during theperiod and sells $36,000 of it for $60,000. Beginning of the periodinventory was $6,000.
What is the companyâs inventory balance to be reported on itsbalance sheet at year end?
Select one:
A. $36,000
B. $90,000
C. $ 4,000
D. $ 6,000
37. Assuming rising prices, which method will give the highestdollar value for cost of goods sold on the income statement?
Select one:
A. FIFO
B. Average Cost
C. LIFO
D. All of these give equal values for cost of goods sold
38. Kali Company began the period with $20,000 in inventory. Thecompany also purchased an additional $20,000 of inventory andreturned $2,000 for a full credit. A physical count of theinventory at yearâend revealed an inventory on hand of $16,000.What was Kaliâs cost of goods sold for the period?
Select one:
a. $50,000
b. $22,000
c. $48,000
d. $16,000
39. The periodic inventory system differs from the perpetualinventory system:
Select one:
because the periodic system is not compatible with moderntechnology.
because the periodic system continually updates inventory, whilethe perpetual inventory system only updates inventory at the end ofthe period.
because the perpetual system continually updates inventory,while the periodic inventory system only updates inventory at theend of the period.
because the periodic system is more complex and costly.
40. Which one of the following is included in currentassets?
Select one:
A. Common stock
B. Accounts receivable
C. Taxes payable
D. Automobiles
41. For the balance sheet to be in balance, the following mustexist:
Select one:
Total assets must be less than total liabilities
Total assets must be greater than total liabilities
Total assets must equal total liabilities plus stockholders'equity
Total liabilities must equal total stockholders' equity
43. Using a perpetual inventory system, the buyerâs journalentry to record the freight costs includes a:
Select one:
A. Debit to Purchases
B. Debit to Inventory
C. Debit to Freight In
D. Debit to Cost of Goods Sold
44. Joshua records purchases at invoice price and uses theperpetual inventory system. On July 5, Joshua returned $6,000 ofgoods purchased on account to the seller.
How would Joshua record this transaction?
Select one:
A.
Accounts Payable | 6,000 | ||
Purchases | 6,000 | ||
B.
Accounts Receivable | 6,000 | ||
Inventory | 6,000 | ||
C.
Accounts Payable | 6,000 | ||
Inventory | 6,000 | ||
D.
Cash | 6,000 | ||
Purchases | 6,000 | ||
45. Smith & Sons purchased $5,000 of merchandise from theClaremont Company with terms of 3/10, n/30. How much discount isSmith & Sons entitled to take if it pays within the alloweddiscount period of 10 days?
Select one:
$100
$50
$300
$150
46. The accounting record for Max III Company reported thefollowing selected information:
Operating Expenses | $180,000 |
Sales Returns and Allowances | 52,000 |
Sales Discounts | 24,000 |
Sales Revenue | 700,000 |
Cost of Goods Sold | 268,000 |
Determine Max III Company's gross profit.
Select one:
A. $332,000
B. $280,000
C. $308,000
D. $356,000
48. Using a a perpetual inventory system, the sellerâs journalentry to record the payment for merchandise, received from thebuyer, within the discount period includes a:
Select one:
A. Debit to Accounts Receivable
B. Debit to Cost of Goods Sold
C. Credit to Sales Discounts
D. Debit to Sales Discounts
49.Geraldoâs Groceries purchased milk cartons at an invoiceprice of $6,000 and terms of 2/10, n/30. On arrival of the goods,Geraldoâs realized that half of the milk was past the expirationdate, and returned them immediately to the supplier.
If Geraldoâs pays the remaining amount of the invoice within thediscount period, the amount paid should be:
Select one:
A. $2,880
B. $5,880
C. $2,940
D. $6,000
50. Which one of the following is not a current liability?
Select one:
A. Wages payable
B. Accounts payable
C. Wage expense
D. Taxes payable
QUESTION 2: UNDERSTANDING THE INTERNAL CONTROL PROCESS, ASSESSING CONTROL RISK AND INVENTORY MANAGEMENT SYSTEM OF RUSSELL LTD.
Russell Ltd carries four types raw-chemicals under both product Line A and product Line B as shown in the table below. The company uses perpetual inventory system and adopts FIFO (first in and first out) method to estimate the inventory cost. Inventory level is managed and monitored by APEX, an inventory management system.
There are two central warehouses. One is located in Auckland, New Zealand and the other is in Adelaide, Australia. The warehouses dispatch clothes to all retailing stores within the country. In addition, the Australia warehouse dispatches stock to stores in Indonesia. On the balance date, the two central warehouses hold 20% of total inventory and all retailing stores hold 80% of total inventory.
| Location | Number of stores |
| Auckland | 5 |
| Wellington | 4 |
| Christchurch, | 3 |
| Perth | 6 |
| Adelaide | 6 |
| Total | 24 |
INVENTORY AT YEAR END RETAIL STORES
| Nature of the range | Label | Value $000 |
| Product Line A | Chemicals-P2P | 173000 |
| Chemical-T2P | 100000 | |
| Product Line B | Chemicals-Paints | 89000 |
| Chemicals-cosmetics | 100000 | |
| Total Closing balance of inventory | 462000 | |
APEX - INVENTORY MANAGEMENT SYSTEM
APEX, the companyâs inventory management system has a central server. It records information on inventory item code, item description, cost price per item, selling price per item, and the available quantities. It also tracks the available quantities of inventory in each warehouse and store. Reorder point was not set up in APEX. Instead, the order quantities are based on anticipated sales level.
Since some raw materials sell quicker than others, Russell has a policy of providing 30% discounts for inventories (raw materials) that have been on the shop floor for more than 4 weeks and 50% discount after 7 weeks. New inventory normally arrives in the store every 4 weeks. The discounts are automatically applied to the inventories based on their arrival dates in the stores, by using a Sales Register System â SALENET.
SALENET â THE SALES REGISTER SYSTEM
SALENET links to APEX (the companyâs inventory management system); and the terminals for the sales system are located in each store. SALENET records cash and credit card sales, calculate discounts, sales tax and produces Daily Sales Report (DSR) for each store. The DSR records all raw types of raw materials under both product lines and quantities sold on that day, and the sales and cost prices of those raw materials. The SALENET system automatically updates inventory levels in APEX at midnight daily, after which it also exports information on the DSR to the general accounting system (a separate software) for the recording of sales.
SUPPLIERS
In Russell Ltd, inventory (raw materials) code, description, and quantities ordered are assigned with a pre-numbered Purchase Order (PO). The Malaysian suppliers source the different inputs-raw materials used for producing chemicals from their local markets. The payment arrangement agreed between Russell and the Malaysian suppliers is as follows: (1) 40% of total costs as a deposit at the time when the completed negotiation and the PO are sent to the suppliers. (2) Once the raw materials are ready and shipped, Russell has 30 days to pay the remaining balance 60%. The suppliers provide a Bill of Lading as proof that the garments are shipped, its ownership transfers to Russell at the time of shipment. When the inventory are shipped (Russell receives a copy of the Bill of Lading via email), the accounting department records a journal entry to recognise both inventory-in-transit and account payable, but the actual inventory level in APEX is not updated until the inventory arrived at the warehouse.
RECEIVING INVENTORY
The shipment of raw-inputs arrives at the central warehouses. The barcodes and the quantities of inventory items shipped are printed on the outside of the cartons. A Packing Slip is attached to each shipment. Each barcode printed on the carton contains information on the inventory item code and raw materials description.
For each shipment that arrives, the warehouse assistant prints off the relevant pre-numbered PO. The warehouse assistant using a scanning device reads each barcode printed on the outside the cartons and compares it with the information on the PO. When the information agrees, the warehouse assistant ticks and signs the PO. He then logs into the APEX system to click on the âreceivedâ box on the PO filed in the system, after which the APEX system updates the inventory levels and also prints out a Receiving Report (RR). At this point, APEX also sends a copy of Receiving Report to the accounting department regarding the arrival of the inventory. The accounting department then initiates a journal entry to reverse inventory-in-transit and to increase inventory. The warehouse assistant is authorised to alter the quantities received in APEX to reflect the actual received quantities when there is a discrepancy in the information between the PO and the barcodes printed on the cartons. The Receiving Report and supplierâs Packing Slip are filed in the warehouse. The signed PO and a copy of Receiving Report are handed to the inventory manager for inventory distribution.
DISTRIBUTING INVENTORY TO RETAIL STORES
The inventory (chemicals) manager is responsible for distributing inventory to the retail stores. The inventory distribution is usually based on the size and turnover of the retail store. When the new inventories arrive, the inventory manager uses APEX to allocate inventory to each retail store. APEX generates and prints a pre-numbered Distribution Report which displays the inventory item code, item description and quantities and the location of the store. Two copies of the Distribution Report go to the warehouse for packing and then shipping via an external carrier. The warehouse files one copy of the Distribution Report and the other copy goes with the inventory to a retail store. When the inventories arrive at the retail store, the shop manager logs into the APEX system. She identifies the relevant shipment by checking its reference number on the Distribution Report and then confirms receipt of the inventories by clicking the âarrived in storeâ box, after which the shop manager and/or assistants unpack the inventory.
Russell carried out an annual inventory count on the 30 June 2016 at 6pm local time. During the inventory counts, the stores were shut. Each store manager has access to APEX. They can read and print out inventory reports, but they cannot edit the inventory levels in APEX. For the inventory counts, the store manager prints out a list of inventories held in the store, which shows the item code, description and quantities. Two staff members and the manager count the stock and write down the numbers counted next to each inventory item on the list. They take note of any differences. At end of the inventory count, the store manager prepares an Inventory level Report which notes the differences using SALENET. SALENET adjusts the inventory level in APEX at midnight to reflect the results from the inventory count. A copy of the Inventory Count Report from each individual store are sent to the accounting department, at where all reports are aggregated based on item codes. The accounting department then adjust the inventory level accordingly in the accounting system.
QUESTION 2: UNDERSTANDING THE INTERNAL CONTROL PROCESS, ASSESSING CONTROL RISK, AUDIT PROCEDURE FOR INVENTORIES
Identify three control strengths in the inventory system of Russell Ltd and explain why each control is a strength. For each control strength, identify audit procedures to test the effectiveness of control. Use the format to present your answers.
You are required to present your answers according to this format:
| Identify a control strength | Why it is a strength | Audit Procedures to test the control |
