ACCTMIS 2000 Lecture 6: Week 6
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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
Background: This is a continuation of theactivities at TECHNOGYM in January, 2017. As in past activities,TECHNOGYM uses a Jan. 1 â Dec. 31 financial year.
Exercise for Accounts Receivable:
TECHNOGYM management does not expect there to be any change inthe collectability of its credit sales related to its normaloperations. On Dec. 31, 2016, the unadjusted balance of theAccounts Receivable balance was $17,607,500 and the Allowance forDoubtful Accounts balance was $20,000 (credit). TECHNOGYM uses theAccounts Receivable approach to estimate bad debts. The agingschedule at Dec. 31, 2016 is summarized below:
Days outstanding | % of Accts Rec | Est. % Uncollectible |
0-30 days | 40% | 0.3% |
30-60 days | 35% | 0.8% |
60-90 days | 15% | 10.0% |
>90 days | 10% | 30.0% |
Requirement 1: Develop an aging schedule to show yourcalculations of the total expected uncollectible amount for2016.
Days Outstanding | % of Accts Rec | $ of Accts Rec | Est. % Uncollectible | Est. $ Uncollectible | |
Total $Uncollectible |
Requirement 2: Show your calculation of the appropriatedollar amounts, then show the adjusting journal entry (if any) thatis needed on Dec. 31, 2016 related to this issue. Remember toshow the journal entry in proper form!
Requirement 3: TECHNOGYM on May 1st , 2017learns that another customer went bankrupt and this customerâsoutstanding accounts receivable balance at Dec. 31 2016 is 900,000.Does TECHNOGYM need to record a journal entry for this news? IfYes, what should the journal entry be? Also, indicate the immediateeffect of this journal entry on the income statement for2017.
Check one: o Yes, a journal entry is needed; o No journal entry isrequired
If Yes, Journal Entry:
IMMEDIATE impact on the income statement (check one):
o Increase Income oDecrease Income o No impact on Income
Requirement 4: What is the ending balance of theAllowance for doubtful accounts at May 31, 2017? Checkone.
o $862,768 creditbalance o $862,768 debitbalance
o $37,232 debitbalance o $37,232 creditbalance
o $842,768 creditbalance o $842,768 debitbalance
o $57,232 creditbalance o $57,232 debitbalance
Requirement 5: Based on the bankrupt of its customer inMay 2017, the management re-evaluate the collection risk ofTECHNOGYM and conclude the risk is significantly higher than theypreviously thought. Which of the following would be an appropriateaction for the management to take? Check one.
o Keep using the same uncollectiblerates from the past
o Go back to increase the 2016allowance for doubtful accounts to avoid a debit balance of theallowance for doubtful accounts after the write-off of the $900,000account
o Increase the uncollectible rates toincrease the amount of allowance for doubtful accounts the companytakes from 2017 forward
o Be happy about how it takesallowance for doubtful accounts because neither a debit balance ora credit balance of the allowance tells the management anythingabout whether there needs an adjustment to the allowance takingpractice
Background: This is a continuation of theactivities at TECHNOGYM in January, 2017. As in past activities,TECHNOGYM uses a Jan. 1 â Dec. 31 financial year.
Exercise for Accounts Receivable:
TECHNOGYM management does not expect there to be any change inthe collectability of its credit sales related to its normaloperations. On Dec. 31, 2016, the unadjusted balance of theAccounts Receivable balance was $17,607,500 and the Allowance forDoubtful Accounts balance was $20,000 (credit). TECHNOGYM uses theAccounts Receivable approach to estimate bad debts. The agingschedule at Dec. 31, 2016 is summarized below:
Days outstanding | % of Accts Rec | Est. % Uncollectible |
0-30 days | 40% | 0.3% |
30-60 days | 35% | 0.8% |
60-90 days | 15% | 10.0% |
>90 days | 10% | 30.0% |
Requirement 1: Develop an aging schedule to show yourcalculations of the total expected uncollectible amount for2016.
Days Outstanding | % of Accts Rec | $ of Accts Rec | Est. % Uncollectible | Est. $ Uncollectible | |
Total $Uncollectible |
Requirement 2: Show your calculation of the appropriatedollar amounts, then show the adjusting journal entry (if any) thatis needed on Dec. 31, 2016 related to this issue. Remember toshow the journal entry in proper form!
Requirement 3: TECHNOGYM on May 1st , 2017learns that another customer went bankrupt and this customerâsoutstanding accounts receivable balance at Dec. 31 2016 is 900,000.Does TECHNOGYM need to record a journal entry for this news? IfYes, what should the journal entry be? Also, indicate the immediateeffect of this journal entry on the income statement for2017.
Check one: o Yes, a journal entry is needed; o No journal entry isrequired
If Yes, Journal Entry:
IMMEDIATE impact on the income statement (check one):
o Increase Income oDecrease Income o No impact on Income
Requirement 4: What is the ending balance of theAllowance for doubtful accounts at May 31, 2017? Checkone.
o $862,768 creditbalance o $862,768 debitbalance
o $37,232 debitbalance o $37,232 creditbalance
o $842,768 creditbalance o $842,768 debitbalance
o $57,232 creditbalance o $57,232 debitbalance
Requirement 5: Based on the bankrupt of its customer inMay 2017, the management re-evaluate the collection risk ofTECHNOGYM and conclude the risk is significantly higher than theypreviously thought. Which of the following would be an appropriateaction for the management to take? Check one.
o Keep using the same uncollectiblerates from the past
o Go back to increase the 2016allowance for doubtful accounts to avoid a debit balance of theallowance for doubtful accounts after the write-off of the $900,000account
o Increase the uncollectible rates toincrease the amount of allowance for doubtful accounts the companytakes from 2017 forward
o Be happy about how it takesallowance for doubtful accounts because neither a debit balance ora credit balance of the allowance tells the management anythingabout whether there needs an adjustment to the allowance takingpractice