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Explain inventory accounting

Explain how to calculate inventory under the periodic inventorysystem using various costing methods.

Explain how to calculate inventory under the perpetual inventorysystem using various costing methods. Describe in detail thedifference in calculating inventory under FIFO, LIFO and AverageCosting.

Describe the two methods of estimating the value ofinventory.

Describe the components of internal control, control activitiesand limitations on internal controls.

Define cash equivalents, and explain the methods of controllingcash, including the bank reconciliation.

Identify the internal control roles of management and theauditor.

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Lelia Lubowitz
Lelia LubowitzLv2
28 Sep 2019

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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 entity’s 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 asset’s 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 company’s 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.

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.

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