ACCT 211 Unit 2 Study Guide

ACCT 211 Unit 2 Study Guide - Spring 2016 - Chapters 4, 5, and 6 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) The formula for computing the current ratio is ________. A) Current ratio = Current assets / Stockholders' Equity B) Current ratio = Current assets / Total assets C) Current ratio = Current assets / Current liabilities D) Current ratio = Current assets / Total liabilities 2) A company that uses the perpetual inventory system purchased 500 pallets of industrial soap for $7,000 and paid $800 for the freight-in. The company sold the whole lot to a supermarket chain for $14,000 on account. Which of the following entries correctly records the sale? A) Accounts Receivable 14,000 Sales Revenue 14,000 Cost of Goods Sold 7,800 Merchandise Inventory 7,800 B) Cost of Goods Sold 14,000 Sales Revenue 14,000 C) Accounts Receivable 14,000 Sales Revenue 14,000 Cost of Goods Sold 7,000 Merchandise Inventory 7,000 D) Merchandise Inventory 14,000 Cost of Goods Sold 14,000 3) Jones Retail had the following balances and transactions during 2017: Beginning Inventory 20 units at $74 June 10 Purchased 35 units at $84 December 30 Sold 30 units December 31 Replacement cost $64 The company maintains its records of inventory on a perpetual basis using the first-in, first-out inventory costing method. Calculate the amount of ending Merchandise Inventory on December 31, 2017 using the lower-of-cost-or-market rule. A) $1,480 B) $1,600 C) $1,850 D) $2,240 4) Refer to the following trial balance. Debit Credit Cash $4,000 Accounts Receivable 14,000 Inventory 16,000 Supplies 5,000 Land 100,000 Accounts Payable $6,000 Notes Payable 25,000 Common Stock 61,000 Retained Earnings 10,000 Dividends 2,000 Sales Revenue 180,000 Sales Returns and Allowances 5,000 Sales Discounts 6,000 Cost of Goods Sold 80,000 Salaries Expense 5,000 Utilities Expense 24,000 Rent Expense 18,000 Interest Expense 3,000 ________ Totals $282,000 $282,000 How much is the gross profit? A) $180,000 B) $89,000 C) $169,000 D) $282,000 5) A company that uses the periodic inventory provides the following information: 1. Beginning Inventory $15,000 2. Net Purchases $94,000 At the end of the period, the company does an inventory count and finds $12,000 of inventory on hand. What is the amount of cost of goods sold? A) $121,000 B) $82,000 C) $94,000 D) $97,000 6) Which of the following statements is not correct? A) In a periodic inventory system, merchandise inventory and purchasing systems are integrated with the records for Accounts Receivable and Sales Revenue. B) In a perpetual inventory system, the "cash register" at the store is a computer terminal that records sales and updates inventory records. C) Restaurants and small retail stores often use the periodic inventory system. D) Even in a perpetual inventory system, a business must count inventory at least one a year. 7) Refer to the following adjusted trial balance. Accounts Debit Credit Cash $15,500 Accounts Receivable 8,400 Office Supplies 900 Equipment 9,400 Accumulated Depreciation— Equipment $3,000 Accounts Payable 1,800 Salaries Payable 700 Unearned Revenue 550 Common Stock 3,900 Dividends 1,000 Service Revenue 52,050 Salaries Expense 23,000 Supplies Expense 2,200 Depreciation Expense— Equipment 1,600 Total $62,000 $62,000 What will the final ending balance in the Retained Earnings account be after posting the closing entries? A) $24,250 B) $26,250 C) $25,250 D) $29,150 8) Which of the following is affected as a result of an error in performing the physical count of inventory at the end of the accounting period? A) sales revenue B) net income C) net cost of purchases D) operating expenses 9) When preparing the worksheet for a merchandising business using the perpetual inventory system, which of the following statements is incorrect? A) The main new account is the Merchandise Inventory account. B) The merchandiser's worksheet carries the account Cost of Goods Sold. C) The worksheet procedures are not similar to the worksheet procedures for a service company. D) The Merchandise Inventory account must be adjusted based on a physical count due to inventory shrinkage. 10) Delivery expense is a(n) ________. A) overhead expense B) operating expense C) administrative expense D) part of Cost of Goods Sold 11) Which of the following accounts will be included in a post-closing trial balance? A) Accumulated Depreciation—Building B) Interest Expense C) Rent Expense D) Service Revenue 12) Your Best Advisors, a service company, uses reversing entries. On March 31, 2016, they journalized and posted the following adjusting entry to accrue Utilities Expense: Utilities Expense 400 Utilities Payable 400 Which of the following entries is the correct reversing entry to be prepared on April 1, 2016? A) Utilities Expense 400 Accounts Receivable 400 B) Utilities Expense 400 Income Summary 400 C) Cash 400 Utilities Expense 400 D) Utilities Payable 400 Utilities Expense 400 13) When inventory costs are declining, which of the following inventory costing method will result in the lowest ending merchandise inventory? A) first-in, first-out B) specific identification C) weighted-average D) last-in, first-out 14) Which of the following categories of accounts are temporary accounts that are closed at the end of the year? A) revenues, expenses, and stockholders' equity B) assets, liabilities, and dividends C) assets, liabilities, and stockholders' equity D) revenues, expenses, and dividends 15) An income statement includes ________. A) Furniture and Cash B) Land and Salaries Payable C) Service Revenue and Utilities Expense D) Common Stock, Retained Earnings, and Dividends 16) Notes Payable due within two years are classified as ________. A) long-term assets B) long-term liabilities C) current assets D) current liabilities 17) Weston Jewelers uses the perpetual inventory system. On April 2, Weston sold merchandise with a cost of $6,000 for $9,000 to a customer on account with terms of 2/15, n/30. On April 4, the customer reported damaged goods, and Michelin granted a $1,000 sales allowance. On April 10, Weston received payment from the customer. Calculate the amount of net sales revenue. A) $7,840 B) $8,840 C) $8,000 D) $9,000 18) Which of the following inventory costing methods yields the highest cost of goods sold during a period of rising inventory costs? A) weighted-average B) first-in, first-out C) specific identification D) last-in, first-out 19) Regarding a classified balance sheet, which of the following statements is correct? A) Account balances are listed from the highest amount to the lowest amount. B) Assets are listed in the order of their liquidity. C) Assets are listed in alphabetical order. D) Accounts are classified by their purchase dates. 20) Best Deals, Inc. has 13 units in ending merchandise inventory on December 31. The units were purchased in November for $155 each. The price lists from suppliers indicate the current replacement cost of the item to be $161 each. What would be the amount reported as Merchandise Inventory on the balance sheet? A) $2,093 B) $2,015 C) $316 D) $4,108 21) Which of the following is an application of conservatism? A) reporting inventory at the lower of cost or market B) reporting only material amounts in the financial statements C) using the same depreciation method from period to period D) reporting all relevant information in the financial statements 22) The ending merchandise inventory for the current year is overstated by $28,000. What effect will this error have on the following year's net income? A) The net income will be understated by $28,000. B) The net income will be overstated by $56,000. C) The net income will be understated by $56,000. D) The net income will be overstated by $28,000. 23) Maywood, Inc. has a current ratio of 6.00. This indicates that the company has $6 in ________. A) total assets for every $1 of current assets B) total assets for every $1 of current liabilities C) current liabilities for every $1 of current assets D) current assets for every $1 of current liabilities 24) Which of the following is the correct journal entry for freight paid on goods purchased by a merchandiser using the periodic inventory system? A) Freight In XX Cash XX B) Accounts Payable XX Cash XX C) Merchandise Inventory XX Accounts Payable XX D) Purchases XX Accounts Payable XX 25) Under the perpetual inventory system, the journal entry to record cost of goods sold: A) Cost of Goods Sold XX Sales XX B) Cost of Goods Sold XX Merchandise Inventory XX C) Merchandise Inventory XX Sales XX D) Sales XX Merchandise Inventory XX 26) Under which of the following categories would bonds held as an investment for more than a year appear? A) Current assets B) Long-term assets C) Long-term liabilities D) Current liabilities 27) Which of the following is not recorded in a modern perpetual inventory system? A) units purchased and cost amount B) units sold and sales and cost amounts C) the quantity of merchandise inventory on hand and its cost D) customer account numbers and balances owed from the sale of merchandise inventory 28) Glasgow, Inc. uses the periodic inventory system. On February 1, the corporation purchased inventory on account for $14,000. The terms were 4/10, n/30. On February 2, it returned damaged goods worth $560 to the supplier and was granted an allowance. Give the journal entry for the payment if the invoice is paid after the discount period. (Round your answers to the nearest dollar.) A) Cash 14,000 Accounts Payable 14,000 B) Cash 12,902 Purchase Discounts 538 Accounts Payable 13,440 C) Accounts Payable 13,440 Cash 13,440 D) Accounts Payable 13,440 Cash 12,902 Purchase Discounts 538 29) Up-to-date Merchandisers has the following transactions for the month of July. Sales Revenue $440,000 Cost of Goods Sold 300,000 Operating Expenses 90,000 Sales Discounts 25,000 Sales Returns and Allowances 18,000 Interest Revenue 7,000 Calculate Gross Profit. A) $140,000 B) $54,000 C) $115,000 D) $97,000 30) Expenses that fall outside the regular operations of a business are ________. A) included under the other revenues and expenses section of the income statement B) treated as current assets and are shown as merchandise inventory C) not shown in the income statement of a merchandiser D) not considered for the calculation of net income 31) In an accounting cycle, which of the following steps takes place only at the end of the accounting period? A) analyze transactions as they occur B) journalize adjusting entries C) journalize transactions that occur D) start with the beginning account balances 32) Harris, Inc. had the following balances and transactions during 2017: Beginning Merchandise Inventory as of January 1, 2017 160 units at $70 March 10 Sold 80 units June 10 Purchased 175 units at $77 October 30 Sold 175 units What would be reported for Cost of Goods Sold on the income statement for the year ending December 31, 2017 if the perpetual inventory system and the last-in, first-out inventory costing method are used? A) $19,075 B) $17,850 C) $5,600 D) $13,475 33) Reversing entries are used in conjunction with ________. A) Unearned Revenue and Prepaid Rent B) GAAP C) closing entries D) accrual-type adjustments 34) A company that uses a perpetual inventory system purchased inventory on account and later returned goods worth $500 to the vendor. Which of the following would be the correct journal entry to record these returns? A) Merchandise Inventory 500 Accounts Payable 500 B) Accounts Payable 500 Merchandise Inventory 500 C) Purchase Returns 500 Accounts Payable 500 D) Accounts Payable 500 Purchase Returns 500 35) Shipman, Inc. has 7 units in inventory on December 31. The units were purchased in November for $190 each. The price lists from suppliers indicate the current replacement cost of the item to be $186 each. What is the effect on gross profit if Shipman values its ending merchandise inventory using the lower-of-cost-or-market rule? A) The gross profit would increase by $28. B) The gross profit would decrease by $28. C) The gross profit would not be affected. D) The gross profit would increase by $4. 36) Gilbert, Inc. generated sales revenues of $1,400,000 in 2017. Its cost of goods sold amounted to Calculate Gilbert's gross profit percentage. A) 60% B) 40% C) 167% D) 250% 37) Calculate the cost of goods sold for a merchandiser using the periodic inventory system from the following details. Purchases $510,000 Beginning Merchandise Inventory 175,000 Purchase Returns and Allowances 50,000 Purchase Discounts 12,000 Freight In 18,000 Ending Merchandise Inventory 160,000 A) $801,000 B) $499,000 C) $510,000 D) $481,000 38) The tracking of inventory shrinkage due to theft, damage, or errors is done with the help of a (n) ________ of inventory. A) sale B) delivery C) authorization D) physical count 39) Which of the following steps must be completed before preparing the adjusted trial balance? A) preparation of the closing entries B) preparing the post-closing trial balance C) preparation of the financial statements D) posting of journal entries to the accounts 40) Under the periodic inventory system, which of the following amounts will always stay the same regardless of the inventory valuation method used? A) gross profit B) purchases C) cost of goods sold D) ending merchandise inventory 41) Which of the following line items will appear on the income statement of a merchandiser but not of a service company? A) Cost of Goods Sold B) Supplies Inventory C) Salaries Expense D) Depreciation Expense 42) A company that uses the perpetual inventory system sold goods to a customer for cash for $3,500. The cost of the goods sold was $600. Which of the following journal entries correctly records this transaction? A) Cash 3,500 Sales Revenue 3,500 Cost of Goods Sold 600 Merchandise Inventory 600 B) Merchandise Inventory 3,500 Sales Revenue 3,500 C) Accounts Receivable 3,500 Cash 3,500 Cost of Goods Sold 600 Merchandise Inventory 600 D) Cost of Goods Sold 3,500 Sales Revenue 3,500 43) Which of the following entries would be made to record the purchase of inventory on account, if a company uses the perpetual inventory system? A) a debit to Accounts Payable and a credit to Purchases B) a debit to Purchases and a credit to Accounts Payable C) a debit to Merchandise Inventory and a credit to Accounts Payable D) a debit to Accounts Payable and a credit to Merchandise Inventory 44) Emerald, Inc., earned revenues of $69,000 and incurred expenses of $74,000. No dividends were declared. Which of the following statements is correct? A) Retained Earnings will be debited for $5,000 and Income Summary will be credited for $5,000. B) The entries to close revenues and expenses will differ if there is a net loss. C) The entry to close Income Summary is the same regardless of a net income or a net loss. D) The entry to close Income Summary requires a debit to the Income Summary account. 45) The ending merchandise inventory for the current accounting period is overstated by $3,500. What will be the effect of this error? A) The net income for the current accounting period will be overstated by $3,500. B) The cost of goods sold for the next accounting period will be understated by $3,500. C) The cost of goods sold for the current accounting period will be overstated by $3,500. D) The ending merchandise inventory for the next accounting period will be overstated by $3,500. 46) When inventory costs are declining, which of the following inventory costing methods will result in the highest cost of goods sold? A) last-in, first-out B) first-in, first-out C) specific identification D) weighted-average 47) Weller, Inc. provided the following particulars for 2017: Cost of Goods Sold (Cost of sales) $1,000,000 Beginning Merchandise Inventory 335,000 Ending Merchandise Inventory 600,000 Calculate the average number of days that inventory was held by Weller, Inc. during 2017. (Assume 365 days in a year. Round your intermediate calculations and final answer to two decimal places.) A) 218.56 days B) 122.07 days C) 341.12 days D) 170.56 days 48) A company using the perpetual inventory system purchased inventory worth $550,000 on account with credit terms of 2/15, n/45. Defective inventory of $70,000 was returned 3 days later, and the accounts were appropriately adjusted. If the company paid the invoice 25 days later, the journal entry to record the payment would be ________. A) $550,000 debit to Accounts Payable, $540,400 credit to Cash, and $9,600 credit to Merchandise Inventory B) $540,400 debit to Accounts Payable, $9,600 credit to Merchandise Inventory, and $480,000 credit to Cash C) $480,000 debit to Accounts Payable and $480,000 credit to Cash D) $550,000 debit to Accounts Payable and $550,000 credit to Cash 49) Closing entries are journalized and posted ________. A) before posting the adjusting entries B) after preparing the post-closing trial balance C) after preparing the financial statements D) throughout the accounting period 50) Samson, Inc. had the following balances and transactions during 2017: Beginning Merchandise Inventory 15 units at $92 March 10 Sold 12 units June 10 Purchased 45 units at $98 October 30 Sold 39 units What is the amount of the company's Merchandise Inventory, as disclosed in the December 31, 2017 balance sheet as per the periodic FIFO inventory costing method? A) $552 B) $9,016 C) $588 D) $882 51) A reversing entry ________. A) is dated the last day of an accounting period B) switches the debit and the credit of a previous entry C) is required by GAAP D) exactly resembles the prior adjusting entry prepared in the books 52) Which of the following is the correct formula for calculating gross profit percentage? A) Net sales revenue / Gross profit B) Net profit / Net sales revenue C) Gross profit / Net sales revenue D) Net sales revenue / Net profit 53) Reversing entries are ________. A) expensive to record and time consuming B) dated the last day of the new period C) the exact opposite of a prior adjusting entry D) required according to GAAP 54) Which of the following statements is true if the income statement credit column exceeds the income statement debit column on a worksheet? A) An error was made. B) The retained earnings account decreased during the period. C) The company made a net profit. D) The company incurred a net loss. 55) The disclosure principle states that a company should disclose all major accounting methods and procedures in the ________. A) footnotes to the financial statements B) balance sheet C) income statement D) internal accounting documents 56) Gross profit is calculated as the difference between net sales revenue and ________. A) cost of merchandise inventory B) purchases C) cost of goods sold D) selling and administrative expenses 57) When preparing the worksheet for a merchandising business using the perpetual inventory system, which of the following is not a new merchandising account that is shown on the worksheet? A) Sales Returns and Allowances B) Accumulated Depreciation — Building C) Cost of Goods Sold D) Merchandise Inventory 58) Which of the following statements is true of the accounting cycle? A) It involves preparation of adjusting entries after the closing entries. B) It is a process by which financial statements for a period are produced. C) It ignores the beginning balances of accounts. D) It takes place only at the end of an accounting period. 59) The following information relates to Nebula, Inc. Sales Revenue $240,000 Cost of Goods Sold 160,000 Interest Revenue 10,000 Operating Expenses 40,000 Sales Discounts 20,000 Sales Returns and Allowances 7,000 Calculate the operating income. A) $70,000 B) $23,000 C) $240,000 D) $13,000 60) A company uses the weighted-average method of inventory valuation under a periodic inventory system. The company began the year with a zero inventory balance. They had the following transactions during the year. 1. Purchased 64 units at $5 per unit 2. Purchased 110 units at $5 per unit 3. Sold 90 units at $10 per unit 4. Purchased 55 units at $6 per unit 5. Sold 90 units at $13.50 per unit At the end of the year, the company counted the inventory and found 49 units remaining. Calculate the cost of goods sold for the year. (Round the unit costs to two decimal places and total costs to the nearest dollar.) A) $1,200 B) $943 C) $5 D) $257 61) Which of the following principles states that a business's financial statements must report enough information for outsiders to make knowledgeable decisions about the company? A) consistency principle B) conservatism C) disclosure principle D) materiality concept 62) Which of the following is subtracted from net sales revenue to arrive at gross profit on a multi-step income statement? A) cost of goods available for sale B) operating expenses C) cost of goods sold D) sales discounts and sales returns and allowances 63) Which of the following would be considered the weakest current ratio? A) 0.80 B) 2.20 C) 1.25 D) 0.75 64) Prepaid Rent in the worksheet's unadjusted trial balance column is $5,000. Prepaid Rent in the balance sheet column is $2,000. Which of the following entries would have caused this difference? A) a $3,000 credit entry to Prepaid Rent in the worksheet's adjustments column B) a $3,000 debit entry to Prepaid Rent in the worksheet's adjustments column C) a $3,000 credit entry to Rent Expense in the worksheet's adjustments column D) a $3,000 credit entry to Rental Revenue in the worksheet's adjustments column 65) The Income Summary account has a credit balance of $20,000 after the revenue and expense accounts have been closed. Which of the following is to be credited to close the Income Summary account? A) Retained Earnings B) Cost of Goods Sold C) Dividends D) Sales Revenue 66) Which of the following inventory valuation methods minimizes income tax expense during a period of rising inventory costs? A) last-in, first-out B) specific identification C) weighted-average D) first-in, first-out 67) Which of the following accounts will be included in a post-closing trial balance? A) Dividends B) Common Stock C) Supplies Expense D) Salaries Expense 68) Blanchard, Inc. provided the following for 2017: Cost of Goods Sold (Cost of sales) $1,300,000 Beginning Merchandise Inventory 330,000 Ending Merchandise Inventory 350,000 Calculate the company's inventory turnover ratio for the year. (Round your answer to two decimal places.) A) 3.71 times per year B) 1.91 times per year C) 3.94 times per year D) 3.82 times per year 69) A lower days' sales in inventory for Moonshine, Inc., when compared to other companies, indicates that it is ________. A) incurring higher insurance costs B) spending more on inventory storage C) holding excess obsolete inventory D) selling its inventory more quickly 70) Which of the following is true of the gross profit percentage? A) Gross profit percentage is used to measure the solvency of a company. B) The gross profit percentage is one of the most carefully watched measures of profitability. C) A service company must show its gross profit percentage in its Income Statement. D) Gross profit percentage is the same for companies in all industries. 71) Buildings, land, and equipment are classified as ________. A) long-term assets B) current assets C) current liabilities D) long-term liabilities 72) The net income of Harriet, Inc. for the year is $35,000. The dividends declared during the year were $43,000. Which of the following statements is true? A) Retained Earnings account decreases by $8,000. B) Retained Earnings account decreases by $35,000. C) Retained Earnings will remain the same. D) Retained Earnings account increases by $43,000. 73) Ending inventory for the current accounting period is overstated by $2,700. What effect will this error have on Cost of Goods Sold and Net Income for the current accounting period? A) Cost of Goods Sold Net Income Understated Understated B) Cost of Goods Sold Net Income Overstated Understated C) Cost of Goods Sold Net Income Understated Overstated D) Cost of Goods Sold Net Income Overstated Overstated 74) A list of the accounts and their balances at the end of the period, after journalizing and posting the closing entries, is called ________. A) chart of accounts B) post-closing trial balance C) pre-closing balance sheet D) adjusted trial balance 75) From the following details of a merchandiser, calculate the Cost of Goods Sold. (Assume the merchandiser uses the periodic inventory system.) Net Sales $198,000 Purchases 92,000 Purchase Returns and Allowances 1,800 Purchase Discounts 1,400 Freight In 1,350 Beginning Merchandise Inventory 62,000 Ending Merchandise Inventory 36,000 A) $116,150 B) $54,150 C) $62,800 D) $114,800