Accounting Exam #2 (Cooked)

1. Which of the following statements about a periodic inventory system is true?

Companies determine cost of goods sold only at the end of the accounting period.

2. Which of the following statements is correct?

A perpetual inventory system provides better control over inventories than does a periodic inventory system.

3. Which inventory system will likely be used by a company with merchandise that has a high unit value?

Perpetual inventory system

4. When Jax pays $200 shipping under a perpetual system, what is the debit?

Inventory

5. Cosmos pays July 21 (after discount period); what is the effect?

Credit to Accounts Payable for $1,600

6. Martin pays March 11 (within 3/10, n/30); cost of purchase?

$4,074

7. Which item does not result in an Inventory entry under a perpetual system?

Payment of freight costs for goods shipped to a customer

8. Marsh freight to customers recorded as what?

Freight-out account

9. In a perpetual system, which accounts does the seller credit when goods are returned?

Accounts Receivable and Cost of Goods Sold

10. The seller’s account for defective merchandise returned?

Sales Returns and Allowances (debit)

11. Which accounts normally have a debit balance?

Both Sales Discounts and Sales Returns and Allowances

12. June 23 payment in full after 2/10 n/30, $750 sale – $50 return?

$686

13. Recording a cash sale in a perpetual system requires

Two entries: (1) Cash & Sales Revenue, (2) COGS & reduce Inventory

14. Net sales = $10,000 – $500 returns – $1,000 discounts =

$8,500

15. Net sales $75,000, OpEx $20,000, Net income $15,000 ⇒ COGS

$60,000

16. Classified as a non-operating activity?

Interest expense

17. Sales 450k, Discount 10k, COGS 320k, NI 35k ⇒ Gross profit & OpEx ?

$130,000 and $85,000

18. Appears on both single-step & multiple-step income statements?

Cost of goods sold

19. Gross profit if sales 400k and COGS 310k?

$90,000

20. Not included in a company’s physical inventory?

Goods held on consignment from another company

21. Arbor Corp. COGA for sale = 17,200 + (60,400 – 1,100 – 3,000 + 600)

$74,100

22. Not a legitimate reason for taking a physical inventory?

To verify the profitability of individual inventory items

23. Sunrise’s correct ending inventory Dec 31 2025 (752 – 112 – 6)

$634,000

24. Cost method yielding highest taxable income in inflation?

FIFO

25. Method yielding higher ending inventory in inflation?

FIFO

26. In rising prices, LIFO produces?

Lower net income than FIFO

27. When use lower-of-cost-or-market basis?

A decline in inventory value

28. FIFO COGS on Sept 25 sale =

$77

29. LIFO COGS for Adidas July?

$931.20

30. LIFO ending inventory for Adidas July?

$472.80

31. Transaction that increases inventory turnover most?

Decrease inventory and increase sales

32. Hagger Sounds LCM ending inventory =

$64,000

33. Wilkens inventory turnover ratio 2025 = (1.8M – 0.6M)/(avg inv 200k) =

6.0 times

34. Wilkens days’ sales in inventory = 365/6 =

60.8 days

35. Ending inventory overstated ⇒

Assets and Stockholders’ Equity overstated

36. Not a primary component of internal control system?

Rationalization

37. Why establish internal control system?

All of these choices are correct

38. Not a reason Congress passed SOX?

To apply same controls to private companies as public

39. Not a result of SOX?

Companies must file financials with the IRS

40. Weak internal control example?

A single employee receives and counts cash

41. Not an internal control activity for cash?

All cash payments should be made with cash

42. If same person orders, receives, pays for supplies, possible result?

All of these choices are correct

43. Why prepare a bank reconciliation?

To explain difference between book and bank balances

44. Springer Co. Oct outstanding checks = 4,500 + 45,700 – 39,800

$10,400

45. Jones Co. adjusted cash balance May 31 = 5,300 + 580 – 30 – 150

$5,700

46. Which requires adjusting entry after bank reconciliation?

NSF checks

47. Entry for bank collection of note $200?

Cash 200; Notes Receivable 200

48. Bank service charge $30 entry?

Miscellaneous Expense 30; Cash 30

49. True statement about reconciliation?

Add deposits in transit; deduct outstanding checks from bank balance

50. Deposits in transit are handled how?

Added to bank balance

51. Accounts receivable reported at?

Cash (net) realizable value

52. Percentage-of-receivables method adjusting entry?

Bad Debts Expense 4,000; Allowance for Doubtful Accounts 4,000

53. Recovery after write-off — credited accounts?

Accounts Receivable and Allowance for Doubtful Accounts

54. Write-off Bill Clinton account under allowance method?

Allowance for Doubtful Accounts 100; Accounts Receivable 100

55. Marx Clothiers allowance balance after adjustment?

$12,000

56. Entry to record $800 estimated uncollectibles?

Bad Debts Expense 800; Allowance for Doubtful Accounts 800

57. Accrued interest on $5,000, 8%, 9-month note from June 1 to Dec 31?

$233

58. Schleis Co. collection of Murphy Inc. note 10,000, 120 days, 9%?

Cash 10,300; Notes Receivable 10,000; Interest Revenue 300

59. Eddy Corp. accounts receivable turnover = 800k / 125k =

6.4

60. Prall Corp. days’ sales in receivables = 365 / 7 =

52 days