ISU ACCT 2840 Exam 2

In reconciling the checking account, PureLife Company noted the following items for the month of October:

Ending bank balance       $5,250

Deposits in transit            $1,250

Outstanding checks         $2,150

Ending book balance       $4,500

NSF check                       $    125

Bank service charges      $     25

What is the correct cash balance at the end of October?

$4,350

Auto Parts Inc. began the current month with inventory costing $40,000, then purchased inventory at a cost of $175,000. The inventory system indicates that inventory costing $120,000 was sold during the month for $160,000. If an inventory count shows that inventory costing $92,000 is actually on hand at month-end, what amount of shrinkage occurred during the month? 

$3,000

On their most recent financial statements, Fan, Inc. reported the following information:

	2027	2026
Net Sales	$500	$460
Accounts Receivable, net of Allowance of Doubtful Accounts of $15 and $10, respectively	$110	$122

The company also reported Bad Debt Expense of $25 for 2027.

How much in accounts were written off during 2027?

$20

Merchandise shipped FOB shipping point on the last day of the year should be included in 

the inventory balance of the buyer

LIFO results in a lower net income than FIFO when costs are increasing.

a true statement

When goods are sold to a customer with credit terms of 2/10, n/30, the customer will

receive a 2% discount if they pay within 10 days.

The Acme Corporation buys 300 units of merchandise in January at $4 each. Acme buys 500 units at $5 each in February and 200 units at $6 each in March.  Acme sells 700 units during this quarter. Acme uses the periodic FIFO method. What is its cost of goods sold for the quarter? 

$3,200

Which of the following is not required for a fraud to be committed?

Legal Access

Simple Works had the following information related to its inventory during 2025.

 

Beginning inventory 800 units @ $25

Feb. 5   Purchase 1,500 units @$27

April 9 Sale 1,300 units @$50

September 28 Purchase   900 units @$28

November 2 Sale 700 units  @$50

 

What is the amount of ending inventory which should be reported on the 2025 financial statements assuming Simple Works uses the LIFO method?

$30,800

If ending inventory is understated in the current year,

cost of goods sold will be understated in the following year.

Spooky Inc. had the following information related to its inventory during 2024.

 

Beginning inventory          200 units @ $35

March 4 Purchase              800 units @$37

May 15 Sale                       500 units @$60

August 29 Purchase           600 units @$39

October 19 Sale                 700 units  @$60

 

What is the amount of cost of goods sold and ending inventory which should be reported on the 2024 financial statements assuming Spooky uses the periodic LIFO method?

COGS: $45,600;  Ending Inventory: $14,400

Monster Corporation has a receivable turnover ratio of 13.2 while Scary Inc. has a receivable turnover of 11.7.   Which of the following statements is TRUE?  (Hint:  RTO = Net credit sales / Average Net Accounts Receivable)

Monster is collecting their receivables about 13.2 times per year on average

At the beginning of the quarter Precious Pets has $50,000 in inventory. During the quarter the company purchases $7,900 of new inventory. At the end of the quarter the balance in the Inventory account is $26,500. What is the cost of goods sold? 

$31,400

Your company reports cost of goods sold of $398,600 for the year. Inventory was $29,783 at the beginning of the year and $34,038 at the end of the year.  What is the days to sell ratio for the year (rounded to one decimal place)?  (Hint:  Inventory turnover ratio = COGS ÷ Average inventory and Days to Sell = 365 ÷ Inventory Turnover Ratio)

29.2 days

ABC Corp. reported net income of $63,000 for this year and had a tax rate of 30%.  Net sales were $300,000 and Operating expenses were $90,000 for the year.  Assuming there were no other revenues and expenses, what did ABC report for cost of goods sold for this year?

$120,000

Southeastern Football Corp is holding goods on consignment from Roll Tide, Inc.  The consignment inventory should be included in which company's balance sheet?

Roll Tide, Inc

Cash equivalents

are combined with other cash accounts and presented as a single line on the balance sheet.

When a company that uses the allowance method writes off an actual bad debt:

total assets, revenue, and expenses remain the same.

Cyclone Company recently updated its policies and procedures manual.  One of the changes made is that only the office manager is allowed to place orders for office supplies.  To which principle of control activities does this most closely relate?

Establish responsibility

Smith and Sons reported Accounts receivable at the end of 2026 is $1,500,000. The balance in the allowance for doubtful accounts was $100,000 at the beginning of 2026. Using the aging method, Smith and Sons estimates uncollectible accounts should total $30,000.  If the current balance in the allowance for doubtful accounts is a $4,000 debit balance, the entry to record bad debt expense should

increase bad debt expense by $34,000

LOST, Inc.'s reported the following (selected) information on its most recent financial statements:

Sales	$800
Income Tax Expense	$15
Interest Expense	$6
Cost of Goods Sold	$460
Salaries Expense	$215

The company's gross profit percentage last period was 48%.  Which of the following statements is TRUE in regard to the company's gross profit percentage?  (GP % = Gross Profit / Sales Revenues)

The company is earning 42.5 cents in gross profit on each dollar of sales.

Star Company uses the aging of accounts receivables method to estimate bad debts.  The company has prepared the following aging schedule of its accounts receivables.

Age	Accounts Receivable	Percent Uncollectible
0-30 days	$120,000	3%
31 - 60 days	$40,000	10%
>60 days	$26,000	20%

The Allowance for Doubtful Accounts account had a balance of $4,600 before any adjusting entry is made.  What amount of bad debt expense will the company record this year?

$8,200

Cy Motors had a beginning balance in Accounts Receivable of $510,000 and an ending balance of $475,000.   Additional information for the year follows:   Bad debt expense, $645,000;   Write-offs, $98,000;  Credit sales $985,000.   How much cash did Cy collect from customers on account during the year?

$922,000

Princess Corporation reported cost of goods sold for the year of $935,000.   If the inventory of Princess was $450,000 at the beginning of the year and $410,000 at the end of the year, how much did Princess record in inventory purchases for the year?

$895,000

Jacob Corporation reported an inventory turnover ratio of 8.9 times for the current year while reporting an inventory turnover ratio of 9.2 times last year.   This means that Jacob

did not sell inventory as quickly this year relative to last year.