Intermediate exam 2 multiple choice

What should NOT be included on the balance sheet as “CASH”

postage stamps on hand

what should be included as “CASH” on the balance sheet?

coins and currency in the cash register, checks form customers in the cash register, and amounts on deposit in checking account at the bank

Champlain Manufacturing prepares a bank reconciliation at the end of every month. At the end of May, the general ledger checking account showed a balance of $1,360 and the bank statement showed a bank balance of $1,445. Outstanding checks totaled $350 and deposits in transit were $150. The bank statement listed service charges of $30 and NSF checks totaling $85. The corrected cash balance is:

$1,245

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as

a deduction from sales in the income statement

Why is the allowance method preferred over the direct write-off method of accounting for bad debts?

improved matching of bad debt expense with revenue

What is the normal journal entry for recording bad debt expense under the allowance method?

Debit: Bad debt expense

Credit: Allowance for doubtful accounts

Fall Inc. made a $10,000 sale on account with the following terms: 2/10, n/30. If the company uses the net method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale?

Debit accounts receivable for $9,800

Autumn Corp. has outstanding accounts receivable totaling $3 million as of December 31 and sales on credit during the year of $15 million. There is a debit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

$240,000

Pumpkin Spice Corporation had a January 1 balance in the Allowance for Doubtful Accounts of $25,000. During the year, they wrote off $18,000 of accounts and collected $5,250 on accounts previously written off. The balance in Accounts Receivable was $500,000 on January 1 and $600,000 at December 31. At December 31, Pumpkin Spice estimates that 5% of accounts receivable will prove to be uncollectible. What should Pumpkin Spice report as its Allowance for Doubtful Accounts at 12/31?

$30,000

When a customer purchases merchandise inventory from a business organization, she may be given a discount which is designed to induce prompt payment. Such a discount is called a(n)

Cash discount

Apple Picking Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is also a debit balance of $3,000 in the allowance for doubtful accounts. If the company estimates that 1% of its net credit sales will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

$61,000

When using a perpetual inventory system,

a purchases account is not used, a cost of goods sold account is used, and two entries records each sale

goods in transit which are shipped f.o.b. shipping point should be

included in the inventory of the buyer

Dolan Co. received merchandise on consignment. As of March 31, Dolan had recorded the transaction as a purchase and included the goods in inventory. As of month-end the goods had not been sold. The effect of this on its financial statements for March 31 would be:

net income was correct and current assets and current liabilities were overstated

in a period of rising prices, the inventory method, which tends to give the highest reported ending inventory, is

FIFO (first in first out)

Garfield Corporation sells one product and uses a perpetual inventory system. The beginning inventory consisted of 10 units that cost $20 per unit. During the current month, the company purchased 60 units at $25 each. Sales during the month totaled 45 units for $43 each. What is the cost of goods sold using the FIFO method?

$1,075

When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term ‘market’?

net realizable value, NRV less a normal profit margin, and current replacement cost

what definition defines both ‘ceiling’ in the lower-of-cost-or-market-rule and net realizable value (NRV):

estimated selling price in the ordinary course of business less reasonably predicable costs of completion and disposal.

The primary basis of accounting for inventories is cost. a departure from the cost basis of pricing the inventory is required where there is evidence that when the goods are sold in the ordinary course of business their

future utility (value) will be less than their cost

under lower-of-cost-or-market rule, designated market value:

is never less than the floor, more than the ceiling, and is equal to the replacement cost when it is between the two.

Snow Day company sells shovels for $20 per unit. the cost of one unit of shovel is $18, and the replacement cost is $17. the estimated cost to sell a unit is $4, and the normal profit is 40%. at what amount per unit should the shovels be reported, applying lower-of-cost-or-market (LCM)?

$16

Given the historical cost of a "life is good" cooler is $86.62, the net realizable value for the cooler is $76.98, the normal profit for the product is $8.63, and the replacement cost for a "life is good" cooler is $81.36, what is the proper per unit inventory price for this product if using LCNRV?

$76.98

In 202X, Green Mountain Manufacturing signed a contract with a supplier to purchase raw materials in 202X for $700,000. Before the December 31, 202X balance sheet date, the market price for these materials dropped to $510,000. The journal entry to record this situation at December 31, 202X will result in a credit that should be reported:

as a libabilty

During the current fiscal year, Lake Champlain Corp. signed a long-term noncancellable purchase commitment with its primary supplier. Lake Champlain Corp. agreed to purchase $2.5 million of raw materials during the next fiscal year under this contract. At the end of the current fiscal year, the raw material to be purchased under this contract had a market value of $2.3 million. What is the journal entry at the end of the current fiscal year?

Debit Unrealized Loss for $200,000 and credit Estimated Liability on Purchase Commitment for $200,000.

What is NOT a basic assumption of the gross profit method?

The total amount of purchases and the total amount of sales remain relatively unchanged from the comparable previous period.