Chapter 5 for accounting

On March 12 Medical Waste Services on account to Grace Hospital for 11,000 terms 2/10, n/20

Accounts Receivable is 11,000 for Debit and the Service Revenue is 11,000 is credit. For March 20 there is accounts receivable for 11,000, then they pulled a 2/10 by muliplying the 11,000. From there the sales discount is 220 and then you do 11,000- the sales discount which is 10,780.

The account “Allowance for Uncollectible Accounts is classified.

Contra asset to accounts receivable in the balance sheet

A debit beginning balance in the Allowance for Uncollectible Accounts before adjustment indicates that we’ve written off more bad debts in the current year than we had estimated

True

The amount of cash that is actually expected to be collected on accounts receivable is referred to as

Net accounts receivable

Deposits outstanding

Cash receipts received by the company but not yet recorded by the bank

Bank Service

Fees imposed by the bank to the company for providing routine services

NSF checks from customers

Checks written to the company that are returned by the bank as not having adequate funds

Checks Outstanding

Checks written by the company but not yet recorded by the bank

Notes Collected

Amount collected by the bank on behalf of the company in a lending arrangement

Company Error

The company recorded a deposit twice

The balance shown in the August bank statement of a company was 23,200. After examining the August bank statement and items included with it the companys accountant found.

23,200+Deposit outstanding 1,800= 25,000-checks outstanding 4,300= 20,700

Shrupe, Incorporated estimates uncollectible accounts based on the percentage of accounts receivable not expected to be collected. What effect will recording the estimate of uncollectible accounts have on the balance sheet.

Decrease assets and decrease stockholder’s equity

Which method is not allowed under generally accepted accounting principles (GAAP) for the purpose of accounting for uncollectible accounts?

Direct write-off method

The amount of a company’s receivables is influenced by several variables, including all of the following except

Dividend payments to stockholders

On April 1, 2027, Oakland Corporation realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting Oakland's business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. Oakland agrees to lend $570,000 to its supplier using a 12-month, 11% note.

1. The loan of $570,000 and acceptance of the note receivable on April 1, 2027.

2. The adjusting entry for accrued interest on December 31, 2027.

3. Cash collection of the note and interest on April 1, 2028.

1. Notes Receivable is Debit 570,000 and Cash is Credit for 570,000

2. For Interesest Receivable the Debit is 47,025 and then Interest Revenue is Credit of 47,025

3. For Cash is 632,700 for Debit then theCredit Notes Receivable is 47,025 and Interest Revenue is Credit is 15,675

570,000×11%x9/12= 47,025

570,000×11%x3/12=15,675

Physical Controls

The company should maintain security over assets and accounting records

Reconciliations

Management should perdiodically determine whether the amounts of physcial assets of the company match the accounting records

Employee Managment

The company should provide employees with appropriate guidance to ensure they have the knowledge necessary to carry out their job duties

Performance review

The actual performance of individuals or processes should be checked against their expected performance.

Separation of duties

Authorizing transactions, recording transactions, and maintaining control of the related assets should be separated among employees

Proper Authorization

To prevent improper use of the company’s resource, only certain employees are allowed to carry out certain business activities

A lower receivables turnover ratio generally indicates more effective management of accounts receivable by company managers

False

The Receivables turnover ratio measures

A company’s ability to collect cash from customers

At the beginning of the year, a company had accounts receivable of 220,000. At the end of the year, the company had accounts receivable of 340,000. During the year, the company had total sales of 1,000,000, 70% of which were credit sales. What is the receivables turnover ratio for the year?

2.50

[(1,000,000x .70) / (220,000 + 340000) / 2 ] = 2.50

On March 12, Medical Waste Services provides services on account to Grace Hospital for $10,700, terms 2/10, n/30. Grace pays for those services on March 20.

Required:

For Medical Waste Services, record the service on account on March 12 and the collection of cash on March 20.

1. Accounts Receivable is 10,700 for the Debit and Service Revenue is 10,700

2. Cash is for 10,486 which is the 10,700 x .02= 214 which sales discount is 214 both are Debit and Accounts Receivable is 10,700 for credit

Which of the following is not a component of net sales revenue

Cost of goods sold

On the multiple step income statement, gross margin (or gross profit) is calculated

Net sales revenue- Cost of goods sold

Work-in-process

Cost of items not yet complete by the end of the period

Finished goods

Inventory that has been substantially completed

Raw materials

Basic components used to build a product

Using a perpetual inventory system, the sale of inventory isrecorded with a debit to Cost of Goods Sold

True

A company that uses the periodic inventory system records sales revenue but not the cost of goods sold at the time of sale

True

For inventory that is shipped FOB destination, title transfers from the seller to the buyer once the seller ships the inventory

False

Companies are allowed to report inventory costs by assuming which specific units of inventory are sold and not sold, even if this does not match the actual flow

True

Companies are allowed to switch each year from one inventory cost method to another, depending on economic circumstances

False

Accountants often call the FIFO method a balance sheet approach because the amount it reports for ending inventory better approximates the current cost of inventory than the LIFO method

True

The LIFO conformity rule requires a company that uses LIFO for tax reporting to use FIFO for financial reporting

False

Which inventory cost flow assumption best matches the current (or most recent) cost of inventory sold with current sales revenue?

LIFO

Inventory Costs Rising

Higher Total Assets- FIFO

Higher Cost of Goods sold - LIFO

Higher net Income- FIFO

Inventory Costs Falling

Higher Total Assets- LIFO

Higher Cost of Goods Sold- FIFO

Higher Net Income- LIFO

Inventory records for Eliza Company revealed the following:

Date	Transaction	Number of Units	Unit Cost
March 1	Beginning Inventory	1,000	$ 7.20
March 10	Purchase	600	7.25
March 16	Purchase	800	7.30
March 23	Purchase	600	7.35

Eliza sold 2,300 units of inventory during the month. Cost of goods sold assuming FIFO would be:

2,300-1000=1,300-600=700-700=0 so you only do the math for 3 day.

Cost of goods sold = (1,000 × $7.20) + (600 × $7.25) + (700 × $7.30) = $16,660.

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Inventory records for Eliza Company revealed the following:

Date	Transaction	Number of Units	Unit Cost
March 1	Beginning Inventory	1,000	$ 7.20
March 10	Purchase	600	7.25
March 16	Purchase	800	7.30
March 23	Purchase	600	7.35

Eliza sold 2,300 units of inventory during the month. Ending inventory assuming LIFO would be:

You add all together 1,000+600+800+600= 3,000 -2,300=700 then you multiple by the first unit cost is 700×7.20 and that equals 5,040

Inventory records for Eliza Company revealed the following:

Date	Transaction	Number of Units	Unit Cost
March 1	Beginning Inventory	1,000	$ 7.20
March 10	Purchase	600	7.25
March 16	Purchase	800	7.30
March 23	Purchase	600	7.35

Eliza sold 2,300 units of inventory during the month. Cost of goods sold assuming LIFO would be:

Cost of goods sold = (600 × $7.35) + (800 × $7.30) + (600 × $7.25) + (300 × $7.20) = $16,760.

Consider the following inventory transactions for September:

Beginning inventory	15 units @ $ 3.00
Purchase on September 12	20 units @ $ 3.50
Purchase on September 23	10 units @ $ 4.00

For the month of September, the company sold 35 units. What is cost of goods sold under the weighted-average cost method?

Weighted-average cost = [(15 × $3.00) + (20 × $3.50) + (10 × $4.00)] ÷ 45 = 3.4444

Cost of goods sold = 35 × $3.4444 = $121 (rounded)

A company's sales equal $60,000 and cost of goods sold equals $20,000. Its beginning inventory was $1,600 and its ending inventory is $2,400. The company's inventory turnover ratio equals:

Beginning +END to find average you divide by 2 is 1,600+2,400=3,000./2=1,500

Then you do 20,000/1,500= 10 times

Anthony Corporation reported the following amounts for the year:

Net sales	$ 296,000
Cost of goods sold	138,000
Average inventory	50,000

Anthony's inventory turnover ratio is:

Cost of goods sold is the 138,000/ 50,000 the Average inventory turns out to be 2.76 the inventory turnover ratio

Anthony Corporation reported the following amounts for the year:

Net sales	$ 296,000
Cost of goods sold	138,000
Average inventory	50,000

Anthony's average days in inventory is:

Note: Assume 365 days a year. Round to the nearest whole day.

For average days in inventory you assume 365 then the prvious number of 2.75 is what you divided by and round to the nearest whole and you get 132 days.

Anthony Corporation reported the following amounts for the year:

Net sales	$ 296,000
Cost of goods sold	138,000
Average inventory	50,000

Anthony's gross profit ratio is:

For the gross profit ratio is the net sales of 296,000- the 138,000 the Cost of goods sold. Then you divide by the original net sales of 296,00 and get the percentage of 53.4%

Assume you wish to determine how many times, on average, inventory turns over during the year. Which ratio would give you the best answer?

Inventory turnover ratio

Littleton Books has the following transactions during May.

May 2	Purchases books on account from Readers Wholesale for $3,300, terms 1/10, n/30.
May 3	Pays cash for freight costs of $200 on books purchased from Readers.
May 5	Returns books with a cost of $400 to Readers because part of the order is incorrect.
May 10	Pays the full amount due to Readers.
May 30	Sells all books purchased on May 2 (less those returned on May 5) for $4,000 on account.

1. Inventory of 3,300 debit and Accounts Payable of 3,300 for Credit

2. Inventory of 200 Debit and Cash 200 for Credit

3. Accounts Payable 400 Debit and Inventory credit of 400

4. Accounts Payable is 2,900 for Debit and Inventory 29 for credit and cash for 2,871 for credit

5. Accounts Receivable for 4,000 Debit and Sales Revenue 4,000 for Credit

6. Cost of Goods Sold is 3,071 for Debit and 3,071 is inventory for Credit

[The following information applies to the questions displayed below.]

Littleton Books has the following transactions during May.

May 2	Purchases books on account from Readers Wholesale for $3,300, terms 1/10, n/30.
May 3	Pays cash for freight costs of $200 on books purchased from Readers.
May 5	Returns books with a cost of $400 to Readers because part of the order is incorrect.
May 10	Pays the full amount due to Readers.
May 30	Sells all books purchased on May 2 (less those returned on May 5) for $4,000 on account.

1. Accounts Payable of 2,900 for Debit and Cash 2,900 for Credit