Exam #2 review (Ch 4, 6, 7)

Question 1

Merchandise is sold for cash. The selling price of the merchandise is $3,000 and the sale is subject to a 7% state sales tax. What is the journal entry to record the sale?

Answer 1

DB Cash 3,210
CR Sales 3,000
CR Sales tax payable 210

Question 2

ABC Company began the period with $600 in inventory. During the year, the company purchased an additional $1,000 of inventory and returned $80 for full credit. A physical count of the inventory at year-end revealed an inventory on hand of $640. What was ABC’s cost of goods sold for the period?

Answer 2

$880
600 + 1,000 – 80 = 1,520 COGA (available) – 640 = 880

   Beginning inventory: $600
\+ Purchases: $1,000
- Returns $80
= Cost of Goods Available $1,520
- Ending Inventory $640 
= Cost of Goods Sold $880

Question 3

On April 1, Dawn Company bought goods with a list price of $1,200, terms 2/10, n/30. The firm records purchases using the perpetual inventory system. On April 5, Dawn returned goods of $150 for credit. If Dawn paid the supplier the amount due on April 8, what would the appropriate entry would be?

Answer 3

DB Accounts payable 1,050
CR Inventory 21
CR Cash 1,029

1,200 List Price
– 150 Return
= 1,050 x 2% = 21 discount

Question 4

Which inventory costing method results in the highest value for ending inventory during a period of rising unit costs?

a. Specific identification
b. Weighted average cost
c. FIFO
d. LIFO

Answer 4

FIFO

The newest items (most recent purchases would be included in ending inventory)

Question 5

If the seller is to pay the transportation costs of delivering merchandise, delivery terms are stated as

a. FOB shipping point
b. FOB destination
c. FOB n/eom
d. FOB buyer

Answer 5

FOB destination

Question 6

27. Merchandise with an invoice price of $4,000 is purchased on June 2 subject to terms of 2/10, n/30, FOB shipping point. Transportation costs were $150. What is the buyer’s cost of the merchandise if paid on June 22, assuming the discount is NOT taken?
    a. $4,150
    b. $4,070
    c. $4,067
    d. $3,920

Answer 6

$4,150
$4,000
+ 150 (transport Cost)

What if the discount IS taken? 
   $4,000 
– (4,000 x 2%) = $80
\+ 150 
= $4,070

If the shipping terms are FOB destination then you would exclude the $150 freight

Question 7

When inventory is purchased on account, using the perpetual method the transaction should be recorded with the following entry
a.	"debit Accounts Payable
       credit Inventory"
b.	"debit Inventory
       credit Accounts Payable"
c.	"debit Inventory
       credit Cash Discounts"
d.	"debit Inventory
       credit Purchases"

Answer 7

b. “debit Inventory

credit Accounts Payable”

Question 8

Which of the following account groups are all considered temporary accounts?

a. Cash, Fees earned, Unearned Revenues
b. Prepaid expenses, Unearned revenues, Fees Earned
c. Capital account, Drawing account, Income summary
d. Drawing account, Fees earned, Rent expense

Answer 8

d. Drawing account, Fees earned, Rent expense

Question 9

Long-term liabilities are those liabilities that

a. will be paid in less that one year
b. are due to be paid in 5 to 10 years
c. are due to be paid in more than one year
d. are liabilities owed to the owner and will never be paid

Answer 9

c. are due to be paid in more than one year

Question 10

Which of the following accounts ordinarily appears in the post-closing trail balance?

a. Bill Smith, drawing
b. Supplies expense
c. Fees earned
d. Unearned rent

Answer 10

d. Unearned rent

Permanent accounts are Assets, Liabilities and Capital. Unearned fees is a liability

Question 11

Discounts taken by a buyer because of early payment are recorded on the seller’s accounting records as

a. purchase discounts
b. sales discounts
c. trade discounts
d. early payment discounts

Answer 11

b. sales discounts

Question 12

In taking a physical count of its inventory, Oops Company forgot to include the merchandise located in its warehouse in Dimmitt. Which of the following items will be overstated as a result of this error?

a. Ending inventory
b. Cost of goods sold
c. Net income this year
d. Owner’s capital

Answer 12

b. Cost of goods sold

ending inventory would be understated so COGS would be overstated

Question 13

In the accounting cycle, the last step is

a. preparing the financial statements
b. journalizing and posting the adjusting entries
c. preparing a post-closing trial balance
d. journalizing and posting the closing entries

Answer 13

c. preparing a post-closing trial balance

Question 14

Merchandise with an invoice price of $5,000 is purchased on September 2 subject to terms of 2/10, n/30, FOB destination. Freight costs paid by the seller totaled $200. What is the cost of the merchandise if paid on September 12, assuming the discount is taken?

a. $5,200
b. $5,096
c. $5,100
d. $4,900

Answer 14

d. $4,900

5,000
x 98%

Freight is FOB Destination so the seller pays it

Question 15

The entry to record the return of merchandise from a customer would include a

a. debit to Sales
b. credit to Sales
c. debit to Sales Returns and Allowances
d. credit to Sales returns and Allowances

Answer 15

c. debit to Sales Returns and Allowances

Sales Returns and Allowances DB
Credit to Accounts Receivable CR

Question 16

Which of the following items should not be included in the cost of ending merchandise inventory?

a. Units displayed on consignment
b. purchased units in transit, shipped FOB destination
c. units on hand that are stored in the warehouse
d. both (a) and (c)

Answer 16

b. purchased units in transit, shipped FOB destination

Question 17

Which account is not classified as a selling expense?

a. Sales Salaries
b. Delivery expense
c. Sales Discounts
d. Advertising Expense

Answer 17

c. Sales Discounts

“Sales discounts” is a contra-account to sales so it is reported with revenues

Question 18

Gross profit is equal to:

a. sales plus sales discounts and sales returns and allowances plus cost of goods sold
b. sales plus sales returns and allowances less sales discounts less cost of goods sold
c. sales plus sales discounts less sales returns and allowances less cost of goods sold
d. sales less (sales discounts and sales returns and allowances) less cost of goods sold

Answer 18

d. sales less (sales discounts and sales returns and allowances) less cost of goods sold

Question 19

The inventory system employing accounting records that continuously update and report the amount of inventory is called

a. retail
b. periodic
c. physical
d. perpetual

Answer 19

d. perpetual

Question 20

The form of income statement that derives its name from the fact that the total of all expenses is deducted from the total of all revenues is called a

a. multiple-step statement
b. revenue statement
c. report-form statement
d. single-step statement

Answer 20

d. single-step statement

Question 21

Robles Co. sells $1,000 of inventory to Salas Co. for cash. Robles paid $650 for the merchandise. Under a perpetual inventory system, the following journal entry would be recorded for Robles.

a. Cash 1,000 Dr, Inventory 650 Cr
b. Cash 1,000 Dr, Sales 1,000 Cr, Cost of Goods Sold 650 Dr, Inventory 650 Cr.
c. Cash 1,000 Dr, Sales 1,000 Cr
d. Accounts Receivable 1,000 Dr, Sales 1,000 Cr, Cost of Goods Sold 650 Dr, Inventory 650 Cr.

Answer 21

b. Cash 1,000 Dr, Sales 1,000 Cr, Cost of Goods Sold 650 Dr, Inventory 650 Cr.

Question 22

Which of the following is not true about closing entries?

a. There are four closing entries that update the owner’s equity account.
b. After the second closing entry, the income summary account is equal to the net income or (loss) for the period.
c. All assets, liabilities and owner’s capital accounts are closed at the end of the period.
d. By closing temporary accounts at the end of the period to zero, it is possible to isolate next period’s information correctly.

Answer 22

c. All assets, liabilities and owner’s capital accounts are closed at the end of the period.

TEMPORARY accounts, not permanent accounts closed

Question 23

On which financial statement will Income Summary be shown?

a. Statement of Owner’s Equity
b. Balance Sheet
c. Income Statement
d. Is not reported on a financial statement

Answer 23

d. Is not reported on a financial statement

Question 24

Balance sheet accounts

a. represent amounts accumulated during a specific period of time
b. are called real or permanent accounts
c. have zero balances after the closing entries have been posted
d. are equal to assets and liabilities

Answer 24

b. are called real or permanent accounts

Question 25

The Income Statement will include the following accounts

a. Revenues less Expenses (ordered largest to smallest amount) with Miscellaneous Expense listed last
b. Revenues less Expenses (ordered smallest to largest amounts) with Miscellaneous Expense listed last
c. Revenues less Expenses (ordered in alphabetical order)
d. Revenues less Expenses (order is not important)

Answer 25

a. Revenues less Expenses (ordered largest to smallest amount) with Miscellaneous Expense listed last

Question 26

Accumulated Depreciation appears on the

a. balance sheet in the current assets section
b. balance sheet in the property, plant and equipment section
c. balance sheet in the long-term liabilities section
d. income statement as an operating expense

Answer 26

b. balance sheet in the property, plant and equipment section

Question 27

During the end-of-period processing which of the following best describes the logical order of this process

a. Preparation of adjusting entries, adjusted trial balance, financial statements
b. Preparation of Income Statement, adjusted trial balance, Balance Sheet
c. Preparation of adjusted trial balance, cross-referencing, journalizing
d. Preparation of adjusting entries, adjusted trial balance, posting

Answer 27

a. Preparation of adjusting entries, adjusted trial balance, financial statements

Question 28

Smith & Sons purchased $20,000 of merchandise from the Clairmont Company with terms of 3/10,n/30. How much discount is Smith & Sons entitled to take if it pays within the discount period?

a. $200
b. $400
c. $600
d. $1,200

Answer 28

c. $600

20,000 x 3%

Question 29

Saber Company uses the perpetual inventory system. Saber purchased merchandise on account with an invoice price of $8,000, terms 2/10,n/eom. If Saber returns merchandise with an invoice price of $2,000 to the supplier, what should the journal entry to record the return include?

a. Credit to Inventory of $2,000
b. Credit to inventory of $1,000
c. Debit to Inventory of $2,000
d. Debit to Inventory of $1,960

Answer 29

a. Credit to Inventory of $2,000

Debit accounts payable 2,000 and credit inventory 2,000

Question 30

Under which method of cost flows is the cost of goods sold assumed to be made up of the oldest costs?

a. average cost
b. last-in, first-out
c. first-in, first-out
d. weighted average

Answer 30

c. first-in, first-out

Question 31

Under which method of cost flows is the ending inventory assumed to be made up of the oldest costs?

a. average cost
b. last-in, first-out
c. first-in, first-out
d. weighted average

Answer 31

b. last-in, first-out

Question 32

The inventory system employing accounting records that only reflect the amount of inventory after a physical count is taken is called

a. Retail
b. Periodic
c. Physical
d. Perpetual

Answer 32

b. Periodic

Question 33

What are permanent accounts?

Answer 33

Assets, Liabilities and Capital

Question 34

What type of account is Unearned fees?

Answer 34

Liability