Exam 3 pre quiz

Question 1

Company A and Company B both use perpetual systems. If Company A shipped goods to Company B with shipping terms FOB shipping point, which of the following statements is true regarding the freight cost?

Answer 1

Company B will increase inventory for the freight costs.

Question 2

A company sells an item on account with the credit terms of 2/10, n/20. What is the meaning of these terms?

Answer 2

A 2 percent cash discount may be taken if payment is made within 10 days of the invoice date; otherwise, the full amount is due within 20 days.

Question 3

Financial info is presented below:
operating exp $43100
sales returns and allowances: 11600
sales discounts 2500
sales revenue 170,000
cost of goods sold 100,000
Gross profit is:

Answer 3

sales revenue - sales returns & allow. -sales discounts= Net sales
170,000-11,600-2500=155,900
Net sales- Cost of goods sold = Gross profit
155,900-100,000=55,900

Question 4

Assume that Walmart anticipates inflation in future periods. In a period of rising prices, which inventory method will result in the largest amount of net income?

Answer 4

FIFO

Question 5

what is the nature of the transaction recorded on June 5?
June 1: cash +6,200, inv. +2,140
June 5: inv. +770 , A/P +770

Answer 5

Purchase of inventory on account

Question 6

Which of the following is a possible explanation for the May 5 transactions under a perpetual inventory system?
May 1: cash +6,200 A/R +2,140 A/P +1,600
May 5: A/R +450 Sales Rev +450
May 5: inv. -320 exps. -320

Answer 6

A sale of merchandise on account

Question 7

What is the nature of the transaction recorded on June 30?
June 1: A/R +5,100 Allow. for doubtful accts. +850
June 30: A/R -60 Allow for doubtful accts. +60

Answer 7

Write off of an uncollectible account under the allowance method.

Question 8

On March 16, Pharaoh Company purchased a truck with a cash price of $47,000, and a sales taxes of $2850, and a motor vehicle license for $210. Pharaoh paid for the purchase with a check. What is the effect of recording the purchase in a tabular analysis?
June 1: Cash +142,200 Equip. +97,000

Answer 8

Increase equipment by $49,850, increase license exp. by 210, and decrease cash by 50,060
Equipment: 47,000+2,850= 49,850
license exp.: 210
total: 50,060

Question 9

Which of the following is included as part of property, plant, and equipment but does not decline in service potential?

Answer 9

Land on which a company warehouse is built.
(assume land lasts forever)

Question 10

What does the balance of the accumulated depreciation account represent?

Answer 10

The portion of the cost allocated as an expense since the asset was acquired.

Question 11

What is the nature of the transaction recorded on June 16?
June 1: cash +23,700 copyright +6,630
June 16: copyright -300 exp. -300

Answer 11

Amortization of a copyright

Question 12

Equipment was purchased for $330,000. Freight charges amounted to 5000 and there was a cost of 23,000 for building a foundation and installing the equipment. It is estimated that the equipment will have a 35,000 salvage value at the end of its 5-year useful life.
Depreciation expense each year using the straight-line method will be

Answer 12

64,600
[(purchase price+ freight+foundation) - salvage value]/ useful life
330,000+5000+23,000-35,000=358,000
358,000/5=64,600

Question 13

Equipment with a cost of 620,000 has an estimated salvage value of 60,000 and an estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight line method. What is the amount of depreciation for the first full year, during which the equipment was 3000 hours?

Answer 13

140,000
(cost-salvage value)/useful life
620,000-60,000/4= 140,000

Question 14

A truck costing 90,000 and on which 62,000 of accumulated depreciation has been recorded was discarded as having no value. Recording this event would include a(n)

Answer 14

loss of 28,000
Selling price- (cost -A/D)= loss
0-(90,000-62,000)=28,000

Question 15

Which of the following is NOT an intangible asset that is reported on the balance sheet?

Answer 15

Employees

Question 16

Blossom company incurred 800,000 of research & development costs in its laboratory to develop a new product. It spent 100,000 in legal fees for a patent granted on Jan 2, 2027. On July 31, 2027, Blossom paid 60,000 for legal fees in a successful defense of the patent. What is the total amount of the increase to patents through July 31, 2027?

Answer 16

160,000
legal fees + defense legal fees
100,000+60,000=160,000

Question 17

For Target Corporation, which of the following is an example of other expenses and losses?

Answer 17

Interest Expense

Question 18

Which of the following companies would most likely have the highest inventory turnover?

Answer 18

A bakery

Question 19

What is Crane’s return on assets for 2027?

Answer 19

13.7%
net income/avg. total assets
153/[(1070+1170)/2] = 13.7

Question 20

Which of the following is a possible explanation for the June 8 transaction?
June 1: cash +6,200 inv. +2,140 A/P +1,600
June 8: inv. -100 A/P -100

Answer 20

A purchase return on account

Question 21

Cullumber sold merchandise for 1500 subject to credit terms of 3/10, n/30. Which of the following is recorded in Cullumber’s tabular analysis for the collection in full within the discount period in a perpetual inventory system?

Answer 21

Increase to sales discounts for $45
1500x0.03=45
sales price x discount rate; cash = 1500-45=1455

Question 22

Pharaoh company began operations on January 1. It purchased three shredders as part of its inventory. The first shredder had a cost of $45; the second one cost $52; and the third shredder cost $61. The company decided to use LIFO and sold two shredders in January. If the company had used FIFo, by how much would gross profit for the period be greater or less than using the LIFO method?

Answer 22

Gross profit would be $16 greater if FIFO was used.
FIFO: 45+52= 97
LIFO: 61+52= 113
113-97=16