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91. The most commonly used inventory costing method in the U.S. is:
A. FIFO.
B. specific identification.
C. LIFO.
D. weighted average.


92. Company X uses LIFO while its main competitor, Company Y, uses FIFO. Which of the following statements is true?
A. The difference in inventory costing methods does not affect comparisons of the financial statements because the actual business activities are not affected by which method is used.
B. Company Y is required to report in the Notes to the Financial Statements what the inventory balance would have been under LIFO.
C. It is impossible to make a meaningful comparison of the financial results of the two companies.
D. Company X is required to report in the Notes to the Financial Statements what the inventory balance would have been under FIFO.


93. Because LIFO uses older costs for inventory, in times of rising prices:
A. LIFO results in a higher book value of inventory and lower inventory turnover ratio than FIFO.
B. LIFO results in a lower book value of inventory and lower inventory turnover ratio than FIFO.
C. LIFO results in a higher book value of inventory and higher inventory turnover ratio than FIFO. D. LIFO results in a lower book value of inventory and higher inventory turnover ratio than FIFO.


94. One of the most common sources of misstatement in financial statements is the:
A. use of alternating inventory costing methods.
B. failure to appropriately estimate the market value of inventory.
C. failure to report stock issues appropriately.
D. incorrectly calculating the inventory turnover ratio.


95. A one-time error in the application of the lower of cost or market (LCM) rule in the current period distorts financial results for the current accounting period
A. only.
B. and the period before.
C. and the period after.
D. and all periods after.


96. Alphabet Company buys different letters for resale. It buys A thru G on January 1 at $4 per letter, and sells A and E on January 15. On February 1, it buys H thru L at $6 per letter and sells D, H and J on February 9. It then buys M thru R on March 1 at $7 per letter and sells N on March 19. If the company uses the LIFO method on a perpetual basis, what is the cost of its ending inventory (rounded to the nearest dollar)?
A. $58
B. $67
C. $72
D. $76


97. Alphabet Company buys different letters for resale. It buys A thru J on January 1 at $4 per letter, and sells C on January 15. On February 1, it buys K and L at $6 per letter and sells A and K on February 9. It then buys M thru O on March 1 at $7 per letter and sells F, L, M, N, and O on March 19. If the company uses the LIFO method on a perpetual basis, what is the cost of goods sold for the three months ended March 31 (rounded to the nearest dollar)?
A. $32
B. $41
C. $45
D. $56


98. Which of the following statements is true?
A. Valuing inventory under LIFO may produce different results depending on whether a perpetual or periodic inventory system is used.
B. Valuing inventory under the weighted average cost method always produces the same results using either a perpetual or periodic inventory system.
C. Valuing inventory under FIFO may produce different results depending on whether a perpetual or periodic inventory system is used.
D. Using the specific identification method will produce different results depending on whether perpetual or periodic inventory system is used.


99. A $15,000 overstatement of the 2011 ending inventory was discovered after the financial statements for 2011 were prepared. How would that inventory error impact the 2011 financial statements?
A. Current assets were overstated and net income was understated.
B. Current assets were understated and net income was understated.
C. Current assets were overstated and net income was overstated.
D. Current assets were understated and net income was overstated.


100. A company purchased $6,000 of merchandise. Transportation costs were an additional $100. The company later returned $250 of the merchandise and paid the invoice within the 2% discount period. What is the total amount of cash paid?
A. $5,733
B. $6,100
C. $5,735
D. $5,730



6. Specific identification is the best inventory costing method because it is least open to manipulation by unscrupulous managers. FALSE
7. In each accounting period, a manager can select the inventory costing method that yields the most positive net income. FALSE
8. Inventories regularly rise and fall as the company buys and sells merchandise. TRUE
9. The lower the inventory turnover ratio, the more efficiently the company manages its inventory, all other things equal. FALSE
10. Companies that choose to use FIFO must report in the financial statement notes what their inventory balance would have been had they used LIFO. FALSE
101. What is the journal entry to be recorded by E. Flynn Company on November 6?

A. Option A
B. Option B
C. Option C
D. Option D


102. What is the journal entry to be recorded by E. Flynn Company on November 8?

A. Option A
B. Option B
C. Option C
D. Option D


103. What is the journal entry to be recorded by E. Flynn Company on November 15?


A  Option A
B. Option B
C. Option C
D. Option D

104. A retailer using a periodic inventory system returned $3,000 of defective merchandise which was purchased on account from one of its wholesale suppliers. The entry to record this transaction on the retailer's books would include a debit to
A. Accounts receivable
B. Cost of goods sold
C. Accounts payable
D. Inventory

105. Which of the following accounts would normally have a credit balance?
A. Inventory
B. Cost of goods sold
C. Sales
D. Sales returns & allowances


11. LIFO is preferred when costs are rising and managers have incentives to report higher income because of bonus plans and job security. FALSE
12. An error in the period-end inventory will cause an error in the calculation of cost of goods sold. TRUE
13. Errors in the ending inventory balance only affect the current period's records and financial statements. FALSE
14. An overstatement of ending inventory will cause an overstatement of assets and an understatement of stockholders' equity on the balance sheet. FALSE
15. A company's ability to pay its short-term obligations depends on many factors including how quickly it sells its inventory. TRUE

106. If a firm's beginning inventory is $35,000, goods purchased during the period cost $120,000, and the cost of goods sold for the period is $140,000, what is the amount of the ending inventory?
A. $45,000
B. $20,000
C. $25,000
D. $15,000


107. What is the inventory turnover for 2010?
A. 3.87
B. 4
C. 4.14
D. 2

108. Days to sell for 2010 is:
A. 91.25
B. 94.3
C. 88.16
D. 182.5

109. The inventory costing method that smoothes out changes in costs is
A. FIFO.
B. LIFO.
C. Weighted average.
D. Specific identification


110. An error in the ending inventory one period causes an offsetting error in the next period, and as a result:
A. it affects only income statement accounts.
B. it affects only balance sheet accounts.
C. management can ignore the error.
D. it is a self-correcting or counter-balancing error.




16. The assignment of costs to cost of goods sold and to inventory using the weighted average method usually yields different results depending on whether a perpetual or a periodic system was used. TRUE
17. The cost assigned to cost of goods sold and to inventory under the FIFO method will be the same whether the perpetual or the periodic inventory system is used. TRUE
18. The choice of an inventory costing method can have a major impact on gross profit and cost of goods sold. TRUE
19. In applying the lower of cost or market rule to report inventory, "market" is defined as the current selling price. FALSE
20. When LIFO is used with the periodic inventory system, cost of goods sold is assigned cost using the most recent purchase at the point of each sale, rather than from the most recent purchase as of the end of the period. FALSE
111. An understatement of the ending inventory balance will cause:
A. Cost of goods sold to be overstated and net income to be understated.
B. Cost of goods sold to be overstated and net income to be overstated.
C. Cost of goods sold to be understated and net income to be overstated.
D. Cost of goods sold to be overstated and net income to be correct.


112. The inventory turnover ratio is calculated as:
A. Cost of goods sold divided by Sales
B. Cost of goods sold divided by Average inventory
C. Ending inventory divided by Cost of goods sold
D. Average inventory divided by Cost of goods sold


113. Days to sell is calculated as:
A. Ending inventory divided by Sales.
B. Cost of goods sold divided by Ending inventory.
C. 365 divided by Inventory turnover ratio.
D. Cost of goods sold divided by Average inventory.


114. An understatement of the beginning inventory balance causes:
A. Cost of goods sold to be understated and net income to be understated.
B. Cost of goods sold to be understated and net income to be overstated.
C. Cost of goods sold to be overstated and net income to be understated.
D. Cost of goods sold to be overstated and net income to be correct



115. In applying the lower of cost or market method to inventory, market is defined as
A. historical cost.
B. current replacement cost.
C. current sales price.
D. weighted-average cost.




21. Goods on consignment are goods shipped by the owner to another company that holds the goods and sells them for the owner. TRUE
22. The inventory costing method that results in the lowest taxable income in a period of inflation is the LIFO method. TRUE
23. The understatement of beginning inventory balance causes cost of goods sold to be understated and net income to be understated. FALSE
24. The inventory costing method that identifies the invoice cost of each item in the ending inventory in order to determine the cost assigned to inventory is the specific identification method. TRUE
25. Which of the following statements regarding inventory classifications is not true?
A. Inventory may include materials used in producing goods for sale.
B. Companies that are manufacturers list their finished goods, work-in-process and raw materials inventory separately.
C. Inventory is classified as a long-term asset on the balance sheet.
D. Merchandisers buy inventory in finished form ready for resale.



116. Generally accepted accounting principles (GAAP) require that the inventory be reported at:
A. market Value
B. historical Cost
C. lower of cost or market
D. retail value


117. A company had been selling its product for $20 per unit, but recently lowered the selling price to $15 per unit. The company's current inventory consists of 200 units purchased at $16 per unit. The replacement cost of this merchandise is currently $13 per unit. At what amount should the company's inventory to be reported on the balance sheet under the lower of cost or market rule?
A. $2,600
B. $3,200
C. $3,000
D. $4,000


118. A company using a perpetual inventory system made the following entry: What does this entry reflect?
A. A purchase of inventory.
B. A return of inventory.
C. A sale of inventory.
D. A payment for inventory previously purchased on credit with the payment made within the discount period.

119. On July 1, B. Darin Company sold merchandise costing $4,500 to S. Dee Company for $6,000, terms 2/10, n/30. Both companies use a perpetual inventory system. What is the journal entry that S. Dee Company will make on July 1?

A.    Option A
B. Option B
C. Option C
D. Option D
120. On July 1, B. Darin Company sold merchandise costing $4,500 to S. Dee Company for $6,000, terms 2/10, n/30. Both companies use a periodic inventory system. What is the journal entry that S. Dee Company will make on July 1?

A. Option A
B. Option B
C. Option C
D. Option D



26. Which of the following statements regarding inventory calculations is true?
A. Beginning inventory + net purchases - ending inventory = cost of goods sold.
B. Goods available for sale + ending inventory = cost of goods sold.
C. Beginning inventory - cost of goods sold = goods available for sale.
D. Beginning inventory + purchases + purchase discounts + ending inventory = cost of goods sold.


27. Which of the following statements regarding inventory costing methods is true?
A. The LIFO method assumes that the costs for the newest goods (the last ones in) are used first and the older costs are left in ending inventory.
B. During a period of rising prices, LIFO results in a higher income tax expense than does FIFO.
C. Internal Financial Reporting Standards (IFRS) allow the use of LIFO but not FIFO.
D. In the U.S., if a company uses LIFO on the income tax return, it may use a different method for financial reporting.



28. Which of the following statements regarding the calculations used for the weighted average inventory costing method is true?
A. Under the weighted average cost method, if the goods in inventory were purchased at three different prices, the three different prices would be added and then divided by three to find the weighted average cost per unit.
B. When the weighted average inventory costing method is used, ending inventory and cost of goods sold are calculated using different costs per unit.
C. There is no difference in the calculations under the weighted average method whether a perpetual or periodic inventory system is used.
D. The weighted-average method will produce an inventory cost which is between the results of FIFO and LIFO inventory costing methods.



29. Which of the following statements regarding the lower of cost or market rule is not true?
A. The lower of cost or market rule sometimes causes the book value of inventory to be lowered below cost, but will never cause the book value of inventory to be raised above cost.
B. The failure to estimate the market value of inventory appropriately when applying the lower of cost or market rule is one of the more common types of financial statement misstatements.
C. There is no difference between how the lower of cost or market rule is applied under IFRS and GAAP rules.
D. The lower of cost or market rule is based on the conservatism concept.



30. How many of the following statements regarding inventory management is (are) true?
• An increase in inventory levels is always a sign of inefficiency in inventory management.
• The measurement of inventory affects both the balance sheet and the income statement within an accounting period.
• The ending inventory of one accounting period becomes the beginning inventory of the next accounting period.
A. None
B. One
C. Two
D. Three


121. On July 1, B. Darin Company sold merchandise costing $4,500 to S. Dee Company for $6,000, terms 2/10, n/30. Both companies use the perpetual inventory system. S. Dee Company pays the invoice on July 8 and takes the appropriate discount. What is the journal entry that S. Dee Company will make on July 8?

A. Option A
B. Option B
C. Option C
D. Option D

122. The net sales of a company is $300,000. The cost of goods available for sale is $280,000 and the gross profit percentage is 35%. What is the amount of ending inventory?
A. $105,000
B. $195,000
C. $85,000
D. $70,000

123. Which of the following will occur when inventory costs are decreasing?
A. FIFO will result in a lower net income but a higher ending inventory then will LIFO.
B. FIFO will result in a higher net income but a lower ending inventory then will LIFO.
C. FIFO will result in a lower net income and a lower ending inventory then will LIFO.
D. FIFO will result in a higher net income and a higher ending inventory then will LIFO.


124. When a company uses a perpetual inventory system, purchase returns will be recorded by:
A. debiting inventory.
B. debiting purchase returns.
C. crediting accounts payable.
D. crediting inventory.


125. What is the amount of cost of goods available for sale?
A. $11,250
B. $17,500
C. $5,000
D. $13,750






31. Which of the following statements regarding inventory measures is not true?
A. If the inventory turnover ratio increases, the days to sell measure decreases.
B. The days to sell measure can help managers make pricing and ordering decisions for inventory.
C. A higher inventory turnover ratio indicates that inventory is moving more quickly from purchase to sale.
D. It is rare for a company with a lower gross profit percentage to have a faster inventory turnover.

32. Which of the following statements regarding comparisons made in managing inventory is not true?
A. In making comparisons of financial statements, it is desirable to compare data calculated using the same inventory costing methods.
B. The inventory turnover ratio and days to sell measure will be affected by the cost flow assumptions used, which causes problems for financial statements users.
C. Because of the use of different costing methods, comparisons of different companies are more difficult.
D. An increase in inventory account balances always indicates a less favorable situation.



33. Carrying insufficient quantities of inventory on hand:
A. can inadvertently lower a company's costs so much that its taxes become excessive.
B. can cause customers to go elsewhere to obtain the product.
C. has little effect on customer satisfaction.
D. will increase the costs of carrying inventory.



34. Which of the following is not true if excessive quantities of inventory are purchased?
A. Storage and interest costs may increase.
B. Goods might have to be sold at large discounts.
C. There is a greater probability that goods will become damaged or obsolete.
D. The inventory turnover ratio is likely to increase.


35. The primary goals of inventory management do not include:
A. maintaining a sufficient quantity of inventory to keep customers satisfied.
B. maintaining sufficient quality of inventory to keep customers satisfied.
C. minimizing the costs associated with maintaining inventories.
D. purchasing inventory that will not be sold soon after they are acquired


126. The journal entry necessary at the end of the period to transfer beginning inventory and net purchases to cost of goods sold will include which of the following?
A. Credit Inventory, $6,250.
B. Debit Purchases, $11,250.
C. Debit Inventory, $6,250.
D. Debit Cost of goods sold, $11,250.


127. The journal entry necessary at the end of the period to adjust cost of goods sold for the ending inventory still on hand will include which of the following?
A. Debit Inventory, $6,250.
B. Credit Cost of goods sold, $11,250.
C. Credit Purchases, $10,200
D. Credit Inventory, $5,000.

128. What is the amount of the discount to be taken by a company that purchases inventory for $10,000 with terms 2/10,n/30, returns $2,000 of the inventory purchased, receives an allowance for defective merchandise of $100, and pays the amount due within the discount period?
A. $200
B. $158
C. $160
D. $198

129. Which of the following activities would not affect the inventory account for a company that uses the perpetual inventory system?
A. Purchases
B. Purchase returns
C. Advertising
D. Freight-in

130. In a period of rising prices, the inventory costing method that will cause the company to have the lowest income taxes is
A. LIFO.
B. FIFO.
C. Weighted average.
D. Specific identification.





36. Which of the following is not true about an auto manufacturer's inventory? A. Tires, batteries, glass, paint, headlamp bulbs, and electric wiring would be included in raw materials inventory.
B. Incomplete cars that are still being processed would be included in work-in-process inventory.
C. Finished cars ready to be shipped to dealers would be included in finished goods inventory.
D. Cars that have been sold to dealers would be included in finished goods inventory.



37. Which of the following is the equation for cost of goods sold?
A. Beginning inventory + net purchases - Ending inventory
B. Beginning inventory + net purchases + Ending inventory
C. Net purchases - Beginning inventory
D. Ending inventory + net purchases - Beginning inventory



38. A merchandise company's beginning inventory plus merchandise purchases equals:
A. ending inventory.
B. cost of goods sold.
C. goods available for sale.
D. sales level.



39. A merchandise company's beginning inventory plus merchandise purchases minus ending inventory equals:
A. ending inventory.
B. cost of goods sold.
C. goods available for sale.
D. sales level.



40. Which of the following would be in the raw materials inventory of a company making cheese?
A. Milk and cream used to make the cheese.
B. Cheese that has been made but is curing before being ready to sell.
C. Cured cheese that is waiting to be shipped to retailers.
D. Partially processed cheese.

131. In a period of rising prices, the inventory costing method that will cause the company to have the lowest cost of goods sold is
A. LIFO.
B. FIFO.
C. Weighted average.
D. Specific identification.


132. In a period of rising prices, the inventory costing method that assigns a value to inventory that approximates current cost is
A. LIFO.
B. FIFO.
C. Weighted average.
D. Specific identification


133. In a period of rising prices, the inventory costing method that will tend to smooth out erratic changes in costs is
A. FIFO.
B. LIFO.
C. Weighted average.
D. Specific identification


134. In a period of falling prices, the inventory costing method that will cause the company to have the lowest cost of goods sold is
A. LIFO.
B. FIFO.
C. Weighted average.
D. Specific identification.

135. In a period of falling prices, the inventory costing method that assigns a value to inventory that approximates current cost is
A. LIFO
B. FIFO
C. Weighted average
D. Specific identification







41. Which of the following would be in the work-in-process inventory of a company making cheese? A. Milk and cream used to make the cheese.
B. Cheese that has been made but is curing before being ready to sell.
C. Cured cheese that is waiting to be shipped to retailers.
D. Cured cheese that has been sold to retailers


42. Which of the following would be in the finished goods inventory of a company making cheese? A. Milk and cream used to make the cheese.
B. Cheese that has been made but is curing before being ready to sell.
C. Cured cheese that is waiting to be shipped to retailers.
D. Cured cheese that has been sold to retailers.


43. Which of the following statements is true?
A. The sales revenue is $2,500.
B. The gross profit is $2,500.
C. The cost of goods sold is $2,500.
D. The net income is $2,500.



44. Which of the following statements is true?
A. The sales revenue is $1,000.
B. The gross profit is $1,000.
C. The cost of goods sold is $1,000.
D. The net income is $1,000.


45. Which of the following statement is true?
A. The sales revenue is $1,500.
B. The gross profit is $1,500.
C. The cost of goods sold is $1,500.
D. The net income is $1,500.


136. Use the following information to determine the amount of purchases for the period.

A. $632,000
B. $453,000
C. $316,000
D. $674,000


137. What is the amount of the gross profit?
A. $720,000
B. $150,000
C. $200,000
D. $72,000

138. What is the amount of Cost of Goods Sold?
A. $650,000
B. $720,000
C. $150,000
D. $70,000

139. What is the amount of Ending Inventory?
A. $720,000
B. $150,000
C. $70,000
D. $650,000


140. A company has beginning inventory of $128,400 and an ending inventory of $89,100. The company purchased $67,900 during the accounting period. Assuming no returns, calculate the goods available for sale and the cost of goods sold.









46. If BetterBuy uses the specific identification method, its cost of goods sold will be:
A. $3,000
B. $2,950
C. $3,200
D. $3,033


47. BetterBuy records $3,000 as the cost of goods sold. BetterBuy is using the:
A. Specific identification method.
B. LIFO method.
C. FIFO method.
D. Weighted average cost method.



48. If BetterBuy uses the weighted average method, its cost of goods sold will be:
A. $2,900. B. $2,950. C. $3,040. D. $3,033.

49. If the company uses the specific identification method, what is the cost of its ending inventory? A. $31
B. $69
C. $76
D. $100



50. If the company uses the weighted average method, what is the cost of its ending inventory (rounded to the nearest dollar)?
A. $38
B. $48
C. $67
D. $75



141. Your company had a beginning inventory of $109,500 and purchased $240,720 during the accounting period. Assuming no returns, find the goods available for sale, the cost of goods sold, the inventory turnover ratio, and days to sell for the company if its ending inventory was $94,820.

142. A new textbook is published in the spring of 2011. Your campus bookstore buys 400 copies at $70 each in June, an additional 1,000 copies in August at $72 each, and 600 copies in December at $75 each. At the end of December 2011, the bookstore has sold 1,900 copies of the text. Find the cost of goods sold and the cost of ending inventory: a) under the weighted average cost method. b) under the FIFO method. c) under the LIFO method. Using your calculations as a guide, explain how different inventory costing methods affect the numerator and denominator of the inventory turnover ratio when unit costs are increasing. Conclude your explanation by identifying the method that produces the highest (and lowest) inventory turnover ratio.



During a period of rising costs, FIFO will have a lower cost of goods sold compared to LIFO. The weighted average method will be between the FIFO and LIFO numbers. Since the total cost of the inventory available for sale is the same with all three methods, the higher the cost of goods sold, the lower the cost of ending inventory. Since cost of goods sold is the numerator of the inventory turnover ratio, this would cause FIFO to have the lowest ratio and LIFO the highest. During a period of rising costs, FIFO will have the highest inventory since its ending balance uses the most recent, and therefore, highest costs and the ending balance of one period is the beginning balance of the next. LIFO will have the lowest average inventory since its ending balance uses the oldest and therefore, lowest costs. Weighted average cost will result in an average inventory between the other two. Since the average inventory is the denominator of the inventory turnover ratio, FIFO will again have the lowest inventory turnover and LIFO the highest. Therefore it is always expected that FIFO will produce the lowest inventory turnover ratio, then weighted average, then LIFO.
143. Given the following information for Maynor Company in 2011, calculate the company's ending inventory, cost of goods sold and gross profit, using the following inventory costing methods, assuming the company uses a periodic inventory system: a) Weighted Average b) FIFO c) LIFO d) Specific Identification. (The ending inventory consisted of 15 @ $66; 10 @ $70; and 5 @ $76.)



144. Last year bell-bottom jeans were fashionable and this year bootcut jeans are. A retail company's inventory has 375 bell-bottom jeans that cost $17 each and could be replaced for $15. The inventory also includes 1,000 bootcut jeans that cost $16 each and could be replaced for $19. Explain why this situation requires an adjustment to the accounting records, prepare the journal entry that would be used to make the adjustment, and show the effects of the adjustment on the accounting equation.
The company needs to make a lower of cost or market adjustment on the bell-bottom jeans. The company does NOT adjust the bootcut jeans, which have risen in value.



145. Match the term and the definition. Not all definitions will be used.
1. When the company reduces the book value of inventory that has declined in market value     raw materials inventory.     4
2. An inventory costing method that assumes the goods sold were the oldest in inventory     FIFO.     2
3. The concept that a company needs to report amounts separately only if large enough to affect decisions     inventory write-down.     1
4. A company's stockpile of inputs to be used to manufacture goods     merchandiser.     8
5. An inventory costing method that assumes the goods sold were the newest in inventory     inventory turnover ratio.     6
6. A tool for analyzing the frequency with which inventory rises and falls as a business buys and sells goods     lower of cost or market.     9
7. A manufacturer's stockpile of goods that is ready to be sold     manufacturer.     10
8. A company that buys finished goods from other companies and sells them to others     finished goods inventory.     7
9. The concept that a company should report inventory at either its cost or its current market value, whichever is less     materiality.     3
10. A company that buys raw materials and produces goods for sale to others     LIFO.     5



51. If the company uses the LIFO method, what is the cost of its ending inventory?
A. $24
B. $42
C. $58
D. $76

52. If the company uses the FIFO method, what is the cost of its ending inventory?
A. $24
B. $42
C. $58
D. $76



53. The specific identification method would probably be most appropriate for which of the following goods?
A. Boxes of brass 4-inch drywall screws at Home Depot.
B. Bottles of suntan lotion in Wal-Mart's central warehouse.
C. Sets of tires at the Goodyear plant.
D. Diamond necklaces at a Tiffany's & Co. jewelry store.



54. The Acme Corporation buys 300 units of merchandise in January at $5 each. In February, Acme buys 500 units at $4 each and in March it buys 200 units at $6 each. Acme sells 150 units during this quarter. What is the cost of goods sold under the FIFO method?
A. $600
B. $934
C. $750
D. $900


55. Generally, which inventory costing method approximates most closely the current cost for each of the following?


A. Option A
B. Option B
C. Option C
D. Option D




146. Match the term and the definition. Not all definitions will be used.
1. The book value of all the partially produced goods held by a manufacturer     weighted average cost.     6
2. The concept that relatively small amounts should be reported in the most cost effective way if they are too small to influence decisions     work in process inventory.     1
3. An inventory costing method where the firm keeps track of the cost and sale of each individual good     days to sell.     5
4. Beginning inventory plus purchases minus ending inventory     materiality.     2
5. The average length of time it takes a company to sell an item in inventory     specific identification.     3
6. The average cost a company paid for inventory taking into account the number of units bought at each unit cost     goods available for sale.     8
7. Tangible property held for future sale or used to produce other goods or services for sale     inventory.     7
8. The sum of beginning inventory and purchases by the company     inventory turnover ratio.     9
9. The average number of times a company sells its inventory over the year     Cost of goods sold equation.     4

147. Fill in each blank with the appropriate term to complete each formula.

BI, P, EI,BI, EI,BI, P,CGS, AI
148. Fill in the blanks below to indicate which inventory costing method causes the value to be higher and which causes it to be lower. Assume that the cost of merchandise is decreasing.

FIFO LIFO higher lower lower higher lower higher higher lower lower higher Feedback: When costs are decreasing, the oldest costs are the highest costs. FIFO cost of goods sold will be higher than LIFO cost of goods sold. Ending inventory under FIFO will contain the lower, more recent costs, and will therefore be lower than LIFO ending inventory. If cost of goods sold is higher (lower), then net income will be lower (higher). The inventory turnover ratio is computed as cost of goods sold/average inventory. Under FIFO, with decreasing costs, cost of goods sold will be higher and ending inventory will be lower and the ratio will be higher than it will be under LIFO. Days to sell is calculated as 365/inventory turnover and if the inventory ratio is higher, days to sell will be lower.
149. The following company buys and sells identical collectors' coin sets. The company uses LIFO. Each coin set is identified by its letter and its cost in the first two columns below. Column 3 indicates when coin sets were sold. For each inventory costing method given below, fill in the blanks to indicate the letter of the coin set which will be used to calculate either cost of goods sold or the cost of ending inventory.

PERIODIC INVENTORY: Inventory is taken on December 31, 2011.

This example shows the cost of the coin sets increasing over time. Using the symbols ">" (greater than), " = " (equals), or "<" (less than), complete the following comparisons by filling in the blanks in the statements below. Using LIFO with increasing costs, cost of goods sold under periodic inventory _____ cost of goods sold under perpetual inventory. Using LIFO with increasing costs, ending inventory under periodic inventory _____ ending inventory under perpetual inventory. Using LIFO with increasing costs, net income under periodic inventory _____ net income under perpetual inventory.
PERIODIC INVENTORY: Inventory is taken on December 31st, 2011. Cost of Goods Sold = H + G + F + E + D Ending inventory = A+ B + C PERPETUAL INVENTORY Cost of Goods Sold = D + E + C + G + F Ending inventory = A + B + H Using LIFO with increasing costs, cost of goods sold under periodic inventory > cost of goods sold under perpetual inventory. Using LIFO with increasing costs, ending inventory under periodic inventory< ending inventory under perpetual inventory. Using LIFO with increasing costs, net income under periodic inventory < net income under perpetual inventory.

150. Match whether the Inventory account is debited (Dr), credited (Cr), or neither (N) when using a perpetual inventory system to record each of the following transactions:
1. Cr     The company purchases $3,000 of goods intending to sell them to customers.     4
2. Cr     The company returns $200 of damaged goods to the supplier.     1
3. Cr     The company pays a shipping firm $685 to ship an order of goods from the supplier to the company.     4
4. Dr     The company receives a purchase discount for prompt payment to a supplier.     1
5. N     Customers return $550 of goods in excellent condition to the company.     4
6. Dr     The company sells $4,600 of goods to consumers.     1
7. N     The company purchases $1,600 of supplies intending to use them internally.     5
8. Cr     The company gives a sales discount for prompt payment to customers.     5
9. Dr     The company does a physical count and finds three items missing due to shrinkage.     1

56. Meanmocha Hardware has a periodic inventory system and uses the weighted average method. The company began the month of November with 150 large brass switch plates on hand at a cost of $4.00 each. These switch plates sell for $7.00 each. The following schedule sets forth the purchases of switch plates during November: If

If Meanmocha sells 570 switch plates for $7.00 each during November, what is the company's gross profit for November (rounded to the nearest dollar)?
A. $1,046.
B. $1,482.
C. $1,516.
D. $1,528.


57. If a company purchased 200 units of inventory at $9 per unit and 300 units at $10 per unit, its weighted average unit cost for this inventory would be:
A. $9.00.
B. $9.50.
C. $9.60.
D. $10.00.



58. The LIFO inventory costing method assumes that the cost of the units most recently purchased is: A. the last to be assigned to cost of goods sold.
B. the first to be assigned to ending inventory.
C. the first to be assigned to cost of goods sold.
D. not assigned to cost of goods sold or ending inventory


59. If the company uses the LIFO costing method, what is the cost of its ending inventory?
A. $1,365.
B. $1,494.
C. $1,620.
D. $2,835.



60. If the company uses the FIFO costing method, what is the cost of its ending inventory?
A. $1,494.
B. $2,290.
C. $2,580
.
D. $2,706



61. If the company uses the weighted average inventory costing method, what is the cost of its ending inventory?
A. $4,200.
B. $2,700.
C. $1,400.
D. $1,365.


62. Which inventory costing method generally results in the most recent costs being assigned to ending inventory?
A. LIFO.
B. FIFO.
C. Weighted average cost.
D. Simple average cost.


63. During 2010, Shockglass Company recorded inventory purchases of $45,000 and cost of goods sold of $50,000. If inventory at the beginning of the year was $15,000, the ending inventory balance must have been:
A. $10,000.
B. $25,000.
C. $26,000.
D. $27,000.



64. The 2011 records of Thompson Company showed beginning inventory, $6,000; cost of goods sold, $14,000; and ending inventory, $8,000. The cost of purchases for 2006 was:
A. $12,000.
B. $10,000.
C. $9,000.
D. $16,000.


65. Maxell Company uses the periodic FIFO method to assign costs to inventory and cost of goods sold. Given the following information, what would be reported as the cost of goods sold (COGS) and ending inventory balances for the period?

A. Option A
B. Option B
C. Option C
D. Option D


66. The Acme Corporation buys 300 units of merchandise in January at $5 each. Acme buys 500 units at $4 each in February and 200 units at $6 each in March. Acme sells 150 units during this quarter. Acme uses a periodic inventory system and had no beginning inventory. What is its cost of goods sold for the quarter using the LIFO method?
A. $600
B. $934
C. $750
D. $900


67. Acme sells 300 units during this quarter. If Acme uses the LIFO method, what is its cost of goods sold for the quarter?
A. $1,600
B. $1,400
C. $1,50
D. $1,800


68. Acme sells 150 units during this quarter. If Acme uses the weighted average method, what is its cost of goods sold for the quarter?
A. $600
B. $705
C. $750
D. $900


69. Which of the following statements is true?
A. When unit costs are steadily rising or falling, the weighted average cost method yields a cost of goods sold between that of FIFO and LIFO.
B. FIFO will lead to the highest net income if unit costs are falling.
C. LIFO will always yield a smaller net income than FIFO.
D. Specific identification is the most practical, but least accurate, measure of cost and net income


70. Which of the following statements is true with regard to all inventory costing methods?
A. The ending inventory balance and cost of goods sold move in the same direction.
B. The ending inventory balance and the cost of total assets move in the opposite direction.
C. The ending inventory balance and net income move in the same direction.
D. The ending inventory balance and net income move in the opposite direction



71. An adjustment to ending inventory under the lower of cost or market (LCM) rule would be least likely to be recorded by a company that sells:
A. a household staple like laundry detergent.
B. a fad product like bathing suits.
C. seasonal items like snow blowers.
D. high-tech goods like Personal Digital Assistants.


72. An adjustment to ending inventory under the lower of cost or market (LCM) rule would be most likely to be recorded by a company that sells:
A. Plastic storage containers.
B. Paper clips.
C. Body lotion.
D. Designer clothes.


73. When the lower of cost or market (LCM) rule requires an inventory adjustment:
A. the adjustment usually, but not always, reduces the book value of inventory.
B. the write-down is usually reported as a part of cost of goods sold.
C. the inventory adjustment is recorded in a contra-revenue account called sales allowances.
D. the write-down does not affect any of the financial statements.


74. Your company has 500 units in inventory that had been purchased for $12 each and that would currently cost $15 to replace. Your supplier has just announced the cost of these goods is rising to $16.50.
A. Your company should make no adjustments to the inventory account.
B. Your company should adjust the inventory account using the lower of the recent market values, which is $15.
C. Your company should adjust the inventory account using the higher of the recent market values, which is $16.50.
D. Your company should adjust the inventory account using the average of the recent market values, which is $14.50.


75. Your company has 100 units in inventory, purchased at $16 per unit, that could be replaced for $14.
A. The company should credit cost of goods sold for $200.
B. The company should debit revenue for $200.
C. The company should credit inventory for $200.
D. The company should debit inventory for $200.






76. If the market value of goods in inventory falls to $26,000 below its cost, the company should:
A. do nothing, because assets are reported at their original purchase price.
B. credit inventory for $26,000.
C. debit inventory for $26,000 and credit accrued liabilities for $26,000.
D. use the weighted average cost method since that method provides a more accurate indicator of current value.


77. When the replacement cost of inventory drops below the cost recorded in the financial records, applying the lower of cost or market (LCM) rule causes:
A. a decrease in cost of goods sold.
B. no change in net income, other things being equal.
C. a reduction in the book value of total assets.
D. an increase in net income


78. The process of buying and selling inventory is known as inventory:
A. circulation.
B. cost management.
C. turnover.
D. asset allocation


79. Inventory levels increase by 10% at your company during the fourth quarter. Based on this increase, which of the following statements is true?
A. This is always good news because inventories are an asset to the company.
B. This could be good news if the company is ordering more goods because sales appear to be rising. C. This could be bad news if the company is ordering more goods because unit costs are falling.
D. This is always bad news because higher inventories mean higher costs.


80. For a manufacturer, inventory turnover refers to how many times:
A. during the period the company replaces the raw materials inventory.
B. the company buys and sells its inventory of goods.
C. the company produces and delivers its inventory of goods to customers.
D. the company orders raw materials.





81. For a merchandiser, inventory turnover refers to how many times:
A. during the period the company replaces its raw materials inventory.
B. the company buys and sells its inventory of goods.
C. the company produces and delivers its inventory of goods to customers.
D. the company orders inventory.


82. A rising balance in the inventory account and a falling inventory turnover ratio implies that the inventory build up is occurring because:
A. goods are not selling as fast as they were in the past.
B. the company is expecting to sell more in the future.
C. goods are selling, but it is taking longer to collect payment.
D. goods cannot be shipped fast enough.


83. A rising balance in the inventory account and a rising inventory turnover ratio would imply that the inventory build up is occurring because:
A. goods are not selling as fast as anticipated.
B. the company is expecting to sell more in the future.
C. goods are selling but it is taking longer to collect payment.
D. goods cannot be shipped fast enough.


84. What is the inventory turnover ratio (rounded to one decimal place)?
A. 12.5
B. 13.4
C. 14.7
D. 2.2


85. How long on average does it take to sell something from inventory after it is purchased?
A. 12.5 days
B. 24.8 days
C. 29.2 days
D. 165.9 days



86. Which of the following companies would be least concerned about a low inventory turnover ratio?
A. A fish market selling fresh fish.
B. A hardware company selling drywall screws.
C. A dairy company selling butter and milk.
D. A semiconductor company selling microchips.

87. Which of the following would cause the greatest increase in a company's inventory turnover ratio?
A. Keeping the same amount of inventory on hand while unit sales are increasing.
B. Increasing the amount of inventory on hand while unit sales are increasing.
C. Keeping the same amount of inventory on hand while unit sales are decreasing.
D. Decreasing the amount of inventory on hand while unit sales are increasing.


88. An increasing inventory turnover ratio indicates:
A. longer time span between the ordering and receiving of inventory.
B. shorter time span between the ordering and receiving of inventory.
C. shorter time span between the purchase and sale of inventory.
D. longer time span between the purchase and sale of inventory.


89. Which of the following would not be affected by the choice of an inventory costing method (that is between FIFO, LIFO, weighted average, and specific identification)?
A. Net sales
B. Cost of goods sold
C. Gross profit
D. Net income


90. Which of the following statements is true?
A. FIFO results in a lower net income than LIFO when costs are increasing.
B. LIFO results in a higher net income than FIFO when costs are increasing.
C. LIFO results in a higher net income than FIFO when costs are decreasing.
D. LIFO results in the same net income as FIFO when costs are increasing.


1.    A company should always keep extra inventory on hand; it could be needed if demand increases and it has to be bought sooner or later so it adds nothing to cost. FALSE
2.    If inventory is sold with terms of FOB destination, the goods belong to the seller until they reach their destination. TRUE
3.    Inappropriate inventory levels reduce a company's net income, either by increasing cost or reducing revenue. TRUE
4. Merchandisers have inventories of finished goods only; manufacturers have inventories of   raw materials only. FALSE
5. Most changes in sales revenue have no effect on cost of goods sold. FALSE

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1. When the amount of accounts receivable written off in the current period exceeds the amount estimated as bad debts in the previous accounting period, the company is required to go back and change their financial statements for the prior period.
2. The aging of accounts receivable method is based upon the principle that the longer an account is overdue, the higher the risk of nonpayment.
3. Other things being equal, a two-year note receivable should yield more interest revenue than a one-year note.
4. The principal of a notes receivable depends on the maturity date.
5. The receivables turnover ratio is calculated using the average net receivables.

6. Allowance for doubtful accounts is a temporary account which is closed to retained earnings at the end of the accounting period.
7. In normal circumstances, the allowance for doubtful accounts for a company should be a fairly consistent percentage of gross accounts receivable.
8. The accounts receivable account for each customer is called a subsidiary account.
9. If the receivables turnover ratio rises significantly, the increase may be a signal that the company is extending credit to high-risk borrowers or allowing an overly generous repayment schedule.
10. If a company factors its receivables, its receivables turnover ratio will be lower than it would have been if the receivables had not be factored.
11. Credit sales are recorded by crediting an accounts receivable for a specific customer.
12. When credit card sales occur, the seller may either debit Cash or debit Accounts Receivable depending upon when the credit card company pays the seller.
13. Credit card companies charge a fee to the seller that accepts the credit cards and this fee is recorded by the seller as a non-operating expense on the Income Statement.
14. The use of the Allowance method is required under the matching principle.
15. The direct write off method is better than the allowance method because it is more consistent with the conservatism principle.
16. The process of using accounts receivable as security for a loan is called factoring. FALSE17. Interest Revenue from notes receivable is reported on a multistep income statement as a part of Income from Operations.
17. Interest Revenue from notes receivable is reported on a multistep income statement as a part of Income from Operations.
18. When the allowance method is used, a write-off of a specific account will not change the amount of net accounts receivable.
19. The allowance method is used for accounts receivable but not for notes receivable.
20. The direct write-off method is a method of accounting for bad debts that is approved by the IRS.
21. Neither GAAP nor IFRS allow the use of the direct write-off method.
22. The aging of accounts receivable method, also called the balance sheet approach, estimates uncollectible accounts based on the age of each account receivable.
23. The percentage of credit sales method, also called the income statement approach, estimates bad debts based on a historical percentage of sales that lead to bad debt losses.
24. Factoring refers to an arrangement in which a company sells its receivables to another company called a factor and receives cash, less a fee, immediately.
25. The direct write-off method is not allowed by GAAP because is ignores the conservatism concept and the matching principle.
26. Which of the following statements regarding the tradeoffs of extending credit is not true?
A. Extending credit to at least some customers is necessary in a competitive market to avoid losing sales to competitors.
B. Even if a company were to collect in full from customers, there would be a cost of extending credit to customers.
C. Even though additional costs are incurred if credit is extended, a company expects that the additional revenue will be more than sufficient to offset the additional costs
D. Even if there are no bad debts from credit sales, the delayed receipt of cash will always increase additional costs beyond the increased revenue from the credit sales.
27. Which of the following statements regarding allowance for doubtful accounts is true?
A. Under the aging of accounts receivable method, bad debt expense is calculated and then added to the beginning balance in the allowance for doubtful accounts.
B. The allowance for doubtful accounts is a contra-revenue account.
C. The allowance for doubtful accounts is credited when a specific write-off is recorded.
D. The allowance for doubtful accounts has a normal credit balance.
28. Which of the following statements regarding methods of accounting for bad debts is true?
A. When the allowance method is used, the journal entry to write-off an uncollectible account does not change the amount reported as net accounts receivable on the balance sheet.
B. The two methods of accounting for bad debts that are acceptable under GAAP are the allowance method and the direct write-off method.
C. When the allowance method is used, if actual results differ from the estimates, the prior year financial statements must be corrected.
D. When the allowance method is used, bad debt expense is equal to the write-offs that occurred during the period.
29. Which of the following statements regarding the recording of interest on notes receivable is true?
A. Interest on notes receivable is recorded as revenue only when the cash is received.
B. When a company receives an interest payment on a note, the entire payment is recorded as revenue when received.
C. Interest on notes receivable is recognized when it is earned which is not necessarily when the interest is received in cash.
D. Interest earned but not yet received must be recorded in an adjusting entry which includes a debit to interest revenue.

30. Which of the following statements regarding the receivables turnover ratio is true?
A. The receivables turnover ratio indicates how many times, on average, the process of selling to and collecting from customers occurs during the accounting period.
B. Companies of similar size operating in the same country tend to have similar receivables turnover ratios.
C. A high turnover ratio may suggest the company is allowing too much time for customers to pay.
D. The receivables turnover ratio is used to calculate the days to collect by dividing the turnover ratio by 365 days.

31. Which of the following statements regarding the interpretation of the receivables turnover ratio is not true?
A. Analysts often interpret a sudden increase in the receivables turnover ratio as a signal of a developing problem.
B. The smaller the receivables turnover ratio the larger the days to collect will be.
C. A change in the receivables turnover ratio may indicate a change in the company's credit granting policies. D. A change in the receivables turnover ratio may indicate a change in economic conditions.
32. A company extends credit to customers because it expects the:
A. rise in sales revenue to be greater than the rise in cost of extending credit.
B. delay in receiving cash to cost more than the increase in wage costs.
C. tax savings from a lower net income to be greater than the cost of extending credit.
D. bad debts expense to be less than the additional wage costs.
33. If a company did not extend credit to customers:
A. gross revenue would rise.
B. costs would rise but so would its revenue.
C. costs would fall but so would its revenue.
D. gross profit would rise.
34. Extending credit to customers will not result in which of the following additional costs?
A. Increased wage costs will be incurred to evaluate customer creditworthiness, track what each customer owes, and follow up to ensure correction.
B. Bad debt expense will result when amounts cannot be collected from customers.
C. Delayed receipt of cash may result in requiring the company to take out short-term loans and incur interest costs.
D. Additional bad debt expense will result from national credit card sales.

35. The Grass is Greener Corporation is owed $11,890 by a client for landscaping. The account is overdue and the client is having difficulty paying. Why might the Grass is Greener Corporation extend a note receivable to the client?
A. The loan will decrease the net income of the Grass is Greener Corporation for the current accounting period.
B. The loan will strengthen the Grass is Greener Corporation's legal right to be repaid with interest.
C. The loan will reduce the tax liability for the Grass is Greener Corporation.
D. The loan will eliminate any doubts of collection of the amount due.



36. Companies are concerned about the cost of extending credit for all the following reasons except:
A. the time delay in receiving payment.
B. the expense of the extra goods that must be produced or bought.
C. the risk of nonpayment.
D. the administrative costs associated with extending credit.
37. Assume the Mirtha Company had the following balances at year-end.

Assume the company recorded no write-offs or recoveries during 2012. What was the amount of bad debt expense reported in 2012?
A. $79,000.
B. $64,600.
C. $28,800.
D. $14,400.
38. Purrfect Pets sells a $1,500 aquarium to a customer on account. This would be recorded by an entry that includes a:
A. debit to Accounts Receivable.
B. debit to Cash.
C. debit to Sales.
D. credit to Cost of Goods Sold.
39. The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month. Experience suggests that about 2% of net credit sales will not be collected. According to the revenue recognition principle and the matching principle, the company should:
A. record an estimate of bad debt expense in the same period as the lawn care is provided.
B. not report the sales revenue until it collects payment.
C. increase the value of its liabilities with an adjustment.
D. wait until the accounts are determined to be uncollectible before making an entry for bad debt expense.

40. An allowance for doubtful accounts is a contra-account paired with:
A. expenses.
B. cash.
C. net income.
D. accounts receivable. 




41. The Grass is Greener Corporation provides $6,000 worth of lawn care on account during the month. Experience suggests that about 2% of net credit sales will not be collected. To record the potential bad debts, The Grass is Greener Corporation would:
A. debit Accounts Receivable and credit Allowance for Doubtful Accounts for $120.
B. debit Allowance for Doubtful Accounts and credit Bad Debt Expense for $120.
C. debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $120.
D. debit Bad Debt Expense and credit Accounts Receivable for $120.
42. The Grass is Greener Corporation uses the allowance method and learns that a customer who owes $350 has gone bankrupt and payment will not be made. The Grass is Greener Corporation should:
A. debit Bad Debt Expense and credit Accounts Receivable for $350.
B. debit the Allowance for Doubtful Accounts and credit Accounts Receivable for $350.
C. debit Bad Debt Expense and credit Cash for $350.
D. debit Accounts Receivable and credit Bad Debt Expense for $350.
43. When an adjusting entry is made in anticipation of some receivables being uncollectible, the adjustment reduces:
A. both net income and net accounts receivable.
B. net income and increases liabilities.
C. net accounts receivable and increases liabilities.
D. net income and selling expenses.
44. Over the past five years, a company had average annual credit sales of $320,000 and write-offs this year of $2,000. Credit sales in the current year are $300,000. The balance in the Allowance for Doubtful Accounts is a $500 credit. Using the percentage of credit sales method, and an estimate of 1%, what amount should the company record as an estimate of bad debt expense?
A. $2,000
B. $3,000
C. $3,500
D. $1,500
45. When a company that uses the allowance method writes off an actual bad debt:
A. total assets decrease.
B. total liabilities increase.
C. total expenses increase and total revenues increase.
D. total assets, revenue, and expenses remain the same.




46. The unadjusted balance of the allowance for doubtful accounts of Johnstone Supplies, Inc., is a credit balance in the amount of $28,947 on July 31, 2011. Based on the accounts receivable aging report, bad debt expense will be:
A. $34,012.
B. $5,065.
C. $62,959.
D. $50,434.
46. The unadjusted balance of the allowance for doubtful accounts of Johnstone Supplies, Inc., is a credit balance in the amount of $28,947 on July 31, 2011. Based on the accounts receivable aging report, bad debt expense will be:
. $34,012.
B. $5,065.
C. $62,959.
D. $50,434.
48. Your company wrote off $350 in accounts receivable two months ago when a customer went bankrupt. That customer reorganizes and now pays the $350. Your company should:
A. debit Bad Debt Expense and credit Cash.
B. debit Accounts Receivable and credit Bad Debt Expense and then debit Allowance for Doubtful Accounts and credit Cash.
C. debit Cash and credit Bad Debt Expense
D. debit Accounts Receivable and credit Allowance for Doubtful Accounts and then debit Cash and credit Accounts Receivable.
49. Net accounts receivable is:
A. gross accounts receivable minus cost of goods sold.
B. also known as net pretax income.
C. gross accounts receivable minus allowance for doubtful accounts.
D. also known as net after-tax income
50. Your company previously averaged about 20% of its total accounts receivable in the "over 90 days past due" category and now has 35% in this category. All else equal, using the aging of accounts receivable method, the amount of the bad debt adjustment will:
A. fall, increasing the ending balance of the allowance account.
B. rise, increasing the ending balance of the allowance account.
C. fall, decreasing the ending balance of the allowance account.
D. rise, decreasing the ending balance of the allowance account





51. On average, 5% of credit sales has been uncollectible in the past. At the end of the year, the balance of accounts receivable is $100,000 and the allowance for doubtful accounts has an unadjusted credit balance of $500. Net credit sales during the year were $150,000. Using the percentage of credit sales method, the estimated bad debt expense would be:
A. $5,000.
B. $7,000.
C. $7,500.
D. $8,000
52. On average, 5% of total accounts receivable has been uncollectible in the past. At the end of the year, the balance of accounts receivable is $100,000 and the allowance for doubtful accounts has an unadjusted credit balance of $500. Credit sales during the year were $150,000. Using the aging of accounts receivable method, the estimated bad debt expense would be:
A. $4,500.
B. $5,000.
C. $5,500.
D. $7,500.
53. On average, 5% of total accounts receivable has been uncollectible in the past. At the end of the year, the current balance of accounts receivable is $100,000. The allowance for doubtful accounts has an unadjusted debit balance of $500. Credit sales during the year were $150,000. The estimated bad debt expense is:
A. $4,500.
B. $5,000.
C. $5,500.
D. $7,000.
54. Before adjustment, the allowance for doubtful accounts has a credit balance of $2,700. The company had $140,000 of net credit sales during the period and historically fails to collect 4% of credit sales. The company uses the percentage of credit sales method of estimating doubtful accounts. After adjusting for estimated bad debts, the new balance in the allowance for doubtful accounts account will be:
A. $8,300.
B. $5,400.
C. $2,900.
D. $5,600
55. During the year, a company that uses the allowance method concludes that $6,844 of specific customer accounts will not be collected. These are written off by:
A. debiting Accounts Receivable and crediting Allowance for Doubtful Accounts for $6,844.
B. debiting Accounts Receivable and crediting Bad Debt Expense for $6,844.
C. debiting Bad Debt Expense and crediting Accounts Receivable for $6,844.
D. debiting Allowance for Doubtful Accounts and crediting Accounts Receivable for $6,844.







56. Your company has previously averaged about 26% of its accounts receivable in the "over 90 days past due" category but now forecasts 18% in this category. You use the aging of accounts receivable method of estimating bad debt expense. If the total of credit sales remains unchanged from previous months and no write offs are made, the estimate of bad expense based on the new forecast will:
A. increase over the estimate for previous months.
B. decrease over the estimate for previous months.
C. not change.
D. will depend on the percentage of credit sales deemed uncollectible.
57. The beginning credit balance in the allowance for doubtful accounts is $12,656 and the ending credit balance is $14,348. If bad debt expense was $3,879, which of the following statements is true?
A. The allowance account was retroactively debited $2,187 for additional bad debts that became apparent in a future time period.
B. The allowance account was debited $2,187 for write-offs of actual bad debts.
C. The allowance account was credited $2,187 for recoveries of bad debts.
D. The allowance account was credited $2,187 for the difference between the percent of credit sales method and the aging of accounts receivable method.
58. When a company makes an adjustment in anticipation of future uncollectible debt:
A. it debits an asset account and credits a liability account.
B. it debits a revenue account and credits an asset account.
C. it debits a revenue account and credits an expense account
D. it debits an expense account and credits a contra-asset account.
59. If an uncollectible account, previously written off, is recovered:
A. net accounts receivable increases.
B. net accounts receivable decreases.
C. net accounts receivable stays the same.
D. total revenues increase.
60. Your company uses the percentage of credit sales method for calculating bad debt expense. If your company has $216,000 in total sales, of which $178,000 are on credit, and its historical bad debt loss is 6% of credit sales, bad debt expense is:
A. $12,960.
B. $10,680.
C. $38,000.
D. $11,000








61. To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a debit to:
A. Accounts Receivable and a credit to Allowance for Doubtful Accounts.
B. Bad Debt Expense and a credit to Allowance for Doubtful Accounts.
C. Allowance for Doubtful Accounts and a credit to Accounts Receivable.
D. Loss on Credit Sales and a credit to Accounts Receivable
62. On the balance sheet, the allowance for doubtful accounts:
A. is included in current liabilities.
B. increases the reported net value of accounts receivable.
C. appears under the heading "Other Assets."
D. is deducted from accounts receivable.
63. The amount of uncollectible accounts at the end of the year is estimated to be $25,000, using the aging of accounts receivable method. The balance in the Allowance of Doubtful Accounts account is an $8,000 credit before adjustment. What should the account balance in the Allowance for Doubtful Accounts be after adjustment?
A. $8,000.
B. $17,000.
C. $25,000.
D. $33,000.
64. The amount of uncollectible accounts at the end of the year is estimated to be $25,000 using the aging of accounts receivable method. The balance in the Allowance of Doubtful Accounts account is an $8,000 credit before adjustment. Assuming no accounts are written off during the period, what will be the amount of bad debt expense for the period?
A. $8,000.
B. $17,000.
C. $25,000.
D. $33,000.
65. In 2011, Lawrence Company had gross sales of $750,000 on account and granted sales discounts of $15,000. On January 1, 2011, the Allowance for Doubtful Accounts had a credit balance of $18,000. During 2011, $30,000 of uncollectible accounts receivable were written off. Past experiences indicate that 3% of net credit sales become uncollectible. Using the percentage of credit sales method, what would be the adjusted balance in the Allowance for Doubtful Accounts at December 31, 2011?
A. $10,050.
B. $10,500.
C. $22,050.
D. $34,500.










66. Plasma Inc., has net credit sales of $500,000 during the year. Based on historical information, Plasma estimates that 2% of net credit sales result in bad debts. At the beginning of the year, Plasma has a credit balance in its Allowance for Doubtful Accounts of $4,000. What amount of bad debt expense should Plasma recognize for the year, assuming no specific customer accounts were written off?
A. $4,000.
B. $6,000.
C. $10,000.
D. $14,000.
67. As of December 31, Frappa Company has a balance of $5,000 in accounts receivable. Of this amount, $500 is past due and the remainder is not yet due. Frappa has a credit balance of $45 in the allowance for doubtful accounts. Frappa Company estimates its bad debt losses using the aging of receivables method, with estimated bad debt loss rates equal to 1% of accounts not yet due and 10% of past due accounts. How would the required adjusting journal entry be recorded in the Allowance for Doubtful Accounts?
A. $95 (credit).
B. $55 (credit).
C. $50 (credit).
D. $45 (debit).
68. Total doubtful accounts at the end of the year are estimated to be $25,000 based on an aging of accounts receivable. If the balance in the Allowance for Doubtful Accounts is a $7,000 debit before adjustment, what will be the amount of bad debt expense recorded for the period? A. $7,000.
B. $18,000.
C. $25,000.
D. $32,000.
69. In reviewing the accounts receivable, the net receivables value is $17,000 before writing off a $1,500 account. What is the net receivables value after the write-off?
A. $17,000.
B. $1,500.
C. $18,500.
D. $15,500.
70. IBM signs an agreement to lend one of its customers $200,000 to be paid back in one year at 5.5% interest. IBM would record this loan as:
A. loans payable.
B. accounts receivable.
C. notes receivable.
D. unearned revenue.











71. In the interest formula, the interest rate is on a(n) _____ basis; therefore, the time variable must reflect how many _____ out of _____ in the interest period.
A. biannual, months, 6
B. annual, years, 1
C. biannual, half-years, 2
D. annual, months, 12
72. On January 1, a company lends a corporate customer $80,000 at 6% interest. The amount of interest revenue that should be recorded for the first quarter is:
A. $4,800.
B. $1,200.
C. $400.
D. $1,600.
73. When a company lends cash to a customer who signs a promissory note:
A. net income decreases for the current accounting period, but increases when the money is repaid.
B. expenses increase in the current accounting period but revenues increase when the money is repaid.
C. liabilities increase when the transaction occurs but decrease when the money is repaid.
D. net assets and net income do not change when the transaction occurs.
74. When interest is calculated for periods shorter than a year, the formula to calculate interest is:
A. I = P x R x T, where I = interest calculated, P = principal, R = annual interest rate, and T = number of months.
B. I = P x R x T, where I = interest calculated, P = principal, R = annual interest rate, and T = (number of months ? 12)
C. I = P x R x T, where I = interest calculated, P = principal, R = monthly interest rate, and T = (number of months ? 12).
D. I = (MV - P)/T, where I = interest calculated, MV = maturity value, P = principal and T = number of months.
75. A company lends its CEO $150,000 for 3 years at a 6% annual interest rate. Interest payments are to be made twice a year. Each interest payment will be for:
A. $9,000.
B. $750.
C. $4,500.
D. $1,500.












76. A company lends its CEO $150,000 for 3 years at a 6% annual interest rate. Interest payments are to be made twice a year. The company initially records the transaction by:
A. debiting Notes Receivable for $150,000 and crediting Cash for $150,000.
B. debiting assets for $150,000 and crediting liabilities for $150,000.
C. debiting Cash for $9,000 and crediting Interest Revenue for $9,000.
D. debiting Interest Receivable for $4,500 and crediting Interest Revenue for $4,500.
77. A company lends a major client $90,000 for one year at a 7% annual interest rate. Interest payments are to be made twice a year but the company wants to recognize interest earned on a monthly basis. On a month in which the company does not receive any interest payments, interest is recorded with:
A. a debit to Cash of $525 and a credit to Interest Revenue of $525.
B. a debit to Notes Receivable of $525 and a credit to Cash of $525.
C. a debit to Interest Receivable of $525 and a credit to Interest Revenue of $525.
D. no adjusting entry, since no transaction has occurred.
78. A company lends a major client $90,000 for one year at a 7% annual interest rate. Interest payments are to be made twice a year, and interest is accrued monthly. In July, the company receives an interest payment for January through June. The company would record receipt of the interest payment in which of the following ways?
A. Debit Interest Receivable for $3,150 and credit Interest Revenue for $3,150.
B. Debit Cash for $3,150 and credit Notes Receivable for $3,150.
C. Debit Interest Revenue for $3,150 and credit Cash for $3,150.
D. Debit Cash for $3,150 and credit Interest Receivable for $3,150.
79. Company A lends $100,000 to Company B. The interest on the loan is reported:
A. as an expense to Company A and a revenue to Company
B. B. as an asset to Company A and a revenue to Company B.
C. as an asset to Company B and a liability to Company A.
D. as an expense to Company B and a revenue to Company A.

80. On January 31, 2011, Purrfect Pets receives a $4,680 interest payment on a note receivable representing two months of accumulated interest. One month of this interest accrued and was recorded during the year ended December 31, 2010. Upon receiving the payment, the company would:
A. debit Interest Receivable for $2,340, debit Cash $2,340, and credit Interest Revenue for $4,680.
B. debit Cash for $4,680, credit Interest Revenue for $2,340, and credit Interest Receivable for $2,340.
C. debit Cash for $2,340, debit Interest Receivable for $2,340, and credit Interest Revenue for $2,340.
D. debit Interest Revenue for $2,340 and credit Cash for $2,340














81. Your company lent a customer $5,000 to satisfy the customer's overdue accounts receivable. The loan is for one year at an annual interest rate of 5%. Six months later the customer repays the principal and interest. The principal part of the repayment should be recorded as a:
A. debit to Cash and credit to Notes Receivable.
B. debit to Notes Receivable and credit to Interest Revenue.
C. debit to Cash and credit to Accounts Receivable.
D. debit to Allowance for Bad Debts and credit to Cash.
82. Dry Corporation cannot pay off its account with Bone Corporation on a timely basis. Bone Corporation issues a $2,000, 3-month, 12% promissory note to Dry Corporation in settlement of an open accounts receivable. What entry will Bone Corporation make upon issuance?

A.    Option A
B. Option B
C. Option C
D. Option D
83. Preston Corporation issues a $3,000 note to Fulton Corporation on March 1, which carries interest at an annual rate of 5%. Interest is payable when the note matures on June 30. What entry will Fulton make at its year-end, April 30, if interest on the note has not previously been accrued?

A.    Option A
B. Option B
C. Option C
D. Option D
84. On July 1, 2011, Icespresso Inc. signed a two-year $8,000 note receivable with 9 percent interest. At its due date, July 1, 2013, the principal and interest will be received in full. Interest revenue should be reported on Icepresso's income statement for the year ended December 31, 2011, in the amount of:
A. $1,440.
B. $720.
C. $420.
D. $360.
85. Generous Inc. lends Blue Inc. $40,000 on April 1, accepting a four-month, 4.5% interest-bearing note. Generous Inc. prepares financial statements on April 30. What adjusting entry should be made by Generous Inc. before its financial statements are prepared?

A.    Option A
B. Option B
C. Option C
D. Option D
















86. Which of the following is true?
A. Accounts receivable fall as companies sell on credit.
B. Accounts receivable rise as companies receive payment.
C. Receivables turnover refers to how fast receivables are collected.
D. Days to Collect will increase as the receivables turnover increases
87. Using the allowance method, how would net income and the accounts receivable turnover ratio be affected when a customer's account balance, which is known to be uncollectible, is written off?

A.    Option A
B. Option B
C. Option C
D. Option D
88. A high accounts receivable turnover ratio indicates:
A. the company's sales are increasing.
B. a large proportion of the company's sales are on credit.
C. customers are making payments very quickly.
D. the company is taking longer to sell inventory.
89. Momentum Products Inc., just recorded an adjusting journal entry for the current year's estimate of bad debts. Assuming all else is equal, this adjusting journal entry will cause:
A. the accounts receivable turnover ratio to increase.
B. net income to increase.
C. total assets to remain unchanged.
D. net accounts receivable to increase.
90. Receivables might be sold ("factored") to:
A. lengthen the time to collect from customers.
B. reduce the receivables turnover ratio.
C. generate cash quickly.
D. generate a gain on sale.

















91. The receivables turnover ratio is calculated as:
A. the average number of days from the time a sale is made on account to the time cash is collected.
B. the average number of days from the time a sale is made on account to the time payment is due.
C. how many times a year receivables go uncollected.
D. how many times, on average, the process of selling and collecting is repeated during the period.
92. The days-to-collect measure is calculated as:
A. the number of days an average selling and collecting cycle takes.
B. the average number of times the firm completes the selling and collecting cycle during the year.
C. the average number of days for a customer's payment to clear the banking system.
D. the average number of days before the company receives a customer's payment and uses the cash to re-order merchandise.
93. Which of the following statements is not true?
A. The receivables turnover ratio indicates the average number of times the company completes the selling and collecting cycle during the year.
B. The days-to-collect measure is 365 days divided by the receivables turnover ratio.
C. The receivables turnover ratio and days-to-collect measure move in opposite directions.
D. A high receivables turnover ratio means a slower turnover.
94. Your company has net sales of $468,300 and average trade receivables of $111,500 for the year. Which of the following is true?
A. The receivables turnover ratio is 4.2 and the days-to-collect is 0.012.
B. The receivables turnover ratio is .24 and the days-to-collect is 1,520.
C. The receivables turnover ratio is 4.2 and the days-to-collect is 86.9.
D. The receivables turnover ratio is .24 and the days-to-collect is 87.6.
95. At the end of the first year, the Treadwell Tire Company had net accounts receivable of $67,900 and at the end of the second year the company had net accounts receivable of $72,400. If the company's net sales revenue during the second year was $876,875, the receivables turnover ratio for the second year was:
A. 12.5.
B. 29.2.
C. 0.08.
D. 0.034.


















96. At the end of the third year, the Treadwell Tire Company had accounts receivable of $66,600, and at the end of the fourth year, the company had accounts receivable of $72,600. If the company's net sales revenue during the fourth year were $876,000, the days to collect during year four was (rounded to one decimal place):
A. 12.6
B. 29.0
C. 8.0
D. 34.0
97. The Grass is Greener Corporation's receivables turnover ratio decreases from 14.1 to 11.8. Which of the following statements is true?
A. This indicates that the company is taking longer to collect credit payments.
B. This is an indication that the company is experiencing falling credit costs.
C. This could be an indication that the company is using more efficient collection methods.
D. This is an indication that the company is buying and selling financial assets less rapidly
98. The receivables turnover ratio of Purrfect Pets, Inc. increases from 10.2 to 13.6. Which of the following statements is true?
A. This indicates that the company is taking longer to collect credit payments.
B. This is an indication that the company is experiencing rising credit costs.
C. This could be an indication that the company is using more efficient collection methods.
D. This is an indication that the company is buying and selling financial assets more rapidly.
99. The days to collect increases from 32 to 48. Which of the following statements is true?
A. The company is likely to see its bad debt expense fall.
B. The receivables turnover rate rises by 50%.
C. The company is becoming more efficient at collecting payment.
D. The receivables turnover rate falls from approximately 11.4 to 7.6.

100. All other things equal, a company is better off when it's receivable turnover ratio:
A. and its days-to-collect measure are both low.
B. is high and its days-to-collect measure is low.
C. and its days-to-collect measure are both high.
D. is low and its days-to-collect measure is high.



















101. If a company is overly optimistic about debt collection, the company will understate bad debt expense and:
A. overstate net income; and days to collect will fall.
B. overstate net income; but days to collect will rise.
C. understate net income; and days to collect will rise.
D. understate net income; and days to collect will fall.
102. If a company attempts to artificially inflate current sales and net income by shipping goods that have not been ordered, we would expect that the receivables turnover ratio will:
A. rise and the days-to-collect will rise, all other things equal.
B. rise and the days-to-collect will fall, all other things equal.
C. fall and the days-to-collect will fall, all other things equal.
D. fall and the days-to-collect will rise, all other things equal.
103. Companies A and B both report net income growth of 12% per year. Company A has a receivables turnover ratio of 5.6, which is smaller than its previous year. Company B has a receivables turnover ratio of 11.3, which is higher than its previous year. All other things equal: A. Company A appears to be better managed.
B. Company A will have the lower days-to-collect measure.
C. Company B appears to be better managed.
D. Company B's days-to-collect measure is rising.
104. The direct write-off method:
A. ignores the matching principle.
B. is an acceptable alternative method of recognizing bad debt expense under GAAP.
C. results in higher bad debt expense for most companies.
D. may only be used by companies that do not extend credit to their customers.

105. The following information is available for a company at the end of the year:

What was the amount of write-offs during the year?
A. $62,000
B. $0
C. $55,000
D. $40,000




















106. Pepsi had an accounts receivable turnover ratio of 9.9 this year and 11.0 last year. Coke had a turnover ratio of 9.3 this year and 9.3 last year. This implies
A. Coke had a better receivables turnover for both years.
B. Pepsi had a better receivables turnover for both years.
C. Coke has credit policies that need to be tightened.
D. Coke collected receivables more quickly than Pepsi in both years.
107. The journal entry to record the write-off on May 1 would include which of the following?
A. Debit to Bad Debt Expense and credit to Allowance for Doubtful Accounts
B. Debit to Accounts Receivable and credit to Allowance for Doubtful Accounts
C. Debit to Allowance for Doubtful Accounts and credit to Bad Debt Expense
D. Debit to Allowance for Doubtful Accounts and credit to Accounts Receivable
108. The required entry(ies) on May 29 to record the recovery is:

A.    Option A
B. Option B
C. Option C
D. Option D
109. A company's unadjusted trial balance at the end of the year includes the following

The company uses the allowance method and has completed the aging schedule which indicates $5,800 of accounts are estimated uncollectible. What is the amount of bad debt expense to be recorded for the year?
A. $5,800
B. $4,800
C. $6,800
D. $7,800
110. The unadjusted trial balance at the end of the year includes the following:

The company uses the allowance method and has completed the aging schedule which indicates $5,800 of accounts are estimated uncollectible. What is the amount of bad debt expense to be recorded for the year?
A. $5,800
B. $4,800
C. $6,800
D. $7,800





















111. Which of the following statements is true concerning the allowance for doubtful accounts? A. The allowance for doubtful accounts is a contra-revenue account.
B. The allowance for doubtful accounts has a normal debit balance.
C. The allowance for doubtful accounts is not used in the direct write-off method.
D. The allowance for doubtful accounts is reported on the Income Statement.
112. A company uses the percentage of credit sales method to estimate bad debt expense. At the end of the year, the company's unadjusted trial balance includes the following:

The company estimates, based on historical bad debt losses, that 0.5% of the sales will be uncollectible. What is the bad debt expense to be recorded for the year?
A. $4,500
B. $4,300
C. $4,700
D. $5,000
113. The entry made by the company to record this loan to the employee will include a:
A. Debit to Accounts Receivable for $10,000.
B. Credit to Sales for $10,000.
C. Debit to Notes Receivable for $10,000.
D. Credit to Notes Payable for $10,000.
114. What is the total amount of interest on this note?
A. $900
B. $450
C. $0
D. $2,700
115. If the company is preparing financial statements 3 months after this transaction, what is the necessary adjusting entry?

A. Option A
B. Option B
C. Option C
D. Option D






















116. What is the amount due on the maturity date of a $5,000, 3-month, 10% note receivable? A. $5,125
B. $5,500
C. $6,500
D. $5,000
117. On December 1, 2010, a company accepted a $6,000, 9%, 3-month note from a customer in payment of his overdue account. The company prepares year-end financial statements on December 31. What entry should the company make on March 1, 2011, when the note and interest are paid?

A.    Option A
B. Option B
C. Option C
D. Option D
118. Assuming the company estimates bad debts as 1.3% of credit sales, what is the required adjusting entry to record bad debt expense for the year?

A.    Option A
B. Option B
C. Option C
D. Option D
119. Assuming the company uses the aging of receivables method and estimates the uncollectible amount at 5% of accounts receivable, what is the required adjusting entry to record bad debt expense for the year?

A.    Option A
B. Option B
C. Option C
D. Option D
120. Assuming the entry to record bad debt expense was $8,250, what is the balance in the allowance for doubtful accounts after this entry was made?
A. $6,850
B. $8,250
C. $9,650
D. $1,150

























121. A company uses the direct write-off method and discovers a customer's account in the amount of $3,000 will not be paid because the customer has declared bankruptcy. What is the journal entry that would be made to record this write-off?

A. Option A
B. Option B
C. Option C
D. Option D
122. What is the annual rate of interest being charged on a 9-month note receivable of $50,000 if the total interest is $3,000?
A. 6%
B. 8%
C. 12%
D. 10%
123. On December 1, 2010, a company loaned a new employee $20,000 to assist with her relocation expenses. The employee signed a 6-month note, with interest of 9%. The company prepares year-end financial statements at December 31. What is the required adjusting entry at December 31 as a result of this note transaction?

A.    Option A
B. Option B
C. Option C
D. Option D
124. What is the receivables turnover ratio for 2011 (rounded to two decimal places)?
A. 8.93
B. 8.48
C. 8.71
D. 9.14
125. What is the days to collect for 2011 (rounded to the nearest whole number)?
A. 40
B. 41
C. 43
D. 42


























126. If the company changes its credit granting policies and begins granting credit to less creditworthy customers, which of the following statements is true regarding the likely effect on the receivables turnover ratio and the days to collect measure?
A. The receivables turnover ratio will decrease and days to collect will increase.
B. The receivables turnover ratio will increase and days to collect will increase.
C. The receivables turnover ratio will decrease and days to collect will decrease.
D. The receivables turnover ratio will not change and days to collect will decrease.
127. Bad Debt Expense is classified as
A. part of cost of goods sold on the Income Statement.
B. a selling expense on the Income Statement.
C. a non-operating expense on the Income Statement.
D. a deduction from Accounts Receivable on the Balance Sheet.
128. When the direct write-off method is used to account for uncollectible accounts, which of the following accounts would not be used?
A. Bad Debt Expense
B. Accounts Receivable
C. Allowance for Doubtful Accounts
D. Notes Receivable
129. The direct write-off method
A. results in better matching of costs with revenues than the allowance method.
B. is an acceptable method under generally accepted accounting principles (GAAP).
C. requires that losses from bad debts be recorded in the period in which sales are made.
D. does not report accounts receivable on the balance sheet at their net realizable value.

130. When the allowance method is used, the entry to record the write-off of specific uncollectible accounts would decrease
A. the allowance for doubtful accounts.
B. net income.
C. the net realizable value of accounts receivable.
D. bad debt expense



























131. The allowance method for estimating bad debts that focuses on the balance sheet rather than the income statement is based on
A. a direct write-off.
B. an aging of the receivables.
C. credit sales.
D. net sales.
132. A company used the aging of accounts receivable method and at December 31 determined that the net realizable value of accounts receivable was $304,000. In addition, the records show the following:

What was the amount of Bad Debt Expense for the year?
A.    $96,000
B. $64,000
C. $80,000
D. $16,000
133. A company has a debit balance of $3,500 in the Allowance for Doubtful Accounts. It estimates that 2% of net credit sales of $1,500,000 will be uncollectible. The required journal entry to record bad debt expense should include a debit to:
A. Allowance for Doubtful Accounts for $30,000.
B. Allowance for Doubtful Accounts for $33,500.
C. Bad Debt Expense for $33,500.
D. Bad Debt Expense for $30,000.
134. A company performed an aging of accounts receivable on December 31 and gathered the following information:

What is the net realizable value of accounts receivable to be reported on the balance sheet at December 31?
A.    $505,000
B. $496,000
C. $467,000
D. $516,000
135. A company reported a receivables turnover ratio of 8.0. Cost of goods sold was $350,000 and net sales were $480,000. The average accounts receivable must have been
A. $45,000
B. $120,000
C. $60,000
D. $90,000




























136. When the direct write-off method is used, the entry to write-off a specific account would
A. decrease expenses and increase net income.
B. have no affect on net income.
C. increase the accounts receivable and increase net income.
D. decrease the accounts receivable and decrease net income.
137. What is the amount of current assets on the balance sheet at December 31, 2011?
A. $32,000
B. $34,700
C. $31,600
D. $32,400
138. In January 2012, the company writes off a $500 account which it determines is uncollectible. Which of the following is true?
A. The write-off will decrease the current assets by $500.
B. The write-off will decrease net income for 2012 by $100.
C. The write-off will decrease net accounts receivable by $100.
D. The write-off will not increase the expenses for 2012.
139. What was the amount of cash collections from accounts receivable customers this year?
A. $846,950
B. $850,000
C. $849,800
D. $847,150
140. What is the amount of Bad Debt Expense for 2012?
A. $2,000
B. $5,050
C. $5,000
D. $4,950





























141. Adventure Company uses the aging of accounts receivable method to estimate bad debt expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 30-90 days old, and (3) more than 90 days old. Experience has shown that for each age group, the average loss rate on the amount of the receivable due to uncollectibility is (1) 1%, (2) 15%, and (3) 40%, respectively. At December 31, 2011, the unadjusted balance in the Allowance for Doubtful Accounts was $100 (credit), and the total amounts receivable in each category were: (1) 1-30 days old, $65,000, (2) 30-90 days old, $10,000, and (3) more than 90 days old, $4,000. Calculate the balance that should be reported in the Allowance for Doubtful Accounts at December 31, 2011, and prepare the appropriate bad debt expense adjusting entry at December 31, 2011.
The balance in the allowance for doubtful accounts is a credit balance of $3,750. Adjusting journal entry:

Feedback: Aging of Receivables: ($65,000 x 1%) + ($10,000 x 15%) + ($4,000 x 40%) = $3,750 estimated uncollectible accounts. Based on the aging of the receivables, the desired ending balance in the Allowance for Doubtful Accounts account is a credit balance of $3,750. The unadjusted balance in that account is a credit of $100. The adjustment required would be for $3,650 ($3,750 - $100).
142. Your company has $3,000,000 in credit sales during 2011. The beginning balance of the allowance for doubtful accounts is $3,000 and the company writes off $700 in bad debts during the year. a. Calculate the estimated doubtful accounts using the aging of accounts receivable method given that $1,600,000 of the credit sales are not yet due (estimated that 0.5% are uncollectible), $349,000 are 1-60 days late (estimated that 1.25% are uncollectible) and $12,000 are over 60 days late (estimated that 30% are uncollectible). b. Using the assumptions in the initial problem statement above, and using the aging of accounts method, calculate the bad debt expense. Show your calculation in a T-account for Allowance for Bad Debts and present the journal entry to record bad debt expense. c. Calculate the estimated bad debt expense using the percentage of credit sales method and prepare the journal entry. Historically your company is unable to collect 1% of credit sales

Feedback: Using the aging method to determine the amount of bad debt expense, the unadjusted balance in the allowance for doubtful accounts must be considered in the calculation. When the % of credit sales method is used, any exiting balance in the allowance for doubtful accounts is ignored.
143. The Dubious Company operates in an industry where all sales are made on account. Historically, Dubious has experienced a steady 1.0% of credit sales being uncollectible. Presented below is the company's forecast of sales and expenses over the next three years.

Using this information: a. Calculate bad debt expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.0% of sales. b. Comment on the trend in net income changes from Year 1 to Year 2 and from Year 2 to Year 3. c. Suppose the company changes its estimate of uncollectible credit sales to 1.0% in year 1, 2.0% in year 2 and 1.5% in year 3. Calculate the bad debt expense and net income for each of the three years under this alternative scenario. d. Comment on the trend in net income changes determined in requirement c from Year 1 to Year 2 and Year 2 to Year 3. e. Under which scenario (a or c) do you feel most confident when predicting the net income likely to be earned in Year 4? What contributes to this feeling?
A

b. Net income increases between years 1 and 2, but then falls between years 2 and 3.
c.

d. Net income increases between years 1 and 2, and increases between years 2 and 3. e. The alternative scenario (in c) suggests greater control over and easier predictability of net income because the trend in net income is a smooth increase over the three-year period. The first scenario (in a) suggests greater volatility in net income giving an impression that it is more difficult to predict. Feedback: When the allowance method uses the percentage of credit sales method to determine Bad Debts Expense, the balance in the allowance for doubtful accounts is not considered.
144. At the end of 2011, Geisel, Inc has a $1,000 debit balance in the Allowance for Doubtful Accounts, before adjusting entries were prepared. Credit sales for 2011 totaled $510,000. Sales returns for 2011 were $10,000. Credit Sales for 2010 were $610,000. Sales returns for 2010 were $10,000. The following aging analysis of Accounts Receivable was prepared at 12/31/11:

a.    Prepare the 12/31/11 adjusting entry using the aging analysis approach to estimate bad debts. b. Calculate the accounts receivable turnover ratio and the days to collect for 2010 and 2011 (round each calculation to one decimal place). The net receivables balance reported on the company's 12/31/09 financial statements was $120,000. The net receivables balance reported on the 12/31/10 financial statements was $130,000. c. Discuss the implications of the receivables turnover ratio and days to collect as calculated in part b. Discuss possible reasons for any changes in the calculations.

a.

B

b.    The receivables turnover ratio decreased from 4.8 in 2010 to 3.7 in 2011. Correspondingly, the days to collect increased from 76 days in 2010 to 98.6 days in 2011. These calculations demonstrate that the number of times, on average, that the process of selling and collecting is repeated during the period is decreasing. This can have a negative effect on the cash available for running the business. The quantitative reasons for the changes in the calculations are the decrease in sales revenue and the increase in the receivables balance. Both situations may be caused by a slowdown in the economy. Perhaps the company is having a harder time selling its products (lower sales) and has changed its credit policies in order to attract more customers (higher receivables). This could raise concern over the adequacy of the allowance for doubtful accounts.
Feedback:




145. Purrfect Pets, Inc., had sales revenue of $1,748,380 during 2011. The company had credit card discounts of $16,280 and sales returns of $3,460. The balance in accounts receivable on December 31, 2010 was $104,500 and on December 31, 2011 it was $129,100. Calculate the receivables turnover ratio and days to collect measure for 2011 (round each calculate to one decimal place).

Feedback:
































Feedback: Transactions affect the elements of the accounting equation.

147. Match the term and the explanation. Not all explanations will be used.
1. Recording sales that customers are likely to return later     Trade receivables    
2. Also known as accounts receivable     Percent of credit sales method    
3. Receivable accounts that are not part of a company's day-to-day business     Allowance for doubtful accounts    
4. A method of estimating uncollectible debts by forecasting the probability of not collecting late accounts     Principal    
5. The amount of money lent     Non-trade receivables    
6. A method of estimating uncollectible debts by looking at the historical average of credit sales not collected     Aging of accounts receivable    
7. Selling accounts receivable to another company for immediate cash     Channel stuffing    
8. The account in which the estimated amount of accounts receivable expected to be uncollectible is recorded     Factoring      

148. Match the term and the explanation. Not all explanations will be used.
1. Total money owed the company for sales made on credit     Note    
2. A contra-asset account     Net accounts receivable    
3. An account that is debited for the amount of credit sales estimated as uncollectible     Bad debt expense    
4. An agreement by a borrower to repay the lending company with interest during a specified time period     Maturity date    
5. Net credit sales revenue divided by the average net accounts receivable     Days-to-collect    
6. The days of the year divided by the receivables turnover ratio     Gross accounts receivable    
7. The time at which a loan must be repaid     Allowance for doubtful accounts    
8. The portion of accounts receivable that the company expects to collect     Receivables turnover    

149. Match the term and the explanation. Not all explanations will be used.
1. The interest that a company receives during the year divided by the principal of the loan     Net credit sales      
2. The denominator of the receivables turnover ratio     Allowance method    
3. The historical average percentage of credit sales that a company has been unable to collect     Notes receivable      
4. The portion of past credit sales that have not yet been collected     Accounts receivable    
5. A two-stage process by which accounts are adjusted in anticipation of bad debts     Average net trade receivables      
6. The numerator of the receivables turnover ratio     Subsidiary account    
7. A separate record for each accounts receivable customer     Bad debt loss rate    
8. The total amount of money loaned through notes that have not been repaid     Annual interest rate    

150. For each scenario below, indicate the appropriate change in current revenue, expenses and net income. Use the following symbols:





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1. Herley enters a restaurant and hangs his coat in an unattended cloakroom near the entrance of the restaurant. It is not a situation where he gives the coat to an employee of the restaurant in order to hold the coat. In this situation, the restaurant is not a bailee of Herley's coat.

2. Charles agrees to store Tuan's car in Charles's garage for the winter months while Tuan visits his grandmother in California. As a bailee, Charles is automatically entitled to use Tuan's car while Tuan is away.

3. According to common law, "treasure trove" property belongs the person who finds it.

4. Stephen wants to give his niece, Dawn, a piece of jewelry as a gift. Stephen gives Tracy, his agent, the bracelet to take to Dawn. The delivery element of making a gift has been completed.

5. If property is mislaid, the finder of the property will have a superior claim to possession of the property against everyone except the true owner.

6. A bailment relationship can be created with respect to both real and personal property.

7. Jimmy stole Dick's motorcycle and completely revamped the engine and changed the body. These accessions were very expensive, but Jimmy was completely satisfied with the results, intending to sell the motorcycle for a huge profit. If Dick finds the motorcycle, he must pay Jimmy for the improvements.

8. A bailment was created for the parties' mutual benefit. This means that the bailee must use ordinary care with the property.

9. Mega Corporation, the bailor, negotiates a bailment agreement with Huge Corporation, the bailee. Huge Corporation insists that an exculpatory clause be included in the terms and conditions of the bailment agreement. Later, Huge Corporation negligently (ordinary negligence, not gross negligence) damages the property which is the subject of the bailment. Most courts will allow Huge Corp. to stand behind its exculpatory clause and deny liability.

10. The difference between an inter vivos gift and a gift causa mortis is that the inter vivos gift is made during the donor's lifetime and a gift causa mortis is a gift is made after the donor's lifetime by the donor's estate.

 

11. While trying to get into a class at State University, Ron forgot his calculator in the dean's outer office. Theresa, another student, found the calculator. The calculator is treasure trove and Theresa may keep it.

12. In January, Erwin told David, his nephew, that he would give him a car when he graduates from college. David graduated in May. If Erwin refuses to give David a car, David can sue him for breach of an inter vivos gift.

13. While shopping at the mall, Everett's wallet fell out of his pocket. Jon found the wallet. The wallet is abandoned property and Jon may keep it.

14. Dersett Trucking hauls granite for the major granite companies in Minnesota. Dersett Trucking does not make its trucking services available to the general public. Dersett Trucking is a contract carrier and is strictly liable for the granite that it hauls.

15. Jody loaned her neighbor, Phil, her snow blower. Phil set it near his driveway, and later accidently ran over and destroyed it. In a suit to recover damages, Jody as plaintiff has the burden of proving that Phil was negligent and caused the destruction of her snow blower.

1. In order to constitute a valid gift:

a.

the donor must intend to transfer ownership of property immediately.

b.

the donee must accept the gift.

c.

the donor must deliver the gift property to the donee.

d.

All of the above are necessary for a valid gift.

2. Bertha, from Chicago, traveled to San Francisco to attend a conference. Her sister, Martha, lives in San Francisco and consequently, Bertha made arrangements to spend a couple of days with her sister. The next morning sitting at the breakfast table, Bertha realizes that she packed a mismatched pair of shoes (one is black and the other is blue). Luckily, Martha wears the same size of shoes and lends Bertha a pair of black leather pumps. During the day, the shoes are damaged while Bertha is wearing the shoes. Bertha's duty of care would be a duty of :

a.

extraordinary care, because this is a bailment for the sole benefit of the bailee.

b.

ordinary care, because this is a bailment with both parties receiving mutual benefits.

c.

only slight care, because this is a bailment for the sole benefit of the bailor.

d.

None of the above are correct.

3. Percival takes his computer to a repair shop to have the disk drive repaired. This is most likely a:

a.

bailor benefit bailment.

b.

bailee benefit bailment.

c.

mutual benefit bailment.

d.

leasehold arrangement.

4. Rhonda is a server in a restaurant. One day she finds a purse while clearing a table. Which of the following best describes the purse? The purse is most likely:

a.

lost property.

b.

mislaid property.

c.

treasure trove.

d.

abandoned property.

5. A bailee always has a right:

a.

to possession of the bailed property. Anyone who interferes with this right is liable to the bailee. Even the bailor himself is liable for wrongful interference with the bailee’s posseession.

b.

to use the bailed property.

c.

to compensation.

d.

All of the answers are correct.

6. George gave his great-grandfather's pocket watch to Nurse Nadene because he expected to die soon. This is:

a.

a testamentary gift.

b.

an inter vivos gift.

c.

an executed gift.

d.

a gift causa mortis.

7. Hanna intends to give her granddaughter, Melodee, her antique hat pin. This heirloom has been kept under lock and key in the wall vault in the library of Hanna’s house in Virginia. The hat pin is currently the only item in the vault. When Hanna is visiting Melodee in Connecticut, Hanna gives Melodee the only key to the vault. Melodee is grateful for the present and excitedly accepts. In this situation has there been a completed gift?

a.

No. There has been no physical delivery of the hat pin.

b.

Yes. There has been physical delivery of the hat pin.

c.

No. There has only been constructive delivery of the hat pin.

d.

Yes. There has been constructive delivery of the hat pin.

8. The element that distinguishes a contract from a gift is:

a.

performance of the offeror's or donor's promise.

b.

the element of consideration which is present in a contract, but not in a gift.

c.

whether or not the offeree or donee accepts the offer.

d.

whether or not the subject of the gift or contract is illegal.

9. Personal property means all property other than:

a.

soil, plants, and trees removed from the land.

b.

minerals and crops removed from the land.

c.

land and all things permanently attached to the land.

d.

intangible property.

10. Which of the following occurs when a person uses labor and/or materials to add value to personal property belonging to another?

a.

Accession.

b.

Bailment.

c.

An inter vivos gift.

d.

A mutual-benefit bailment.

11. Buck, fearing death from severe injuries suffered in a machinery accident, assigned over a certificate of deposit worth $100,000 and delivered the certificate to Pearl, a friend, who gladly accepts. Buck ends up recovering from the injuries. Why must Pearl give the certificate of deposit back to Buck?

a.

This type of gift is known as a gift causa mortis. It is a conditional gift which is conditioned on Buck's actually dying. Because Buck recovered, the gift is automatically revoked.

b.

This is an inter vivos gift because Buck was still alive when the gift was made. Any inter vivos gift is revocable because there is no consideration to make Buck's delivery of the certificate binding under contract law.

c.

This is an inter vivos gift and due to state laws, gifts in contemplation of death must be written into a valid will or otherwise the deceased's assets will be distributed according to state statute.

d.

This gift is an ordinary gift, but it is revocable because we don't know if the certificate of deposit has matured or not.

12. Select the correct answer:

a.

Rosie rents a locker at the airport, and she puts a bag in the locker. Rosie keeps the locker key. In this case, the bag has been delivered to and accepted by the airport. The airport is a bailee.

b.

Hill rents a boat to Dan. The boat is located at a lake 30 miles away. Hill gives Dan keys to the boat. Dan drives to the lake and takes possession of the boat. In this case, the boat has been delivered to and accepted by Dan, and Dan is a bailee.

c.

Unknown to Lon, Jeff left a bike at Lon's house. Lon has not found the bike and he is not likely to find it because Jeff left the bike under the front porch. In this case, Lon accepted the bike and is a bailee of it.

d.

Ken parked a car in a self-service lot and Ken kept the keys. The parking lot is a bailee.

13. Which of the following is/are generally subject to a standard of strict liability for bailed goods?

a.

Contract carriers and common carriers.

b.

Common carriers and innkeepers.

c.

Common carriers.

d.

Contract carriers.

15. Jeannie carelessly packed her grandmother's antique glassware and had it shipped to her 30-year-old daughter, Abby, via Common Freight Carriers. When the china arrived at Abby's house, most of the pieces were broken. As between Jeannie and Common Freight Carriers, who will bear the loss?

a.

Under the Carmack Amendment, Jeannie is liable for the loss if Common Freight Carriers shows it was not negligent and that the loss was caused by Jeannie’s failure to wrap and pack the glassware properly.

b.

Under the Carmack Amendment, Common Freight Carriers is liable. A common carrier is strictly liable.

c.

Under the Carmack Amendment, Common Freight Carriers is liable because of its negligence in not inspecting Jeannie's packing job.

d.

Liability is governed by state statute and will depend on which state law will control.

16. Ali took a seat at a booth at Midway Diner. Between the salt and pepper shakers, Ali noticed something glittering. It was a diamond ring. The ring is:

a.

abandoned property.

b.

an accession.

c.

mislaid property.

d.

treasure trove.

17. Lacy sets her textbook under her chair in her business law class and then forgets to take it with her when she leaves the classroom. A janitor later discovers the textbook and gives it to the Dean of the Business College. In this situation:

a.

the college is a constructive bailee, obligated to return the textbook to Lacy, and until it does, it is liable for harm to the property.

b.

the college is a bailee by agreement because holding items in a lost and found box is generally part of the college-student agreement when the student enrolls for classes.

c.

the college is responsible for the discovered textbook because in this situation, the college is subject to implied warranties unless the college has disclaimed such warranties in the student handbook.

d.

this is a bailment for the sole benefit of the bailee.

18. A bailment is different from a gift because:

a.

a gift requires consideration, but a bailment does not.

b.

a gift requires delivery, but a bailment does not.

c.

in a bailment, only possession of the property is transferred to the bailee, whereas with a gift, both possession and ownership must pass to the donee.

d.

a gift is always a contract, but a bailment is generally not a contract.

19. Farmer Fred is leasing pasture land from Wealthy Warren. Farmer Fred is working the soil to turn the pasture land into land that will be able to grow crops. As Farmer Fred is preparing the field, he discovers a treasure chest full of gold and silver coins. The coins are all dated before 1810. A finder of treasure trove under common law:

a.

was entitled to keep the treasure trove.

b.

was required to turn the property over to the owner. Here, under common law, Farmer Fred is required to turn the treasure trove over to Wealthy Warren.

c.

was required to turn the treasure trove over to the State.

d.

was required to turn the treasure trove over to the federal government who will give the treasure trove to the closest Native American reservation.

20. In the Tannenbaum v. New York Dry Cleaning, Inc. case:

a.

there was a bailment for hire, and the fact that the bailee was unable to return the bailed item except in a damaged condition created an irrebuttable presemption that the damage to the item was attributable to the bailee’s negligence.

b.

the court stated that a company cannot, under New York law, use an exculpatory clause to relieve itself from liability for the consequences of its own negligence.

c.

the court found that the claimant was not bound by the terms of the dry cleaning company’s limitation clause because, even if it applied to the situation before the court, the claimant had not read the clause nor had he assented to its terms.

d.

the court found that the claimant was negligent in not reading the limitation clause on the back of his claim ticket, so he could not recover the cost of his shirt.

21. Jake owns an old piece of exercise equipment. He has been using the equipment merely to hang his clothes on, so Jake decides to get rid of the thing. He takes the unused exercise machine to the landfill and throws it off the back of the truck. Maggie, a teenager, is at the landfill rummaging for useful items. Maggie sees the exercise equipment and decides it is just the thing to give her sister for Christmas, so she decides to take it home. As she is loading it into the back of her pickup truck, Jake stops and tries to get it back. The landfill owner sees the commotion and decides he would like to have the equipment as well. Who has the best rights in the exercise equipment?

a.

They are all joint owners.

b.

Maggie.

c.

Jake.

d.

The landfill owner.

22. Beth owned an original United States flag. She had previously loaned the flag to Ross, a lawyer, so that he could display the flag on the wall behind his office desk. One day while visiting Ross in his office and admiring the flag, Beth said to Ross, "You are so fond of that flag, I would like you to have it!" Ross responded with a gracious "thank you." In this situation:

a.

Beth has not made a valid, binding gift of the flag because gifts are never binding and can always be revoked by the donor.

b.

Beth has not made a valid, binding gift of the flag because the donor must deliver the property to the donee, which was not done here.

c.

Beth has made a valid, binding gift if Beth agreed to give the flag in exchange for Ross's legal services.

d.

Beth has made a valid, binding gift because she intended to transfer present ownership to Ross and Ross accepted the flag.

23. The Grand Theatre has a sign posted at its coatroom that states, "Grand Theatre is not responsible for any loss or damage to customers' coats." This is:

a.

an estray clause.

b.

an exculpatory clause.

c.

an innkeepers' clause.

d.

a causa mortis clause.

24. An estray statute:

a.

governs the ownership of livestock that have strayed from the rest of the herd.

b.

is a federal statute that governs the rights of ownership of found property.

c.

is both of the above.

d.

is neither of the above.

25. Griffith Manufacturing ships 40 crates of goods by Trusty Shipping, a common carrier. Trusty offers Griffith a shipping rate of $725 for a limited liability of $5,000 or a rate of $975 for full liability for any harm to the goods. Griffith choses the $725 rate. In transit, Trusty’s driver has an accident during an ice storm and all of Griffith’s goods are destroyed, causing a loss of $12,000. If Griffith sues Trusty:

a.

Trusty will be liable for only $5,000 because a common carrier is allowed to limit its liability by contract.

b.

Trusty will be liable for the full $12,000 because common carriers have strict liability.

c.

Trusty will automatically be liable for the full $12,000 under the Carmack Amendment.

d.

Trusty is subject to normal bailment rules and can escape liability for any damage to the goods by proving that it exercised due care of the property and that the loss was caused by an act of God.

 

1. Discuss a bailor’s liability for defects in the bailed property.

2. Bill was shopping at the mall. As he was walking to Tonne's Department Store, his wallet fell out of his pants. While trying on a new suit, Bill left his leather jacket in the change room. Sue found Bill's wallet. Arnie, a sales associate, found his coat. What kind of found property is Bill's wallet? What kind of property is his jacket? What rights do Sue and Arnie have in the found property?

3. Most of the goods contained in a freight train (a common carrier) were destroyed when a tornado wrecked the train. The carrier was sued for damages by all the shippers that had merchandise on the train. Is the carrier strictly liable for the damage done to the goods by the tornado?

4. Discuss whether or not the following common transactions are bailments and if so, who is the bailor/bailee, and what type of bailment is involved:

A) Renting storage space in Farmer's Frank's huge barn to keep your classic car out of the snow and ice of winter. The rental agreement provides for $100/month rent and Farmer Frank has the only access to the barn.

B) Hiring a moving company to move your belongings to a new residence.

C) Loaning your lawn mower to your neighbor.

D) Parking your car in a "park and lock" parking lot.

5. Tommy is going to have heart surgery. He is afraid that he will not survive, so he gives his favorite ring to his friend, Rod. Rod is aware of Tommy's apprehensions. Tommy survives the surgery and wants his ring back. Who is entitled to the ring and why?

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1. The "uniform" statute known as the Uniform Probate Code has been adopted in all states.

2. A person who dies with a will, dies intestate.

3. Per stirpes means each heir gets an equal share of an estate.

4. Generally, a later will revokes a prior will.

5. Parents may disinherit their children for any reason.

6. Property of a person who dies without a will is distributed according to intestacy laws.

7. The only function of a will is to dispose of a person's property upon death.

8. Reva prepares and signs a document that she intends to be her will. If she has not followed the legal technicalities of her state regarding executing a will, the court will not enforce the will.

9. A spouse is entitled to a forced share of a decedent's estate.

10. Jose and Juanita are first cousins. Jose lives in San Francisco, California; Juanita lives in Toronto, Canada. The two have met only once in life, and may never meet again. Nonetheless, because they are blood relatives, Juanita has an incontestable insurable interest in Jose's life.

11. Jacob has been quite ill. When three of his neighbors come to visit one day, he tells them that he is dying and that he wants them to witness his oral will. In some states, he can validly dispose of his personal property by his witnessed, oral statements.

12. Imperial, Inc. has an insurable interest in Amanda, its CEO.

13. Victor purchased $1 million of insurance on his home even though the house was only worth $500,000. Victor's house was destroyed by lightning. Under the insurance policy, Victor will be able to recover $1 million.

14. April purchased a life insurance policy on her life. On her death, the proceeds of the insurance were to be paid to her minor child, Ryan. Ryan is the beneficiary.

15. In purchasing life insurance, Kelsey concealed the fact that she has a muscular disease. The insurance company can void the policy if the muscular disease is found to be a material fact.

1. The percentage of people dying without a will is approximately:

a.

25%.

b.

50%.

c.

60%.

d.

75%.

2. Myron had two children, Cheryl and Pete, who predeceased him. Cheryl had three children and Pete had one child. Myron died testate. Which of the following is true?

a.

If Myron's will indicates that the issue are to inherit per stirpes, Pete's child will receive one half of Myron's estate.

b.

If Myron's will indicates that the issue are to inherit per stirpes, Pete's child will receive one fourth of Myron's estate.

c.

If Myron's will indicates that the issue are to inherit per capita, Pete's child will receive one half of Myron's estate.

d.

If Myron's will indicates the issue are to inherit per capita, each of Cheryl's children will receive one sixth of Myron's estate.

3. A trust created in a will is:

a.

an inter vivos trust.

b.

a constructive trust.

c.

a testamentary trust.

d.

a probate trust.

4. Which of the following property is not affected by a will?

a.

Life insurance.

b.

Joint tenancy property.

c.

Retirement benefits.

d.

All of the above.

5. The Washington v. Glucksberg case involved the issue of:

a.

assisted suicide.

b.

holographic wills.

c.

trusts.

d.

intestacy.

6. In order to travel extensively and not worry about handling her affairs, Lee transfers most of her assets into a trust, with her bank serving as trustee. She has created:

a.

a travel trust.

b.

a testamentary trust.

c.

a constructive trust.

d.

an inter vivos trust.

7. Which of the following is not required to create a valid trust:

a.

mental capacity of the grantor.

b.

witnesses.

c.

a beneficiary(ies).

d.

property transferred to the trust.

8. Lying on her hospital bed alone one night, Phyllis grabs a pen and paper. With the last of her strength, she wrote her last will and testament leaving all her worldly possessions to her next-door neighbor, Aaron. This type of will is:

a.

a nuncupative will.

b.

disinherited children's share will.

c.

holographic will.

d.

None of the above.

9. Which of the following is true about wills?

a.

A will can be amended to change specific terms by execution of a codicil.

b.

The testatrix cannot disinherit her children without stating a reason in the will.

c.

If the will meets the legal technicalities, the surviving spouse cannot override it.

d.

Once a will is written, it cannot be changed.

10. Joel is displeased with his son’s lifestyle choices and, instead of dividing his estate, Joel wants to leave all of his property to his daughter, Marie, when he dies. Joel:

a.

may not leave everything to his daughter and nothing to his son. If Joel tries to do this, his son can take a forced share of his father’s estate.

b.

may disinherit his son, but he must indicate in the will his reason for doing so.

c.

may disinherit his son for any reason as long as Joel indicates in the will that the son was omitted on purpose.

d.

may disinherit his son only if Joel leaves the son a nominal amount, such as $1.

11. Under the Uniform Anatomical Gift Act:

a.

an individual may indicate the desire to be an organ donor by putting a provision in his will. The provision will take effect after probate of the will.

b.

the willingness to be an organ donor may be indicated by signing an organ donation card in the presence of one disinterested witness.

c.

family members of a decedent have no right to make a gift of the decedent’s organs if the decedent did not make an affirmative indication of the desire to be a donor during her lifetime.

d.

an effective donation may be made by an individual in a will or on a witnessed organ-donation card or by family members after the person’s death as long as the person did not indicate a desire not to be a donor.

12. Which of the following does not act as a revocation of a will?

a.

Destruction of the will by a house fire.

b.

The testator's putting an X through it.

c.

Physically destroying the will by intentionally shredding it.

d.

Signing a new will that expressly revokes prior wills.

13. Dr. Gavornne advises his very ill patients to prepare a living will. The purpose of a living will is:

a.

to make a disposition of property.

b.

to express a desire not to have extreme medical treatment that would prolong their lives.

c.

to transfer life insurance.

d.

to consent to organ donation.

14. Insurance obtained by a limited partnership on the life of the general partner is called:

a.

double indemnity insurance, because both the limited partnership and the general partner are insured.

b.

key-person insurance, because the general partner is a key person, contributing a great deal to making the business successful.

c.

a co-insurance policy because both the limited partnership and the general partner are insured.

d.

whole life or straight life insurance which builds a cash value.

15. If Walter becomes incompetent to manage his affairs:

a.

his chosen attorney-in-fact can make decisions for him if he appointed the person in a durable power of attorney with a springing power to become effective upon Walter’s incompetence.

b.

a court will appoint a guardian if Walter had no power of attorney.

c.

his will becomes effective, and his executor or executrix will manage his business and personal decisions.

d.

Both (a) and (b) are correct.

 

16. Which of the following is generally covered under casualty insurance?

a.

Employee theft or embezzlement.

b.

Disability.

c.

Transportation insurance.

d.

Vandalism.

17. An insurance policy must meet which of the following?

a.

State statutory requirements for tort law.

b.

Federal statutory requirements for tort law.

c.

Common law requirements for contracts.

d.

Common law requirements for tort law.

18. Sarah has car insurance. While driving her automobile, Sarah negligently ran a red light and hit Vi's car. Which type of coverage will pay for the damage done to Vi's car?

a.

Liability insurance.

b.

Comprehensive insurance.

c.

Collision insurance.

d.

Uninsured motorist insurance.

19. Pamela applies for a life insurance policy with Forever Young Insurance Company. When completing the application form about past surgeries, Pamela forgot about a past outpatient surgery when she had an infected hang-nail removed and her toe treated. One year after issuing the policy, Pamela died suddenly from a brain aneurysm. Forever Young denies payment under the policy based on misrepresentation. If Pamela's sister, Paula, sues Forever Young, she will:

a.

win, because once an application has been accepted, an insurer may not use a misrepresentation on the application to avoid liability.

b.

win, because Pamela's misrepresentation was not a material fact and did not increase Forever Young's risk in insuring Pamela's life.

c.

lose, because Pamela's application contained a misrepresentation of material fact.

d.

lose, because an insurer can always use any misrepresentation on an application to avoid paying.

20. Darcy buys a life insurance policy on her own life, under which she pays the annual premiums. The insurance is issued for a specific period, but is renewable for similar periods. Darcy is covered only as long as she makes the payments. There is no cash value portion to the policy. Darcy probably owns:

a.

whole life insurance.

b.

key-person life insurance.

c.

term life insurance.

d.

an annuity.

 

21. Which of the following insurance policies continue for a stated period of time with the premiums increasing with the age of the insured?

a.

Double indemnity.

b.

Term insurance.

c.

Annuity contract.

d.

Term insurance.

22. Under which of the following does the insurer promise to pay the insured a fixed sum, as guaranteed income, when the insured attains a specified age?

a.

Straight life policy.

b.

Whole life policy.

c.

Universal life policy.

d.

Annuity contract.

23. Liability policies, such as personal liability, professional malpractice, or business liability insurance, do not protect the insured against:

a.

a personal injury on the insured's property, such as the mail carrier who slips and falls on the owner's sidewalk.

b.

intentional torts.

c.

a negligent act or omission by the property owner.

d.

someone injured by the insured away from home or business.

24. Tim just became a father. Which of the following should Tim do in shopping for insurance?

a.

He should look to insure against every risk.

b.

He should buy "special occasion" insurance.

c.

He should select as low a deductible as he can afford.

d.

He should compare prices, but also be aware of the reputations of the different insurance companies.

25. Abraham has just purchased his first car. His bank, First State Bank, loaned him the money to buy the car and has required him to purchase insurance to protect the car as the collateral for the loan. Which basic types of coverage should Abraham buy to satisfy the bank requirement and to protect himself from the risks of operating an automobile?

a.

Collision coverage only.

b.

Collision and comprehensive coverage only.

c.

Collision, uninsured motorist, and comprehensive coverage.

d.

Collision, uninsured motorist, comprehensive, and liability coverage.

 

1. Discuss the differences between a will and a trust.

2. Mountain Ridge Bank has been named trustee for a $100,000 trust Fred and Martha Betts established for “the living children of the grantors.” List the requirements for establishing a trust. Identify the primary obligation of the trustee and discuss the fiduciary duty of the trustee.

3. Singleton, an eighty-year-old widower, remarried. The next day, he made a will leaving everything to his son, Joey. A week after his marriage, Singleton died. How will his estate be handled?

4. Insurance policies often contain a covenant of good faith and fair dealing. Even if the clause is not in the policy, often courts will imply it. Explain the covenant of good faith and fair dealing and provide an example illustrating when an insurance company might breach this covenant.

5. What are some safeguards to remember when shopping for insurance?

cost system and job cost sheets cost system and job cost sheets

Date added: 06/11/2012
Date modified: 06/11/2012
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Downloads: 14
Price 2.00 USD

P15-1A

Prepare entries in a job order cost system and job cost sheets.

(SO 2, 3, 4, 5, 6), AP

Deglman Manufacturing uses a job order cost system and applies overheadto production on the basis of direct labor costs. On January 1, 2012, Job No. 50 was the only job in process. The costs incurred prior to January 1 on this job were as follows: direct materials $20,000, direct labor $12,000, and manufacturing overhead $16,000. As of January 1, Job No. 49 had been completed at a cost of $90,000 and was part of finished goods inventory. There was a $15,000 balance in the Raw Materials Inventory account.

During the month of January, Deglman Manufacturing began production on Jobs 51 and 52, and completed Jobs 50 and 51. Jobs 49 and 50 were also sold on account during the month for $122,000 and $158,000, respectively. The following additional events occurred during the month.

1.

Purchased additional raw materials of $90,000 on account.

2.

Incurred factory labor costs of $70,000. Of this amount $16,000 related to employer payroll taxes.

3.

Incurred manufacturing overhead costs as follows: indirect materials $17,000; indirect labor $20,000; depreciation expense on equipment $19,000; and various other manufacturing overhead costs on account $16,000.

4.

Assigned direct materials and direct labor to jobs as follows.

Job No.

Direct Materials

Direct Labor

50

$10,000

$ 5,000

51

39,000

25,000

52

30,000

20,000

 

Instructions

(a)

Calculate the predetermined overhead rate for 2012, assuming Deglman Manufacturing estimates total manufacturing overhead costs of $980,000, direct labor costs of $700,000, and direct labor hours of 20,000 for the year.

(b)

Open job cost sheets for Jobs 50, 51, and 52. Enter the January 1 balances on the job cost sheet for Job No. 50.

(c)

Prepare the journal entries to record the purchase of raw materials, the factory labor costs incurred, and the manufacturing overhead costs incurred during the month of January.

(d)

Prepare the journal entries to record the assignment of direct materials, direct labor, and manufacturing overhead costs to production. In assigning manufacturing overhead costs, use the overhead rate calculated in (a). Post all costs to the job cost sheets as necessary.

(e)

Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry (or entries) to record the completion of any job(s) during the month.

(f)

Prepare the journal entry (or entries) to record the sale of any job(s) during the month.

(g)

What is the balance in the Finished Goods Inventory account at the end of the month? What does this balance consist of?

(h)

What is the amount of over- or underapplied overhead?

P15-2A

Prepare entries in a job order cost system and partial income statement.

(SO 2, 3, 4, 5, 6), AN

For the year ended December 31, 2012, the job cost sheets of Cinta Company contained the following data.

Job Number

Explanation

Direct Materials

Direct Labor

Manufacturing Overhead

Total Costs

7640

Balance 1/1

$25,000

$24,000

$28,800

77,800 $

Current year's costs

30,000

36,000

43,200

109,200

7641

Balance 1/1

11,000

18,000

21,600

50,600

Current year's costs

43,000

48,000

57,600

148,600

7642

Current year's costs

58,000

55,000

66,000

179,000

Other data:

 

 

1.

Raw materials inventory totaled $15,000 on January 1. During the year, $140,000 of raw materials were purchased on account.

2.

Finished goods on January 1 consisted of Job No. 7638 for $87,000 and Job No. 7639 for $92,000.

3.

Job No. 7640 and Job No. 7641 were completed during the year.

4.

Job Nos. 7638, 7639, and 7641 were sold on account for $530,000.

5.

Manufacturing overhead incurred on account totaled $120,000.

6.

Other manufacturing overhead consisted of indirect materials $14,000, indirect labor $18,000, and depreciation on factory machinery $8,000.

 

Instructions

(a)

Prove the agreement of Work in Process Inventory with job cost sheets pertaining to unfinished work. (Hint: Use a single T account for Work in Process Inventory.) Calculate each of the following, then post each to the T account: (1) beginning balance, (2) direct materials, (3) direct labor, (4) manufacturing overhead, and (5) completed jobs.

(b)

Prepare the adjusting entry for manufacturing overhead, assuming the balance is allocated entirely to Cost of Goods Sold.

(c)

Determine the gross profit to be reported for 2012.

P15-3A

 

Prepare entries in a job order cost system and cost of goods manufactured schedule.

(SO 2, 3, 4, 5), AP

Stellar Inc. is a construction company specializing in custom patios. The patios are constructed of concrete, brick, fiberglass, and lumber, depending upon customer preference. On June 1, 2012, the general ledger for Stellar Inc. contains the following data.

Raw Materials Inventory

$4,200

Manufacturing Overhead Applied

$32,640

Work in Process Inventory

$5,540

Manufacturing Overhead Incurred

$31,650

Subsidiary data for Work in Process Inventory on June 1 are as follows.

Job Cost Sheets

Customer Job

Cost Element

Gannon

Rosenthal

Linton

Direct materials

$ 600

$ 800

$ 900

Direct labor

320

540

580

Manufacturing overhead

400

675

725

$1,320

$2,015

$2,205

During June, raw materials purchased on account were $4,900, and all wages were paid. Additional overhead costs consisted of depreciation on equipment $700 and miscellaneous costs of $400 incurred on account.

A summary of materials requisition slips and time tickets for June shows the following.

Customer Job

Materials Requisition Slips

Time Tickets

Gannon

800 $

450 $

Koss

2,000

800

Rosenthal

500

360

Linton

1,300

1,200

Gannon

300

390

4,900

3,200

General use

1,500

1,200

$6,400

$4,400

Overhead was charged to jobs at the same rate of $1.25 per dollar of direct labor cost. The patios for customers Gannon, Rosenthal, and Linton were completed during June and sold for a total of $18,900. Each customer paid in full.

Instructions

(a)

Journalize the June transactions: (i) for purchase of raw materials, factory labor costs incurred, and manufacturing overhead costs incurred; (ii) assignment of direct materials, labor, and overhead to production; and (iii) completion of jobs and sale of goods.

(b)

Post the entries to Work in Process Inventory.

(c)

Reconcile the balance in Work in Process Inventory with the costs of unfinished jobs.

(d)

Prepare a cost of goods manufactured schedule for June.

P15-4A

Compute predetermined overhead rates, apply overhead, and calculate under- or overapplied overhead.

(SO 4, 6), AP

Agassi Manufacturing Company uses a job order cost system in each of its three manufacturing departments. Manufacturing overhead is applied to jobs on the basis of direct labor cost in Department D, direct labor hours in Department E, and machine hours in Department K.

In establishing the predetermined overhead rates for 2012, the following estimates were made for the year.

Department

D

E

K

Manufacturing overhead

$1,200,000

$1,500,000

$900,000

Direct labor costs

$1,500,000

$1,250,000

$450,000

Direct labor hours

100,000

125,000

40,000

Machine hours

400,000

500,000

120,000

During January, the job cost sheets showed the following costs and production data.

Department

D

E

K

Direct materials used

$140,000

$126,000

$78,000

Direct labor costs

$120,000

$110,000

$37,500

Manufacturing overhead incurred

$ 99,000

$124,000

$79,000

Direct labor hours

8,000

11,000

3,500

Machine hours

34,000

45,000

10,400

Instructions

(a)

Compute the predetermined overhead rate for each department.

(b)

Compute the total manufacturing costs assigned to jobs in January in each department.

(c)

Compute the under- or overapplied overhead for each department at January 31.

P15-5A

Analyze manufacturing accounts and determine missing amounts.

(SO 2, 3, 4, 5, 6), AN

Rodman Corporation's fiscal year ends on November 30. The following accounts are found in its job order cost accounting system for the first month of the new fiscal year.

Raw Materials Inventory

Dec. 1

Beginning balance

(a)

Dec. 31

Requisitions

16,850

31

Purchases

19,225

Dec. 31

Ending balance

7,975

Work in Process Inventory

Dec. 1

Beginning balance

(b)

Dec. 31

Jobs completed

(f)

31

Direct materials

(c)

31

Direct labor

8,800

31

Overhead

(d)

Dec. 31

Ending balance

(e)

Finished Goods Inventory

Dec. 1

Beginning balance

(g)

Dec. 31

Cost of goods sold

(i)

31

Completed jobs

(h)

Dec. 31

Ending balance

(j)

Factory Labor

Dec. 31

Factory wages

12,025

Dec. 31

Wages assigned

(k)

Manufacturing Overhead

Dec. 31

Indirect materials

1,900

Dec. 31

Overhead applied

(m)

31

Indirect labor

(l)

31

Other overhead

1,245

Other data:

 

 

1.

On December 1, two jobs were in process: Job No. 154 and Job No. 155. These jobs had combined direct materials costs of $9,750 and direct labor costs of $15,000. Overhead was applied at a rate that was 75% of direct labor cost.

2.

During December, Job Nos. 156, 157, and 158 were started. On December 31, Job No. 158 was unfinished. This job had charges for direct materials $3,800 and direct labor $4,800, plus manufacturing overhead. All jobs, except for Job No. 158, were completed in December.

3.

On December 1, Job No. 153 was in the finished goods warehouse. It had a total cost of $5,000. On December 31, Job No. 157 was the only job finished that was not sold. It had a cost of $4,000.

4.

Manufacturing overhead was $230 overapplied in December.

 

Instructions

List the letters (a) through (m) and indicate the amount pertaining to each letter.

 

 

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