Question

CHAPTER 7
1 Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks, and personal checks
c. Coin, currency, and available funds
d. Postdated checks and I. O. U.'s

2. Travel advances should be reported as
a. supplies.
b. cash because they represent the equivalent of money.
c. investments.
d. none of these answers are correct.

3 What is a compensating balance?
a. Savings account balances.
b. Margin accounts held with brokers.
c. Temporary investments serving as collateral for outstanding loans.
d. Minimum deposits required to be maintained in connection with a borrowing arrangement.

4 Under which section of the balance sheet is "cash restricted for plant expansion" reported?
a. Current assets.
b. Non-current assets.
c. Current liabilities.            
d. Stockholders' equity

5. Which of the following should be recorded in Accounts Receivable?
a. Receivables from officers
b. Receivables from subsidiaries
c. Dividends receivable
d. None of these answer choices are correct.   

6. Why do companies provide trade discounts?
a. To avoid frequent changes in catalogs.
b. To induce prompt payment.
c. To easily alter prices for different customers.
d. To avoid frequent changes in catalogs and to easily alter prices for different customers.

7. Why is the allowance method preferred over the direct write-off method of accounting for bad debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining worthless accounts under direct write-off method is difficult to do.
d. Improved matching of bad debt expense with revenue.

8. Which of the following methods of determining annual bad debt expense best achieves the matching concept?
a. Percentage of sales
b. Percentage of ending accounts receivable
c. Percentage of average accounts receivable
d. Direct write-off

9. What is imputed interest?
a. Interest based on the stated interest rate.
b. Interest based on the implicit interest rate.
c. Interest based on the average interest rate.
d. Interest based on the coupon rate.

10. Consider the following: Cash in Bank – checking account of $18,500, Cash on hand of $500, Post-dated checks received totaling $3,500, and Certificates of deposit totaling $124,000. How much should be reported as cash in the balance sheet?
a. $ 18,500.
b. $ 19,000.
c. $ 22,500.
d. $136,500.

11. AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue?
a. $14,700.
b. $14,850.
c. $15,000.
d. $15,150.

12. Becky had net sales (all on account) in 2014 of $600,000. At December 31, 2013, before adjusting entries, the balances in selected accounts were: accounts receivable $750,000 debit, and allowance for doubtful accounts $1,500 debit. Becky estimates that 3% of its net sales will prove to be uncollectible. What is the net realizable value of the receivables reported on the financial statements at December 31, 2014?
a. $133,500
b. $730,500
c. $732,000
d. $733,500   

13 Assuming the market interest rate is 10% per annum, how much would Green Co. record as a note payable if the terms of the loan with a bank are that it would have to make one $80,000 payment in two years? (The present value of $1 for two periods at 10% is 0.82645).
a. $80,000.
b. $72,563.
c. $72,727.
d. $66,116.

14 Moon Inc. factors $2,000,000 of its accounts receivables with recourse for a finance charge of 4%. The finance company retains an amount equal to 8% of the accounts receivable for possible adjustments. Moon estimates the fair value of the recourse liability at $200,000. What would be the debit to Cash in the journal entry to record this transaction?
a. $2,000,000.
b. $1,920,000.
c. $1,760,000.
d. $1,560,000.

15. Which of the following inventories carried by a manufacturer is similar to the merchandise inventory of a retailer?
a. Raw materials.
b. Work-in-process.
c. Finished goods.
d. Supplies.

16 Why are inventories included in the computation of net income?
a. To determine cost of goods sold.
b. To determine sales revenue.
c. To determine merchandise returns.
d. Inventories are not included in the computation of net income.

17 . Which of the following is a characteristic of a perpetual inventory system?
a. Inventory purchases are debited to a Purchases account.
b. Inventory records are not kept for every item.
c. Cost of goods sold is recorded with each sale.
d. Cost of goods sold is determined as the amount of purchases less the change in inventory.

18 Goods in transit which are shipped f.o.b. shipping point should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. None of these answer choices are correct.

19. Goods in transit which are shipped f.o.b. destination should be
a. included in the inventory of the seller.
b. included in the inventory of the buyer.
c. included in the inventory of the shipping company.
d. none of these answers are correct.

20. Which inventory costing method most closely approximates current cost for each of the following: Ending Inventory Cost of Goods Sold
a. FIFO FIFO
b. FIFO LIFO
c. LIFO FIFO
d. LIFO LIFO

21. Valuation of inventories requires the determination of all of the following except
a. the costs to be included in inventory.
b. the physical goods to be included in inventory.
c. the cost of goods held on consignment from other companies.
d. the cost flow assumption to be adopted.

22 In a period of rising prices, the inventory method which tends to give the highest reported inventory is
a. FIFO.
b. moving average.
c. LIFO.
d. weighted-average.

23. When a company uses LIFO for external reporting purposes and FIFO for internal reporting purposes, an Allowance to Reduce Inventory to LIFO account is used. This account should be reported
a. on the income statement in the Other Revenues and Gains section.
b. on the income statement in the Cost of Goods Sold section.
c. on the income statement in the Other Expenses and Losses section.
d. on the balance sheet in the Current Assets section.

24. Lawson Manufacturing Company has the following account balances at year end: Office supplies $ 4,000 Raw materials 27,000 Work-in-process 59,000 Finished goods 102,000 Prepaid insurance 6,000 What amount should Lawson report as inventories in its balance sheet?
a. $102,000.
b. $106,000.
c. $188,000.
d. $192,000.   

25. Elkins Corporation uses the perpetual inventory method. On March 1, it purchased $30,000 of inventory, terms 2/10, n/30. On March 3, Elkins returned goods that cost $3,000. On March 9, Elkins paid the supplier. On March 9, Elkins should credit
a. purchase discounts for $600.
b. inventory for $600.
c. purchase discounts for $540.
d. inventory for $540.                     

Use the following information for questions 26 through 28. Transactions for the month of June were:   
                         Purchases   Sales   
June 1 (balance) 1,600 @ $3.20
June 2                1,200 @ $5.50
June 3                  4,400 @ $3.10
June 6                  3,200 @ $5.50
June 7                  2,400 @ $3.30
June 9                  2,000 @ $5.50
June 15                3,600 @ $3.40
June 10                   800 @ $6.00
June 22                1,000 @ $3.50
June 18                2,800 @ $6.00
June 25                   400 @ $6.00

26   Assuming that perpetual inventory records are kept in units only, the ending inventory on a LIFO basis is
a. $8,220.
b. $8,320.
c. $8,580.
d. $8,940.

27 Assuming that perpetual inventory records are kept in dollars, the ending inventory on a LIFO basis is
a. $8,220.
b. $8,320.
c. $8,580.
d. $8,940.

28 . Assuming that perpetual inventory records are kept in dollars, the ending inventory on a FIFO basis is
a. $8,220.
b. $8,320.
c. $8,580.
d. $8,940.

CHAPTER 9
29. Which of the following is true about lower-of-cost-or-market?
a. It is inconsistent because losses are recognized but not gains.
b. It usually understates assets.
c. It can increase future income if the expected reductions do not materialize.
d. All of these answers are correct.   

30 . Which of the following accounts is credited in the loss method of writing-down of inventory to its market value?
a. Inventory
b. Loss Due to Decline of Inventory to market
c. Cost of Goods Sold
d. Allowance to Reduce Inventory to Market   

31. When valuing raw materials inventory at lower-of-cost-or-market, what is the meaning of the term "market"?
a. Net realizable value
b. Net realizable value less a normal profit margin
c. Current replacement cost
d. Discounted present value

32. Why are inventories stated at lower-of-cost-or-market?
a. To report a loss when there is a decrease in the future utility.
b. To keep track of the market value of the inventory.
c. To report a loss when there is a decrease in the future utility below the original cost.
d. To permit future profits to be recognized.

33. Net realizable value is
a. acquisition cost plus costs to complete and sell.
b. selling price.
c. selling price plus costs to complete and sell.
d. selling price less costs to complete and sell.

34. A major advantage of the retail inventory method is that it
a. provides reliable results in cases where the distribution of items in the inventory is different from that of items sold during the period.
b. hides costs from competitors and customers.
c. gives a more accurate statement of inventory costs than other methods.
d. provides a method for inventory control and facilitates determination of the periodic inventory for certain types of companies.

35. To produce an inventory valuation which approximates the lower of cost or market using the conventional retail inventory method, the computation of the ratio of cost to retail should
a. include markups but not markdowns.
b. include markups and markdowns.
c. ignore both markups and markdowns.
d. include markdowns but not markups.

36. Oslo Corporation has two products in its ending inventory, each accounted for at the lower of cost or market. A profit margin of 30% on selling price is considered normal for each product. Specific data with respect to each product follows:
Product #1 Product #2 Historical cost $20.00 $ 35.00 Replacement cost 22.50 27.00 Estimated cost to dispose 5.00 13.00 Estimated selling price 40.00 65.00
In pricing its ending inventory using the lower-of-cost-or-market, what unit values should Oslo use for products #1 and #2, respectively?
a. $20.00 and $32.50.
b. $23.00 and $32.50.
c. $23.00 and $30.00.
d. $22.50 and $27.00.

37. Muckenthaler Company sells product 2005WSC for $40 per unit. The cost of one unit of 2005WSC is $36, and the replacement cost is $35. The estimated cost to dispose of a unit is $8, and the normal profit is 40%. At what amount per unit should product 2005WSC be reported, applying lower-of-cost-or-market?
a. $16.
b. $32.
c. $35.
d. $36.

38 . Given the acquisition cost of product Z is $80, the net realizable value for product Z is $72, the normal profit for product Z is $6, and the market value (replacement cost) for product Z is $75, what is the proper per unit inventory price for product Z?
a. $80.
b. $75.
c. $66.
d. $72.   

39. Mortenson Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $150,000. The total selling price is $420,000, and estimated costs of disposal are $15,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet?
a. $135,000.
b. $150,000.
c. $405,000.
d. $420,000.

40. During the prior fiscal year, Jeremiah Corp. signed a long-term noncancellable purchase commitment with its primary supplier to purchase $1.5 million of raw materials. Jeremiah paid the $1.5 million to acquire the raw materials when the raw materials were only worth $1.2 million. Assume that the purchase commitment was properly recorded. What is the journal entry to record the purchase?
a. Debit Inventory for $1,200,000, and credit Cash for $1,200,000.
b. Debit Inventory for $1,200,000, debit Unrealized Holding Gain or Loss for $300,000, and credit Cash for $1,500,000.
c. Debit Inventory for $1,200,000, debit Estimated Liability on Purchase Commitments for $300,000 and credit Cash for $1,500,000.
d. Debit Inventory for $1,500,000, and credit Cash for $1,500,000

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1. Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks, and personal checks
c. Coin, currency, and available funds
(d.) Postdated checks and I. O. U.'s

2. Travel advances should be reported as
a. supplies.
b. cash because they represent the equivalent of money.
c. investments.
(d.) none of these answers are correct.

3. What is a compensating balance?
a. Savings account balances.
b. Margin accounts held with brokers.
c. Temporary investments serving as collateral for outstanding loans.
(d.) Minimum deposits required to be maintained in connection with a borrowing arrangement....

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