Achieve Test 3 - Accounting test chapter 3 PDF

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Accounting test chapter 3...

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Name ______________________________ Instructor ___________________________ Section # __________ Date ____________

Achievement Test 3: Chapters 5 and 6 Accounting Principles, Second Canadian Ed. Weygandt, Kieso, Kimmel, & Trenholm

Part Points

I

II

III

IV

V

Total

51

10

10

15

14

100

Score

PART I — MULTIPLE CHOICE (51 points) Instructions: Designate the best answer for each of the following questions. ____ 1. A credit memo could be issued by a seller to the customer to indicate that the a. customer should debit Accounts Payable. b. seller has credited Accounts Payable. c. customer should credit Accounts Receivable. d. none of the above. ____ 2. A quantity discount is used to encourage customers to a. purchase larger quantities of merchandise. b. pay for their purchases more quickly. c. purchase their merchandise at the beginning of the accounting cycle. d. pay for their purchases in cash rather than by cheque. ____ 3. A periodic inventory system a. allows for the determination of cost of goods sold after each sale. b. traditionally has been used with low unit-value items. c. requires that detailed inventory records be kept. d. requires the use of a cost of goods sold account. ____ 4. In accordance with the revenue recognition principle, sales revenues are recorded when a. earned, which typically occurs when the goods are transferred from the seller to the buyer. b. cash is received from the customer for items already delivered. c. an order is received from a customer with delivery of the product expected to take place within the next 30 days. d. the accountant determines which period's income statement "needs" more revenue.

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Test Bank for Accounting Principles, Second Canadian Edition

____ 5. Expenses that relate to such activities as personnel management, accounting, and store security generally should appear in a multiple-step income statement in the a. Cost of Goods Sold section. b. Administrative Expenses section. c. Non-operating section. d. Selling Expenses section. ____ 6. Which of the following accounts should appear in the Non-operating section of a multiple-step income statement? a. Freight Out b. Cost of Good Sold c. Sales Returns and Allowances d. Interest Expense ____ 7. Freight terms of FOB shipping point mean that the a. buyer must bear the freight costs. b. seller must debit Freight Out. c. goods are placed free on board at the buyer's place of business. d. seller must bear the freight costs. ____ 8. With regard to accounting for a merchandising company versus a service enterprise, which of the following is false? a. Additional accounts and entries are typically required for a merchandising company. b. Both retail and wholesale enterprises generally use accounting techniques of a merchandising company. c. The process of measuring net income is conceptually different. d. There are just as many steps as in the accounting cycle for a merchandising company. ____ 9. With regard to the accounts used to record freight costs in a periodic inventory system, a. Freight Out is added to Purchases. b. Freight Out's normal balance is a debit. c. Freight In’s normal balance is a credit. d. Freight In is a contra account to Sales. ____ 10. The Sales Returns and Allowances account a. normally has a credit balance. b. should not be closed at the end of the period. c. is a contra account to Accounts Receivable. d. is used by a merchandising company, but not a service enterprise. ____ 11. A credit memo is issued as evidence of a a. sale on account to a customer. b. return of goods originally purchased on account to the supplier. c. return of goods originally sold on account to a customer. d. purchase of goods on account from a supplier. ____ 12. Which of the following accounts is not included in the calculation of cost of goods sold in a periodic inventory system? a. Freight In b. Merchandise Inventory c. Purchase Returns and Allowances d. Freight Out

Achievement Test 3

AT3 - 3

____ 13. Internal control procedures and policies are designed to accomplish all of the following except a. the prevention and detection of errors. b. the safeguarding of assets. c. the protection of employees in hazardous positions. d. the enhancement of the accuracy and reliability of accounting records. ____ 14. Which statement is false regarding the lower of cost and market (LCM) method of inventory? a. Market is usually defined as net realizable value. b. LCM is an example of the accounting concept of conservatism. c. LCM is normally applied to total inventory. d. All of the above are true regarding LCM. ____ 15. Proponents of LIFO, as opposed to FIFO, point out that LIFO results in a. lower cash flow in a period of deflation. b. a more current cost of goods sold. c. lower net income in a period of deflation. d. higher net income in periods of inflation. ____ 16. Goods in transit should be included in the inventory of the a. buyer when the terms are FOB destination. b. buyer when the terms are FOB shipping point. c. transportation company when the terms are FOB shipping point. d. seller when the terms are FOB shipping point. ____ 17. The ending inventory of Lindsey Company, which uses a periodic inventory system, was understated $5,000 on December 31, 2000, and overstated $3,000 on December 31, 2001. Because of these errors, 2001 net income was a. overstated $3,000. b. overstated $8,000. c. understated $2,000. d. understated $8,000.

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Test Bank for Accounting Principles, Second Canadian Edition

PART II — BASIC INVENTORY CALCULATIONS (10 points) Ruxton Company, which uses a periodic inventory system, had a beginning inventory on May 1, of 400 units of Product A at a cost of $14 per unit. During May, the following purchases and sales were made. May 6 14 21 28

Purchases 375 units at $18 250 units at $20 300 units at $22 425 units at $26 1,350

May 4 8 17 24

Sales 275 350 400 225 1,250

units units units units

Instructions: Calculate the May 31 ending inventory and May cost of goods sold under (a) Average Cost, (b) FIFO, and (c) LIFO. Provide appropriate supporting calculations. (a) Average – Ending Inventory = $_________;

Cost of Goods Sold = $_________.

(b) FIFO – Ending Inventory = $_________;

Cost of Goods Sold = $_________.

(c) LIFO – Ending Inventory = $_________;

Cost of Goods Sold = $_________.

Achievement Test 3

AT3 - 5

PART III — CLOSING ENTRIES (10 points) Below is a partial listing of accounts in the general ledger of Carey Co. Carey uses a periodic inventory system. Instructions: Place an X in the appropriate column to designate whether the account should be closed at year end and, if so, whether the appropriate closing entry would require a debit or credit to the account. ——————————————————————————————————————————— Not Closed Account Closed Debit Credit ——————————————————————————————————————————— 1. Purchase Returns and Allowances................................... _____ _____ _____ 2. Freight In...........................................................................

_____

_____

_____

3. Sales.................................................................................

_____

_____

_____

4. Merchandise Inventory (Ending).......................................

_____

_____

_____

5. Sales Returns and Allowances..........................................

_____

_____

_____

6. H. Carey, Drawings...........................................................

_____

_____

_____

7. Freight Out........................................................................

_____

_____

_____

8. H. Carey, Capital ..............................................................

_____

_____

_____

9. Merchandise Inventory (Beginning)..................................

_____

_____

_____

10. Cash.................................................................................

_____

_____

_____

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Test Bank for Accounting Principles, Second Canadian Edition

*PART IV — INVENTORY: SHORT PROBLEMS (15 points) Instructions: situations. A.

Complete the requirements specified for each of the following independent

A major portion of Gwynn Furniture Sales was destroyed by fire. Accounting records provide the following information: Sales $200,000 Sales Returns and Allowances 25,000 Beginning Inventory 30,000

Purchases $140,000 Purchases Returns and Allowances 6,000 Freight In 19,000

Assuming a gross profit rate of 40% on net sales and that undamaged inventory is appropriately valued at $25,000, calculate the cost of the merchandise destroyed by the fire.

B.

Karros Co. uses the retail inventory method. Given the following information, calculate the ending inventory at cost. Cost Retail Beginning Inventory $25,000 $ 35,000 Purchases 95,000 125,000 Sales 110,000 Sales Returns and Allowances 10,000

C.

Witt Company uses the lower of cost and market (LCM) basis for its inventory. The following information relates to its December 31, 2001 inventory. Prepare the journal entry to record the inventory at LCM, assuming the company applies LCM to total inventory. Product A B C D E

Units 240 250 300 125 150

December 31, 2001 Unit Cost Market $15 14 24 21 16 18 30 28 12 14

Achievement Test 3

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PART V — MULTIPLE-STEP INCOME STATEMENT (14 Points) Instructions: Use the following Income Statement to prepare a correct multiple-step income statement. BYRNE INDUSTRIES Income Statement For the Year Ended December 31, 2002 Revenues Net sales (sales returns and allowances — $30,000) Interest revenue Cost of goods sold Wages expense Selling expense Amortization expense — store equipment Freight out Interest expense Loss on sale of equipment Net income

$600,000 2,700 275,000 67,500 60,000 16,000 6,000 12,300 4,800 $161,100

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Test Bank for Accounting Principles, Second Canadian Edition

Solutions — Achievement Test 3: Chapters 5 and 6 PART I — MULTIPLE CHOICE (51 points) 1. a 2. a 3. b

4. a 5. b 6. d

7. a 8. c 9. b

10. d 11. c 12. d

13. c 14. d 15. b

16. b 17. b

PART II — BASIC INVENTORY CALCULATIONS (10 points) (a) Average ending inventory: 500 × $20 =

$10,000

Average cost of goods sold 1,250 × $20 =

$25,000

Average cost = $35,000 ÷ 1,750 = $20 (b) FIFO ending inventory: 425 × $26 = 75 × $22 =

(c) LIFO ending inventory: 400 × $14 = 100 × $18 =

$11,050 1,650 $12,700

FIFO cost of goods sold 400 × $14 = 375 × $18 = 250 × $20 = 225 × $22 =

$5,600 1,800 $7,400

LIFO cost of goods sold 425 × $26 = 300 × $20 = 250 × $20 = 275 × $18 =

$ 5,600 6,750 5,000 4,950 $22,300 $11,050 6,600 5,000 4,950 $27,600

PART III — CLOSING ENTRIES (10 points) —————————————————————————————————————————— Not Closed Account Closed Debit Credit —————————————————————————————————————————— 1. Purchase Returns and Allowances.............................. X 2. Freight In..................................................................... X 3. Sales........................................................................... X 4. Merchandise Inventory (Ending)................................. X 5. Sales Returns and Allowances ................................... X 6. H. Carey, Drawings .................................................... X 7. Freight Out ................................................................. X 8. H. Carey, Capital ........................................................ X 9. Merchandise Inventory (Beginning) ............................ X 10. Cash .......................................................................... X

Achievement Test 3

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*PART IV — INVENTORY: SHORT PROBLEMS (15 points) A.

Net Sales ($200,000 – $25,000).............................................................. $175,000 Less estimated gross profit (40% × 175,000)........................................... 70,000 Estimated cost of goods sold................................................................... $105,000 Beginning inventory.................................................................................. $ 30,000 Cost of goods purchased ($140,000 – $5,000 + $19,000)....................... 153,000 Cost of goods available for sale............................................................... 183,000 Less: estimated cost of goods sold.......................................................... 105,000 Estimated cost of ending inventory.......................................................... 78,000 Less: undamaged inventory..................................................................... 25,000 Estimated cost of merchandise lost in fire................................................ $ 53,000

B.

At Cost Beginning inventory................................................................... $ 25,000 Purchases................................................................................. 95,000 Goods available for sale............................................................ $120,000 Net sales................................................................................... Ending inventory at retail...........................................................

At Retail $ 35,000 125,000 $160,000 100,000 $ 60,000

Cost to retail ratio ($120,000 ÷ $160,000) = 75% Ending inventory at cost ($60,000 × 75%)................................. $ 45,000 C.

Total cost = Total market Write down required

$19,950 19,610 $ 340

Loss Due to Decline in Net Realizable Value in Inventory............... Merchandise Inventory...................................................... To record decline in inventory from original cost of $19,950 to current NRV of $19,610.

340 340

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Test Bank for Accounting Principles, Second Canadian Edition

PART V –– MULTIPLE-STEP INCOME STATEMENT (14 points) BYRNE INDUSTRIES Income Statement For the Year Ended December 31, 2002 Sales revenues Sales (sales returns and allowances — $30,000) Less: Sales returns and allowances Net sales Cost of goods sold Gross profit Operating expenses Wages expense Selling expense Amortization expense — store equipment Freight out Total operating expenses

$630,000 30,000 600,000 275,000 325,000 $967,500 60,000 16,000 6,000 149,500

Income from operations

175,500

Other revenue and gains Interest revenue

$ 2,700

Other expenses and loses Interest expense Loss on sale of equipment Total non-operating expenses and losses

$12,300 4,800 $17,100

Net non-operating expenses and losses Net Income

14,400 $161,100...