Exam 2 Review1. The Sarbanes-Oxley Act or 2002 introduced stiffer punishment for fraud in accounting. What 3 things are required for fraud to occur?a. Incentive, Purpose, Cashb. Cash, Assets, Opportunityc. Incentive, Opportunity, Characterd. Character, Incentive, Cash2. Income Tax Expense was $80,000 for Amazon Company. The tax rate was 40%. Other Expenses for Amazon.com was $10,000. General & Administrative expenses were 20,000. Net Sales for Amazon was $400,000. Determine Amazon’s cost of goods sold.a. $210,000b. $200,000c. $190,000d. $180,000Income Before Taxes X 0.4 = $80,000Income Before taxes = $80,000/0.4 = $200,000Income From operations – other expenses = Income before taxesIncome from operations = $200,000-10,000 = $190,000Gross profit = Income from operations + G&A = $190,000+20,000 = $210,000Net sales – COGS = gross profitCOGS = net sales – gross profit = $400,000-210,000 = $190,0003. When an annual report is audited and released annual, which of the following forms is filed with the SEC?a. Form 10kb. Form 8Kc. Form 10Qd. No filing required unless a major transaction occurs4. In reconciling the checking account, Morris Company noted the following items for the month of October:Ending book balance $5,775Deposits in transit $1,250Outstanding checks $2,075NSF check $ 450Bank service charges $ 25Bank interest expense $ 250Ending bank balance $ 5,875What is the correct cash balance at the end of October? a. $5,000b. $5,050c. $4,000d. $5,750Ending Book balance $5,775- NSF Check ($450)- Bank service charge (25)- Bank int expense (250)-----------------------------------------Ending Book balance $5,050 - Adjusted5. Target Company had 2009 and 2010 ending inventory of $2,000 and $4,000 respectively. In 2010, Target made $7,000 worth of purchases. What was Target’s costof goods sold in 2010?a. $5,000b. $11,000c. $6,000d. $3,000COGS = Beg Inv + Purchases – Ending Inv= 2000 + 7000 – 4000= $5,0006. Under the perpetual inventory system,a. There is a purchase account involvedb. As inventory is sold, no entry is neededc. To account for ending inventory, purchases account is closed and cost of goods sold is createdd. Inventory is increased as purchased, and reduced as sold7. On March 1st, Kellogg’s Company made gross sales of $400,000 with terms 2/10,n30.The customer later returned goods worth $20,000 because of defect on March 3rd. Calculate the net sales of Kellogg’s company assuming the customer rendered full payment on March 9th in the same year.a. $380,000b. $360,000c. $372,000d. $372,400Net sales = Gross sales – sales return & allowance – sales discounts = 400,000 – 20,000 – [((400,000-20,000) X 2%) = 372,4008. Which of the following parties would have a raw materials inventory, work-in-process inventory and finished goods inventory?a. A retailerb. A manufacturerc. A distributord. None of the above9. Under which of the following inventory methods, cost of goods sold would generally be the highest?a. FIFOb. LIFOc. Weighted-average methodd. Specific identification methodAnswer questions 10, 11 and 12 based on the following information :September 1 – Inventory balance on hand is $5,000 (500 units of inventory) 6 – Purchased 200 units @ $10.50 each 7 – Sold 500 units @ $15.00 each 8 – Purchased 200 units @ $11 each 19 – Sold 300 units @ $15.00 each10. Assuming the above company uses the FIFO inventory method, what would the cost of goods sold be?a. $8,000b. $8,050c. $8,200d. $9,600[(500 units X $10) + (200units X $10.50) + (100units X $11)]11. Now assume the company uses a LIFO inventory method, what would the ending balance in inventory be at the end of September?a. $1,000b. $1,200c. $1,400d. $1,600Since its LIFO, only the first 100 units in beginning inventory will be left. Each units costs $10, so 100 X $10 = $1,00012. Assuming the company uses the LIFO inventory method, what would gross profit be?a. $3,000b. $3,700c. $3,900d. $4,200From previously, ending inv of LIFO would be $1,000.Beg Inv = $5,000Net sales = (500X$15.00 + 300 X $15.00) = $12,000COGS = Beg Inv + Purchases – EI= 5000 + 4,300 – 1,000= 8,300Gross profit = net sales –COGS = 12,000 – 8,300 = $3,70013. According to the lower-of cost or market rule, what would the inventory balance be based on the following information?Quantity Unit Cost Replacement costMen’s sneakers 20 $50 $40Women’s sneakers 15 $40 $50a. $1,400b. $1,550c. $1,600d. $1,75014. Bad debt expense is :a. The actual write-off a company has to make because debtors defaultedb. A fixed amount a company occurs every year based on the size of the companyc. An amount which is charged to expense arising from situations such as a debtor’s bankruptcy.d. An estimated amount based on credit sales or Accounts receivable15. Maxis Corporation has beginning balance in Allowance for Doubtful Accounts of $2,000. Assuming credit sales totaled $50,000 and Celcom estimates 5% of net credit sales to be bad debt, what amount of bad debt expense would be recorded if Celcom uses the balance sheet method?a. $500b. $2,500c. $2,000d. $1,500Allowance for Doubtful AccountsBeginning balance 2,000Bad debt expense $5,00Ending Balance $2, 500 (50,000 X 5%)In this case, bad debt expense is a plug figure.16. Assume beginning balance of a company’s allowance for doubtful accounts is $4,000.Net credit sales are $250,000 and 4% is estimated as bad debt. If the income statement method was used, what would bad debt expense be?a. $6,000b. $10,000c. $14,000d. None of the aboveAllowance for Doubtful AccountsBeginning balance 4,000Bad debt expense $10,000 (250,000 X 4%)Since it’s the income statement method, bad debt expense is directly calculated from thje percentage of credit sales.17. Maxwell Company uses the income statement method for estimated bad debt expense. It estimates 2% of its $500,000 credit sales to be bad debt. Assume the beginning balance in the allowance for doubtful account was $4,000 and ending balance was $8,000. Determine the amount of write-off’s that the company made during the year.a. $2,000b. $4,000c. $6,000d. $8,000Allowance for Doubtful AccountsBeginning balance 4,000Write off $6, 000 Bad debt expense 10,000Ending Balance 8,00018. Method Company issued cash for a