These questions come primarily from previous exams Success on this exam does NOT ensure success on the actual exam ACCOUNTING 2121 PRACTICE EXAM NO 2 1 Sales revenue less cost of goods sold is called a gross profit b net profit c net income d marginal income 2 Wilson Company reported the following Sales 71 200 Gross Profit 39 000 Net Income 10 800 What was Cost of Goods Sold a b c d 110 200 49 800 32 200 28 200 3 If a company uses LIFO for tax purposes then for financial reporting purposes a they must also use LIFO b they may use either FIFO or LIFO c they cannot use LIFO d they must use average cost 4 If goods in transit are shipped FOB destination a the seller has legal title to the goods until they are delivered b the buyer has legal title to the goods until they are delivered c the transportation company has legal title to the goods while the goods are in transit d no one has legal title to the goods until they are delivered 5 Beginning inventory plus the cost of goods purchased equals the a cost of goods sold b cost of goods available for sale c net purchases d gross profit QUESTIONS 6 8 ARE BASED ON THE FOLLOWING INFORMATION The following selected data pertain to the B G Company for the month ended June 30 2003 Sales revenues 180 000 Sales discounts 5 000 Sales returns and allowances 10 000 Purchases 100 000 Purchases discounts 6 000 Purchases returns and allowances 8 000 Freight in 2 000 Merchandise Inventory 6 1 98 20 000 Merchandise Inventory 6 30 98 30 000 6 The company s net sales are a 180 000 b 175 000 c 165 000 d 80 000 7 The company s cost of goods purchased is a 108 000 b 88 000 c 86 000 d 84 000 8 The company s cost of goods sold is a 100 000 b 88 000 c 78 000 d 70 000 2 QUESTIONS 9 THROUGH 11 ARE BASED ON THE FOLLOWING INFORMATION Lotus Corporation placed an order for merchandise from Dolphin Company on April 29 2003 The merchandise was shipped via UPS on April 30 2003 The sales price of the merchandise was 10 000 The credit terms were 2 10 n 30 The shipping terms were FOB shipping point Lotus received the merchandise on May 2 2003 9 10 11 Assume that Lotus paid for the merchandise on May 6 2003 what is the amount of the check that Lotus sent Dolphin a 10 000 because the payment is not made in the same month as the issuance of the purchase order b 9 000 10 000 less a ten percent purchase discount c 9 800 10 000 less a two percent purchase discount d 10 200 10 000 plus a two percent purchase discount Which of the following statements is correct a Lotus should recognize the merchandise as part of its May purchases b Lotus should include the merchandise as part of its April 30 merchandise inventory c Dolphin should recognize the merchandise as a sale in May d Dolphin should include the merchandise as part of its April 30 merchandise inventory Who is responsible for payment of the transportation costs on the merchandise sold by Dolphin to Lotus a Lotus b Dolphin c UPS d the shipping company Questions 12 14 are based on the following information 3 A company just starting business made the following four inventory purchases in June June 1 June 10 June 15 June 28 150 units 200 units 200 units 150 units 5 20 5 85 6 30 6 60 780 1 170 1 260 990 4 200 A physical count of merchandise inventory on June 30 reveals that there are 250 units on hand 12 Using the LIFO inventory method the value of the ending inventory on June 30 is a 1 365 b 1 620 c 2 580 d 2 835 13 Using the FIFO inventory method the amount allocated to cost of goods sold for June is a 1 620 b 2 290 c 2 580 d 2 835 14 Using the average cost method the amount allocated to the ending inventory on June 30 is a 4 200 b 2 700 c 1 150 d 1 500 15 In periods of rising prices the inventory method that results in the inventory value on the balance sheet that is closest to current cost is the a FIFO method b LIFO method c average cost method d tax method 16 In a period of increasing prices which inventory flow assumption will result in the lowest amount of income tax expense a FIFO b LIFO c Average Cost d Income tax expense for the period will be the same under all assumptions 4 17 The lower of cost or market rule LCM is applied a when inventory costs less than it can be sold for b when the market value of a long lived asset is less than its cost c when inventory has been held for more than one year d when the replacement cost of inventory drops below cost determined using FIFO LIFO or avg cost 18 Weber Company has the following account balances Purchases Sales Returns and Allowances Purchase Discounts Freight in Freight out 28 000 4 000 2 500 1 875 2 500 The cost of goods purchased for the period is a 30 500 b 27 375 c 29 875 d 25 875 19 The primary difference between accounts receivable and notes receivable is that a Accounts receivable are classified as current notes receivable are classified as long term b Accounts receivable are classified as trade receivables whereas notes receivable are never classified as trade receivables c A note receivable is a promise in writing whereas an account receivable is created when there is a credit sale on an open account d An account receivable usually includes an agreement to pay interest 20 In its first year of business Lopez Landscape Supplies Inc has net income of 24 000 after all required adjusting entries have been made Other relevant data are as follows Gross accounts receivable end of year Year end balance of allowance for bad debts after adjustment 96 800 3 500 cr Assuming that Lopez uses the allowance method for recognizing bad debt expense the net amount of accounts receivable that should be included in the total current assets on Lopez s balance sheet at year end is a 93 300 b 94 200 c 96 800 d 130 000 21 When the allowance method of accounting for uncollectible accounts is used Bad Debt Expense is recorded 5 a b c d 22 in the year after the credit sale is made in the same year as the credit sale as each credit sale is made when an account is written off as uncollectible Garber Company lends Newell Company 20 000 on April 1 accepting a four month 9 interest note Garber Company prepares financial statements on April 30 What adjusting entry should be made before the financial statements …