ACCTG 215 Fall 2013 1 Multiple Choice Questions (1 point each) Be sure to record your answers in the spaces provided on the cover sheet. 1. A firm credits accounts receivable. Which of the following transactions could have caused this? Write-offs of bad debts 2. Carroll Company sells $900 worth of goods to a customer on account on March 3, 2013, with payment terms 2/10, n/60. Which of the following is recorded upon receipt of payment on April 7, 2013? Debit Cash $900 3. The Average Days to Sell Inventory formula is 365/Inventory Turnover. Clemons and Co. had cost of goods sold of $300,000, net income of $100,000, and average inventory of $50,000. What is its Average Days to Sell Inventory (rounded to one decimal place)? 60.8 4. In a periodic inventory system, the cost of purchases is initially debited to: PurchasesACCTG 215 Fall 2013 2 5. Under the direct write-off method, what adjustment is made at the time an actual bad debt occurs? Debit bad debt expense, credit accounts receivable 6. Sherman Incorporated uses a periodic inventory system. Inventory records revealed the following transactions for the month of October: Date Transaction Number of Units Unit Cost October 1 Beginning inventory 500 $2.50 October 15 Purchase 300 $2.75 October 25 Sale 650 ? Ending inventory for the month of October assuming FIFO would be: $412.50 7. Wilson Company uses the aging method for the allowance for bad debts. On 6/30/13, Wilson determined that one of its customers, who owed $2,000, would not pay their account. On 9/30/13, the same customer found additional funds and paid Wilson Company $500. Which of the following journal entries did Wilson Company record on 9/30/13? Accounts Receivable 500 Allowance for bad debts 500 Cash 500 Accounts Receivable 500ACCTG 215 Fall 2013 3 8. During 2013 Lynch Brothers Inc. discovered that their ending inventory balance for 2012 had been overstated by $5,000. The company uses the periodic system of accounting for inventory. Which of the following statements is true? Cost of goods sold in 2012 was understated by $5,000. Cost of goods sold in 2013 will be overstated by $5,000 9. Percy Inc. had a cash balance in its account of $15,000 as of 12/31/13. In reconciling its cash balance with the bank statement (starting with the company’s balance), which of the following transactions would not affect the reconciliation? Outstanding checks 10. Which listed methods of accounting for inventory are permitted under IFRS? 1. FIFO 2. LIFO 3. Average Cost 1 and 3ACCTG 215 Fall 2013 4 Numeric Questions (1 point each) Be sure to record your final answers in the spaces provided on the cover sheet. Use the following information for questions 11 and 12 Below is information extracted from the annual report for Baldwin Company for the year ended December 31, 2013. Partial Income Statement for the year ended December 31, 2013 Net Sales (all on account) $585,000 Cost of Goods Sold $250,000 Operating Expenses $135,000 Pretax Income $200,000 Inventory as of January 1, 2013: $65,000 Inventory as of December 31, 2013: $58,000 Accounts Receivable as of January 1, 2013: $50,000 Accounts Receivable as of December 31, 2013: $40,000 11. What is the value of Net Purchases made during 2013 for Baldwin Company? Answer: $243,000 58,000 = 65,000 + x – 250,000  x = 243,000 (Ending inventory = Beginning inventory + Net Purchases - COGS) 12. Receivables Turnover is calculated as Net Sales/Average Accounts Receivable. What is Baldwin Company’s Receivables Turnover for 2013? Answer: 13 $585,000/[($50,000+$40,000)/2] = 13 13. On October 22, 2013, Chancellor Corporation sold 100 pairs of shoes to Bruce Irvin for $8,600 (price of $86 per pair) on account with payment terms 3/15, n/30. On October 25, 2013, Bruce returned 10 pairs of shoes for a full refund. Bruce pays his account in full on November 1, 2013. Assume the company made no other sales in the month of October. What are Chancellor Corporation’s net sales for the month of October? Answer: $7,507.80 Gross sales – sales returns – sales discount = Net sales $8,600 - $860 – ($7,740*0.03) = $7,507.80ACCTG 215 Fall 2013 5 Use the following information for questions 14 and 15 Tate Industries uses a periodic inventory system. Inventory records for the month of October showed the following transactions during the month: Date Transaction Number of Units Unit Cost October 1 Beginning inventory 1,000 $1.50 October 10 Purchase 600 $2.00 October 18 Sale 1,100 ? October 30 Purchase 400 $2.25 14. Calculate the value of Ending Inventory under Average Cost method. Answer: $1,620 Number of units Unit cost Total cost 1,000 x $1.50 = $1,500 600 x $2.00 = $1,200 400 x $2.25 = $900 2,000 $3,600 Average cost per unit = $3,600/2,000 units = $1.80 per unit Ending inventory = 900 * $1.80 = $1,620 15. Calculate the value of Ending Inventory under the LIFO method. Answer: $1,350 Ending inventory = 900 * $1.50 =