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business
financial accounting information

Questions and Answers of Financial Accounting Information

Which costing method to use?
Which statement is true?a. The invoice is the purchaser’s request for collection from the customer.b. Gross profi t is the excess of sales revenue over cost of goods sold.c. The Sales account is
Sales discounts should appear in the fi nancial statementsa. as a deduction from sales.d. as an addition to sales.b. among the current liabilities.e. as an operating expense.c. as an addition to
How is inventory classifi ed in the fi nancial statements?a. As a contra account to Cost of Goods Soldb. As an expensed. As a revenuec. As a liabilitye. As an asset
Dana uses a FIFO inventory system. Cost of goods sold for the period isa. $360.c. $275.b. $298.d. $330.
Dana’s LIFO cost of ending inventory would bea. $187.c. $210.b. $155.d. $200.
Dana’s average cost of ending inventory isa. $210.c. $187.b. $155.d. $200.
When applying the lower of cost or net realizable value, NRV meansa. original cost less physical deterioration.b. original cost plus profi t margin.c. selling price less cost to sell.d. selling price
During a period of rising prices, the inventory method that will yield the highest net income and asset value isa. FIFO.c. average cost.b. LIFO.d. specifi c identifi cation.
Which statement is true?a. When prices are rising, the inventory method that results in the lowest ending inventory value is FIFO.b. The inventory method that best matches current expense with
The ending inventory of Misty Harbor Co. is $57,000. If beginning inventory was $68,000 and goods available totaled $117,000, the cost of goods sold isa. $60,000.d. $49,000.b. $128,000.e. none of the
Lantern Company had cost of goods sold of $145,000. The beginning and ending inventories were $15,000 and $25,000, respectively. Purchases for the period must have beena. $136,000.d. $170,000.b.
Cost of goods sold for the period isa. $98,000.d. $81,000.b. $82,000.e. none of the above.c. $96,000.
What is Fairway’s gross profi t percentage (rounded to the nearest percentage)?a. 55%c. 45%b. 15%d. None of the above
What is Fairway’s rate of inventory turnover?a. 5.3 timesc. 2.3 timesb. 2.6 timesd. 3.0 times
Beginning inventory is $110,000, purchases are $260,000 and sales total $470,000.The normal gross profi t is 40%. Using the gross profi t method, how much is ending inventory?a. $210,000d. $88,000b.
An overstatement of ending inventory in one period results ina. an understatement of net income of the next period.b. no effect on net income of the next period.c. an understatement of the beginning
(Learning Objective 2: Accounting for inventory transactions) Journalize the following assumed transactions for The Pepson Company. Show amounts in billions.a. Cash purchases of inventory, $3.8
(Learning Objective 2: Accounting for inventory transactions) Summer Kluxon, Inc., purchased inventory costing $120,000 and sold 75% of the goods for $150,000. All purchases and sales were on
(Learning Objective 3: Applying the average, FIFO, and LIFO methods) Continental Sporting Goods started April with an inventory of nine sets of golf clubs that cost a total of$1,260. During April
(Learning Objective 2: Applying the average, FIFO, and LIFO methods) Jefferson’s Copy Center uses laser printers. Assume Jefferson started the year with 92 containers of ink(average cost of $9.00
(Learning Objective 3: Computing income tax effects of the inventory costing methods)This exercise should be used in conjunction with Short Exercise 6-4. Jefferson is a corporation subject to a 30%
(Learning Objective 3: Computing income and income tax effects of LIFO) Microdata.com uses the LIFO method to account for inventory. Microdata is having an unusually good year, with net income well
(Learning Objective 3: Applying the Net Realizable Value to inventory) It is December 31, end of the year, and the controller of Reed Corporation is applying the Net Realizable Value (NRV) to
(Learning Objective 3: Managing income taxes under the LIFO method) Smith Saxophone Company is nearing the end of its worst year ever. With two weeks until year-end, it appears that net income for
(Learning Objective 3: Identifying income, tax, and other effects of the inventory methods) This exercise tests your understanding of the four inventory methods. List the name of the inventory method
(Learning Objective 4: Using ratio data to evaluate operations) Mountain Company made sales of $35,482 million during 20X6. Cost of goods sold for the year totaled $15,333 million. At the end of
(Learning Objective 4: Estimating ending inventory by the gross profi t method) City Technology began the year with inventory of $244,000 and purchased $1,540,000 of goods during the year. Sales for
(Learning Objective 5: Assessing the effect of an inventory error—one year only)ABC, Inc., reported these fi gures for its fi scal year (amounts in millions):Suppose ABC later learns that ending
(Learning Objective 5: Assessing the effect of an inventory error on 2 years) Binder’s$5.8 million cost of inventory at the end of last year was understated by $1.7 million.1. Was last year’s
(Learning Objectives 2, 4: Considering ethical implications of inventory actions)Determine whether each of the following actions in buying, selling, and accounting for inventories is ethical or
(Learning Objectives 1, 2: Accounting for inventory transactions under FIFO costing) Accounting records for Richmond Corporation yield the following data for the year ended December 31, 20X6:❙
(Learning Objectives 2, 3: Analyzing inventory transactions under FIFO costing)Ken’s, Inc.’s inventory records for a particular development program show the following at December 31:At December
(Learning Objective 2, 3: Determining ending inventory and cost of goods sold by four methods) Use the data for Ken’s in Exercise 6-16A to answer the following:❙ Requirements 1. Compute cost of
(Learning Objective 2, 3: Computing the tax advantage of LIFO over FIFO) Use the data for Ken’s in Exercise 6-16A to illustrate Ken’s income tax advantage from using LIFO over FIFO. Sales revenue
(Learning Objective 2, 3: Determining ending inventory and cost of goods sold—FIFO vs. LIFO) MusicPlace.net specializes in sound equipment. Because each inventory item is expensive, MusicPlace uses
(Learning Objective 3: Applying the net realizable value to inventories) Thames Garden Supplies uses a perpetual inventory system. Thames Garden Supplies has these account balances at July 31, 20X6,
(Learning Objective 4: Using the cost-of-goods-sold model) Supply the missing income statement amounts for each of the following companies:❙ Requirement 1. Prepare the income statement for Crane
(Learning Objective 4: Measuring profi tability) Refer to the data in Exercise 6-22A.Compute all ratio values to answer the following questions:■ Which company has the highest, and which company
(Learning Objective 4: Computing gross profi t percentage and inventory turnover)Thurston & Talty, a partnership, had the following inventory data:Thurston & Talty need to know the company’s gross
(Learning Objective 4: Budgeting inventory purchases) Toys Plus prepares budgets to help manage the company. Toys Plus is budgeting for the fi scal year ended January 31, 20X6. During the preceding
(Learning Objective 4: Estimating inventory by the gross profi t method) J R Company began May with inventory of $47,500. The business made net purchases of $30,900 and had net sales of $62,100
(Learning Objective 5: Correcting an inventory error) Big Blue Sea Marine Supply reported the following comparative income statement for the years ended September 30, 20X6, and 20X5:■ spreadsheet
(Learning Objectives 1, 2: Accounting for inventory transactions under FIFO costing)Accounting records for Rockford Corporation yield the following data for the year ended December 31, 20X6:❙
(Learning Objectives 2, 3: Analyzing inventory transactions under FIFO costing)Ron’s, Inc.’s inventory records for a particular development program show the following at May 31:At May 31, 10 of
(Learning Objective 2, 3: Determining ending inventory and cost of goods sold by four methods) Use the data for Ron’s, Inc., in Exercise 6-29B to answer the following.❙ Requirements 1. Compute
(Learning Objective 2, 3: Computing the tax advantage of LIFO over FIFO) Use the data for Ron’s, Inc., in Exercise 6-29B to illustrate Ron’s income tax advantage from using LIFO over FIFO. Sales
(Learning Objective 2, 3: Determining ending inventory and cost of goods sold—FIFO vs. LIFO) MusicLife.net specializes in sound equipment. Because each inventory item is expensive, MusicLife uses a
(Learning Objective 2: Measuring gross profi t—FIFO vs. LIFO; falling prices)Suppose a store in Paris, ended September with 1,100,000 units of merchandise that cost an average of €9.00 each.
(Learning Objective 3: Applying the net realizable value to inventories) Green Garden Supplies uses a perpetual inventory system. Green Garden Supplies has these account balances at May 31, 20X6,
(Learning Objective 4: Using the cost-of-goods-sold model) Supply the missing amounts for each of the following companies:❙ Requirement 1. Prepare the income statement for Fisher Company, for the
(Learning Objective 3: Measuring profi tability) Refer to the data in Exercise 6-35B.Compute all ratio values to answer the following questions:■ Which company has the highest, and which company
(Learning Objective 3: Computing gross profi t percentage and inventory turnover)Durkin & Davis, a partnership, had these inventory data:Durkin & Davis need to know the company’s gross profi t
(Learning Objective 4: Budgeting inventory purchases) Toyland prepares budgets to help manage the company. Toyland is budgeting for the fi scal year ended January 31, 20X6.During the preceding year
(Learning Objective 4: Estimating inventory by the gross profi t method) R B Company began June with inventory of €45,800. The business made net purchases of €31,900 and had net sales of
(Learning Objective 5: Correcting an inventory error) Harbour Master Marine Supply reported the following comparative income statement for the years ended September 30, 20X6, and 20X5:■ spreadsheet
(Learning Objective 1, 3: Making inventory policy decisions) For each of the following situations, identify the inventory method that you would use or, given the use of a particular method, state the
(Learning Objective 3: Evaluating a company’s profi tability) T Mart, Inc., declared bankruptcy. Let’s see why. T Mart reported these fi gures:❙ Requirement 1. Evaluate the trend of T Mart’s
Oceanview Software began January with $3,200 of merchandise inventory. During January, Oceanview made the following entries for its inventory transactions:How much was Oceanview’s inventory at the
What is Oceanview’s gross profi t for January?a. Zeroc. $5,400b. $7,400d. $2,000
When does the cost of inventory become an expense?a. When inventory is purchased from the supplier.b. When cash is collected from the customer.c. When payment is made to the supplier.d. When
If Perfect Corner uses the FIFO method, the cost of the ending inventory will bea. $37,000.c. $22,400.b. $22,700.d. $21,600.
If Perfect Corner uses the LIFO method, cost of goods sold will bea. $22,700.c. $22,400.b. $23,000.d. $21,600.
In a period of rising prices,a. Net income under LIFO will be higher than under FIFO.b. Gross profi t under FIFO will be higher than under LIFO.c. LIFO inventory will be greater than FIFO
The income statement for Feel Good Health Foods shows gross profi t of $151,000, operating expenses of $126,000, and cost of goods sold of $215,000. What is the amount of net sales revenue?a.
When the inventory cost is lower than NRV, the inventory should be reported at:a. Market price of inventory.b. Selling price of inventory.c. Replacement price of inventory.d. Selling price of
The sum of (a) ending inventory and (b) cost of goods sold isa. beginning inventory.c. net purchases.b. goods available.d. gross profi t.
The following data come from the inventory records of Draper Company:Based on these facts, the gross profi t for Draper Company isa. $130,000.c. $134,000.b. $163,000.d. Some other amount.
Eleanor Barker Cosmetics ended the month of May with inventory of $25,000. Eleanor Barker expects to end June with inventory of $12,000 after cost of goods sold of $102,000.How much inventory must
Two fi nancial ratios that clearly distinguish a discount chain such as Kmart from a high-end retailer such as Saks Fifth Avenue are the gross profi t percentage and the rate of inventory turnover.
Sales are $540,000 and cost of goods sold is $330,000. Beginning and ending inventories are $29,000 and $34,000, respectively. How many times did the company turn its inventory over during this
Trigger, Inc., reported the following data:Trigger’s gross profi t percentage isa. 46.3.c. 47.3.b. 52.7.d. 57.4.
Shipley Tank Company had the following beginning inventory, net purchases, net sales, and gross profi t percentage for the fi rst quarter of 20X6:By the gross profi t method, the ending inventory
An error understated Regan Corporation’s December 31, 20X6, ending inventory by$42,000. What effect will this error have on total assets and net income for 20X6?Assets Net incomea. Understate No
An error understated Regan Corporation’s December 31, 20X6, ending inventory by$42,000. What effect will this error have on net income for 20X7?a. Overstatec. No effectb. Understate
(Learning Objectives 1, 2: Accounting for inventory in a perpetual system using average costing method) Nice Buy purchases inventory in crates of merchandise; each crate of inventory is a unit. The
(Learning Objective 1, 2: Measuring cost of goods sold and ending inventory—perpetual system) Assume a Tiger Sports outlet store began October 20X6 with 48 pairs of running shoes that cost the
(Learning Objective 2, 3: Computing inventory by three methods—perpetual system)Fatigues Surplus began October with 72 tents that cost $17 each. During the month, Fatigues Surplus made the
(Learning Objective 4: Measuring and explaining the foreign currency translation adjustment) Assume that Mason has a subsidiary company based in Japan.❙ Requirements 1. Translate into dollars the
(Learning Objective 4: Recording foreign currency transactions and reporting the transaction gain or loss) Suppose Lavender Corporation completed the following international transactions:❙
(Learning Objective 3: Consolidating a wholly owned subsidiary) Assume Ronny, Inc., paid €346,000 to acquire all the share capital of Dinette Corporation, and Dinette owes Ronny €192,000 on a
(Learning Objective 3: Analyzing consolidated fi nancial statements) This problem demonstrates the dramatic effect that consolidation accounting can have on a company’s ratios. Space Motor Company
(Learning Objectives 1, 2: Accounting for available-for-sale and equity-method investments) The beginning balance sheet of Segui Corporation included the following:Segui completed the following
(Learning Objectives 1, 2: Reporting investments on the balance sheet and the related revenue on the income statement) Amsterdam Exchange Company completed the following long-term investment
(Learning Objective 1: Accounting for a bond investment purchased at a premium)Insurance companies and pension plans hold large quantities of bond investments. Safe Insurance Corp. purchased
(Learning Objective 4: Measuring and explaining the foreign currency translation adjustment) Assume that Folgate has a subsidiary company based in Japan.❙ Requirements 1. Translate into dollars the
(Learning Objective 4: Recording foreign currency transactions and reporting the transaction gain or loss) Suppose Turquoise Corporation completed the following international transactions:❙
(Learning Objective 3: Consolidating a wholly owned subsidiary) Assume Rose, Inc., paid $453,000 to acquire all the share capital of Mountain Corporation, and Mountain owes Rose $175,000 on a note
(Learning Objective 3: Analyzing consolidated fi nancial statements) This problem demonstrates the dramatic effect that consolidation accounting can have on a company’s ratios.Fixed Motor Company
(Learning Objectives 1, 2: Accounting for available-for-sale and equity-method investments) The beginning balance sheet of Noram Corporation included the following:Noram completed the following
(Learning Objective 2, 3: Applying the different inventory costing methods—perpetual system) The records of Bell Aviation include the following accounts for inventory of aviation fuel at December
(Learning Objectives 1, 2: Reporting investments on the balance sheet and the related revenue on the income statement) Oregon Exchange Company completed the following long-term investment
(Learning Objective 1: Accounting for a bond investment purchased at a premium)Insurance companies and pension plans hold large quantities of bond investments. Sea Insurance Corp. purchased
Consolidation of a foreign subsidiary usually results in aa. foreign currency translation adjustment.c. LIFO/FIFO difference.b. gain or loss on consolidation.d. foreign currency transaction gain or
Foreign currency transaction gains and losses are reported on thea. income statement.c. balance sheet.b. consolidation worksheet.d. statement of cash fl ows.
One way to prevent a foreign currency transaction loss is toa. offset foreign currency inventory and PPE.b. collect in your own currency.c. pay debts as late as possible.d. pay in the foreign
Providence Systems purchased inventory on account from Megasonic. The price was¥100,000, and a yen was quoted at $0.0088. Providence paid the debt in yen a month later, when the price of a yen was
Return to Microspace, Inc.’s bond investment in the preceding question. For the year ended December 31, 20X3, Microspace received cash interest of $4,000. What was the interest revenue that
On January 1, 20X0, Microspace, Inc., purchased $80,000 face value of the 5% bonds of Mail Frontier, Inc., at 107. The bonds mature on January 1, 20X5. For the year ended December 31, 20X5,
Consolidation accountinga. reports the receivables and payables of the parent company only.b. eliminates all liabilities.c. combines the accounts of the parent company and those of the subsidiary

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