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business
principles financial accounting

Questions and Answers of Principles Financial Accounting

Does the term last-in in the lifo method mean that the items in the inventory are assumed to be the most recent (last) acquisitions? Explain.AppendixLO1
If merchandise inventory is being valued at cost and the price level is steadily rising, which of the three methods of costing—^fifo, lifo, or average cost—^^vill yield (a) the highest inventory
Which of the three methods of inventory costing—fifo, lifo, or average cost— will in general yield an inventory cost most nearly approximating current re¬ placement cost?AppendixLO1
Can a company change its method of costing inventory? Explain.AppendixLO1
Because of imperfections, an item of merchandise cannot be sold at its normal selling price. How should this item be valued for financial statement purposes?AppendixLO1
How is the method of determining the cost of the inventory and the method of valuing it disclosed in the financial statements?AppendixLO1
What uses can be made of the estimate of the cost of inventory determined by the gross profit method?AppendixLO1
Summarize and provide examples of internal control procedures that apply to inventories.AppendixLO1
Describe the effect of inventory r errors on the financial statements.AppendixLO1
Describe three inventory cost flow assumptions and how they impact the income statement and balance sheet.AppendixLO1
Compute the cost of inventory under the perpetual inventory sys¬ tem, using the following costing methods: first-in, first-out; last-in, first-out; and average cost.AppendixLO1
Compute the cost of inventory under the periodic inventory sys¬ tem, using the following costing methods: first-in, first-out; last-in, first-out; and average cost.AppendixLO1
Compare and contrast the use of the three inventory costing methods.AppendixLO1
Compute the proper valuation of inventory at other than cost, using the lower-of-cost-or-market and net realizable value concepts.AppendixLO1
Prepare a balance sheet presenta¬ tion of merchandise inventory.AppendixLO1
Estimate the cost of inventory, using the retail method and the gross profit method.AppendixLO1
Compute and interpret the inven¬ tory turnover ratio and the number of days' sales in inventory.AppendixLO1
If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an:A. understatement of cost of merchandise sold for the year by $7,500.B. overstatement of gross
The inventory costing method that is based on the assumption that costs should be charged against revenue in the order in which they were incurred is:A. fifo C. average cost B. lifo D. perpetual
3. The following units of a particular item were pur- cha.sed and sold during the period:Beginning inventory First purchase Second purchase First sale Third purchase Second sale 40 units at $20 50
4. The following units of a particular item were avail¬ able for sale during the period:Beginning inventory First purchase Second purchase Third purchase 40 units at $20 50 units at $21 50 units at
If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is;A. lifo C, average B. fifo D. periodic
What security measures may be used by retailers to protect merchandise inven¬ tory from customer theft?Chapter 8 • Inventories 339 AppendixLO1
Which inventory system provides the more effective means of controlling in¬ ventories (perpetual or periodic)? Why?AppendixLO1
Before inventory purchases are recorded, the receiving report should be recon¬ ciled to what documents?AppendixLO1
What document should be presented by an employee requesting inventory items to be released from the company’s warehouse?AppendixLO1
Why is it important to periodically take a physical inventory if the perpetual sys¬ tem is used?AppendixLO1
The inventory shrinkage at the end of the year was understated by S 18,500. (a) Did the error cause an overstatement or an understatement of the gross profit for the year? (b) Which items on the
Martin Co. sold merchandise to Fess Company on December 31, FOB shipping point. If the merchandise is in transit on December 31, the end of the fiscal year, which company would report it in its
Do the terms fifo and lifo refer to techniques used in determining quantities of the various classes of merchandise on hand? Explain.AppendixLO1
Does the term last-in in the lifo method mean that the items in the inventory are assumed to be the most recent (last) acquisitions? Explain.AppendixLO1
If merchandise inventory is being valued at cost and the price level is steadily rising, which of the three methods of costing—^fifo, lifo, or average cost—^^vill yield (a) the highest inventory
Which of the three methods of inventory costing—fifo, lifo, or average cost— will in general yield an inventory cost most nearly approximating current re¬ placement cost?AppendixLO1
Can a company change its method of costing inventory? Explain.AppendixLO1
Because of imperfections, an item of merchandise cannot be sold at its normal selling price. How should this item be valued for financial statement purposes?AppendixLO1
How is the method of determining the cost of the inventory and the method of valuing it disclosed in the financial statements?AppendixLO1
What uses can be made of the estimate of the cost of inventory determined by the gross profit method?AppendixLO1
Define an accounting system and X describe its implementation.AppendixLO1
List the three objectives of internal control, and define and give exam¬ ples of the five elements of internal control.AppendixLO1
Describe the nature of cash and the importance of internal control over cash.AppendixLO1
Summarize basic procedures for achieving internal control over cash receipts.AppendixLO1
Summarize basic procedures for achieving internal control over cash payments, including the use of a voucher system.AppendixLO1
Describe the nature of a bank account and its use in controlling cash.AppendixLO1
Prepare a bank reconciliation and journalize any necessary entries.AppendixLO1
Account for small cash transactions using a petty cash fund.AppendixLO1
Summarize how cash is presented on the balance sheet.AppendixLO1
Compute and interpret the ratio of cash to current liabilities.AppendixLO1
The initial step in the process of developing an ac¬ counting system is called:A. analysis C. implementation B. design D. feedback AppendixLO1
The policies and procedures used by management to protect assets from misuse, ensure accurate busi¬ ness information, and ensure compliance with laws and regulations are called:A. internal controls
In preparing a bank reconciliation, the amount of checks outstanding would be:A. added to the cash balance according to the bank statement.B. deducted from the cash balance according to the bank
Journal entries based on the bank reconciliation are required for:A. additions to the cash balance according to the depositor’s records.B. deductions from the cash balance according to the
A petty cash fund is:A. used to pay relatively small amounts.B. established by estimating the amount of cash needed for disbursements of relatively small amounts during a specified period.C.
How does a policy of rotating clerical employees from job to job aid in strength¬ ening the control procedures within the control environment?AppendixLO1
Why should the employee who handles cash receipts not have the responsibil¬ ity for maintaining the accounts receivable records?AppendixLO1
The ticket seller at a movie theater doubles as a ticket taker for a few minutes each day while the ticket taker is on a break. Which control procedure a business’s system of internal control is
Why is cash the asset that often warrants the most attention in the design of an effective internal control structure?AppendixLO1
The combined cash count of all cash registers at the close of business is $110 less than the cash sales indicated by the cash register records, (a) In what account is the cash shortage recorded? (b)
Before a voucher for the purchase of merchandise is approved for payment, sup¬ porting documents should be compared to verify the accuracy of the liability. Name an example of a supporting document
The accounting clerk pays all obligations by prenumbered checks. What are the strengths and weaknesses in the internal control over cash payments in this situation?AppendixLO1
In what order are vouchers ordinarily filed (a) in the unpaid voucher file and (b) in the paid voucher file? Give reasons for the answers.AppendixLO1
The balance of Cash is likely to differ from the bank statement balance. What two factors are likely to be responsible for the difference?AppendixLO1
What is the purpose of preparing a bank reconciliation?AppendixLO1
Do items reported on the bank statement as credits represent (a) additions made by the bank to the depositor’s balance, or '(b) deductions made by the bank from the depositor’s balance?AppendixLO1
What entry should be made if a check received from a customer and deposited is returned by the bank for lack of sufficient funds (an NSF check)?AppendixLO1
What account or accounts are debited when (a) establishing a petty cash fund and (b) replenishing a petty cash fund?AppendixLO1
The petty cash account has a debit balance of $800. At the end of the account¬ ing period, there is $110 in the petty cash fund, along with petty cash receipts totaling $690. Should the fund be
How are cash equivalents and compensating balances reported in the financial statements?AppendixLO1
Distinguish the activities of a service business from those of a merchandis¬ ing business.AppendixLO1
Describe and illustrate the financial statements of a merchandising busi¬ ness.AppendixLO1
Describe the accounting for the sale of merchandise.AppendixLO1
Describe the accounting for the pur¬ chase of merchandise.AppendixLO1
Describe the accounting for trans¬ portation costs, sales taxes, and trade discounts.AppendixLO1
Illustrate the dual nature of merchan¬ dising transactions.AppendixLO1
Prepare a chart of accounts for a merchandising business.AppendixLO1
Describe the accounting cycle for a merchandising business.AppendixLO1
Compute the ratio of net sales to assets as a measure of how effec¬ tively a business is using its assets.AppendixLO1
If merchandise purchased on account is returned, the buyer may inform the seller of the details by issuing:A. a debit memorandum B. a credit memorandum C. an invoice D. a bill AppendixLO1
If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30, and the seller prepays $50 in transportation costs, the amount of the discount for early payment
The income statement in which the total of all ex¬ penses is deducted from the total of all revenues is termed:A. multiple-step form C. account form B. single-step form D. report form.AppendixLO1
On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is called:A. operating income B. income from operations C. gross profit D. net income AppendixLO1
Which of the following expenses would normally be classified as Other expense on a multiple-step income statement?A. Depreciation expense—office equipment B. Sales salaries expense C. Insurance
what distinguishes a merchandising business from a service business?AppendixLO1
Can a business earn a gross profit but incur a net loss? Explain.AppendixLO1
In computing the cost of merchandise sold, does each of the following items in¬ crease or decrease that cost? (a) transportation costs, (b) beginning merchandise inventory, (c) purchase discounts,
Describe how the periodic method differs from the perpetual method of ac¬ counting for merchandise inventory.AppendixLO1
Differentiate between the multiple-step and the single-step forms of the income statement.AppendixLO1
What are the major advantages and disadvantages of the single-step form of in¬ come statement compared to the multiple-step statement?AppendixLO1
What type of revenue is reported in the Other income section of the multiple- step income statement?AppendixLO1
How does the accounting for sales to customers using bank credit cards, such as MasterCard and VISA, differ from accounting for sales to customers using non¬ bank credit cards, such as American
On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is called:A. operating income B. income from operations C. gross profit D. net income AppendixLO1
Which of the following expenses would normally be classified as Other expense on a multiple-step income statement?A. Depreciation expense—office equipment B. Sales salaries expense C. Insurance
'I'Ik* credit period during which tlie buyer of merchandise is allowed to pay usu¬ ally begins with what date?AppendixLO1
What is the meaning of (a) 2/10, n/60; (b) n/30; (c) n/eom?AppendixLO1
What is the nature of (a) a credit memorandum issued by the .seller of mer- chandi.se, (b) a debit memorandum i.ssued by the buyer of merchandi.se?AppendixLO1
Who bears the transi^ortation costs when the terms of .sale are (a) FOB shipping point, (b) FOB destination?AppendixLO1
Name at least three accounts that would normally appear in the chart of accounts of a merchandising busine.ss but would not'gppear in the chart of accounts of a .service busine.ss.AppendixLO1
Explain why accounts are used to record and summarize the effects of transactions on financial statements.AppendixLO1
Describe the characteristics of an account.AppendixLO1
List the rules of debit and credit and the normal balances of accounts.AppendixLO1
Analyze and summarize the financial statement effects of transactions.AppendixLO1

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