1) 1) Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer. A) True B) False 2) 2) An advantage of FIFO is that it assigns the most recent costs to cost of goods sold, and does a better job of matching current costs with revenues on the income statement. A) True B) False 3) 3) Errors in the period-end inventory balance only affect the current period's records and financial statements. A) True B) False 4) 4) To avoid the time-consuming process of taking an inventory each year, most companies use the gross profit method to estimate ending inventory. A) True B) False 5) Merchandise inventory includes: A) Only non-damaged goods. B) All goods on consignment. C) All goods owned by a company and held for sale. D) All goods in transit. E) Only damaged goods. 6) Consignment goods are: A) Not reported in the consignor's inventory since they do not have possession of the inventory B) Goods shipped by the owner to the consignee who sells the goods for the owner. C) Goods shipped to the consignor who sells the goods for the owner. D) Reported in the consignee's books as inventory. E) Always paid for by the consignee when they take possession 7) On December 31 of the current year, Plunkett Company reported an ending invento balance of $215,000. The following additional information is also available: . Plunkett sold and shipped goods costing S38,000 to Savannah Enterprises on December 28 with shipping terms of FOB shipping point. The goods were not included in the ending inventory amount of $215,000. . Plunkett purchased goods costing $44,000 on December 29. The goods were shipped FOB destination and were received by Plunkett on January 2 of the following year. The shipment was a rush order that was supposed to arrive by December 31. These goods were included in the ending inventory balance of $215,000. . Plunkett's ending inventory balance of $215,000 included $15,000 of goods being held on consignment from Carole Company. (Plunkett Company is the consignee.) . Plunkett's ending inventory balance of $215.000 did not include goods costing $95,000 that were shipped to Plunkett on December 27 with shipping terms of FOB destination and were still in transit at year-end. Based on the above information, the amount that Plunkett should report in ending inventory on December 31 is: A) $200,000 B) $209,000 C) $171,000 D) $194,000 E) $156,000 8) 8) Buffalo Company reported a December 31 ending inventory balance of S412,000. The following additional information is also available: . The ending inventory balance of $412,000 did not include goods costing $48,000 that were purchased by Buffalo on December 28 and shipped FOB destination on that date. Buffalo did not receive the goods until January 2 of the following year. . The ending inventory balance of $412,000 included damaged goods at their original cost of $38,000. The net realizable value of the damaged goods was $10,000. Based on this information, the correct balance for ending inventory on December 31 is: A) $460,000 B) $422.000 C) $374,000 D) S438,000 E) S384,000 9) alds the 9) During a period of steadily rising costs. the inventory valuation method that yields the highest reported net income is: A) FIFO method. B) LIFO method. C) Average cost method. D) Specific identification method. E) Weighted average method. 10) 10) The inventory valuation method that tends to smooth out erratic changes in costs is A) Specific identification. B) LIFO. C) FIFO. D) Weighted average. E) WIFO. 11) TI) If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except: A) Current assets. B) Cost of goods sold. C) Gross profit. D) Net income. E) Net sales. 12) 12) Cash registers, time clocks, and personal identification scanners are examples of technologies that can improve internal control A) True B) False 13) 13) Collusion is a form of fraud where individuals collaborate to thwart separation of duties. A) True B) False 14) 14) On a bank statement, deposits are listed as credits because the bank increases its liability to the depositor when the deposit is made. A) True B) False 15) 15) If the Cash Over and Short account has a credit balance at the end of the period, the amount is commonly reported as miscellaneous revenue. A) True B) False 16) A voucher system establishes procedures for verifying, approving, and recording obligations for eventual cash disbursement. A) True B) False 17) Basic bank services do not include: A) Checking. B) Bank deposits. C) Petty cash management. D) Bank accounts. E) Electronic funds transfer 18) 18) A bank statement provided by the bank includes: A) The beginning and the ending balance of the depositor's account. B) A list of petty cash amounts. C) A reconciliation to the depositor cash account. D) A listing of deposits in transit. E) A list of outstanding checks. 19) 19) The impact of technology on internal controls includes: A) Elimination of separation of duties. B) Elimination of the need for regular audits. C) Elimination of the need to bond employees. D) Elimination of fraud. E) Reduced processing errors. 20) 20) Cash, not including cash equivalents, includes: A) Two-year certificates of deposit. B) TOUS. C) Money market funds. D) Postage stamps. E) Customer checks, cashier checks, and money orders. 21) 21) Credit sales are recorded by crediting Accounts Receivable. A) True B) False 22 22) As long as a company accurately records total credit sales information, it is not necessary to have separate accounts for specific customers. A) True B) False 30) 30) A company receives a 10%, 120-day note for $1.500. The total interest due on the maturity date is: (Use 360 days a year.) A) $50.00. B) $37.50. C) $150.00. D) $87.50. E) $75.00. 31) 31) If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in: A) No effect on the expenses of the current period. B) A reduction in current assets. C) A reduction in equity. D) An increase in the expenses of the current period. E) A reduction in current liabilities. 3 2) 32) On October 12 of the current year, a company determined that a customer's account receivable was uncollectible and that the account should be written off. Assuming the allowance method is used to account for bad debts, what effect will this write-off have on the company's net income and total assets? A) No effect on net income; no effect on total assets. B) No effect on net income; decrease in total assets. C) Increase in net income; no effect on total assets. D) Decrease in net income; no effect on total assets. E) Decrease in net income, decrease in total assets. 33) 33) Gideon Company uses the direct write-off method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote of the $2.000 uncollectible account its customer, A. Hopkins. The entry or entries Gideon makes to record the wind the account on May 3 is: A) Accounts Receivable-A. Hopkins Bad Debts Expense able-A. Hopkins 2,000 2,000 B) Cash 2,000 Accounts Receivable A. Hopkins 2,000 Allowance for Doubtful Accounts Accounts Receivable-A. Hopkins 2,000 D ) 2,000 Bad Debts Expense Accounts Receivable-A. Hopkins 2.000 2,000 counts ReceivableA. Hopkins E) 2,000 Accounts Receivable-A. Hopkins Cash 2,000 34) 34) Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,000 uncollectible account of its customer, A. Hopkins. On July 10, Gideon received a check for the full amount of $2,000 from Hopkins. On July 10, the entry or entries Gideon makes to record the recovery of the bad debt is: A) 2,000 2,000 Allowance for Doubtful Accounts Accounts Receivable-A. Hopkinse Accounts Receivable-A. Hopkins Cash 2,000 2,000 2,000 Cash Accounts Receivable - A. Hopkins 2,000 2.000 2,000 Accounts Receivable-A. Hopkins Allowance for Doubtful Accounts Cash Accounts Receivable-A. Hopkins 2,000 2,000 D) 2,000 2.000 Accounts Receivable-A. Hopkins Bad debts expense Cash Accounts Receivable-A. Hopkins 2,000 2,000 Cash 2,000 Bad debts expense 2,000 35) 35) A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 4% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $800 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for: A) $2,800 B) $4,400 C) $3,600 D ) $3,568 E) $3,632 36) 36) Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB), which assesses a 3% charge on sales for using its card. On June 28, Jervis had $3,500 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit? A) Debit Cash $3,500; credit Sales $3,500 B) Debit Cash $3,395; debit Credit Card Expense $105; credit Sales $3,500 C) Debit Accounts Receivable $3,395; debit Credit Card Expense $105; credit Sales $3,500 D) Debit Cash $3,605; credit Credit Card Expense $105; credit Sales $3,500 E) Debit Accounts Receivable $3,500; credit Sales $3,500 37) 37) Uniform Supply accepted a 54,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made) (Use 360 days a year.) A) Debit Cash $4,920; credit Notes Receivable $4,920. B) Debit Notes Receivable $4,800; debit Interest Receivable $120; credit Sales $4,920. C) Debit Cash $4,920; credit Interest Revenue S20; credit Interest Receivable $100; credit Notes Receivable $4,800. D) Debit Cash $4,920; credit Interest Revenue $120; credit Notes Receivable S4,800. E) Debit Cash $4.920; credit Interest Revenue $100; credit Interest Receivable $20; credit Notes Receivable $4,800. 38) 38) When plant assets are purchased as a group in a single transaction for a lump-sum price, the cost of the purchase is allocated among the different types of assets acquired based on their relative market values. A) True B) False 39) 39) Depreciation expense is calculated using its cost, estimates of an asset's salvage value, and an estimated useful life. A) True B) False 40) 40) Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the current and future financial statements. A) True B) False 41) 41) Financial accounting and tax accounting require the same recordkeeping and there should be no difference in results between the two accounting systems. A) True B) False 42) 42) If an asset is sold above its book value, the selling company records a loss. A) True B) False 43) 43) Amortization is the process of allocating the cost of natural resources to periods when they are consumed. A) True B) False 44) 44) Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the Accumulated depreciation at the end of the second year of its useful life using the double-declining-balance method? A) $1,200. B) $2,176. C) $1,224. D) S544. E) $600. 45) 45) The depreciation method that allocates an equal portion of the total depreciable cost for a plant asset to each unit produced is called: A) Straight-line depreciation. B) Accelerated depreciation. C) Units-of-production depreciation. D) Modified accelerated cost recovery system (MACRS) depreciation. E) Declining-balance depreciation. 46) 46) A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a property. The property included land appraised at $87.500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property's costs in the company's accounting records? A) Land $75,000; Land Improvements, $30,800; Building, S46,200. B) Land $77,500; Land Improvements: $31.000; Building: S46,500. C) Land $75,000: Land Improvements, $30,000; Building, S45,000. D) Land $80,250; Land Improvements, $32,100: Building. $48,150. E) Land $82,750; Land Improvements, $33,100; Building. S49,650. 47) 47) A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage value of $2,000 and a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,200 but its total useful life remained the same. Determine the amount of depreciation to be charged against the equipment during each of the remaining years of its useful life: A) S5,400 B) S2,400 C) $2.000 D) $1.000 E) $1,800 48) 48) Mohr Company purchases a machine at the beginning of the year at a cost of $24,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 40,000 units. The machine is estimated to have a $4,000 salvage value. The company produces 9,000 units in year 1 and 6,000 units in year 2. Depreciation expense in year 2 A) 89,600. B) $14,400. C) S4,000. D) $3,000. E) $4,500. 49) 49) A company had a tractor destroyed by fire. The tractor originally cost $85,000 with accumulated depreciation of $60,000. The proceeds from the insurance company were $20,000. The company should recognize: A) A gain of $5,000. B) A gain of $65,000. Sono anebo se C) A loss of $5,000. D) A loss of $20,000. E) A gain of $20,000. 50) 50) Ordinary repairs meet all of the following criteria except: A) Are expenditures to keep an asset in normal operating condition. B) Are necessary if an asset is to perform to expectations over its useful life. C) Are treated as expenses. D) Include cleaning, lubricating, and normal adjusting. E) Extend the useful life of an asset beyond its original estimate. 51) EXTRA CREDIT Following are seven items a through g that would cause Rembrandt Company's book balance of cash to differ from its bank statement balance of cash. taob bilo a. A service charge imposed by the bank. b. A check listed as outstanding on the previous period's reconciliation and still outstanding at the end of this month. c. A customer's check returned by the bank is marked "Not Sufficient Funds (NSF)". d. A deposit mailed to the bank on the last day of the current month and not recorded on this month's bank statement. e. A check paid by the bank at its correct $190 amount recorded in error in the company's check register at $109. f. An unrecorded credit memorandum indicating that bank collected a note receivable for Rembrandt Company and deposited the proceeds in the company's account. g. A check written in the current period that is not yet paid or returned by the bank. Indicate where each item, letters a-g, would appear on Rembrandt Company's bank reconciliation by placing its identifying letter in the parentheses in the proper section of the form below. Bank statement cash balance Add: Book balance of cash Add: Deduct: O Deduct: I I IC Reconciled balance Reconciled balance