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FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS CHAPTER 4 QUESTIONS 1. Which of the following items is not a product cost? A. Transportation cost on goods delivered to customers. B. Cost of merchandise purchased for resale. C. Transportation cost on merchandise purchased from suppliers. D. All of these are product costs. 2. Product costs are matched against sales revenue A. in the period immediately following the purchase. B. in the period immediately following the sale. C. when the merchandise is sold. D. when the merchandise is purchased 3. The following entry is taken from the journal of a merchandising company: What is the effect of this entry on the accounting equation? A. Assets and equity will decrease. B. Assets will decrease and equity will increase. C. Assets and equity will increase. D. None of these. 4. The Walsh Company purchased $20,000 of merchandise from the Chicago Wholesale Company. Wales also paid $1,500 for freight costs to have the goods shipped to its location. Which of the following statements regarding the necessary entries for the transactions is true? Walsh uses the perpetual inventory system. A. Total debits to the inventory account would be $20,000. B. Total debits to the inventory account would be $21,500. C. Transportation Expense would be debited for $1,500. D. Answers A and C are both true 5. Grayson Garden Supply sold a piece of land for $38,000 that had originally cost $32,500. This event would A. increase cash flows from investing activities by $38,000. B. not affect operating income. C. increase net income by $5,500. D. all of these. 1 FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS 6. Aramis Company uses the perpetual method. The company's inventory account had a $6,500 balance as of December 31, 2011. A physical count of inventory shows only $5,800 of merchandise in stock at December 31, 2011. The entry to recognize the missing inventory will A. increase assets. B. increase expense. C. decrease cash flow from operating activities. D. all of these. 7. The following are the income statements for Brent and Simon Companies. What are the net income percentages for the above companies? A. 6.09% 4.25% B. 1.83% 1.70% C. 16.4% 23.6% D. 30% 40% 8. The following data is from the income statement of Russell Company: The company's gross margin percentage is: A. 15.625%. B. 40.625%. C. 59.375%. D. none of these. 9. Andersson Company uses the periodic inventory cost flow method. If Andersson's ending inventory is overstated due to an accounting error, what is the effect on net income and retained earnings? A. B. C. D. 2 FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS 10. South Company uses the periodic inventory method. The following balances were drawn from the accounts of South Company prior to the closing process: The amount of gross margin appearing on the income statement should be: A. $1,800. B. $2,100. C. $3,900. D. $4,700. 11. Georgia Co. had beginning inventory of $800 and ending inventory of $400. The cost of goods sold was $3,200. Based on this information, Georgia Co. must have purchased inventory amounting to: A. $2,800. B. $3,200. C. $3,600. D. $4,400. 12. What event and inventory method is represented by the following journal entry? A. A return of goods by a customer under the periodic inventory method. B. A sale of goods under the periodic inventory method. C. A return of goods by a customer under the perpetual inventory method. D. A sale of goods under the perpetual inventory method. 13. Gatewood Company sold merchandise costing $1,800 for $2,600 cash. The merchandise was later returned by the customer for a refund. If the perpetual inventory method is used, what effect will the sales return have on the accounting equation? A. Total assets and total equity increase by $800. B. Total assets decrease by $2,600 and total equity is decreased by $1,800. C. Total assets and total equity decrease by $2,600. D. Total assets and total equity decrease by $800. 3 FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS 14. Kettlewell Company experienced a transaction that had the following effect on the financial statements: Which transaction would have this effect? A. Paid for merchandise that had been purchased on account. B. Return to a supplier of merchandise purchased on account. C. Return by a customer of a sale that was made on account. D. A loss on land that was sold for cash. 15. On October 1, Snow Company made a $50,000 sale giving the customer terms of 3/10et 30. The receivable was collected from the customer on Oct. 8. Considering the collection of cash from the receivable, what effect will the transaction have on the company's statements? Assume Snow Company uses the Gross Method to record their sales and Accounts Receivable. A. B. C. D. CHAPTER 5 QUESTIONS 16. Which inventory costing method will produce an amount for cost of goods sold that is closest to current market value? A. Weighted average. B. Specific identification. C. FIFO. D. LIFO The inventory records for Raymond Co. reflected the following 4 FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS 17. Determine the weighted average cost per unit for May. A. $1.22 B. $1.15 C. $1.14 D. $1.31 18. Determine the amount of cost of goods sold assuming the LIFO cost flow method. A. $1,140 B. $1,040 C. $1,000 D. $940 19. Determine the amount of ending inventory assuming the FIFO cost flow method. A. $100 B. $130 C. $110 D. $120 20. Determine the amount of gross margin assuming the weighted average cost flow method. A. $114 B. $130 C. $324 D. $340 21. Determine the amount of gross margin assuming the FIFO cost flow method. A. $114 B. $130 C. $324 D. $340 22. Kite Company uses the perpetual inventory method. On January 1, 2011, Kite purchased 300 units of inventory that cost $2.00 each. On January 10, 2011, the company purchased an additional 500 units of inventory that cost $3.00 each. If Kite uses a weighted average cost flow method and sells 400 units of inventory, the amount of cost of goods sold appearing on the income statement will be: A. $800. B. $1,000. C. $1,050. D. $1,200. 23. If a firm is using the lower-of-cost-or-market rule and if a write-down entry is required, which of the following effects will apply? A. Net income will increase. B. Gross margin will decrease. C. Assets will increase. D. Liabilities will decrease. 5 FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS 24. Warren Corporation's 2011 ending inventory was overstated by $20,000; however, ending inventory for 2012 was correct. Which of the following statements is correct? A. Net income for 2011 is understated. B. Retained earnings at the end of 2012 is overstated. C. Cost of goods sold for 2012 is overstated. D. Cost of goods sold for 2011 is overstated. 25. The gross margin method requires all but which of the following elements of information? A. Total sales for the present period. B. The ending inventory for the present period. C. Amount of purchases during the present period. D. The beginning inventory for the present period. 26. Lincoln Company is preparing its financial statements. Gross margin is normally 45% of sales. Information taken from the company's records revealed sales of $50,000; beginning inventory of $5,000 and purchases of $35,000. The estimated amount of ending inventory would be: A. $12,500. B. $17,500. C. $7,500. D. $2,500. 27. The average number of days to sell inventory for Company Z is: A. 14.3 B. 25.7 C. 25.6 D. 31.0 28. Conrad Corporation is a merchandiser of specialized fly fishing gear. Its cost of goods sold for 2011 was $195,000, and sales were $390,000. The amount of merchandise on hand was $39,000, and total assets amounted to $312,000. Using this information, which of the following answers correctly states the average days in inventory ratio? Round to the nearest day. A. 73 days B. 37 days C. 46 days D. 5 days 6 FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS 29. Trainer Co. had beginning inventory of $400 and ending inventory of $600. Trainer Co. had cost of goods sold amounting to $1,800. Based on this information, Trainer Co. must have purchased inventory amounting to: A. $1,600 B. $2,000 C. $2,800 D. $2,400 CHAPTERS 6 QUESTIONS 30. The accountant for Barb's Bookstore balanced out the cash register for the day. The register indicates $1,031.50 in sales, the change fund at the beginning of the day was $125 and the actual cash in the register is $1,150.25 (including the change fund, previously accounted for). What is the effect on the financial statements of the entry to record the day's sales and any related overage or shortage? A. B. C. D. A review of the bank statement and accounting records of the Bard Company revealed the following items: 31. Which of the item(s) would be added to the unadjusted bank balance to determine the true cash balance? A. Item numbers 3 and 6. B. Item number 5. C. Item numbers 5, 3, and 6. D. Item number 6. 32. The April 30, 2011 bank statement for Turner Corporation shows an ending balance of $34,451. The unadjusted cash account balance was $28,350. The accountant for Turner gathered the following information: There was a deposit in transit for $4,240 The bank statement reports a service charge of $39 A credit memo included in the bank statement shows interest earned of $95 7 FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS Outstanding checks totaled $10,935 The bank statement included a $650 NSF check deposited in April What is the true cash balance as of April 30, 2011? A. $27,106 B. $27,756 C. $31,901 D. $31,996 33. For which of the following bank reconciliation adjustments would an adjusting journal entry not be necessary? A. An error in which the company's accountant recorded a check as $235 that was written correctly for $253 B. An error in which the bank charged the company $83 for a check that had been written by another account holder C. A check for $37 deposited during the month, but returned for non-sufficient funds D. All of the above would require adjusting journal entries 34. In preparing the April bank reconciliation for Oscar Company, it was discovered that on April 10 a check was written to pay delivery expense of $45 but the check was erroneously recorded as $54 in the company's books. The journal entry required to correct the error is A. B. C. D. 35. While performing its monthly bank reconciliation, the bookkeeper for the Good Corporation noted that a deposit of $100 (received from a customer on account) was recorded in the company books as $1,000. Which of the following shows the effect of the correcting entry on the financial statements? A. B. C. D. 8 FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS 36. Robert Company's unadjusted book balance at October 31, 2011 is $3,500. The following information is available for the bank reconciliation: Outstanding checks, $600 Deposits in transit, $450 Bank service charges, $90 The bank had collected an account receivable for Robert Company, $1,000 The bank statement included an NSF check written by one of Robert's customers for $600. Based on this information Robert's true cash balance is: A. $2,050. B. $4,590. C. $3,810. D. $3,860. The bank statement for Travis Company contained the following items: a bank service charge of $10; a credit memo for interest earned, $15; and a $50 NSF check from a customer. The company had outstanding checks of $100 and a deposit in transit of $300. 37. Assuming that the unadjusted bank balance was $500, determine the unadjusted book balance. A. $700. B. $455. C. $745. D. $800. 38. The owner of the Kappas Company established a petty cash fund amounting to $425. What is the effect on the financial statements of the entry to record this transaction? A. B. C. D. 39. Zirkle Company's petty cash fund was established on January 1, 2011 with $500. On January 31, 2011 a count of the fund revealed: $103 in cash remaining and vouchers for miscellaneous payments totaling $400. What effect will the necessary entries to replenish the fund have on the company's financial statements? A. B. C. D. 9 FINANCIAL ACCOUNTING-CHAPTERS 4, 5 & 6 TEAM REVIEW GAME QUESTIONS 40. Gandolf Company established a $250 petty cash fund on January 1, 2011. On March 1, 2011 the fund contained $160 in receipts for miscellaneous expenses and $88 in cash. The entries necessary to replenish the petty cash fund will A. increase assets by $250. B. decrease equity by $160. C. increase equity by $162. D. decrease assets by $162. 10