Download Solution: AQ#3 (Chp 4, 5, 6)

Acct 2210 Zeigler: AQ #3 Solution - Chp 4,5,6 - 15 pts
Review for Exam – See me, or our GA Support Team, with your questions
____ 1. Which of the following would represent a “product” cost?
a. Merchandise purchased for resale.
b. Interest paid to the bank on a note payable.
c. Advertising expense.
d. Salary for the company president.
Use the following information for question #2:
BG Supply Co. uses accrual-basis accounting. The company purchased inventory costing $5,000
with payment terms of 2/10, n/30. The inventory was delivered under terms FOB destination and
freight costs of $250 were paid in cash by the responsible party. BG Supply paid for the inventory
within the ten days. BG Supply then sold the goods on account for $6,500 to a customer. Freight
terms for this sale were FOB destination and freight costs totaled $160. Based upon the above:
____ 2. BG Supply would report net income on its income statement of:
a. $1,190
b. $1,350
c. $1,440 (6,500 – (5,000 - $100 disc) = 4,900 COGS - 160 Transportation-Out = $1,440
Net Income)
d. $1,600
e. $1,760
____ 3. Kesler & Pender Purse Shop caters to discriminating students. The company purchased three of
the same exclusive Gucci purses during the year. The first purse cost $500, the second cost $550
and the third cost $575. If the company sells two of the purses for $3,000 and uses the
FIFO cost flow assumption, the reported Gross Margin (Gross Profit) for the year would be:
a. $1,375
b. $1,875
c. $1.917
d. $1,950 (Sales $3,000 – COGS ($500+$550) = $1,950)
e. $3,000
____ 4. Collins & Kaesberg, Inc. purchased $500 worth of merchandise on account from Falcon
Company. No freight costs were involved. How would Falcon Company record this
transaction in its accounting records assuming that it uses a perpetual inventory system?
a.
Debit accounts receivable and credit sales revenue, debit cost of goods
sold and credit inventory.
b.
Credit accounts receivable and debit sales revenue, debit cost of goods sold
and credit inventory.
c.
Debit cash and credit sales revenue, debit inventory and credit cost of goods
sold.
d.
Credit sales revenue and debit accounts receivable, debit inventory and credit
cost of goods sold.
____ 5. Carter, Inc. purchased goods with the terms 1/15, n/45. What do the terms mean?
a. A 1% discount is available for 45 days; otherwise, the invoice must be paid in 15 days.
b. A 1% discount is available for 30 days after the invoice date; otherwise, the full invoice
must be paid within 45 days.
c. A 15% discount is available within 30 days and the invoice is fully due in 45 days.
d. A 15% discount is available within 15 days and the invoice is fully due in 45 days.
e. None of the above. (“B” above would be correct if “30” was replaced with “15”)
____ 6. On July 1st, Daley & Teague, Inc. purchased 150 units of inventory at a cost of $3.00 each.
On July 15th, the company purchased 200 additional units at a cost of $3.50 each. On July
30th, the company sold 175 units. If the company uses a weighted average inventory cost
flow assumption, then the (possibly rounded) cost of goods sold expense appearing on the
income statement for the month ending July 31st, would be:
a. $525.00
b. $537.50
c. $575.00 (150*3.00)+(200*3.50)/350 units = $3.29/unit * 175 sold = $575
d. $612.50
____ 7. In a consistently inflationary environment, which inventory cost flow assumption would
produce the highest cost of goods sold?
a. LIFO
b. FIFO
c. Weighted Average
d. Cannot be determined – more information is needed.
____ 8. Sunjic, Inc. has four different categories of inventory, presently recorded at
historical cost. Quantity, cost, market value for each inventory category is:
The company carries inventory at the “lower-of-cost or market” as applied to each
individual item. The implementation of the lower-of-cost or market (LCM) rule would:
a. increase assets and equity by $26.00.
b. reduce assets and equity by $101.00. Writedown: (.20*130 units)+(.75*100 units)
c. increase assets and equity by $75.00.
d. reduce assets and equity by $26.00.
e. NOT apply in this case (i.e. none of the above).
____ 9. Weyrick & Boyer, Inc. has an inventory turnover ratio of 7.2. Their ending inventory
balance was $3,200,000. The company’s Cost of Goods Sold must have amounted to:
a. $23,040,000 Inv Turn = COGS / Inventory, therefore = X / $3,200,000 = 7.2
b. $20,448,000
c. $444,444
d. $790,222
_____ 10. A company can protect itself from dishonest employees by obtaining:
a. a signature card.
b. a certified check.
c. an outstanding check.
d. a fidelity bond.
Use the following to answer questions 11-12 only:
A review of the bank statement and accounting records of Neall & Lyn Academics, Inc., a quality
firm providing accounting support to insure student success, revealed the following:
Item No.
1
2
3
4
5
6
Description
A Non-Sufficient Funds (NSF) check was returned by the bank.
A credit memo reflecting interest revenue earned.
A debit memo showing a bank service charge.
A bank error in favor of (beneficial to) the company.
Three outstanding checks.
A Deposit in Transit (DIT).
_____ 11. Which of the item(s) would be subtracted from the company's unadjusted Book
balance to determine the “true” cash balance?
a. Item numbers 5 and 6.
b. Item numbers 2, 3, and 5.
c. Item numbers 1 and 3.
d. Item number 5 only.
_____ 12. Which of the item(s) would be added to the unadjusted Bank balance to determine the
“true” cash balance?
a. Item numbers 1, 3 and 6.
b. Item numbers 4, 5.
c. Item numbers 3, 5, and 6.
d. Item number 6 only.
-------------------------------------------------------------------------------------------------------------------_____ 13. The Bell & Archer, Inc. bank statement, received from the bank, reported a bank account
balance of $20,900 at the end of February. An internal analysis of the bank statement and
the companies’ accounting records revealed the following:
Deposits in transit, $1,420
Bank debit memo for service charge, $6.50
Outstanding checks, $750
After considering the proper reconciling items, the “true” cash balance at the end of February would be:
a. $20,900.00
b. $21,260.00.
c. $21,570.00. (20,900 + 1420 DIT – 750 O/S Checks). Service Chg item already addressed by the bank.
d. $22,053.50.
e. $22,370.00.
_____ 14. Which of the following statements about materiality is not true?
a. Materiality is different for each company.
b. A material error might change the opinion of the average prudent investor.
c. An error greater than $500 is always considered material in a financial audit.
d. Material misstatements should not exist in order for a company to receive an
unqualified opinion.
_____ 15. A CPA conducts an audit on a company's financial statements and finds that the
statements are materially correct and are in compliance with GAAP without reservation
or exception. What form of opinion will the CPA firm issue on these statements?
a. Adverse opinion
b. Qualified opinion
c. Unqualified opinion
d. Disclaimer of opinion
Optional (Non-Graded) Bonus Questions if you have the time (No points)
Use the following information to answer questions #16 & 17:
Company
Sales
Cost of Goods Sold
Gross Margin
Operating Expenses
Net Income
A
$40,000
24,000
16,000
4,800
11,200
B
$60,000
36,000
24,000
5,400
18,600
C
$50,000
30,000
20,000
5,000
15,000
D
$90,000
67,500
22,500
6,300
16,200
____16. Based on the four income statements, which of the companies had the lowest Gross
Margin (Gross Profit) percentage?
A) Company A
B) Company B
C) Company C
D) Company D
E) Unable to determine with the information given.
Answer: Company D = 25% (22500/90000)
____17. Based on the four income statements, which of the companies had the highest Net Profit
percentage (i.e. which is performing “best” relative to sales revenue generated)?
A) Company A
B) Company B
C) Company C
D) Company D
E) Unable to determine with the information given.
In essence, which company has the highest net income.
Answer: Company B = 31% ($18,600/$60,000)
** Use the following to answer questions 18-19 **
The following inventory records are for Zeigler, Inc., an academic merchandising firm dedicated to
college student success:
Beginning Inventory
First Purchase
Second Purchase
Third Purchase
200 units @ $1.00/unit
300 units @ $1.10/unit
400 units @ $1.20/unit
100 units @ $1.30/unit
** Total sales for the period were 900 units @ $1.50 per unit **
____ 18. Determine the amount of cost of goods sold assuming the use of the LIFO cost-flow method.
A) $940.00
B) $1,010.00
C) $1,040.00 (100*$1.30 + 400*$1.20 + 300*$1.10 + 100*$1.00)
D) $1,140.50
E) None of the above.
____ 19. Determine the amount of ending inventory assuming the use of the FIFO cost-flow method.
A) $100.00
B) $110.00
C) $120.00
D) $130.00 (100*$1.30)
E) None of the above.