Accounting 350, Fall 2009
Quiz, Chpts 7,8 & 9
1. Lawrence Company has cash in bank of $15,000, restricted cash in a separate account of
$4,000, and a bank overdraft in an account at another bank of $2,000. Lawrence should
report cash of
A) $13,000.
B) $15,000.
C) $18,000.
D) $19,000.
2. AG Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If the
company uses the net method to record sales made on credit, how much should be
recorded as revenue?
A) $ 9,800.
B) $ 9,900.
C) $10,000.
D) $10,100.
3. Wellington Corp. has outstanding accounts receivable totaling $2.54 million as of
December 31 and sales on credit during the year of $12.8 million. There is also a debit
balance of $6,000 in the allowance for doubtful accounts. If the company estimates that
1% of its net credit sales will be uncollectible, what will be the balance in the allowance
for doubtful accounts after the year-end adjustment to record bad debt expense?
A) $ 25,400.
B) $ 31,400.
C) $122,000.
D) $134,000.
4. The following information is available for Murphy Company:
Allowance for doubtful accounts at December 31, 2009
Credit sales during 2010
Accounts receivable deemed worthless and written off during
2010
$
8,000
400,000
9,000
As a result of a review and aging of accounts receivable in early January 2011, however,
it has been determined that an allowance for doubtful accounts of $5,500 is needed at
December 31, 2010. What amount should Murphy record as "bad debt expense" for the
year ended December 31, 2010?
A) $4,500
B) $5,500
C) $6,500
D) $13,500
Page 1
5. Vasguez Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
$20,000. During 2010, it wrote off $14,400 of accounts and collected $4,200 on
accounts previously written off. The balance in Accounts Receivable was $400,000 at
1/1 and $480,000 at 12/31. At 12/31/10, Vasguez estimates that 5% of accounts
receivable will prove to be uncollectible. What is Bad Debt Expense for 2010?
A) $4,000.
B) $14,200.
C) $18,400.
D) $24,000.
6. On December 31, 2010, Flint Corporation sold for $75,000 an old machine having an
original cost of $135,000 and a book value of $60,000. The terms of the sale were as
follows:
$15,000 down payment
$30,000 payable on December 31 each of the next two years
The agreement of sale made no mention of interest; however, 9% would be a fair rate
for this type of transaction. What should be the amount of the notes receivable net of the
unamortized discount on December 31, 2010 rounded to the nearest dollar? (The
present value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)
A) $52,773.
B) $67,773.
C) $60,000.
D) $105,546.
7. Moon Inc. factors $1,000,000 of its accounts receivables with recourse for a finance
charge of 4%. The finance company retains an amount equal to 8% of the accounts
receivable for possible adjustments. Moon estimates the fair value of the recourse
liability at $100,000. What would be the debit to Cash in the journal entry to record this
transaction?
A) $1,000,000.
B) $960,000.
C) $880,000.
D) $780,000.
8. In preparing its August 31, 2010 bank reconciliation, Bing Corp. has available the
following information:
Balance per bank statement, 8/31/10
Deposit in transit, 8/31/10
Return of customer's check for insufficient funds, 8/30/10
Outstanding checks, 8/31/10
Bank service charges for August
At August 31, 2010, Bing's correct cash balance is
A) $22,800.
B) $22,200.
C) $22,100.
D) $20,500.
Page 2
$21,650
3,900
600
2,750
100
9. Bell Inc. took a physical inventory at the end of the year and determined that $475,000
of goods were on hand. In addition, the following items were not included in the
physical count. Bell, Inc. determined that $60,000 of goods were in transit that were
shipped f.o.b. destination (goods were actually received by the company three days after
the inventory count).The company sold $25,000 worth of inventory f.o.b. destination.
What amount should Bell report as inventory at the end of the year?
A) $475,000.
B) $535,000.
C) $500,000.
D) $560,000.
10. The following information is available for Naab Company for 2010:
Freight-in
Purchase returns
Selling expenses
Ending inventory
$ 30,000
75,000
150,000
260,000
The cost of goods sold is equal to 400% of selling expenses. What is the cost of goods
available for sale?
A) $600,000.
B) $890,000.
C) $815,000.
D) $860,000.
11. Emley Company has been using the LIFO method of inventory valuation for 10 years,
since it began operations. Its 2010 ending inventory was $40,000, but it would have
been $60,000 if FIFO had been used. Thus, if FIFO had been used, Emley's income
before income taxes would have been
A) $20,000 greater over the 10-year period.
B) $20,000 less over the 10-year period.
C) $20,000 greater in 2010.
D) $20,000 less in 2010.
12. Milford Company had 500 units of “Tank” in its inventory at a cost of $4 each. It
purchased, for $2,800, 300 more units of “Tank”. Milford then sold 400 units at a
selling price of $10 each, resulting in a gross profit of $1,600. The cost flow assumption
used by Johnson
A) is FIFO.
B) is LIFO.
C) is weighted average.
D) cannot be determined from the information given.
Page 3
Use the following to answer question 13:
Gross Corporation adopted the dollar-value LIFO method of inventory valuation on December 31, 2009. Its
inventory at that date was $220,000 and the relevant price index was 100. Information regarding inventory for
subsequent years is as follows:
Inventory at
Current
Date
Current Prices Price Index
December 31, 2010
$256,800
107
December 31, 2011
290,000
125
December 31, 2012
325,000
130
13. What is the cost of the ending inventory at December 31, 2011 under dollar-value
LIFO?
A) $232,000.
B) $231,400.
C) $232,840.
D) $240,000.
14. What is the cost of the ending inventory at December 31, 2012 under dollar-value
LIFO?
A) $256,240.
B) $254,800.
C) $250,000.
D) $263,400.
15. On June 1, 2010, Penny Corp. sold merchandise with a list price of $20,000 to Linn on
account. Penny allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40
and the sale was made f.o.b. shipping point. Penny prepaid $400 of delivery costs for
Linn as an accommodation. On June 12, 2010, Penny received from Linn a remittance
in full payment amounting to
A) $10,976.
B) $11,368.
C) $11,376.
D) $11,196.
Page 4
16. Kerr Co.'s accounts payable balance at December 31, 2010 was $1,500,000 before
considering the following transactions:
• Goods were in transit from a vendor to Kerr on December 31, 2010. The invoice price
was $70,000, and the goods were shipped f.o.b. shipping point on December 29, 2010. The goods were recei
4, 2011.
• Goods shipped to Kerr, f.o.b. shipping point on December 20, 2010, from a vendor
were lost in transit. The invoice price was $50,000. On January 5, 2011, Kerr filed
a $50,000 claim against the common carrier.
In its December 31, 2010 balance sheet, Kerr should report accounts payable of
A) $1,620,000.
B) $1,570,000.
C) $1,550,000.
D) $1,500,000.
17. Oslo Corporation has two products in its ending inventory, each accounted for at the
lower of cost or market. A profit margin of 30% on selling price is considered normal
for each product. Specific data with respect to each product follows:
Historical cost
Replacement cost
Estimated cost to dispose
Estimated selling price
Product #1
$40.00
45.00
10.00
80.00
Product #2
$ 70.00
54.00
26.00
130.00
In pricing its ending inventory using the lower-of-cost-or-market, what unit values
should Oslo use for products #1 and #2, respectively?
A) $40.00 and $65.00.
B) $46.00 and $65.00.
C) $46.00 and $60.00.
D) $45.00 and $54.00.
18. Given the acquisition cost of product Dominoe is $86.62, the net realizable value for
product Dominoe is $76.98, the normal profit for product Dominoe is $8.63, and the
market value (replacement cost) for product Dominoe is $81.36, what is the proper
per unit inventory price for product Dominoe?
A) $81.36.
B) $68.35.
C) $76.98.
D) $86.62.
Page 5
19. The following information is available for October for Barton Company.
Beginning inventory
Net purchases
Net sales
Percentage markup on cost
$ 50,000
150,000
300,000
66.67%
A fire destroyed Barton's October 31 inventory, leaving undamaged inventory with a
cost of $3,000. Using the gross profit method, the estimated ending inventory destroyed
by fire is
A) $17,000.
B) $77,000.
C) $80,000.
D) $100,000.
20. A markup of 40% on cost is equivalent to what markup on selling price?
A) 29%
B) 40%
C) 60%
D) 71%
21. Kesler, Inc. estimates the cost of its physical inventory at March 31 for use in an interim
financial statement. The rate of markup on cost is 25%. The following account balances
are available:
Inventory, March 1
Purchases
Purchase returns
Sales during March
$220,000
172,000
8,000
300,000
The estimate of the cost of inventory at March 31 would be
A) $84,000.
B) $144,000.
C) $159,000.
D) $112,000.
22. Dicer uses the conventional retail method to determine its ending inventory at cost.
Assume the beginning inventory at cost (retail) were $130,000 ($198,000), purchases
during the current year at cost (retail) were $685,000 ($1,100,000), freight-in on these
purchases totaled $43,000, sales during the current year totaled $1,050,000, and net
markups (markdowns) were $24,000 ($36,000). What is the ending inventory value at
cost?
A) $153,164.
B) $156,165.
C) $157,412.
D) $236,000.
Page 6
The following data concerning the retail inventory method are taken from the financial records of Welch
Company.
Cost
Retail
Beginning inventory
$ 49,000
$ 70,000
Purchases
224,000
320,000
Freight-in
6,000
—
Net markups
—
20,000
Net markdowns
—
14,000
Sales
—
336,000
23. The ending inventory at retail should be
A) $74,000.
B) $60,000.
C) $64,000.
D) $42,000.
24. Keen Company's accounting records indicated the following information:
Inventory, 1/1/10
Purchases during 2010
Sales during 2010
$ 600,000
3,000,000
3,800,000
A physical inventory taken on December 31, 2010, resulted in an ending inventory of
$700,000. Keen's gross profit on sales has remained constant at 25% in recent years.
Keen suspects some inventory may have been taken by a new employee. At December
31, 2010, what is the estimated cost of missing inventory?
A) $50,000.
B) $150,000.
C) $200,000.
D) $250,000.
Page 7
Answer Key
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
B
B
C
C
B
A
C
A
C
D
A
C
C
A
C
A
A
C
A
A
B
A
B
A
Page 8