Use the following information to answer Questions 1 through 4:
Halpin Plumbing Supplies offers a 10% trade discount to
plumbing contractors. On May 1, EZ Plumbing buys plumbing
materials with a list price of $550. At the time of the purchase,
EZ gives Halpin a check for $225 and asks Halpin to put the
remainder of the purchase on its account, which already has a
balance of $475. On July 1, EZ goes out of business without
making any additional purchases or payments. Halpin learns
it will be unable to collect the outstanding receivable balance.
Halpin uses the direct write-off method to account for bad debts.1. The amount Halpin Plumbing Supplies should record as sales revenue for the May 1
transaction is
A. $55. C. $540.
B. $495. D. $550.
2. What journal entry will Halpin make to record the May 1 sale?
A. Debit Sales Revenue, credit Accounts Receivable
B. Credit Sales Revenue, debit Accounts Receivable
C. Debit Sales Revenue, debit Cash, credit Accounts Receivable
D. Credit Sales Revenue, debit Cash, debit Accounts Receivable
3. What balance will Halpin’s accounts receivable subsidiary ledger show for EZ Plumbing
immediately after the May 1 sale?
A. $475 C. $745
B. $550 D. $800
4. What entry will Halpin make on July 1 to record the bad debt?
A. Credit Bad Debt Expense, debit Sales Revenue
B. Debit Bad Debt Expense, credit Sales Revenue
C. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts
D. Debit Bad Debt Expense, credit Accounts Receivable-EZ Plumbing
Use the following data to answer Questions 5 through 8. Assume that the company uses the
periodic inventory system.
September 1 On hand, 300 units @ $1.50 each $450.00
September 6 Purchased 1,000 units @ $1.65 each $1,650.00
September 18 Purchased 800 units @ $1.75 each $1,400.00
Total cost of goods available for sale $3,500.00
September 30 On hand, 425 units
5. If the September 30 inventory included 250 units from the September 6 purchase and 175
units from the September 18 purchase, the ending inventory for September 30 under the
specific identification method would be
A. $701.25. C. $722.50.
B. $718.75. D. $743.75.
6. If the company uses the FIFO inventory method, the amount assigned to the
September 30 inventory would be
A. $637.50. C. $722.50.
B. $656.25. D. $743.75.7. If the company uses the weighted average cost inventory method, the amount assigned to
the September 30 inventory would be
A. $656.25. C. $708.33.
B. $694.17. D. $718.75.
8. If the company uses the LIFO inventory method, the ending inventory at September 30
would be
A. $637.50. C. $722.50.
B. $656.25. D. $743.75.
Use the data presented below to prepare a bank reconciliation, and then answer Questions 9
through 11.
Bank Statement Balance August 31 $24,500
Book Balance (before adjustments) ?
Outstanding Checks $2,700
NSF Checks $400
Service Charges $200
Deposits in Transit $800
Interest Earned on Checking Account $100
9. What’s the adjusted cash balance on August 31, 2004?
A. $22,600 C. $24,000
B. $23,100 D. $26,400
10. What’s the book balance before adjustments?
A. $22,600 C. $24,000
B. $23,100 D. $26,400
11. What’s the net amount of the increase or decrease in the cash balance that must be
recorded as a result of the adjustments identified by the bank reconciliation?
A. $500 increase C. $1,900 increase
B. $500 decrease D. $2,400 decreaseUse the following information to answer Questions 12 through 16.
A company bought equipment at a cost of $68,000. The equipment has an estimated
residual value of $4,000 and an estimated life of eight years, or 12,500 hours of operation.
The equipment was purchased on January 1, 2004. During the first year of operation, it
was used for 1,800 hours. At the end of seven years, the company expects to replace this
old equipment with a newer model at an estimated cost of $85,000.
12. What amount will the company report as depreciation expense over the eight-year life of
the equipment?
A. $8,000 C. $68,000
B. $64,000 D. $60,000
13. If the company uses the straight-line method, what’s the book value of the equipment at
December 31, 2004?
A. $8,000 C. $64,000
B. $60,000 D. $68,000
14. If the company uses the units-of-production method, what’s the depreciation rate per hour
for the equipment?
A. $5.12 C. $35.55
B. $5.44 D. $37.88
15. If the company uses the double-declining-balance depreciation method, what amount is
the depreciation expense for 2004?
A. $18,000 C. $16,000
B. $17,000 D. $15,000
16. If the company uses the straight-line depreciation method and sells the equipment for
$18,000 cash at the end of Year 7, what’s the gain or loss on the sale?
A. $6,000 C. $56,000
B. $18,000 D. $68,000Use the following information to complete Question 17. You’ll need to calculate the gross
profit ratio, the net income, and the inventory turnover ratio.
Two companies in the same line of business have the following items on their financial
statements:
Company 1 Company 2
Sales $500,000 $800,000
Cost of Goods Sold $350,000 $500,000
Inventory, Beginning of Year $75,000 $60,000
Inventory, End of Year $25,000 $40,000
Office Rent Expense $25,000 $10,000
17. Which of the following statements is correct?
A. Company 1 has a higher gross profit ratio than Company 2.
B. Company 2 has a lower net income than Company 1.
C. Company 2 sells its inventory faster than Company 1.
D. Company 1 has lower costs of storage and lower investment in inventory than
Company 2.
Answer Questions 18–20 based on the following information:
Rain Shield, Inc. offers a 5% quantity discount to customers who buy 25 or more of the
same product. Rain Shield also offers credit terms of 2/10, n/30 to credit customers. Putter
Pro Shops bought 200 golf umbrellas with a list price of $35 each on March 5, on account.
On March 14, Putter writes a check to Rain Shield to pay for the umbrellas.
18. What’s the amount of the check that Putter will write on March 14?
A. $7,000 C. $6,650
B. $6,860 D. $6,517
19. If Rain Shield records sales revenue using the gross method, what is the amount of revenue
to be recorded on March 5?
A. $7,000 C. $6,650
B. $6,860 D. $6,517
20. What journal entry will Rain Shield make when the March 14 check from Putter is
received?
A. Debit Cash, debit Sales Discount, credit Accounts Receivable
B. Debit Cash, credit Accounts Receivable
C. Debit Cash, credit Sales Discount, credit Accounts Receivable
D. Debit Cash, credit Sales RevenueUse the following information to answer Questions 21 and 22.
Sales (100% on credit) $950,000
Sales Returns and Allowances $21,000
Accounts Receivable (December 31) $114,000
Allowance for Doubtful Accounts
(before adjustment at
December 31; credit balance) $1,000
21. If bad debts are estimated at 2% of net credit sales, what amount will be reported as bad
debt expense?
A. $18,580 C. $19,000
B. $18,820 D. $19,420
22. If the percentage of net credit sales method is used to estimate bad debts, what will be the
balance in the Allowance for Doubtful Accounts account after the adjustment for bad
debts?
A. $18,580 C. $19,580
B. $19,000 D. $20,000
23. Divine Design Company sold merchandise to Cheyenne Corp. on December 1, for $9,000.
Divine Design accepted a promissory note from Cheyenne Corp. for $9,000. The note has
a term of 120 days and a stated interest rate of 6%. Divine Design’s accounting period
ends on December 31. What amount should Divine Design recognize as interest revenue
on December 31?
A. $0 C. $135
B. $45 D. $180
Use the following information to answer Question 24:
Purchases $182,000
Transportation-In $11,000
Inventory, January 1, 2004 $26,500
Inventory, December 31, 2004 $28,800
Purchase Returns and Allowances $8,400
24. The amount reported as cost of goods sold on the income statement is
A. $182,300. C. $179,900.
B. $186,900. D. $190,700.25. In 2003, Metro Corp. bought stock and classified it as available-for-sale securities. The
original cost was $16,000, the fair value at the end of 2003 was $16,500, and the fair value
at the end of 2004 was $17,000. What statement describes the results of the change in fair
value as of December 31, 2004?
A. There will be an unrealized gain on the income statement of $500.
B. There will be an unrealized loss on the income statement of $1,000.
C. There will be an unrealized gain shown in stockholders’ equity of $1,000.
D. There will be an unrealized loss shown in stockholders’ equity of $1,000.
|
