Test 2

2 October 2022
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question
A debit to Sales Returns and Allowances and a credit to Accounts Receivable:
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Recognizes that a customer returned merchandise and/or received an allowance.
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The acid-test ratio:
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Is also called the quick ratio.
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Which of the following accounts would be closed at the end of the accounting period with a debit?
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sales
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A company's net sales were $676,600, its cost of goods sold was $236,810 and its net income was $33,750. Its gross margin ratio equals:
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65%
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Beginning inventory plus net purchases is:
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Merchandise (goods) available for sale.
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Expenses that support the overall operations of a business and include the expenses relating to accounting, human resource management, and financial management are called:
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General and administrative expenses.
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The credit terms 2/10, n/30 are interpreted as:
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2% cash discount if the amount is paid within 10 days, or the balance due in 30 days.
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Quick assets are defined as:
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Cash, short-term investments, and current receivables.
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Liquidity problems are likely to exist when a company's acid-test ratio:
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Is substantially lower than 1.
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Merchandise inventory:
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Is a current asset.
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Which of the following statements regarding inventory shrinkage is not true?
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Inventory shrinkage is recognized by debiting an operating expense.
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A company has sales of $718,800 and cost of goods sold of $287,800. Its gross profit equals:
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$431,000.
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A company purchased $3,600 of merchandise on July 5 with terms 2/10, n/30. On July 7, it returned $395 worth of merchandise. On July 8, it paid the full amount due. The amount of the cash paid on July 8 equals:
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$3,141.
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On March 12, Klein Company sold merchandise in the amount of $11,200 to Babson Company, with credit terms of 3/10, n/30. The cost of the items sold is $6,200. Klein uses the perpetual inventory system and the net method of accounting for sales. On March 15, Babson returns some of the merchandise, which is not defective. The selling price of the returned merchandise is $940 and the cost of the merchandise returned is $520. The entry or entries that Klein must make on March 15 is (are):
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Debit Sales returns and allowances & Merchandise inventory; Credit Accounts receivable & Cost of goods sold
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Prentice Company had cash sales of $95,150, credit sales of $83,975, sales returns and allowances of $2,050, and sales discounts of $3,825. Prentice's net sales for this period equal:
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$173,250.
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On February 3, Smart Company sold merchandise in the amount of $4,200 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is $2,900. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:
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Debit Cash & Sales Discounts; Credit Accounts Receivable
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A company's current assets are $33,420, its quick assets are $17,890 and its current liabilities are $13,220. Its acid-test ratio equals:
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Acid-Test Ratio = Quick Assets/Current Liabilities Acid-Test Ratio =1.35
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During a period of steadily rising costs, the inventory valuation method that yields the highest reported net income is:
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FIFO Method
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Goods in transit are included in a purchaser's inventory
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When the purchaser is responsible for paying freight charges.
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If a period-end inventory amount is reported in error, it can cause a misstatement in all of the following except:
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Net sales
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Internal controls that should be applied when a business takes a physical count of inventory should include all of the following except:
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Counters of inventory should be those who are responsible for the inventory.
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The inventory valuation method that results in the lowest taxable income in a period of inflation is:
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LIFO method.
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The understatement of the ending inventory balance causes:
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Cost of goods sold to be overstated and net income to be understated.
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Acceptable methods of assigning specific costs to inventory and cost of goods sold include all of the following except:
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Retail method.
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The inventory turnover ratio:
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Reveals how many times a company sells its merchandise inventory during a period
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Physical counts of inventory:
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Are necessary to adjust the Inventory account to the actual inventory available.
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Hull Company reported the following income statement information for the current year: Sales$410,000 Cost of goods sold: Beginning inventory$132,000 Cost of goods purchased 273,000 Cost of goods available for sale 405,000 Ending inventory 144,000 Cost of goods sold 261,000 Gross profit$149,000 The beginning inventory balance is correct. However, the ending inventory figure was overstated by $20,000. Given this information, the correct gross profit would be:
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$129,000. (gross profit - overstated )
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Damaged and obsolete goods that can be sold:
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Are included in inventory at their net realizable value.
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The inventory valuation method that has the advantages of assigning an amount to inventory on the balance sheet that approximates its current cost, and also mimics the actual flow of goods for most businesses is:
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FIFO.
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The inventory valuation method that identifies each item in ending inventory with a specific purchase and invoice is the:
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Specific identification method.
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Costs included in the Merchandise Inventory account can include all of the following except:
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Damaged inventory that cannot be sold.
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Generally accepted accounting principles require that the inventory of a company be reported at:
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Lower of cost or market.
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A company has the following per unit original costs and market values for its inventory. Lower of cost or market is applied to individual items.Part A: 50 units with a cost of $5, and replacement cost of $4.50Part B: 75 units with a cost of $6, and replacement cost of $6.50Part C: 160 units with a cost of $3, and replacement cost of $2.50Under the lower of cost or market method, the total value of this company's ending inventory is:
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$1,112.50 or $1075.00, depending upon whether LCM is applied to individual items or the inventory as a whole.
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A company had the following purchases during its first year of operations: Purchases January:27 units at $112 February:37 units at $123May:32 units at $135September:29 units at $143November:27 units at $153 On December 31, there were 53 units remaining in ending inventory. These 53 units consisted of 9 from January, 10 from February, 14 from May, 8 from September, and 12 from November. Using the specific identification method, what is the cost of the ending inventory?
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Add the numbers. ex: 27 at $112 + 37 at 123... etc
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Salmone Company reported the following purchases and sales of its only product. Salmone uses a periodic inventory system. Determine the cost assigned to the ending inventory using FIFO.
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only calculated purchase activities. (unitsxcost of a purchase activity) + (unitsxcost of a purchase activity)
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A company's warehouse contents were destroyed by a flood on September 12. The following information was the only information that was salvaged:1. Inventory, beginning: $28,0002. Purchases for the period: $17,0003. Sales for the period: $55,0004. Sales returns for the period: $700The company's average gross profit ratio is 35%. What is the estimated cost of the lost inventory?$9,705.$25,995.$29,250.$44,000.$45,000.
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$9,705.COGS = ($55,000 - $700) * 65% = $35,295Goods available for sale = $28,000 + $17,000 = $45,000EI = $45,000 - $35,295 = $9,705
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A company has beginning inventory of 46 units at a cost of $12.50 each on October 1. On October 5, it purchases 29 units at $13.50 per unit. On October 12 it purchases 39 units at $14.50 per unit. On October 15, it sells 87 units. Using the FIFO periodic inventory method, what is the value of the inventory at October 15 after the sale?
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$391.50 Explanation:Units available for sale = 46 + 29 + 39 = 114 unitsUnits in inventory = 114 βˆ’ 87 = 27 unitsCost of inventory = 27 * $14.50 each = $391.50
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Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales: August 219 units were purchased at $10 per unit.August 1824 units were purchased at $12 per unit.August 2921 units were sold. What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.)
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$233.52
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Giorgio had cost of goods sold of $9,505 million, ending inventory of $2,173 million, and average inventory of $2,049 million. Its inventory turnover equals:
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4.64
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Which of the following is not one of the policies and procedures that make up an internal control system?
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Guarantee a return to investors.
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When reimbursing the petty cash fund:
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Appropriate expense accounts are debited.
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The document that the purchasing department prepares and sends to the vendor to place an order is called the:
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Purchase order.
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Principles of internal control include all of the following except:
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Maintaining security by having one person track and record assets. Correct
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All of the following are true of the number of days' sales uncollected ratio except:
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Is most effective in evaluating the cash sales of a company.
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A voucher is an internal document or file:
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Used to accumulate information needed to control cash payments and to ensure that transactions are properly recorded.
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A bank statement provided by the bank includes:
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The beginning and the ending balance of the depositor's account.
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The impact of technology on internal controls includes:
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Reduced processing errors.
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Which of the following procedures would weaken control over cash receipts that arrive through the mail?
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For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank.
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Outstanding checks refer to checks that have been:
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Written, recorded on the company books, sent to the payee, but not yet paid by the bank.
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Basic bank services do not include:
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Petty cash management.
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An income statement account that is used to record cash overages and cash shortages arising from petty cash transactions or from errors in making change is titled:
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Cash Over and Short.
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Internal control procedures for cash receipts do not require that:
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All collections for sales are received immediately upon making the sales.
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Internal control systems are:
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Required by Sarbanes-Oxley (SOX) to be documented and certified if the company's stock is traded on an exchange (a public company).
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A properly designed internal control system:
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Lowers the company's risk of loss.
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If a check correctly written and paid by the bank for $128 is incorrectly recorded in the company's books for $182, how should this error be treated on the bank reconciliation?
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Add $54 to the bank's balance.
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Ryan Company deposits all cash receipts on the day they are received and makes all cash payments by check. Ryan's June bank statement shows $23,861 on deposit in the bank. Ryan's comparison of the bank statement to its cash account revealed the following: Deposit in transit 2,550 Outstanding checks1,134 Additionally, a $49 check written and recorded by the company correctly, was recorded by the bank as a $94 deduction.The adjusted cash balance per the bank records should be:
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$25,322
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A company had net sales of $31,500 and ending accounts receivable of $2,700 for the current period. Its days' sales uncollected is equal to
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31.3 days($2,700/$31,500) x 365 = 31.3 days
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A company wants to decrease its $200.00 petty cash fund to $150.00. The entry to reduce the fund is:
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Debit to Cash $50.00; credit Petty Cash $50.00.
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n the process of reconciling its bank statement for April, Donahue Enterprises' accountant compiles the following information: Cash balance per company books on April 30$6,185Deposits in transit at month-end$1,480Outstanding checks at month-end$800Bank charge for printing new checks$135Note receivable and interest collected by bank on Donahue's behalf$590A check paid to Donahue during the month by a customer is returned by the bank as NSF$660 The adjusted cash balance per the books on April 30 is:
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$6,490 Book balance $ 6,270 + note collection & interest revenue + 760 - bank charge for printing new checks - 50 - NSF check returned by bank - 490 Adjusted book balance $ 6,490
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At the end of the day, the cash register's record shows $1,272, but the count of cash in the cash register is $1,256. The correct entry to record the cash sales is
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Debit Cash $1,256; debit Cash Over and Short $16; credit Sales $1,272.