Below is the assignment on chapters 5 & 6. The assignment is a multiple choice document with an answer sheet at the end of the document. Please circle the “MOST” correct answer and place the circled letter on the answer sheet. Each answer is worth 3 points. Many of the questions require critical thinking and managerial analysis based on the readings as a whole. We will discuss the answers in class.
1. Benson Company purchased two identical inventory items. The item purchased first cost $14.00, and the item purchased second cost $15.00. Benson sold one of the items for $24.00. Which of the following statements is true?
A. Ending inventory will be lower if Benson uses weighted average than if FIFO were used.
B. Cost of goods sold will be higher if Benson uses FIFO than if weighted average were used.
C. The dollar amount assigned to ending inventory will be the same no matter which cost flow method is used.
D. Gross margin will be higher if Benson uses LIFO than it would be if FIFO were used.
Flint Enterprises started the period with 150 units in beginning inventory that cost $2 each. During the period, the company purchased inventory items as follows
Flint sold 200 units after purchase 3.
2. Flint’s cost of goods sold under FIFO would be:
3. Flint’s ending inventory under LIFO would be:
4. Flint’s ending inventory under weighted average would be approximately:
5. 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.
6. What is meant by “market” in lower-of-cost-or-market calculations?
A. The amount of gross margin earned by selling merchandise.
B. The amount the goods were sold for during the period.
C. The amount that would have to be paid to replace the merchandise.
D. The amount originally paid for the merchandise.
7. Why are the inventory and cost of goods sold accounts attractive targets for managerial fraud?
A. There are few if any procedures that can check for fraud in these accounts.
B. These accounts are more significant than most other accounts.
C. There are no adequate methods of record keeping for inventory.
D. Cost of goods sold and Inventory accounts are not attractive targets of fraud.
8. On December 31, 2011, Owen Corporation overstates the ending inventory account by $4,000. How will this affect Retained Earnings in the December 31, 2012 balance sheet?
A. Retained Earnings will be overstated by $4,000.
B. Retained Earnings will be understated by $4,000.
C. Retained Earnings will be correctly stated.
D. Cannot be determined with the above information.
9. Zirkle Company understated its ending inventory. Which of the following answers correctly states the effect of the error in the present period?
A. Overstatement of total assets and cost of goods sold.
B. Understatement of total assets and gross margin.
C. Understatement of liabilities and retained earnings.
D. Overstatement of cost of goods sold and retained earnings.
10. 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:
11. The average number of days to sell inventory for Company Z is:
12. Inventory turnover is calculated by dividing:
A. cost of goods sold by inventory.
B. accounts receivable by inventory.
C. beginning inventory by the ending inventory.
D. inventory by cost-of-goods-sold.
13. 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
14. Which of the following statements is correct in regard to the importance of inventory turnover to a company’s profitability?
A. Most companies prefer to have a low inventory turnover than a high inventory turnover.
B. It is sometimes more desirable to sell a large amount of merchandise with a small amount of gross margin than a small amount of merchandise with a large amount of gross margin.
C. A company’s profitability is affected by how rapidly inventory sells as well as by the spread between cost and selling price.
D. Both B and C are correct.
15. In establishing a strong internal control system at Hook Company, management is concerned with administrative controls. Administrative controls include:
A. the reconciliation of the bank statement.
B. accuracy of the recording procedures.
C. performance evaluation.
D. maintenance of accurate inventory records.
16. Hydra Company has established internal control policies and procedures in order to achieve the following objectives:
1) Safeguard the company’s assets.
2) Assure that the accounting records contain reliable information.
3) Effective evaluation of management performance.
4) Assure that employees comply with company policy.
Which of these objectives are achieved by accounting controls?
A. Objectives 1 and 2
B. Objectives 2 and 3
C. Objectives 3 and 4
D. All four objectives
17. Which of the following statements accurately describes a fidelity bond?
A. Insurance that the company buys to protect itself from loss due to employee dishonesty.
B. Proper procedures for processing transactions.
C. Procedures to provide reasonable assurance that the objectives of a company are accomplished.
D. Guidelines or policies that limit the actions of different levels of management.
18. 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?
19. Which of the following is an internal control procedure used to safeguard a company’s assets?
A. Timely deposits of cash receipts into a checking account.
B. Separation of duties.
C. Reconciliation of the bank statement.
D. All of these.
20. A customer paid $16.50 for merchandise with a twenty dollar bill. The sales person gave incorrect change of $4.50 to the customer. At the end of the day the cash register showed total sales receipts of $285. Based on this information, the journal entry to record sales and correct the error would be:
21. 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
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?
22. 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?
23. Dennis Company’s unadjusted bank balance at March 31, 2011 is $3,200. The bank reconciliation revealed outstanding checks amounting to $500 and deposits in transit of $400. Based on this information, Dent’s true cash balance is:
24. On April 30, 2011, Southern Company established a petty cash fund of $1,000. On May 1, 2011, a disbursement of $245 was made from the fund for payment of delivery expense. What entry should be made on May 1, 2011 to record this disbursement?
A. debit delivery expense, $245; credit cash, $245.
B. debit petty cash, $245; credit cash, $245.
C. debit delivery expense, $245; credit petty cash $245.
D. no entry necessary.
25. Black Company established a petty cash fund in the amount of $200. At the end of the accounting period, the petty cash box contained receipts for expenditures amounting to $180 and $15 in cash. What effect will the entries to replenish the fund have on assets and expenses?
26. Which of the following entries would be required to establish a $500 petty cash fund?
27. An audit is useful to financial statement users because it
A. Guarantees that the financial statements are accurate and correct.
B. Guarantees that management has not been involved in misappropriation of assets.
C. Provides reasonable assurance that the financial statements do not have material misstatements.
D. Both A and B.
28. The following account balances prior to closing entries were taken from the records of Keswick Company:
After closing entries at December 31, 2011, Retained Earnings will be: