- ACCT1B Sample Exam 2
Name: __________________________ Date: _____________ 1. The current period's ending inventory is: A) The next period's beginning inventory. B) The current period's cost of goods sold. C) The prior period's beginning inventory. D) The current period's net purchases. E) The current period's beginning inventory. 2. Sales returns and allowances: A) Can provide useful information about dissatisfied customers and the possibility of lost future sales. B) Are recorded in separate contra-revenue accounts. C) Are rarely disclosed in published financial statements. D) Are closed to the Income Summary account. E) All of the above. 3. The operating cycle of a merchandising company: A) Begins with the purchase of merchandise. B) Ends with the collection of cash from the sale of merchandise. C) Can vary in length among different merchandising companies. D) Sometimes involves accounts receivable. E) All of the above. 4. A merchandising company: A) Earns net income by buying and selling merchandise. B) Can buy products from manufacturers and sell to retailers. C) Can buy products from manufacturers and sell them to consumers. D) Can be a wholesaler or a retailer. E) All of the above. 5. J.C. Penny had net sales of $28,496 million, its cost of goods sold was $19,092 million, and its net income was $997 million. Its gross margin ratio equals: A) 3.5%. B) 5.2%. C) 33%. D) 67%. E) 149.3%.
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ACCT1B - Sample Exam 2
6. The gross margin ratio: A) Is also called the net profit ratio. B) Measures a merchandising firm's ability to earn a profit from the sale of inventory. C) Is also called the profit margin. D) Is a measure of liquidity. E) Should be greater than 1. 7. Sales less sales discounts less sales returns and allowances equals: A) Net purchases. B) Cost of goods sold. C) Net sales. D) Gross profit. E) Net income. 8. A debit to Sales Returns and Allowances and a credit to Accounts Receivable: A) Reflects an increase in amount due from a customer. B) Recognizes that a customer returned merchandise and/or received an allowance. C) Requires a debit memorandum to recognize the customer's return. D) Is recorded when a customer takes a discount. E) All of the above. 9. A company purchased $1,500 of merchandise on credit with terms 3/15, n/30. How much will be debited to Accounts Payable if the company pays $485 cash on this account within ten days? A) $485 B) $500 C) Nothing will debited to Accounts Payable, the account should be credited in this situation. D) $470.45 E) $1,455 10. ABC Corporation's total quick assets were $5,888,000, its current assets were $11,700,000 and its current liabilities were $8,000,000. Its acid-test ratio equals: A) 0.50. B) 0.68. C) 0.74. D) 1.50. E) 2.20.
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ACCT1B - Sample Exam 2
11. The amount recorded for merchandise inventory includes: A) Any purchase discounts. B) Any returns and allowances. C) Any necessary freight costs. D) Any trade discounts. E) All of the above. 12. A company's gross profit was $83,750 and its net sales were $347,800. Its gross margin ratio equals: A) 4.2%. B) 24.1%. C) 75.9%. D) $ 83,750. E) $264,050. 13. Alpha Company had cash sales of $94,275, credit sales of $83,450, sales returns and allowances of $1,700, and sales discounts of $3,475. Alpha's net sales for this period equal: A) $ 94,275. B) $172,550. C) $174,250. D) $176,025. E) $177,725. 14. Expenses of promoting sales by displaying and advertising merchandise, making sales, and delivering goods to customers are: A) General and administrative expenses. B) Cost of goods sold. C) Selling expenses. D) Purchasing expenses. E) Nonoperating activities. 15. Inventory shrinkage: A) Refers to the loss of inventory. B) Is determined by comparing a physical count of inventory with recorded inventory amounts. C) Is recognized by debiting Cost of Goods Sold. D) Can be caused by theft or deterioration. E) All of the above.
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ACCT1B - Sample Exam 2
16. On October 1, Robertson Company sold merchandise in the amount of $5,800 to Alberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses the perpetual inventory system. The journal entry or entries that Robertson will make on October 1 is:
A) B) C) D) E)
Item A Item B Item C Item D Item E
17. When preparing an unadjusted trial balance using a periodic inventory system, the amount shown for Merchandise Inventory is: A) The ending inventory amount. B) The beginning inventory amount. C) Equal to the cost of goods sold. D) Equal to the cost of goods purchased. E) Equal to the gross profit. 18. Liquidity problems are likely to exist when a company's acid-test ratio: A) Is less than the current ratio. B) Is 1 to 1. C) Is higher than 1 to 1. D) Is substantially lower than 1 to 1. E) Is higher than the current ratio.
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ACCT1B - Sample Exam 2
19. The acid-test ratio: A) Is also called the quick ratio. B) Measures profitability. C) Measures inventory turnover. D) Is generally greater than the current ratio. E) All of the above. 20. On October 1, Robertson Company sold merchandise in the amount of $5,800 to Alberts, with credit terms of 2/10, n/30. The cost of the items sold is $4,000. Robertson uses the periodic inventory system. On October 4, Alberts returns some of the merchandise. The selling price of the merchandise is $500 and the cost of the merchandise returned is $350. The entry or entries that Robertson must make on October 4 is:
A) B) C) D) E)
Item A Item B Item C Item D Item E
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ACCT1B - Sample Exam 2
21. A company purchased $4,000 worth of merchandise. Transportation costs were an additional $350. The company later returned $275 worth of merchandise and paid the invoice within the 2% cash discount period. The total amount paid for this merchandise is: A) $3,725.00. B) $3,925.00. C) $3,995.00. D) $4,000.50. E) $4,075.00. 22. Multiple-step income statements: A) Are required by the FASB. B) Contain more detail than a simple listing of revenues and expenses. C) Are required for the perpetual inventory system. D) List cost of goods sold as an operating expense. E) Can only be used in perpetual inventory systems. 23. Merchandising companies must account for: A) Sales. B) Sales discounts. C) Sales returns and allowances. D) Cost of merchandise sold. E) All of the above. 24. Cost of goods sold: A) Is another term for merchandise sales. B) Is the term used for the cost of buying and preparing merchandise for sale. C) Is another term for revenue. D) Is also called gross margin. E) Is a term only used by service firms. 25. An account used in the perpetual inventory system that is not used in the periodic inventory system is A) Merchandise Inventory B) Sales C) Sales Returns and Allowances D) Accounts Payable E) Purchases 26. Incidental and necessary costs of inventory: A) Can be assigned to each inventory unit. B) May be immaterial. C) Can be allocated to cost of goods sold. D) Are subject to the cost-to-benefit constraint when deciding how to account for them. E) All of the above.
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ACCT1B - Sample Exam 2
27. Which inventory valuation method assigns a value to the inventory on the balance sheet that approximates current cost and also mimics the actual flow of goods for most businesses? A) FIFO. B) Weighted average. C) LIFO. D) Specific identification. E) All of the above. 28. A company had inventory of 5 units at a cost of $20 each on November 1. On November 2, they purchased 10 units at $22 each. On November 6 they purchased 6 units at $25 each. On November 8, they sold 18 units for $54 each. Using the LIFO perpetual inventory method, what was the cost of the 18 units sold? A) $395. B) $410. C) $450. D) $510. E) $520. 29. Acme-Jones Corporation uses a weighted-average perpetual inventory system. August 2, 10 units were purchased at $12 per unit. August 18, 15 units were purchased at $14 per unit. August 29, 12 units were sold. What was the amount of the cost of goods sold for this sale? A) $148.00. B) $150.50. C) $158.40. D) $210.00. E) $330.00.
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ACCT1B - Sample Exam 2
30. A company has the following per unit original costs and replacement costs for its inventory: Part A: 10 units with a cost of $3, and replacement cost of $2.50 Part B: 40 units with a cost of $9, and replacement cost of $9.50 Part C: 75 units with a cost of $8, and replacement cost of $7.50 Under the lower of cost or market method, the total value of this company's ending inventory is: A) $990.00. B) $947.50. C) $967.50 or $947.50, depending upon whether LCM is applied to individual items or the
inventory as a whole. D) $967.50. E) $990.00 or $947.50, depending upon whether LCM is applied to individual items or to the inventory as a whole.
31. The inventory turnover ratio is calculated as: A) Cost of goods sold divided by average merchandise inventory. B) Sales divided by cost of goods sold. C) Ending inventory divided by cost of goods sold. D) Cost of goods sold divided by ending inventory. E) Cost of goods sold divided by ending inventory times 365. 32. The inventory valuation method that results in the lowest taxable income in a period of inflation is: A) LIFO method. B) FIFO method. C) Weighted-average cost method. D) Specific identification method. E) Gross profit method. 33. The full disclosure principle: A) Requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, its justification and its effect on net income. B) Requires that companies use the same accounting method for inventory valuation
period after period. C) Is not subject to the materiality principle. D) Is only applied to retailers. E) Is also called the consistency principle.
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ACCT1B - Sample Exam 2
34. An overstatement of ending inventory will cause A) An overstatement of assets and equity on the balance sheet. B) An understatement of assets and equity on the balance sheet. C) An overstatement of assets and an understatement of equity on the balance sheet. D) An understatement of assets and an overstatement of equity on the balance sheet.
E.) No effect on the balance sheet.
35. Use the following information to estimate the third quarter ending inventory under the gross profit method. This company's gross profit ratio is 20%. Third quarter beginning inventory: $54,000 Net sales for third quarter: $85,000 Net purchases for third quarter: $21,000 A) $101,000. B) $ 58,000. C) $ 35,000. D) $ 7,000. E) $ 14,000. 36. A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, they purchased 10 units at $13 per unit. On August 12 they purchased 20 units at $14 per unit. On August 15, they sold 30 units. Using the FIFO perpetual inventory method, what is the value of the inventory at August 12 after the sale? A) $140. B) $160. C) $210. D) $380. E) $590. 37. A company has the following per unit original costs and replacement costs for its inventory: Part A: 50 units with a cost of $5, and replacement cost of $4.50 Part B: 75 units with a cost of $6, and replacement cost of $6.50 Part C: 160 units with a cost of $3, and replacement cost of $2.50 Under the lower of cost or market method, the total value of this company's ending inventory is: A) $1,180.00. B) $1,075.00. C) $1,112.50 or $1075.00, depending upon whether LCM is applied to individual items or
the inventory as a whole.
D) $1,112.50. E) $1180.00 or $1075.00, depending upon whether LCM is applied to individual items or
to the inventory as a whole.
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ACCT1B - Sample Exam 2
38. Given the following items and costs as of the balance sheet date, determine the value of Faltron Company's merchandise inventory. - $1,000 goods sold by Faltron to another company. The goods are in transit and shipping terms are FOB destination. - $2,000 goods sold by another company to Faltron. The goods are in transit and shipping terms are FOB destination. - $3,000 owned by Faltron but in the possession of another company the consignee. - Damaged goods owned by Faltron which originally cost $4,000 but which now have a $500 net realizable value. A) $10,000. B) $6,500. C) $5,500. D) $5,000. E) $4,500. 39. A company had the following purchases during the current year:
On December 31, there were 26 units remaining in ending inventory. These 26 units of consisted 2 from January, 4 from February, 6 from May, 4 from September, and 10 from November. Using the specific identification method, what is the cost of the ending inventory?
A) B) C) D) E)
$3,500.
$3,800. $3,960. $3,280. $3,640.
40. Acme-Jones Company uses a weighted-average perpetual inventory system. August 2: 10 units were purchased at $12 per unit. August 18: 15 units were purchased at $15 per unit. August 29: 20 units were sold. August 31: 14 units were purchased at $16 per unit. What is the per-unit value of ending inventory on August 31? A) $12.00. B) $13.80. C) $15.42. D) $16.00. E) $17.74.
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ACCT1B - Sample Exam 2
41. In applying the lower of cost or market method to inventory valuation, market is defined as: A) Historical cost. B) Current replacement cost. C) Current sales price. D) FIFO. E) LIFO. 42. Which of the following are acceptable for a given company's inventory costing methods? A) FIFO used for financial reporting, LIFO used for tax reporting. B) LIFO used for financial reporting, FIFO used for tax reporting. C) LIFO used for financial reporting, LIFO used for tax reporting. D) A and C E) B and C 43. Toys "R" Us had cost of goods sold of $9,421 million, ending inventory of $2,089 million, and average inventory of $1,965 million. Its inventory turnover equals: A) 0.21. B) 4.51 C) 4.79. D) 76.1 days. E) 80.9 days. 44. Given the following events, what is the per-unit value of ending inventory on November 30 if this company uses a weighted-average perpetual inventory system? November 1: 5 units were purchased at $6 per unit. November 12: 10 units were purchased at $7.50 per unit. November 14: 7 units were sold for $14 per unit. November 24: 12 units were purchased at $10 per unit. What is the per-unit value of ending inventory on November 30? A) $6.00. B) $7.00. C) $8.80. D) $13.00. E) $21.80.
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ACCT1B - Sample Exam 2
45. A company has inventory of 15 units at a cost of $12 each on August 1. On August 5, they purchased 10 units at $13 per unit. On August 12 they purchased 20 units at $14 per unit. On August 15, they sold 30 units. Using the FIFO periodic inventory method, what is the value of the inventory at August 12 after the sale? A) $140. B) $160. C) $210. D) $380. E) $590. 46. A company uses the periodic inventory system and had the following activity during the current monthly period.
Using the weighted-average inventory method, the company's ending inventory would be reported at:
A) B) C) D) E)
$2,000.
$2,200. $2,250. $2,400. $4,400.
47. Management must confront which of the following considerations when accounting for inventory: A) Costing (valuation) method. B) Inventory system (perpetual or periodic). C) Items to be included and their cost. D) Use of lower of cost or market or other estimate. E) All of the above. 48. The conservatism principle: A) Requires that when more than one estimate of amounts to be received or paid in the future are equally likely, then the less optimistic amount should be used. B) Requires that a company use the same accounting methods period after period. C) Requires that revenues and expenses be reported in the period in which they are earned
or incurred. D) Requires that all items of a material nature be included in financial statements. E) Requires that all inventory items be reported at full cost.
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ACCT1B - Sample Exam 2
49. During a period of steadily rising costs, the inventory valuation method that yields the lowest reported net income is: A) Specific identification method. B) Average cost method. C) Weighted-average method. D) FIFO method. E) LIFO method. 50. Assume that the custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50 in receipts at the end of the month. The entry to replenish the petty cash fund will include: A) A debit to Cash for $377.50. B) A credit to Cash Over and Short for $5.00. C) A debit to Petty Cash for $382.50. D) A credit to Cash for $387.50. E) A debit to Cash for $387.50. 51. When a petty cash fund is in use: A) Expenses paid with petty cash are recorded when the fund is replenished. B) Petty Cash is debited when funds are replenished. C) Petty Cash is credited when funds are replenished. D) Expenses are not recorded. E) Cash is debited when funds are replenished. 52. A set of procedures and approvals that is designed to control cash disbursements and the acceptance of obligations is referred to as a(n): A) Internal cash system. B) Petty cash system. C) Cash disbursement system. D) Voucher system. E) Cash control system. 53. An analysis that explains any differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n): A) Internal audit. B) Bank reconciliation. C) Bank audit. D) Trial reconciliation. E) Analysis of debits and credits.
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ACCT1B - Sample Exam 2
54. The entry necessary to establish a petty cash fund should include: A) A debit to Cash and a credit to Petty Cash. B) A debit to Cash and a credit to Cash Over and Short. C) A debit to Petty Cash and a credit to Cash. D) A debit to Petty Cash and a credit to Accounts Receivable. E) A debit to Cash and a credit to Petty Cash Over and Short. 55. Cash equivalents: A) Include savings accounts. B) Include checking accounts. C) Are short-term investments sufficiently close to their maturity date that their value is not sensitive to interest rate changes. D) Include time deposits. E) Have no immediate value. 56. A company using the net method of recording purchases failed to take advantage of a discount available. When they pay the full (gross) amount of an invoice at the end of the credit period the journal entry will include a debit to: A) Merchandise Inventory. B) Sales Discounts. C) Discounts Lost. D) Cash. E) Accounts Receivable. 57. A seller of goods or services, usually a manufacturer or wholesaler, is known as a: A) Vendor. B) Payee. C) Vendee. D) Creditor. E) Debtor. 58. An internal control system consists of the policies and procedures managers use to : A) Protect assets. B) Ensure reliable accounting. C) Promote efficient operations. D) Urge adherence to company policies. E) All of the above. 59. Cash, not including cash equivalents, includes: A) Postage stamps. B) Coins, currency, and checking accounts. C) IOUs. D) Two-year certificates of deposit. E) Money market funds.
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ACCT1B - Sample Exam 2
60. Internal control procedures for cash receipts require that: A) The custody over cash be kept separate from its recordkeeping. B) In-store cash sales should be recorded on a cash register at the time of each sale. C) Clerks who have access to cash in a cash register should not have access to the register tape or file. D) An employee (with no access to cash receipts) should compare the total cash recorded by the register with the record of cash receipts reported by the cashier. E) All of the above. 61. A company plans to decrease a $200 petty cash fund to $75. The current balance in the account includes $45 in receipts and $165 in currency. The entry to reduce the fund will include a: A) Debit to Cash Short and Over for $10. B) Debit to Cash for $90. C) Debit to Miscellaneous Expenses for $35. D) Credit to Petty Cash for $165. E) Credit to Cash for $90. 62. Which of the following procedures would weaken control over cash receipts that arrive through the mail? A) After the mail is opened, a list (in triplicate) of the money received is prepared with a record of the sender's name, the amount, and an explanation of why the money is sent. B) The bank reconciliation is prepared by a person who does not handle cash or record cash receipts. C) For safety, only one person should open the mail, and that person should immediately deposit the cash received in the bank. D) The cashier should not also be the recordkeeper who records the amounts received in the accounting records. E) All of the above are good internal control procedures over cash receipts that arrive through the mail. 63. A good system of internal control: A) Urges adherence to prescribed managerial policies. B) Insures profitable operations. C) Eliminates the need for an audit. D) Requires the use of non-computerized systems. E) Is not necessary if the company uses a computerized system.
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ACCT1B - Sample Exam 2
64. A company had $43 missing from petty cash and that was not accounted for by petty cash receipts. The correct procedure is to: A) Debit Cash Over and Short for $43. B) Credit Cash Over and Short for $43. C) Debit Petty Cash for $43. D) Credit Petty Cash for $43. E) Credit Cash for $43. 65. A company had net sales of $31,500 and ending accounts receivable of $2,700 for the current period. Its days' sales uncollected equals: A) 11.7 days. B) 23.3 days. C) 31.3 days. D) 42.5 days. E) 46.6 days. 66. Cash equivalents: A) Are short-term, highly liquid investments. B) Include 6-month CDs. C) Include checking accounts. D) Are recorded in petty cash. E) Include money orders. 67. For which item does a bank NOT issue a debit memorandum? A) To notify a depositor of all withdrawals through an ATM. B) To notify a depositor of a deduction to a depositor's account. C) To notify a depositor of a bounced check. D) To notify a depositor of periodic payments arranged in advance, by a depositor. E) To notify a depositor of a deposit to their account. 68. The number of days' sales uncollected: A) Measures how much time is likely to pass before the current amount of accounts receivable is received in cash. B) Can be used to compare a company to other companies in the same industry. C) Can be used to compare a company's condition across current and prior periods. D) Reflects the liquidity of receivables. E) All of the above. 69. On a bank reconciliation, an unrecorded debit memorandum for printing checks is: A) Noted as a memorandum only. B) Added to the book balance of cash. C) Deducted from the book balance of cash. D) Added to the bank balance of cash. E) Deducted from the bank balance of cash.
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ACCT1B - Sample Exam 2
70. Prenumbered printed checks are an example of which internal control principle? A) Technological controls. B) Maintain adequate records. C) Perform regular and independent reviews. D) Establish responsibilities. E) Divide responsibility for related transactions. 71. A company that uses the net method of recording invoices made a purchase of $400 with terms of 2/10, n/30. The entry to record the purchase would include: A) A debit to Merchandise Inventory for $392. B) A credit to Discounts Lost for $8. C) A credit to Cash for $392. D) A debit to Discounts Lost for $8. E) A debit to Cash for $392. 72. On a bank reconciliation, the amount of an unrecorded bank service charge should be: A) Added to the book balance of cash. B) Deducted from the book balance of cash. C) Added to the bank balance of cash. D) Deducted from the bank balance of cash. E) Noted in memorandum form only. 73. A check that was outstanding on last period's bank reconciliation was not among the cancelled checks returned by the bank this period. As a result, in preparing this period's reconciliation, the amount of this check should be: A) Added to the book balance of cash. B) Deducted from the book balance of cash. C) Added to the bank balance of cash. D) Deducted from the bank balance of cash. E) Ignored in preparing the period's bank reconciliation.
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ACCT1B - Sample Exam 2
74. Merchandise with an invoice price of $2,000 was purchased on October 3, terms 1/15, n/60. The company uses the net method to record purchases. The entry to record the cash payment of this purchase obligation on October 17 is:
A) B) C) D) E)
Item A Item B Item C Item D Item E
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ACCT1B - Sample Exam 2
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. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. A E E E C B C B B C E B B C E D B E A A D B E B E E A B C C A A A A D C C E B C B E C (No Answer Provided) C B E A
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ACCT1B - Sample Exam 2
49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64. 65. 66. 67. 68. 69. 70. 71. 72. 73. 74.
E D A D B C C C A E B E B C A A C A E E C B A B D A
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