Module 4 Practice.docx - Module 4 Practice 1) Hadley's...

Module 4 Practice
1) Hadley's Hardware is a small hardware store that sells a variety of nuts, bolts,
nails, and screws. In the store, these items are stored in bulk containers, and
customers can fill bags and pay by the weight. Hadley's tracks its hardware
purchases and performs a monthly inventory count. Hadley's records an adjusting
journal entry for Cost of Goods Sold at the end of the month after the inventory
count reveals the ending inventory on hand.
Which type of inventory system does Hadley's utilize?
Perpetual
Periodic
correct
Either one
Under a periodic inventory system, a company only records Cost of Goods Sold
periodically, in this case, once a month after the inventory count.
2)
Suppose a piece of plant equipment that Plexco put into service on January 1, 2010 at a
total cost of $310,000 with an expected useful life of 5 years and a salvage value of
$70,000 is sold on January 1, 2015 for $60,000. What would the journal entry look like to
record this sale?

You are correct! This transaction results in a reduction of the PP&E account of the initial,
gross value of the equipment (credit of $310,000) offset by receipt of cash (debit of
$60,000), and the reduction of accumulated depreciation (debit of $240,000), and loss
on the disposal of the asset (debit of $10,000).
3) Tea Online is a new online retailer of premium teas. During the first month they
made the following purchases of teabags and had the following sales of tea bags:
 January 1: Purchased 200 tea bags for $3 each.
 January 15: Purchased 100 tea bags for $4 each.
 January 31: Sold 250 teabags.
What would be the Cost of Goods Sold if they use FIFO ?
4) Which of the following arises when Taxable Income is less than Income Before
Taxes due to a temporary timing difference?
Deferred Tax Liability
correct
This is the amount that arises when Taxable Income is less than Income Before Taxes
due to a temporary timing difference.
Deferred Tax Asset
This is the amount that arises when Taxable Income exceeds Income Before Taxes due
to a timing difference.