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Mini Test 2 Form A Solutions - l 2\iereisn k A The...

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Unformatted text preview: l. 2. \iereisn k A. The installment sales a cost-recovery methods should only be used when it is difficult to predict 1when title has passed to the customer. The installment sales method is less conservative than the cost-recovery method. . Under both the installment sales d: cost-recovery methods cash collections must be estimated. The estimated cash activity is used to achieve proper matching by recording the projected bad debt expense against the revenue recorded in the year of sale. D. All of the above are true. E. E andC are both true Which of the following statements is true? Tracy Company, a manufacturer of air conditioners, sold two commercial grade air conditioning units to Thomas Company, the order was received on December 2?, EMS and shipped FOB Destination {$1,{}l}fl freight prepaid} cu December 29th, the units were delivered to Themes on January 3rd and payment was made by Thomas on January 9th. The units have a catalog list price of $1 [Lilflfl each but Thomas was given a 26% trade discount. The terms of sale were 1! It}, nflfl (assume Thomas uses the gross method for accounting for discounts]. Assuming that Tracy has a calendar year-end (Le. 1281}, on what date should the sale be recorded by Tracy? A. December E'Jth . December Zflth January 3rd D. January 9th E. December 31st 3. Continuing with the previous facts: Tracy Company, a manufacturer of air conditioners, sold two commercial grade air conditioning units to Thomas Company. the order was received on December 2?, 2008 and shipped FOE Destination {$1,000 freight prepaid) on December 29th, the units were delivered to Thomas on January 3rd and payment was made by Thomas on January 9th. The units have a catalog list price of $10,000 each but Thomas was given a 20% trade discount. The terms of sale were 1f1'0. nf30 (assume Thomas uses the gross method for accounting for discounts]. Ignoring the cost of goods sold, what entry will Tracy make to record the sale? A. Debit Credit Accounts Receivable 20,000 Sales Revenue 1fi1000 Trade Discounts Payable 4,000 Transportation Gut LING Freight Payable L000 E. Debit Credit Accounts Receivable H.000 Sales Revenue [6.000 Cash Loan C. Debit Credit Accounts Receivable 15,840 Sales Discounts lnt'rl] Sales Revenue 1&1000 D. Debit Credit Accounts Receivable [6,000 Sales Revenue 16.000 Transportation out LOUD Cash 1.000 E. Debit Credit Accounts Receivable 21,000 Sales Rcvccnuc 15.000 Uncamed Revenue 4.000 Cash L000 4. 5. 6. Continuing with the previous facts: Tracy Company, a manufacturer of air conditioners, sold two commercial grade air conditioning units to Thomas Company, the order was received on December 2?, 2008 and shipped FOE Destination {$1,000 freight prepaid) on December 29th, the units were delivered to Thomas on January 3rd and payment was made by Thomas on January 9th. The units have a catalog list price of $10,000 each but Thomas was given a 20% trade discount. The terms of sale were 1f10, nf30 (assume Thomas uses the gross method for accounting for discounts]. Assume that Tracy uses a first-in-first-out cost flow assumption and a periodic system to track their inventory cost. At the time of the sale, they had the following goods available for sale: Purchase it! of Manufacturing Extended % Units CLst Tval—u»: l0tl9'i'2008 1 $6,“ $12,000 I ”29:2003 I $4,000 $4,000 ”#2249003 I $3.011! $1,000 $1 9.000 Asstune that on January Tth, Thomas returned one of the air conditioners and then submitted payment for the balance owed on January 9th. Which of the following would be recorded by Tracy as part of the entries necessary to record the return on January Tth‘? A. Debit to cash $T,920 El. Debit to sales revenue $3,000 C. Credit to COGS $4,000 Credit to sales returns Sc allowance $3,000 (3 None of the above would be included Continuing with the same facts as question 4: What is the dollar amount of gross profit that Tracy will record on this sale? A. $2,000 E. $1910 . $1,000 $1,920 . $920 Collections of accounts receivable that previously have been written off are credited to: A. A gain account. C? Accounts receivable. . Bad debts expense. D. Retained earnings. E. None of the above T. Collins, lne. is a manufacturer of charcoal grills. Collins reported the following items on its 12f31f20'08, multi-step income statement: Sales Returns 3c Allowances $3,000,000 Sales Revenue '2' Cost of goods sold $10,000,000 Selling, general & admin expense $7,000,000 Sales Discounts $2,000,000 Gross Profit 'E' Net Income $3,000,000 Net Sales ‘? What is the amount of sales revenue being reported by Collins? A. sso,ooo,ooo $10,000,000 8% $25,ooo,ooo . s23,ooo,ooo E. $32,000,000 0. Security Cameras can be used (in the sales collection cycle) to: ED To detect and potentially.r prevent irregularities E. To prevent mom (3. To correct errors and PfltEfltlally prevent irregularities D. To detect errors but not irregularities E. Both A and B are correct 9. Belmont Steal; Corporation had the following inventory purchases and sales during January of the current year: Date of Unll Extended Pluchase My E Value Beg. lnvenm-ry lfl 1.000 3| $1.000 ”E 1,000 $2 52.000 1.05 1.000 53 53.000 la‘22 1.000 $4 $4.000 HES 1.000 55 55.000 Date of Sa_le uanti LE5 T50 If? T50 l! 18 T50 I195 T50 Assuming that Belmont has a periodic inventory system and uses a FIFO cost-flow assumption when valuing inventory. Please calculate Belmont‘s goods available for sale for January. A. 4,000 units with a total cost of$ l 4.000 E. 2.000 units with a cost of $9.000 C. 3.000 units with a cost of $6.000 . 3.000 units with a cost of $12,000 (1% 5,000 units with a cost of$lS.000 10. Continuing with the facts from question #9. please calculate Belmont's cost of goods sold for January. A. $9.000 . $12,000 (5 $6.000 D. $3.000 E. None of the above 11. Assume instead that Belmont has a perpetual inventory system and uses a LIFO cost flow assumption. what is the dollar amount of their ending inventory at January 3 l 5“? 1512.000 . $1.5m C. $6,000 n. $9.0m E. $3.000 12. which of the following source documents is typically used by the accounting department to update the individual customer account balance (Le. AIR] for submitted payments? Cg Remittance Advice B. Approved Sales Order C. Deposit Ticket D. Daily Control Totals E. In order to achieve proper segregation of duties, the accounting department would not be responsible for updating the individual customer account balances. 13. Each month, when the bank statement is received Belmont Steak prepares a detailed reconciliation of the bank account activity to the general ledger cash account activity. Belmont ended January with a $40,000 balance in its general ledger cash account. 1While preparing the reconciliation, Belmont noted the following items: {i} A deposit made by Belmont on January 3 1 st after business hours {in the night depository} was not included on the January bank statement. The deposit totaled $10,000 and represented collections front customer‘s accounts. 1f ii) Belmont noted various checks totaling $5,000 that were written prior to January 3lst which had not cleared the bank as of January 31st. All of these checks were made to vendors representing payments on account. {iii} Check # 34515 (also a payment on account} for $500 was erroneously recorded by Belmont as s5,coo. During January the bank charged a $50 service fee and credited Belmont‘s account for $5 of interest earned. What is the dollar amount at“ Belmont's reconciled cash balance? a. $59,955 $35,455 $44,455 o. $30,455 E. $49,455 14. Continue with the facts provided for question #13: While preparing the reconciliation, Belmont noted the following items: {i} A deposit made by Belmont on January 31st after business hours {in the night depository} was not included on the January bank statement. The deposit totaled $lfl,flflfl and represented collections from customer's accounts. (ii) Belmont noted various checks totaling $5,flflfl that were written prior to January 31st which had not cleared the bank as of January 3 1 st. All of these checks were made to vendors representing payments on SIC-EDIE“. {iii} lCheck it 3456 (also a payment on account} for $5flfl was erroneously recorded by Belmont as $5,“. During January the bank charged a $5fl service fee and credited Belmont‘s account for $5 of interest earned. Which of the following would be included in the entries recorded by Belmont as a result of the information obtained by preparing their bank reconciliation? A. Debit Credit Cash tapas Accounts Receivable lIJJIIDtII E. Deb-it Credit Accounts Payable ilJlJiJ Cash 5.00!) <9 Debit Credit Cash 5 Interest Revenue 5 D. Debit Credit Accounts Payable 4.50!) Cash 4.500 E. Choice A and C would both be included l5. Merchandise sold FC'B shipping point indicates that: Q) The buyer has title while the goods are in transit and has ultimate responsibility for transportation costs E. The seller will pay the freight. C. The sale is not consummated until the merchandise reaches the point to which it is being shipped. D. The seller will incur an operating expense as a result of' the freight charges. E. Both A and D are correct. 1s. Coronado Land Sales sold for $250,000 a parcel of land that cost $150,000. The cost recover},r method was appropriately used. Collections on the sale were: $100,000 in 2005, $50,000 in 2006, $50,000 in 200? and $50,000 in 2008. What is the first year in which Comonado will recognize profit on this transaction? a. sons a. coca © zoos D. 2003 s. sons 11'. Continue with the facts for question it l o: What is the balance in the installment receivable at 12l3 11'2005‘? ® alsonoo E. $100,000 C. $50,000 D. 0 E. None of the above 18. Assume instead that Coronado uses the installment method to account for its installment sales. What is the dollar amount of gross profit recognized in 200? under this method? A. $80,000 B. $50,000 C. $25,000 (13 sconce E. None of the above 19. Continuing with question #13 (Le. installment method}, what is the net realizable value of the installment receivable at 1fl31i’2005'? . $15o,ooo sscnoo . sconce D. $5 0,000 E. $40,000 20. Bella Corporation had the following cash activitv: Cash Collections 0001 customers 300,000 Cash Disbursements for Inventor)r {35,000} Cash Disbursement for wages {20,000} In addition, Bella calculated the following balances to be used on their accrual basis balance sheet: 10.000? IL01J200? ‘Aecounts Receivable 50,000 25000 l“‘Inve'ntorjp' 20,000 30.00] Wages Payable 0 |5.000 Prepaid Rent 00000 40,000 * all sales were on credit '“‘ based on a physical count Using the above information, what dollar amount would Bella report as gross profit on its 12!} l £200? income statement? (3 $200,000 E. $215,000 C. $25 0,000 B. $190,000 E. None of the alcove 21. Continuing with the facts from #20: what dollar amount of rent expense will Bella report on its 128 lflflfl’l income statement? A. 0 $20,000 . $40,000 0. $00,000 E. $100,000 22. Buzz Corporation uses the allowance method to account for its projected bad debt. At the end of 200TIr Buzz estimates that $15,000 of the existing accounts receivable will not be collected (this was determined after analyzing an aging report). Buzz reported the following account activity during 200?. Accounts Receivable balance at “1:200? $200,000 Allowance for doubtfiil accounts “15300? $10,000 Cash Collections $395,000 Write fos of customer accounts $5,000 Credit Sales-200? $1,000,000 lGiven the above in formation, what is the ending balance in the Accounts Receivable account? A. szsonoo B, $305,000 {3 finance . szssnoo E. $310,000 23. Continuing with question #22: how much bad debt expense would be reported by Buzz in 200?? A. $0 $5,000 C. $10,000 . $15,000 E. None of the above 24. Continuing with question #22 except instead assume that Buzz derives its estimate of bad debt {i.e. the $15,000) as a as of current period credit sales {i.e. not based on an aging analysis). What is the amount of bad debt expense that would be reported by Buzz in 200?? a. o a. sauce c. $10,000 $15,000 . None of the above 25. EXTRA CREDIT Continuing with question #22 except instead assume that that Buzz uses the combination approach to account for its bad debt under the allowance method. Throughout the year Buzz accrued bad debt as a % of credit sales expense totaling $5,000 {i.e. 5% of credit sales}. At the end of 200? Buzz performs a more detailed aging analysis and estimates that $15,000 of the existing accounts receivable will not be collected. What is the amount of bad debt expense that would be reported for 200'.Ir given that the combination approach was used?I FLU $5,000 $10,000 _ d r E. szonoo 26. Consider our model sales collection cycle studied in class. Which of the following steps in the salesrcollection process should occur first? A. Bill the customer E. Collect the payment Ship the product . Approve the credit Record the revenue 2?. Select the choice that correctlyr depicts the proper financial statement classification: @m Sales m Contra Revenue-Bis Uncarncd Rmrcnuc-L’S Expense—IFS Contra Revenue-it‘s Contra Revenue-LIE Deferred Gross Profit Revenue-US Contra Asset—HS Contra Revenue—“S Union-med Revenue-Hrs Contra Asset—Baa Sales Returns 3: Allowances Contra Rcwnucvflffi Unearncd Revenue—IFS Expense—HS Expense-HS Contra Revenue-HS Nflttt: Please verify that the test version on your scantron is coded as "A". Allowance for Douhtfiil Accounts Contra Asset-WE Contra Asset—IFS Contra Revenue—HS Expense—Its Contra Asset—W3 ...
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