7. Use of the LIFO. 8. lf lncome Summary has a credit balance after revenues and expenses have been closed

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1 True/False (2 points each) IY Name: Student ld. /a^ Session (pick one):1 3{9:30 A.M.) 4 (11:00 A.M.) \J 1. lf total credits in the income statement columns of a worksheet exceed total debits. the enterprise has net income. \ 2. An error that overstates the ending inventory will also cause net income for the period to be overstated. * Under the allowance method, Bad Debts Expense is debited when an account is deemed uncollectible and must be written off. o: The account Allowance for Doubtful Accounts is closed out at the end of the year. 6 Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used. tr 6. When constructing a building, a company is permitted to include the acquisition cost and certain interest costs incurred in financing the project. 7. Use of the LIFO phantom profits. inventory tr -\ valuation method enables a company to report paper or 8. lf lncome Summary has a credit balance after revenues and expenses have been closed into it, the closing entry for lncome Summary will include a credit to Retained Earnings.

2 I,E 1. The income statement for the year 2O11 of Poole Co. contains the following information: Revenues Expenses: Wages Expense Rent Expense Advertising Expense Supplies Expense Utilities Expense Insurance Expense Total expenses Net income (loss) $45,000 12,000 6,000 6,000 2, $70,000 73,500 $G*500) At January 1,2011, Poole reported Retained Earnings of $50,000. Dividends for the year totalled $10,000. At December 31,2011, the company will report Retained Earnings of a. $ /S\ (U $go,soo. -.\ -6s+o,ooo. a) )-=.sco-\c.-'.) 'J d. $43, / 2' As a result of a thorough physical inventory, Hastings Company determined that it had inventory worth Q at necernber 1t.201t. This count did not take into consideration the following facts: Carlin Consignment store currenfly has goods Sq U nn its sales floor that belonq to l-lsstings but are being sold tn consrgnment by carlin. The selling.price.ot tnese gooos is $i6,000. Hastingis purchased 940,000 of goods that were shipped on December 27 FOB destination,-that will be received by Hastings on January 3. Determine the correct amount of inventory that Hastings should report. a. $580,000. b. Ea+q,ooo. d. $690,000.

3 3. A company just starting business made the following four inventory purchases in June: June units $ 520 June units 780 June units 840 June units 660 $2-800 A physical count of merchandise inventory on June 30 reveals that there are 200 units on hand. *r-- _J4e rnventory method which results in the highest gross profit for June is (9) the FIFO method. b. the LIFO method. prrce rs c. the weighted average unit cost method. \ d. not determinable- +& \ 6i1::f1 :.. tnfjrcq\t1\c - l- -',:',"-1 t- ' rl Eckert Company reported the following summarized annual data at the'end of ZO11. Sales revenue $1,000,000 Cost of goods sold*** Gross margin 4OO^000 Operating expenses Income before income taxes $_lgo_0o0 ( N ***Based on an ending F FO inventory of erofthecompanyisconsideringaswitchfromf Foto LIFO' He has determined that on alfo $220,000. bqs!s-, the ending inventory would have been \) Wl'y(would be the Net lncome on a LIFO basis? '( a/ $105,000 E. $ c. $126,000 d. $96.000

4 5. Never Company developed the following information about its inventories in applying the lower-of-cost-or-market (LCM) basis in valuing inventories: a. b. 6 :d1 Product A B c Cost $114,000 80, ,000 Market LC,\^" $ [\a1u*w' 76, ,000 aqpoo t 6e pao lf Never applies the LCM basis, the value of the inventory reported on the balance sheet would be $354,000. $358,000. $350,000. $362, The following information was available for Hoover Company at December 31, ZO11: beginning invento_ry 9J10,000; ending inventory $70,000; cosi of goods sold g660,000; and sales $900,000. Hoover's days in inventory in 2011 was 36.5 days. 4 (6) so.o days. 6 a,oa'o Y 3B.B days. d days. 3GS 7,3 7. During July, the following purchases and sales were made by James Company. There was no beginning inventory. James Company uses a@ July 3 Purchases $ts $ts Sales July units units Under the FIFO method, the cost of goods sotd for each sale is: July 13 a. $300 b s?; July 22 $ 't-c (r z) - 3( r a)

5 ,.'"( \a' 8. Julian Junkets has the following inventory information. Beginning Inventory Purchases Sale Purchases Sale July 1 5. /:,,-t14 - i-' units at $90 60 units at $84 40 units 30 units at $87 28 units er,li 4,.,r i :I a."i '\ i if,...) 3-, t' f\!:-.. l Assuming that a perpetual inventory system is use{, what is the ending inventory lggunded) 11a. ) $2,7S0 '.- b. $2,784 c. $2,406 d. $2, An aging of a company's accounts receivable indicates that uncollectible. lf Allowance for Doubtful Accounts has a adjustment to record bad debts for the period will require a a- debit to Bad Debts Expense for $5,000.,-9"-.'debit to Bad Debts Expense for $7,000. c. debit to Bad Debts Expense for $3,000. d. credit to Allowance for DoubtfulAccounts for $ $5,000 are estimated to be $2.000 debit balance. the 10. ln 2011, Garrison Company had net credit sales of $1,125,000. On January 1,2011, Allowance for Doubtful Accounts had a credit balance of $27,000. During 2011, $45,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). lf the accounts re_cgivabletalance at Decembel {_re,$300.*009, what is the requiied adjusihent to tre-a-tnwan?afoidou-btfuleccounise December 51, zotll a. $30,000 A $112,5OO ' / $qg,ooo d. $45,000

6 11. Using the following information: 12t31t10 Accounts receivable $1,050,000 Allowance (90,000) Accounts receivable, net $960J00 During 2011, sales on account were $290,000 and collections on account (i.e., what the company was able to collect from its accounts receivable) were $172,000. Also during 2011, the company wrote off $16,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $108,000. The change in the accounts receivable, net from the balance at to was a a. $100,000 increase. b. $1 18,000 increase. jo $e+,ooo increase. d. $ increase. a ril.,ccd t 2I'-),'' ^- -'- i1';-, 'tl - - ''- -'*' * 12. Oliver Furniture factors $600,000 of receivables to Kwik Factors, lnc. Kwik Factors assesses a 2% service charge on the amount of receivables sold. Oliver Furniture factors its receivables regularly with Kwik Factors. What journal entry does Oliver make when factoring these receivables? a. Cash Loss on Sale of Receivables Accounts Receivable 600,000 b. Cash Accounts Receivable c. Cash Accounts Receivable Gain on Sale of Receivables. / d. / Cash 600, ,000 v Service Charge Expense 12,000 Accounts Receivable 588,000 12, ,000

7 13. A 90-day note dated June 14 has a maturity date of a. September 14. 6) september 12. E September 13. d. September 15.!,\ :--il i ''r 14. On January 15,2011, Raymond Company received a two-month, 9%, $5,000 note from William Pentel for the settlement of his open account. The entry by Raymond Company on March 15,2011 if Pentel dishonors the note and collection is expected is: a. Accounts Receivable-W. Pentel 5,000 Notes Receivable 5,000 'b. ) Accounts Receivable-W. Pentel 5,075 --"/ Notes Receivable lnterest Revenue c. Accounts Receivable-W. Pentel... 4,925 lnterest Lost , Notes Receivable 5,000 d. Bad Debts Expense... 5,075 Notes Receivable 5, Maloney Company h"d lglg!gg_'-!"s?.!e-s dgu'g_th yq.ar.sf $1,200,00! and c_gst_qf_goods - sq!g_ol$750*q[0. The balance in accounts receivable at the beginning of the year was $120,000, and the end of the year it was $180,000. What was the accounts receivable turnover ratio? a. 5.0 b ' /' c. 8.0 d A plant asset cost $192,000 and is estimated to have a $24,000 salvage value at the end of its 8-year useful life. The annual depreciation expense recorded for the third year using the double-declining-balance method would be a. $16,080.,ffl$2z,ooo. ioz o'-tl_rx.r1-'*:- c. $73,624. d. $18,380. :,.

8 17. A plant asset was purchased on January 1 for 960,000 with an estimated salvage value of $10,000 at the end of its useful life. The current yeacs Depreciation Ex[ense is $5,000 calculated on the straight-line basis and the balance of the Accumulated Depreciation account at the en=d-fife year is 930,000. The remaining useful life of the plant asset is a. 10 years. b. 8 years. c. 6 years. (94 Years' (S,ooO X X= t C ulrs : 5ro oo 6q fs hcrre " (l^ot 18. Powell's Courier Service recorded a loss of $4,500 when it sold a van that originally cost $42,000 for $7,500. Accumu@an must have been a. $39,000. b. $12,000. L.$37,500. e2'$30'ooo, \L,oO e

9 l- Brief Exercise (12 points) [ l1 On November 1, 2O1O, Eatwell Farms sells a tractor for $8,800 in cash. o The tractor originally cost $30,000 and was purchased on June 1, o The company used double-declining balance method to estimate depreciation expense. The useful life was estimated to be 5 years and the salvage value was estimated to be $3,300. Part 1 (6 points): (A) What would be the journal entry as of Noveebell_2Q_1_L. (B) Did the company report a gain, loss, or neither? o Round to 1't decimalwhen necessary. o Please show allwork neatly to get credit. Part 2 (6 points): o lf Eatwell Farms used a straiqht-line method instead, what would be the reported gain, loss or neither?. Round to 1st decimal when necessary. o Please show allwork neatly to get credit. Extra Credit (3 points): o What would the useful life need to be in order for Eatwell Farms to report breakeven (no gain or loss)? o Hint: The useful life may not be in whole numbers. Round the useful life to the 2d decimal (e.9., 5.42 years). o Please show a!! work neatly to get credit. * Pcrr{ \ Dr 8,8oC F Ccunou\G\ed D. Lo:: on drsp:s\ Lt/@o r?{,}e,{-\ - { 1"aqc*r T ulcu\d re"fr{-o. bec.r,r.r:e i\ r"uq.s +he \ccctr- VQ \c-:9. 1,sqcx:' (u,= \o:: :o\d, Slcoiih*-lrne Llo + z)22s I zrqc s s_ '$.'fitlq i"[ffi3 rat$#i".'f'ff"*" T,ffi c,6ddx;t(-fu)= t/ba) -- rlooy- qrcoc. 1S\u No\ \ zotb.-.^-:_ tou:e_f *in*,l'\ to/6z0 iilfe; 17,qo s \c:: cf ',?*ii. -e.aco: #*r

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