FINANCIAL ACCOUNTING Quiz 4

 
PROBLEM 1—FINANCIAL STATEMENTS

 INSTRUCTIONS: Indicate the placement on financial statements of the items listed below by inserting the
appropriate letter or letters in the Answers column. Assume the use of the multiple-step income statement and the
perpetual inventory system.

STATEMENTS
  Income Statement G. Retained Earnings Statement  Balance Sheet
 A. Administrative expenses   H. Current assets
 B. Cost of merchandise sold   I. Current liabilities
 C. Other expense   J. Long-term liabilities
 D. Other income   K. Stockholders’ equity
 E. Revenue from sales   L. Property, plant, and equipment
 F. Selling expenses

  For
Scoring
ITEMS APPEARING ON STATEMENTS Answers 
 0. Cash     0. ____
 1. Merchandise inventory at end of period     1. ____
 2. Cost of merchandise sold    2. ____
 3. Sales discounts     3. ____
 4. Interest expense     4. ____
 5. Loss on sale of fixed assets     5. ____
 6. Dividends     6. ____
 7. Interest receivable     7. ____
 8. Accumulated depreciation—store equipment     8. ____
 9. Interest revenue     9. ____
 10. Retained earnings at end of period     10. ____
 11. Sales     11. ____
 12. Store supplies expense     12. ____
 13. Mortgage note payable (payable in 2015)     13. ____
  

 
 PROBLEM 2—ANALYSIS OF TRANSACTIONS

 INSTRUCTIONS: For O’Neill’s, indicate the accounts to be debited and credited in recording the selected transactions described below by inserting the letter designation for the accounts in the appropriate columns. The perpetual inventory system is used.

ACCOUNTS
 A. Accounts Payable E. Merchandise Inventory I. Dividends
 B. Accounts Receivable F. Office Supplies J. Sales
 C. Cash G. Office Supplies Expense K. Sales Discounts
 D. Cost of Merchandise Sold H. Capital Stock L. Sales Returns and Allowances

  For
Scoring  For
Scoring
TRANSACTIONS Debit  Credit 
 0. Purchased office supplies for cash      
 1–2. Sold merchandise on account      
 3–4. Received a return of part of the merchandise sold in Question 1–2      
 5–6. Received cash for merchandise sold in Questions 1–2 and 3–4 within the discount period      
 7–8. Purchased merchandise on account      
 9–10. Returned part of the merchandise purchased in Question 7–8      
    

FILL-IN-THE-BLANK 1—PRINCIPLES AND TERMINOLOGY

 INSTRUCTIONS:  Complete the following statements by writing the appropriate words or amounts in the Answers column.

  For
Scoring
STATEMENTS Answers 
 0. The form of balance sheet with assets, liabilities, and stockholders’ equity listed in a downward sequence is referred to as the    
 0. ____
 1. The document that the seller sends to the buyer listing the terms of the sale is called the    
 1. ____
 2. The inventory accounting system in which the amount of inventory on hand can always be determined is called the    
 2. ____
 3. The inventory accounting system in which the cost of the merchandise sold is determined at the end of the accounting period is called the    
 3. ____
 4. If the purchaser is to assume the cost of delivering the goods, the terms of the sale are stated as FOB    
 4. ____
 5. If the seller is to assume the cost of delivering the goods, the terms of sale are stated as FOB    
 5. ____
 6–8. A sales invoice for $25,000, terms 2/10, n/30, FOB shipping point, is paid within the discount period. The seller has prepaid transportation costs of $125. Purchases of $450 are returned to the seller   
 6. The amount of the sales discount is     6. ____
 7. The title of the account in which the discount is recorded by the seller is     7. ____
 8. The amount of cash received from the customer assuming payment is not made in the discount period is     8. ____
 9. Gross profit is the difference between sales and     9. ____
 10. If ownership (title) to merchandise passes to the buyer when merchandise is delivered to the freight carrier, the shipping terms are    
 10. ____
  

 
FILL-IN-THE-BLANK 2—PRINCIPLES AND TERMINOLOGY

 INSTRUCTIONS: Complete each of the following statements by writing the appropriate words in the Answers column.

  For
Scoring
STATEMENTS Answers 
 0. In which section of the balance sheet is merchandise inventory reported?    0. ____
 1–3. Would a perpetual inventory system normally be practical for the following types of businesses without a computerized system? (answer yes or no)  
 1. Retail jewelry store     1. ____
 2. Wholesale clothing store     2. ____
 3. Retail candy store     3. ____
 4. If the cost of an item of inventory is $75, the current replacement cost is $64, and the selling price is $95, the amount included in inventory
according to the lower of cost or market concept is    

 4. ____
 5. Merchandise in transit should not be included in the seller’s inventory if the terms are FOB    
 5. ____
 6. The inventory method where the last units purchased are assumed to be sold and the ending inventory is made up of the first units purchased.    
 6. ____
 7. A method that is useful for estimating the cost of inventory that has been destroyed that uses the relationship between cost and retail value is    
 7. ____
 8. During a period of consistently falling prices, the method (FIFO or LIFO) that will result in reporting the greater cost of merchandise sold is     
 8. ____
 9–11. Inventory at the end of the current fiscal year was understated. State
whether each of the following will be overstated, understated, or not affected:  
 9. Cost of merchandise sold reported on the income statement for the
current year    
 9. ____
 10. Net income reported on the income statement for the current year     10. ____
 11. Retained earnings reported on the balance sheet at the end of the current year    
 11. ____
 12. Damaged merchandise that can only be sold at below cost should be
valued at    
 12. ____
  

PROBLEM 3—PROBLEMS

INSTRUCTIONS: Solve the following problems and record the answers in the Answers column.

  For
Scoring
 Answers 
 0. The amount credited to sales for the sale of merchandise costing $500,
with 40% added to the cost price to determine selling price, is    
 0. ____
 1. Summarized data on sales and merchandise available for sale are as follows:

  April 1 Merchandise inventory   $   415,000
  April 1–30 Purchases (net)   675,000
  April 1–30 Sales (net)   1,400,000

  If the estimated rate of gross profit is 40%, the estimated cost of the
merchandise inventory on April 30 is    

 1. ____
 2. The following lots of a particular commodity were available for sale during the year:

  Beginning inventory   10 units at $61
  First purchase   40 units at $62
  Second purchase   35 units at $65
  Third purchase   15 units at $63

  Based on the periodic system, the total cost of the 23 units in inventory at the end of the year, according to the first-in, first-out method, is    

 2. ____
 3. Based on the data in Question 2, the total cost of the 23 units in inventory by the last-in, first-out method is    
 3. ____
 4. Based on the data in Question 2, the total cost of the 23 units in inventory by the average cost method is    
 4. ____
 5. A purchase order for $15,000 of merchandise was mailed to a supplier on December 22, 2011. The merchandise was shipped by the supplier
on December 29, 2011, under terms of FOB shipping point, and the
merchandise was received on January 3, 2012. If 50% is added to its
cost by the purchaser to determine selling price, the amount to be
included in the inventory of the purchaser on December 31, 2011, is    

 5. ____
 6. Beginning inventory, purchases, and sales of a commodity are presented below:

  Inventory: July 1    15 units at $55
  Sales: July 6   10 units at $57
    12   30 units at $58
    22   40 units at $59
  Purchases: July 9   30 units at $60
    18   50 units at $65

  Assuming that the perpetual inventory system is used, the cost of the inventory balance on July 31 by the FIFO method is

 6. ____
 7. Based on the data in Question 6, the cost of the inventory balance on July 31 by the LIFO method is    
 7. ____
 8. Summarized data on sales and merchandise available for sale are as follows:
    Cost Retail
  June 1 Merchandise inventory  $137,000 $210,000
  June 1–30 Purchases (net)  252,000 300,000
  June 1–30 Sales (net)   350,000
 8. ____