Achievement Test 3.Chapters 5&6

Name ______________________ ___________ ______________ ___ Instructor ______________________ ____________ __________ Section # _______ Date _________

Achievement Test 3: Chapters 5 and 6  Accounting Principles, 10e

Weygandt, Kieso, & Kimmel

Part Points

I

II

III

IV

V

Total

36

26

18

10

10

100

Score

PART I — MULTIPLE CHOICE (36 points) Instructions: Designate the best answer for each of the following questions.

 ____ 1. When a customer returns merchandise merchandise purchased on credit, the: a. customer should credit Accounts Payable. b. seller should credit credit Sales Returns and Allowances. Allowances. c. customer should credit Accounts Receivable. d. None of the above.  ____ 2. Credit terms of 2/10, n/30 n/30 mean that: a. a 2% cash discount discount may be taken taken if payment is is made within 10 days of the invoice date; otherwise the full amount is due within 30 days. b. a 10% cash discount discount may be taken if payment is made immediately; a 2% 2% discount if paid within 30 days. c. a 2% cash discount discount may be taken taken if payment is is made within 10 days of the invoice date; otherwise the full amount is due at the end of the month. d. an additional amount equal to 2% of the invoice price must be paid ifif payment is not received within 10 days; the account is overdue after 30 days.  ____ 3. A periodic inventory system: a. requires the use use of a cost of goods sold account account throughout the year. b. allows for the determination of cost of goods sold after each sale. c. traditionally has been used with with low unit-value items. d. requires that detailed inventory records be kept.  ____ 4. In accordance with the revenue recognition principle, sales revenues are recorded when: a. the accountant determines which period's income statement "needs" more revenue. b. earned, which typically typically occurs when the goods are transferred transferred from the seller to the buyer. c. cash is received from the customer customer for items already delivered. d. an order is received from a customer with with delivery of the product expected to take take place within the next 30 days.

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Test Bank for Accounting Accounting Principles, Tenth Edition

 ____ 5. Expenses that relate to such activities as personnel management, accounting, and office security generally should appear in a multiple-step income statement in the: a. selling expenses section. b. cost of goods sold section. c. administrative expenses section. d. nonoperating section.  ____

6. When a seller grants credit for returned goods, goods, the account that is credited credited is: a. Sales Revenue. b. Sales Returns and Allowances. c. Inventory. d. Accounts Receivable.

 ____ 7. Freight terms of FOB shipping shipping point mean that the: a. seller must bear the freight costs. costs. b. buyer must bear the freight costs. c. seller must debit freight out. d. goods are placed free on board at the buyer's place of business.  ____ 8. With regard to accounting for a merchandising company versus a service enterprise, ente rprise, which of the following is false? a. There are just as many many steps as in in the accounting cycle cycle for a merchandising company. b. Additional accounts and entries are typically required for a merchandising company. c. Both retail and wholesale enterprises generally use accounting accounting techniques of a merchandising company. d. The process of measuring net income is conceptually conceptually different.  ____ 9. With regard to the accounts used to record freight costs: a. Freight-out is a contra account to Sales Revenue. b. Freight-out is added to Cost of of Goods Sold. c. Freight-out's normal balance is a debit. d. Freight-out is recorded when freight terms are FOB shipping point.  ____ 10. The Sales Returns and Allowances account: account: a. is used by a merchandising company, but not a service service enterprise. b. normally has a credit balance. c. should not be closed closed at the end of the period. d. is a contra account account to to Accounts Receivable.  ____

11. Theisman Company reported the following balances at January 31, 2012: Sales Revenue Sales Returns and Allowances Sales Discounts Cost of Goods Sold Net sales for the month is: a. $16,070. b. $6,870. c. $16,350. d. $16,700.

$16,700 350 280 9,200

 Achievement Test 3

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 ____ 12. Which of the following accounts is not  included  included in the computation of net sales? a. Freight-out. b. Sales Discounts. c. Sales Revenue. d. Sales Returns and Allowances.  ____ 13. Given the following information, compute the amount of cash finally remitted by the customer. Feb. 14—Sale on credit, terms of 1/15, n/30 —$12,000 Feb. 19— Allowance granted due to some some items being damaged—$600 Feb. 21—Payment in full received from customer —$? a. $11,996. b. $12,000. c. $11,286. d. $11,400.  ____ 14. Christensburg Trucking Company's inventory inventory records show the following following data: Inventory Purchases:

January 1 May 14 October 30

Units 3,000 4,100 3,900

Unit Cost $7.00 6.00 5.00

 A physical inventory on December 31 shows 2,000 units on hand. Under the FIFO method, the December 31 inventory is: a. $12,000. b. $14,000. c. $11,840. d. $10,000.  ____ 15. Which statement is false regarding the lower of cost or market (LCM) method of inventory? a. Market is defined as current replacement cost, not selling price. b. LCM is an example of the accounting concept of conservatism. conservatism. c. LCM can be applied to individual items listed on the inventory summary sheets. d. All of the above above are true regarding regarding LCM.  ____ 16. Legget Department Store utilizes the retail inventory method to estimate its inventories. It calculated its cost to retail ratio during the period at 80%. Goods available for sale at retail amounted to $600,000 and goods were sold during the period for $420,000. The estimated cost of the ending inventory is: a. $180,000. b. $144,000. c. $480,000. d. $225,000.  ____ 17. Goods in transit should be included in the inventory inventory of the: a. seller when when the terms are are FOB shipping point. b. buyer when the terms terms are FOB destination. c. buyer when the terms terms are FOB shipping point. d. transportation company company when the terms are FOB FOB destination.

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Test Bank for Accounting Accounting Principles, Tenth Edition

 ____ 18. The ending inventory of Larson Company, which uses a periodic inventory system, was understated $14,000 on December 31, 2012, and overstated $6,000 on December 31, 2013. Because of these errors, 2013 net income was: a. overstated $20,000. b. understated $8,000. c. overstated $6,000. d. understated $20,000. PART II — JOURNAL ENTRIES (26 points) The ledger accounts given below, with an identification number for each, are used by Kiner Company which uses a perpetual inventory system. Instructions:  Prepare appropriate entries for the month of August by placing the appropriate

identification number(s) in the debit and credit columns provided and the dollar amounts pertaining to each account in the adjoining columns. 1. Cash 7. Accounts Payable 2. Accounts Receivable 8. Sales Returns and Allowances 3. Notes Receivable 9. Sales Discounts 4. Inventory 10. Sales Revenue 5. Supplies 11. Cost of Goods Sold 6. Land 12. Freight-out ———————————————————————————————————————————  Account(s) Account(s) Debit Credit Entry Information Debited Credited Amount(s) Amount(s) ——————————————————————————————————————————— 0. Aug. 1 Sold merchandise for cash $300. 1 10 $300 $300 The cost of the merchandise sold was $200. 11 4 200 200 1. Aug. 2 Purchased merchandise from  ABC Co. on account for $4,000; terms 1/10, n/30. 2. Aug. 4 Sold excess land for $10,000 accepting a 2-year, 12% note. The land was purchased for $10,000 last year. 3. Aug. 6 Sold merchandise to D. Riley on account for $1,400, terms 1/10, n/30. D. Riley will pay $50 freight costs per the shipping terms. The merchandise sold cost $700. 4. Aug. 8 Accepted a sales return of defective merchandise from D. Riley—credit granted was $200. The returned merchandise cost $100. 5. Aug. 11 Purchased merchandise from Tanner Hardware on account for $3,000; terms 2/10, n/30.

 Achievement Test 3

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6. Aug. 12 Paid freight of of $300 on the shipment from ABC Co. per the shipping terms. 7. Aug. 15 Received payment in in full from D. Riley. 8. Aug. 19 Paid ABC Co. in full. 9. Aug. 20 Paid Tanner Hardware in full. 10. Aug. 27 Purchased office supplies for $300 cash. ——————————————————————————————————————————— PART III — BASIC INVENTORY COMPUTATIONS (18 points)

Vaughn Company, which uses a  periodic  inventory  inventory system, had a beginning inventory on May 1, of 300 units of Product A at a cost of $6.25 per unit. During May, the following purchases and sales were made. May 6 14 21 28

Purchases 300 units at $7.20 400 units at $9.10 100 units at $11.50 500 units at $11.80 1,300

May 4 8 22 24

Sales 275 300 400 225 1,200

units units units units

Instructions:  Compute the May 31 ending inventory and May cost of goods sold under (a)

 Average Cost, (b) FIFO, and (c) (c) LIFO. Provide appropriate supporting calculations. 1.

Average – Ending Inventory = $_________;

Cost of Goods Sold = $_________.

2.

FIFO – Ending Inventory = $_________;

Cost of Goods Sold = $_________.

3.

LIFO – Ending Inventory = $_________;

Cost of Goods Sold = $_________.

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Test Bank for Accounting Accounting Principles, Tenth Edition

PART IV — CLOSING ENTRIES (10 points) Below is a partial listing of accounts in the general ledger of Denton Co. Instructions: Place an X in the appropriate column to designate whether the account should be

closed at year end and, if so, whether the appropriate closing entry would require a debit or credit to the account. ——————————————————————————————————————————— Not Closed  Account Closed Debit Credit ——————————————————————————————————————————— 1. Interest Expense..............................................................

___

___

___

2. Freight-out .......................................................................

___

___

___

3. Owner’s Capital ...............................................................

___

___

___

4. Inventory..........................................................................

___

___

___

5. Sales Returns and Allowances ........................................

___

___

___

6. Owner’s Drawing .............................................................

___

___

___

7. Cost of Goods Sold..........................................................

___

___

___

8. Sales Discounts ...............................................................

___

___

___

9. Sales Revenue ................................................................

___

___

___

10. Accumulated Depreciation ...............................................

___

___

___

 Achievement Test 3

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PART V — INVENTORY: SHORT PROBLEMS (10 points) Instructions:  Complete the requirements specified for each of the following independent

situations. 1.

State the missing items identified by “?”.

 A. ? + Purchases  – Purchases discounts  – Purchases returns returns and allowances + Freight-in = ? B. Net purchases + ? = Cost of goods purchased C. Net purchases + ? + ? = Purchases 2.

Pettitte Company Company uses the lower of cost or market (LCM) basis for its inventory. The following information relates to its December 31, 2012, inventory. Determine the amount of the ending inventory applying LCM to individual items. Product  A B C D E

Units 600 350 400 250 380

December 31, 2012 Unit Cost Market $17 20 28 25 15 17 31 29 20 19

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Test Bank for Accounting Accounting Principles, Tenth Edition

Solutions — Achievement Test 3: Chapters 5 and 6

PART I — MULTIPLE CHOICE (36 points) 1. d 2. a 3. c

4. b 5. c 6. d

7. b 8. d 9. c

10. a 11. a 12. a

13. c 14. d 15. d

16. b 17. c 18. a

PART II — JOURNAL ENTRIES (26 points)

0. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

 Account(s) Debited 1 11 4 3 2 11 8 4 4 4 1 9 7 7 5

Account(s) Debit Credited Amount(s) 10 $ 300 4 200 7 4,000 6 10,000 10 1,400 4 700 2 200 11 100 7 3,000 1 300 2 1,188 12 1 4,000 4 3,000 1 1 300

Credit Amount(s) $ 300 200 4,000 10,000 1.400 700 200 100 3,000 300 1,200 4,000 60 2,940 300

PART III — BASIC INVENTORY COMPUTATIONS (18 points) 1. Average ending inventory: 400 × $9.20 =

$3,680

$14,725  Average cost = ———— = $9.20 1,600 2. FIFO ending inventory: 400 × $11.8 =

3. LIFO ending inventory: 300 × $6.25 = 100 × $7.20 =

Average cost of goods sold Cost of goods available for sale Less: Ending inventory Cost of goods sold

$4,720

$1,875 720 $2,595

$14,725 3,680 $11,045

FIFO cost of goods sold Cost of goods available for sale Less: Ending inventory Cost of goods sold

$14,725 4,720 $10,005

LIFO cost of goods sold Cost of goods available for sale Less: Ending inventory Cost of goods sold

$14,725 2,595 $12,130

 Achievement Test 3

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PART IV — CLOSING ENTRIES (10 points) ——————————————————————————————————————————— Not Closed  Account Closed Debit Credit ——————————————————————————————————————————— 1. Interest Expense ........................................................ X 2. Freight-out .................................................................. X 3. Owner’s Capital .......................................................... X 4. Inventory .................................................................... X 5. Sales Returns and Allowances ................................... X 6. Owner’s Drawing ....................................................... X 7. Cost of Goods Sold .................................................... X 8. Sales Discounts.......................................................... X 9. Sales Revenue ........................................................... X 10. Accumulated Depreciation.......................................... X PART V — INVENTORY:  INVENTORY: SHORT PROBLEMS PROBLEMS (10 points) 1. A. Beginning inventory, Cost of goods available for sale. B. Freight-in. C. Purchases discounts, discounts, Purchases returns and allowances. 2.

Product  A B C D E

Units 600 350 400 250 380

LCM $17 25 15 29 19

Total $ 10,200 8,750 6,000 7,250 7,220 $39,420