Accounting 115

Practice Exam 2

Name: ______

1. Gross profit is the difference between:

A. Net sales and the cost of goods sold.

B. The cost of merchandise purchased and the cost of merchandise sold.

C. Net sales and net income.

D. Net sales and all expenses.

  1. Which of the following appears in the income statement of a merchandising business, but not in the income statement of a business that renders only services?

A. Interest revenue.

B. Gross profit.

C. Advertising expense.

D. Income taxes expense.

  1. In a perpetual inventory system, purchases of merchandise on account are recorded by debiting:

A. Cost of Goods Sold.

B. Accounts Payable.

C. Purchases.

D. Inventory.

  1. In a perpetual inventory system, two entries usually are made to record each sales transaction. The purposes of these entries are best described as follows:
  1. One entry recognizes the sales revenue, and the other recognizes the cost of goods sold.
  2. One entry records the purchase of the merchandise, and the other records the sale.
  3. One entry records the cost of goods sold, and the other reduces the balance in the Inventory account.
  4. One entry updates the general ledger, and the other updates the subsidiary ledgers.
  1. Chicago Pizza reports net sales of $1,000,000, gross profit of $550,000, and net income of $80,000. The company’s cost of goods sold is:

A. $370,000.

B. $450,000.

C. $920,000.

D. Some other amount.

  1. Molloy Co. uses a periodic inventory system. An examination of its closing entries revealed a debit to the Cost of Goods Sold for $735,000. Its beginning inventory was $180,000 and the year-end inventory showed $200,000 of merchandise on hand. Purchases for the year amounted to:

A. $715,000

B. $20,000

C. $735,000

D. $755,000

  1. Telecote Pro Shop uses a periodic inventory system. The beginning inventory was $20,000, purchases amounted to $110,000, sales totaled $215,000, and the year-end inventory was $25,000. The cost of goods sold must have been:

A. $100,000.

B. $105,000.

C. $110,000.

D. Some other amount.

Reference the following for the next 2 questions:

Two Wheel Therapy is a small retail business that specializes in the sale of touring and mountain bicycles. This year, the store has begun to carry the Killer Bee mountain bike manufactured by Hillandale Co. Thus far this year, Two Wheel has recorded the following transactions involving the Killer Bee model:

Jan. 3. Purchased 5 Killer Bee bicycles at a unit cost of $700

Jan. 15. Purchased 3 additional Killer Bees at $700 each

Feb. 10. Sold 6 Killer Bee Bikes to the Dunmore Mountain Club for $6,000

Refer to the above data

  1. If Two Wheel uses a perpetual inventory system, the journal entry to record the purchase on January 15th would include which of the following?

A. a debit to the Purchases account for $2,100

B. a debit to the Cost of Goods Sold for $2,100

C. a credit to Inventory for $2,100

D. a debit to Inventory for $2,100

Refer to the above data

  1. If Two Wheel uses a perpetual inventory system, the journal entry to record the sale on February 10th would include all of the following except:

A. a debit to the Cost of Goods Sold for $4,200

B. a credit to Sales Revenue for $6,000

C. a credit to Purchases for $4,200

D. a credit to Inventory for $4,200

  1. Enclosed with the bank statement received by Sunflower Company at October 31 was an NSF check for $200. No entry has yet been made by the company to reflect the bank’s action in charging back the NSF check. During preparation of the bank reconciliation, the NSF check should be:

A. Deducted from the balance per the depositor’s records.

B. Deducted from the balance per the bank statement.

C. Added to the balance per the bank statement.

D. Added to the balance per the depositor’s records.

  1. In preparing a bank reconciliation, a service charge shown on the bank statement should be:

A. Added to the balance per the bank statement.

B. Deducted from the balance per the bank statement.

C. Added to the balance per the depositor’s records.

D. Deducted from the balance per the depositor’s records.

  1. An NSF check returned by the bank should be entered in the depositor’s accounting records by a debit to:

A. Accounts Receivable.

B. An expense account.

C. Cash.

D. Cash Over and Short.

  1. While preparing a bank reconciliation, an accountant discovered that a $292 check returned with the bank statement had been recorded erroneously in the depositor’s accounting records as $229. In preparing the bank reconciliation the appropriate action to correct this error would be to:

A. Add $63 to the balance per the depositor’s records.

B. Add $63 to the balance per the bank statement.

C. Deduct $63 from the balance per the bank statement.

D. Deduct $63 from the balance per the depositor’s records.

Reference the following for the next 3 questions:

At the end of January, the unadjusted trial balance of Viewpoint, Inc., included the following accounts:

Debit Credit

Sales (90% represent credit sales) $800,000

Accounts Receivable $550,000

Allowance for Doubtful Accounts 4,280

Refer to the above data

  1. Viewpoint uses the balance sheet approach in estimating uncollectible accounts expense, and aging the accounts receivable indicates the estimated uncollectible portion to be $16,600. What is the amount of uncollectible accounts expense recognized in Viewpoint’s income statement for January?

A. $14,940.

B. $20,880.

C. $16,600.

D. $12,320.

Refer to the above data

  1. Viewpoint uses the balance sheet approach in estimating uncollectible accounts expense, and aging the accounts receivable indicates the estimated uncollectible portion to be $16,600. The net realizable value of Viewpoint’s accounts receivable in the January 31 balance sheet is:

A. $533,400.

B. $537,680.

C. $545,720.

D. $529,120.

Refer to the above data

  1. Viewpoint uses the income statement approach in estimating uncollectible accounts expense, and uncollectible accounts expense is estimated to be 2% of credit sales. What is the amount of uncollectible accounts expense recognized in Viewpoint’s income statement for January?

A. $10,120.

B. $11,000.

C. $14,400.

D. $16,000.

  1. At December 31, before adjusting and closing the accounts had occurred, the Allowance for Doubtful Accounts of Wilton Corporation showed a debit balance of $5,300. An aging of the accounts receivable indicated the amount probably uncollectible to be $3,900. Under these circumstances, a year-end adjusting entry for uncollectible accounts expense would include a:

A. Debit to the Allowance for Doubtful Accounts for $1,400.

B. Credit to the Allowance for Doubtful Accounts for $1,400.

C. Debit to Uncollectible Accounts Expense of $3,900.

D. Debit to Uncollectible Accounts Expense of $9,200.

18. The specific identification method is more appropriate than a flow assumption:

A. For a large inventory of identical low-priced items.

B. If each item in the inventory is unique.

C. If purchase costs are rising.

D. If purchase costs are falling.

19. When the LIFO costing method is in use, the seller:

A. Must sell the most recently acquired units first.

B. Must sell the oldest unit in inventory first.

C. Assumes that the most recently acquired units are sold first.

D. Assumes that the oldest units in inventory are sold first.

20. Which of the following statements is not a characteristic of the LIFO method of pricing inventory?

A. During a period of rising prices, LIFO tends to minimize the amounts of income taxes owed.

B. The cost of goods sold is measured in relatively current costs.

C. Inventory is valued at relatively current costs.

D. None of the above; these statements all describe characteristics of the LIFO method.

21. In a periodic inventory system, the cost of goods sold is determined as follows:

  1. Year-end inventory, plus purchases during the year, less the inventory at the beginning of the year.
  2. Net sales, less the balance in the Gross Profit account.
  3. Cost of goods available for sale during the year, less the ending inventory.
  4. A physical count is made of all items sold throughout the year, and a cost flow assumption is applied at year-end.

Reference the following for the next 3 questions:

Foothills, Inc. uses a periodic inventory system. The purchases of a particular product during the year are shown below:

Jan. 1Beginning inventory1,000 units @$ 12.00 =$12,000

Apr. 18Purchase 850 units @$ 12.50 = 10,625

Aug. 11Purchase1,250 units @$ 13.00 = 16,250

Oct.23Purchase 1,300 units @$ 13.25 = 17,225

Total 4,400 units $56,100

At December 31 the ending inventory consisted of 1,400 units.

Refer to the above data

22. Compute the cost of the ending inventory based on the LIFO method of inventory valuation.

A. $39,100.

B. $17,000.

C. $18,525.

D. $37,575.

Refer to the above data

23. Compute the cost of the ending inventory based on the FIFO method of inventory valuation.

A. $39,100.

B. $17,000.

C. $18,525.

D. $37,575.

Refer to the above data

24. Compute the cost of the ending inventory based on the average-cost method of inventory valuation.

A. $17,850.

B. $17,763 (rounded).

C. $38,250.

D. $38,337 (rounded).