BUSA 101 – MR. FARINA
Pre-quiz No. 3, Chapters 6 and 7
INSTRUCTIONS: Complete each of the following statements by writing the appropriate words in the Answers column. / Name
Answers / For
Scoring
0.The party to whom a check is payable is called the...... / Payee / 0.
1.The inventory costing method that considers inventory to be composed of merchandise purchased most recently is / 1. /
1.
2.Merchandise in transit, terms FOB shipping point, should be included in the inventory of the (seller, buyer) / 2. /
2.
3.Merchandise inventory was destroyed by an earthquake on June 19. The January 1 balance of merchandise inventory was $150,000. Net purchases for the period from January 1 to June 19 were $1,050,000. Sales during that period were $1,550,000. The gross profit rate was 40%. Required: estimate the cost of merchandise destroyed. / 3. / 3.
4.The following data is for Rancho Company in 2008: Net sales were $2,250,000; cost of goods sold was $1,500,000; merchandise inventory was $100,000 at January 1, and was $200,000 at December 31. Required: compute the inventory turnover. / 4. / 4.
5.During a period of falling prices, the method (FIFO or LIFO) that would result in the higher cost of merchandise sold is / 5. / 5.
6.Damaged merchandise that can only be sold below cost should be valued at / 6. / 6.
7-11. Inventory at the end of the current fiscal year was understated. State whether each of the following will be overstated, understated or not affected.
7. Cost of Merchandise sold for the year ...... /
7. /
7.
8.Net income reported on the income statement for the current year ..... / 8. / 8.
9.Current assets reported on the balance sheet for the current year ..... / 9. / 9.
10.Owner’s equity reported on the balance sheet at the end of the current year / 10. /
10.
11.In the case above, if the error is not discovered, and if the following year’s inventory valuation is correct, the net income for the following year will be (understated, overstated, not affected) /
11. / 11.
12.Consignment goods should be reported in the inventory of the (consignor or consignee)? /
12. /
12.
13.Goods shipped at 11:50 p.m. on the last day of the fiscal period, terms FOB destination, should be reported in the inventory of the / 13. / 13.
14.Title to merchandise shipped FOB shipping point passes to the buyer upon (shipment or delivery of merchandise / 14. / 14.
15. The account debited when a petty cash fund is established is ...... / 15. / 15.
16-17. Would a perpetual inventory system normally be practical for the following types of businesses without a computerized system?
(answer yes or no)
16.Retail mobile home dealer ...... / 16. / 16.
17. Retail hardware store ...... / 17. / 17.
18. Merchandise in transit should be included in the buyer’s inventory if the terms are FOB / 18. / 18.
19.The inventory method that considers the inventory to be composed of the units of merchandise acquired earliest is called / 19. / 19.
20. The attitude and awareness of internal control issues by management and employees is called…………………………………………………………….. / 20. / 20.

PROBLEM—BANK RECONCILIATION

INSTRUCTIONS: Indicate the proper place for each of the following reconciling items by inserting the correct letter from the form below in the Answers column.

Duong, Inc., Bank Reconciliation, June 30, 2009

Cash balance per bank statement...... $XXCash balance per depositor's records.....$XX

Additions...... AAdditions...... C

Deductions...... BDeductions...... D

Adjusted balance...... $XXAdjusted balance...... $XX

Answers / For
Scoring
0.Bank charge for services rendered ...... / D / 0.
1.Bank credit memorandum for loan by bank to Duong, Inc...... / 1. / 1.
2.Check paid omitted from the company journal...... / 2. / 2.
3.A note was collected by the bank on behalf of the company ...... / 3. / 3.
4.Interest on the above (3) note ...... / 4. / 4.
5.Deposit of $897 recorded by the company but not by the bank ...... / 5. / 5.
6.Outstanding checks of $3,320 ...... / 6. / 6.
7. The bank overcharged the company $27 on a check / 7. / 7.
8.Bank debit memorandum for customer’s check returned because of
insufficient funds ...... / 8. /
8.
9. Bank charge for printing company checks ...... / 9. / 9.
10. Check for $45 was entered in the journal as $54 ...... / 10. / 10.

PROBLEM—CALCULATIONS

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

Answers / For
Scoring
0.The term for goods held for sale is ...... / Merchandise inventory / 0.
1-2.Selected data on sales and merchandise available for sale are as follows:
October 1 Beginning Inventory ……… 10 units at $19
October 4 Purchase …….……………. 20 units at $20
October 5 Sold ….…………………….. 16 units at $29
October 8 Purchase ………………….. 20 units at $21
October 12 Sold ………………………... 17 units at $29
Based on the assumptions above, the value of the ending inventory, under the following assumptions, is:
1.FIFO – perpetual inventory system ...... / 1. $ / 1.
2.LIFO – perpetual inventory system ...... / 2. $ / 2.
3-5.If a check for $540 is entered in the journal as $450, the adjustment in the bank reconciliation is
3.Amount ...... / 3. $ / 3.
4.Increase or decrease ...... / 4. / 4.
5.To the book balance or bank balance ...... / 5. / 5.
6.The balance in the Petty Cash account is $125. Cash on hand of $35 and receipts of $88 are in the petty cash box. The amount of the check to replenish petty cash is /
6. $ / 6.

SHORT ESSAY

Data from a recent year for Costco, a membership warehouse, and Wal-Mart, a discount general merchandise retailer, follow:

CostcoWal-Mart

Cost of merchandise sold$42,092$219,793

Merchandise inventory, beginning 3,339 26,612

Merchandise inventory, ending 3,644 29,447

REQUIRED:(1)Calculate the inventory turnover for both companies

(2) Calculate the number of days’ sales in inventory for both companies. Use the following formula:

360 days / Inventory turnover

(3) Which of the two companies sells its merchandise more quickly?

1