1. Northwest Fur Co. started 2011 with $94,000 of merchandise inventory on hand. During 2011, $400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of $7,500. Merchandise with an invoice amount of $5,000 was returned for credit. Cost of goods sold for the year was $380,000. Northwest uses a perpetual inventory system.
Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for sale?
A. $492,550
B. $496,500
C. $490,500
D. $492,500
2. Frasquita acquired equipment from the manufacturer on 6/30/11 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $550,000 on 4/30/12 to satisfy the obligation in full. If Frasquita accrued interest of $15,000 on the note in its 2011 year-end financial statements, what would the manufacturer record in its 2011 income statement for this transaction?
A. $15,000 of interest revenue
B. $25,000 of interest revenue
C. $550,000 of sales revenue
D. $15,000 of interest revenue and $525,000 of sales revenue
3. Data below for the year ended December 31, 2011, relates to Houdini Inc. Houdini started business January 1, 2011, and uses the LIFO retail method to estimate ending inventory.
Cost Retail
Beginning inventory $66,000 $104,000
Net purchases 280,000 420,000
Net markups 20,000
Net markdowns 40,000
Net sales 375,000
Estimated ending inventory at retail is
A. $129,000.
B. $65,000.
C. $25,000.
D. $169,600.
4. Oswego Clay Pipe Company sold $46,000 of pipe to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. Oswego uses the gross method of accounting for cash discounts.
What entry would Oswego make on April 23, assuming the customer made the correct payment on that date?
a. Cash 45,540
Sales 460
Accounts receivable 46,000
b. Cash 46,000
Sales discounts 460
Accounts receivable 46,000
Interest revenue 460
c. Cash 45,540
Sales discounts 460
Accounts receivable 46,000
d. Cash 46,000
Accounts receivable 45,540
Sales 460
A. Option d
B. Option b
C. Option a
D. Option c
5. San Mateo Company had the following account balances at December 31, 2011 before recording bad debt expense for the year:
Accounts receivable $1,400,000
Allowance for uncollectible accounts (credit balance) 22,000
Credit sales for 2011 1,950,000
San Mateo is considering the following approaches for estimating bad debts for 2011:
* Based on 3% of credit sales
* Based on 6% of year-end accounts receivable
What amount should San Mateo charge to bad debt expense at the end of 2011 under each method?
Percentage of credit sales Percentage of accounts receivable
a. $36,500 $62,000
b. $58,500 $62,000
c. $58,500 $84,000
d. $117,000 $95,000
A. Option c
B. Option a
C. Option d
D. Option b
6. Data related to the inventories of Costco Medical Supply is presented below:
Surgical
Equipment Surgical
Supplies Rehab
Equipment Rehab
Supplies
Selling price $260 $120 $340 $165
Cost 170 90 250 162
Replacement cost 240 80 235 158
Disposal cost 30 5 25 10
Normal gross profit ratio 30% 30% 30% 20%
In applying the LCM rule, the inventory of surgical equipment would be valued at
A. $230.
B. $152.
C.170
D. $240.
7. The Mateo Corporation's inventory at December 31, 2011, was $325,000 based on a physical count priced at cost, and before any necessary adjustment for the following:
* Merchandise costing $30,000, shipped f.o.b. shipping point from a vendor on December 30, 2011, was received on January 5, 2012.
* Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December 28, 2011, was
received on January 3, 2012.
* Merchandise costing $38,000 was shipped to a customer f.o.b. destination on December 28, arrived at the customer's location on January 6, 2012.
* Merchandise costing $12,000 was being held on consignment by Traynor Company.
What amount should Mateo Corporation report as inventory in its December 31, 2011, balance sheet?
A. $325,000
B. $367,000
C. $405,000
D. $427,000
8. Chez Fred Bakery estimates the allowance for uncollectible accounts at 3% of the ending balance of accounts receivable. During 2011, Chez Fred's credit sales and collections were $125,000 and $131,000, respectively. What was the balance of accounts receivable on January 1, 2011, if $180 in accounts receivable were written off during 2011 and if the allowance account had a balance of $750 on 12/31/11?
A. $5,820
B. $31,180
C. 138,000
D. $31,000
9. So. California, Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2011. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2011, $300,000; sales and purchases from January 1, 2011, to May 1, 2011, $1,300,000 and $875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2011, is
A. $360,000.
B. $455,000.
C. $302,500.
D. $395,000.
10. Sullivan Corporation has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:
Selling price $520,000
Disposal costs 30,000
Normal profit margin 60,000
Replacement cost 440,000
What should be the carrying value of Sullivan's inventory if the company prepares its financial statements according to International Financial Reporting Standards?
A. $430,000
B. $490,000
C. $440,000
D. $500,000
11. Willie Nelson's Boots uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:
Cost Retail
Beginning inventory $46,000 $63,000
Net purchases 154,000 215,000
Net markups 22,000
Net markdowns 35,000
Net sales 220,000
To the nearest thousand, estimated ending inventory using the conventional retail method is
A. $32,000.
B. $37,000.
C. $34,000.
D. $30,000.
12. Logistics Company had the following items listed in its trial balance at 12/31/11:
Balance in checking account, Bank of the East $442,000
Treasury bills, purchased on 11/1/11, mature on 1/30/12 20,000
Loan payable, long-term, Bank of the
East 300,000
Included in the checking account balance is $50,000 of restricted cash that Bank of the East requires as a compensating balance for the $300,000 note. What amount will Logistics include in its year-end balance sheet as cash and cash equivalents?
A. $442,000.
B. $392,000.
C. $412,000.
D. $462,000.
13. On July 8, a fire destroyed the entire merchandise inventory on hand of Larrenaga Wholesale Corporation. The following information is available:
Sales, January 1 through July 8 $700,000
Inventory, January 1 130,000
Purchases, January 1 through July 8 640,000
Gross profit ratio 30%
What is the estimated inventory on July 8 immediately prior to the fire?
A. $280,000
B. $510,000
C. $192,000
D. $490,00
14. Data below for the year ended December 31, 2011, relates to Houdini Inc. Houdini started business January 1, 2011, and uses the LIFO retail method to estimate ending inventory.
Cost Retail
Beginning inventory $66,000 $104,000
Net purcha
es 280,00 420,000
Net markups 20,000
Net markdowns 40,000
Net sales 375,000
Current period cost-to-retail percentage is
A. 63.5%.
B. 70.0%.
C. 63.6%.
D. 68.7%.
15. On April 1 of the current year, Troubled Company factored receivables with a carrying value of $85,000 for $60,000 in cash from Scrooge Lenders. The transfer was made without recourse. On April 1, Troubled would
A. credit factored accounts receivable for $85,000.
B. credit deferred interest expense for $25,000.
C. debit loss on sale of receivables for $25,000.
D. debit discount on liability for $25,000
16. Wilson Company had the following cash balance items listed in its trial balance at 12/31/11:
Peterson Savings and Loan: $50,000
Right Bank: (5,000)
Cinton County Trust Bank: 10,000
If Wilson reports under U.S. GAAP, its 12/31/11 balance sheet would show what cash balance?
A. $55,000
B. $60,000 (50000+10000)
C. ($1,000)
D. (5,000)
17. Cinnamon Buns Co. (CBC) started 2011 with $52,000 of merchandise on hand. During 2011, $280,000 in merchandise was purchased on account with credit terms of 2/10 n/30. All discounts were taken. Purchases were all made f.o.b. shipping point. CBC paid freight charges of $9,000. Merchandise with an invoice amount of $4,000 was returned for credit. Cost of goods sold for the year was $316,000. CBC uses a perpetual inventory system.
What is cost of goods available for sale, assuming CBC uses the gross method?
A. $331,480
B. $312,480
C. $337,000
D. $326,000
18. Alliance Software began 2011 with accounts receivable of $115,000. All sales are made on credit. Sales and cash collections from customers for the year were $780,000 and $700,000, respectively. Cost of goods sold for the year was $450,000. What was Alliance's receivables turnover ratio (rounded) for 2011?
A. 6.78
B. 4.00
C. 2.90
D. 5.03
19. Sullivan Corporation has determined its year-end inventory on a FIFO basis to be $500,000. Information pertaining to that inventory is as follows:
Selling price $520,000
Disposal costs 30,000
Normal pr
fit margin 60,000
Repl
cement cost 440,000
What should be the carrying value of Sullivan's inventory?
A. $490,000
B. $430,000
C. $500,000
D. $440,000
20. Nueva Company reported the following pretax data for its first year of operations.
Net sales 7,340
Cost of goods available for sale 5,790
Operating expenses 1,728
Effective tax rate 40%
Ending inventories:
If LIFO is elected 618
If FIFO is elected 798
What is Nueva's net income if it elects FIFO?
A. $620
B. $264
C. $440
D. $372
21. Cashmere Soap Corporation had the following items listed in its trial balance at 12/31/11:
Currency and coins 650 $
Balance in checking account 2,600
Customer checks waiting to bedepsited 1,200
Treasury bills, purchased on 11/1/11,
mature on 4/30/12 3,00
Marketable equity securities 10,200
Commercial paper, purchased on 11/1/11,
mature on 1/30/12 5,000
What amount will Cashmere Soap include in its year-end balance sheet as cash and cash equivalents?
A. $9,450 (650+2600+1200+500)
B. $7,450
C. $12,450
D. $19,650
22. Nueva Company reported the following pretax data for its first year of operations.
Net sales 7,340
Cost of goods available for sale 5,790
Operating expenses 1,728
Effective tax rate 40%
Ending inventories:
If LIFO is elected 618
If FIFO is elected 798
What is Nueva's gross profit ratio (rounded) if it elects FIFO?
A. 10.7%
B. 32%
C. 30%
D. 60%
23. Nueva Company reported the following pretax data for its first year of operations.
Net sales 7,340
Cost of goods available for sale 5,790
Operating expenses 1,728
Effective tax rate 40%
Ending inventories:
If LIFO is elected 61
If FIFO is elected 798
What is Nueva's net income if it elects LIFO?
A. $620
B. $372
C. $440
D. $264
24. Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was overstated by $32,000, and its ending inventory on December 31 was understated by $62,000. These errors were not discovered until the next year. As a result, Prunedale's cost of goods sold for this year was
A. Understated by $94,000.
B. Overstated by $30,000.
C. Understated by $30,000.
D. Overstated by $94,000
25. Nu Company reported the following pretax data for its first year of operations.
Net sales 2,800
Cost of goods available for sale 2,500
Operating expenses 880
Effective tax rate 40%
Ending inventories:
If LIFO is elected 820
If FIFO is elected 1,060
What is Nu's gross profit ratio if it elects LIFO?
A. 5%
B. 40%
C. 49%
D. 80%
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