Comp exam B Inventoriable Costs Include All The Following Except

Document Type
Test Prep
Book Title
Financial Accounting 9th Edition
Authors
Donald E. Kieso, Jerry J. Weygandt, Paul D. Kimmel
COMPREHENSIVE EXAMINATION B
(CHAPTERS 6 - 8)
Approximate
Problem Topic Points Minutes
B - I Multiple Choice ............................................ 20 15
B - II Computation of Net Purchases/Cost of
Goods Sold ............................................ 10 10
B - III Internal Control over Cash Receipts.............
and Disbursements ...................................... 10 5
B - IV Bank Reconciliation ..................................... 15 10
B - V Periodic Inventories ..................................... 12 10
B - VI Accounts Receivable ................................... 10 10
B - VII Correcting Entries ........................................ 9 10
B - VIII Notes Receivable ......................................... 14 15
100 85
Checking Work ........................................... 5
90
Test Bank for Financial Accounting, Ninth Edition
B- 2
Problem B - I Multiple Choice (20 points)
Circle the one best answer.
1. Inventoriable costs include all of the following except the
a. cost of the goods purchased.
b. freight in.
c. cost of the beginning inventory.
d. All of these answers are included.
2. Abaco Enterprises had beginning inventory of $45,000 at March 1, 2015. During the
month, the company made purchases of $360,000. The inventory at the end of the month
is $51,000. What is cost of goods available for sale for the month of March?
a. $45,000
b. $51,000
c. $354,000
d. $405,000
3. A check correctly written and paid by the bank for $271 is incorrectly recorded on the
company's books for $217. The appropriate adjustment on bank reconciliation would be to
a. deduct $271 from the book's balance.
b. deduct $54 from the book's balance.
c. deduct $54 from the bank's balance.
d. add $54 to the bank's balance.
4. The Petty Cash account should be debited
a. whenever an expense is paid from the fund.
b. when the fund is established.
c. whenever the fund is replenished.
d. when the fund is liquidated.
5. A 90-day promissory note dated May 21 matures on
a. August 21.
b. August 20.
c. August 19.
d. August 18.
6. The basis of estimating expected uncollectible accounts that emphasizes the matching of
expenses with revenues is the
a. percentage-of-receivables basis.
b. percentage-of-sales basis.
c. lower-of-cost-or-market basis.
d. direct write-off method.
7. A company just starting business purchased three merchandise inventory items at the
following prices: first purchase $920; second purchase $880; third purchase $830. If two
items were sold during the period and the company used the LIFO costing method, the
gross profit for the period would be how much greater or less than if the FIFO costing
method had been used?
a. Gross profit would be $90 greater.
b. Gross profit would be $90 less.
c. Gross profit would be the same.
d. Gross profit would be $40 greater.
Comprehensive Examination B
B- 3
8. An error in the physical count of goods on hand at the end of the current period resulted in
a $3,000 understatement of the ending inventory. The effect of this error in the current
period is to
a. overstate cost of goods sold.
b. understate cost of goods available for sale.
c. overstate gross profit.
d. overstate net income.
9. In a period of rising prices, the inventory method that will show the highest net income is
a. Average Cost.
b. FIFO.
c. LIFO.
d. Moving Average.
10. Cost of goods available for sale includes each of the following except
a. beginning inventory.
b. freight-in.
c. ending inventory.
d. net purchases.
Problem B - II Computation of Net Purchases/Cost of Goods Sold (10 points)
Barkley Company uses a periodic inventory system and has the following account balances:
Beginning Inventory $50,000, Ending Inventory $80,000, Freight-in $12,000, Purchases
$330,000, Purchase Returns and Allowances $8,000 and Purchase Discounts $6,000.
Instructions
Compute each of the following:
(a) Net purchases
(b) Cost of goods available for sale
(c) Cost of goods sold
Test Bank for Financial Accounting, Ninth Edition
B- 4
Problem B - III Internal Control over Cash Receipts and Disbursements (10 points)
Six internal control principles related to cash transactions are discussed in the textbook. These
principles, with code letters, are:
Code Internal Control Principle
A Documentation procedures
B Establishment of responsibility
C Independent internal verification
D Physical controls
E Segregation of duties
F Human resource controls
Instructions: Match the above principles to the following applications related to cash receipts
and cash disbursements by placing the code in the space provided. Each code letter can be used
once, more than once, or not at all.
____ 1. Cash is received by one employee and recorded in the accounting records by another.
____ 2. Daily cash counts should be made by cashier department supervisors.
____ 3. Payments are approved by one employee while the disbursement is made by another.
____ 4. All checks are pre-numbered.
____ 5. Only the treasurer is authorized to sign checks.
____ 6. Cash register tapes are used for over-the-counter receipts.
____ 7. Each check is compared with an approved invoice before being issued.
____ 8. Employee hours are tracked using a time clock.
____ 9. All personnel who handle cash should be bonded.
____ 10. Inventory is stored in a locked warehouse with restricted access.
Comprehensive Examination B
B- 5
Problem B - IV Bank Reconciliation (15 points)
Vance Company received a bank statement for the month of October 2015, which showed a
balance per bank of $3,600. The company's Cash account in the general ledger showed a
balance of $1,204 at October 31. Other information that may be relevant in preparing a bank
reconciliation for October follows:
1. The bank returned an NSF check from a customer for $280.
2. The company recorded cash receipts of $250 on October 31 but this amount does not appear
on the bank statement.
3. A check correctly written by Vance and paid by the bank for $1,740 was incorrectly recorded
in the cash payments journal for $1,470. The check was a payment on account.
4. Checks which were written in September but still had not been presented to the bank for
payment at October 31 amounted to $780.
5. The bank included a credit memorandum for $1,236, which represents a collection of a
customer's note by the bank for the company; principal amount of the note was $1,200 and
the remainder was interest.
6. The bank included a $20 debit memorandum for service charges for the month of October.
7. Checks written in October which have not been paid by the bank at October 31 amounted to
$1,200.
Instructions
1. Prepare a bank reconciliation for Vance Company for October which reconciles the balance
per books and the balance per bank to their adjusted correct balances.
2. Prepare the necessary adjusting entries for Vance Company at October 31, 2015.
Test Bank for Financial Accounting, Ninth Edition
B- 6
Problem B - V Periodic Inventories (12 points)
Carson Company uses the periodic inventory method and had the following inventory information
available for the month of November.
Date Transaction Units Unit Cost
11/1 Beginning inventory 400 $3
11/5 Purchase No. 1 500 $5
11/12 Sale No. 1 450
11/18 Purchase No. 2 500 $6
11/25 Sale No. 2 900
11/30 Purchase No. 3 600 $7
A physical count of units on November 30 revealed that 650 units were on hand.
Answer the following independent questions and show computations supporting your answers.
1. Assume that the company uses the average cost method. What is the dollar value of the
ending inventory on November 30?
2. Assume that the company uses the LIFO inventory method. What is the dollar value of the
cost of goods sold during November?
3. Assume that the company uses the FIFO inventory method. The dollar value of the ending
inventory on November 30 is:
Comprehensive Examination B
B- 7
Problem B - VI Accounts Receivable (10 points)
Dolan Company uses the allowance method to account for uncollectible accounts. Prepare the
appropriate journal entries to record the following transactions during 2015. You may omit journal
entry explanations.
June 20 The account of Sam Nolan for $1,000 was deemed to be uncollectible and is written
off as a bad debt.
Oct. 14 Received a check for $1,000 from Sam Nolan, whose account had previously been
written off as uncollectible.
Dec. 31 Use the following information for year-end adjusting entries:
The balance of Accounts Receivable and Allowance for Doubtful Accounts at year-end
are a debit balance of $126,000 and a credit balance $2,900, respectively. It is
estimated that bad debts will be 5% of accounts receivable.
Test Bank for Financial Accounting, Ninth Edition
B- 8
Problem B - VII Correcting Entries (9 points)
An inexperienced accountant for Morgan Company made the following incorrect entries.
1. Notes Receivable ........................................................................... 21,600
Accounts Receivable ............................................................. 20,000
Interest Revenue ................................................................... 1,600
Facts: Accepted a $20,000, 1 year, 8% note from Joe Wood Company for balance due on
account.
2. Accounts Receivable ...................................................................... 20,000
Sales Revenue ..................................................................... 20,000
Facts: Accepted Visa credit card for $20,000; the service fee is 2%.
3. Allowance for Doubtful Accounts .................................................... 12,300
Notes Receivable ................................................................... 12,000
Interest Revenue ................................................................... 300
Facts: M. Adler dishonored a $12,000, 10%, 3-month note because of bankruptcy. Adler is
expected to pay. No interest had been accrued on the note.
Instructions
Prepare entries to correct Morgan Company's books based on the facts given. Do not reverse out
incorrect entries that were recorded above, but rather correct the account balances so that they
reflect the proper amounts.
Comprehensive Examination B
B- 9
Problem B - VIII Notes Receivable (14 points)
Instructions
Prepare journal entries to record the following events:
Jul. 1 Baker Company accepted a 6%, 3-month, $60,000 note dated July 1 from Whyte
Company for account balance due.
Jul. 31 Baker accrued interest on the above note for the month of July.
Oct. 1 Collected Whyte Company note in full. Assume interest was correctly accrued on
August 31 and September 30.
Oct. 1 Assume instead that the note is dishonored and that no interest has been accrued.
Whyte Company is expected to eventually pay the amount owed.
Test Bank for Financial Accounting, Ninth Edition
B- 10
Solutions Comprehensive Examination B
Comprehensive Examination B
B- 11
Problem B - IV Solution (15 points)
Test Bank for Financial Accounting, Ninth Edition
B- 12

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