One advantage to using a perpetual inventory system is that the company

1. One advantage to using a perpetual inventory system is that the company never has to physically count the inventory

T

F

2. The weighted-average inventory method will likely result in neither the highest nor the lowest ending inventory.

T

F

3. When calculating accounts receivable turnover, a company would prefer a higher number rather than a lower number (within reason).

T

F

4. When performing a bank reconciliation, checks outstanding are added back to the bank balance

T

F

5. Usually the quick ratio will be a lower number than the current ratio.

T

F

6. The bad-debt method that uses the accounts receivable aging report is _______________.

the percentage-of-receivables method

the bad-debt expense method

the direct write-off method

the percentage-of-sales method

7. When it is determined that too much money has been set aside for uncollectible accounts, we will _______________.

debit accounts receivable

debit reserve for uncollectible accounts

credit cash

credit reserve for uncollectible accounts

8. A customer whose account was previously written off unexpectedly pays us. If we are using the allowance method we would _______________.

debit reserve for uncollectible accounts and credit cash

debit accounts receivable and credit allowance for uncollectible accounts AND debit cash and credit accounts receivable

debit cash and credit bad-debt expense

debit bad-debt expense and credit cash

9. When a retailer accepts a bank card (VISA or MasterCard), they will make what entry for the day’s receipts?

debit accounts receivable; credit sales, and credit “credit card expense”

debit cash and credit sales

debit accounts receivable and credit sales

debit cash and debit “credit card expense”; credit sales

10. The company prepares, but does not yet pay, its first payroll of the New Year. Salaries total $10,000 and 7.65% is withheld from paychecks for FICA tax. Ignore all other payroll deductions. The journal entries will be _______________.

debit wage expense $10,000; credit wages payable $8,470 and FICA tax payable $1,530

debit wage expense $10,000 and credit wages payable $10,000; debit payroll tax expense for $765 and credit FICA tax payable $765

debit wage expense $10,000 and debit payroll tax expense $765; credit wages payable $9,235 and credit FICA tax payable $1,530

debit wage expense $10,000 and credit wages payable 10,000; debit payroll tax expense for $1,530 and credit FICA tax payable $1,530

11. A company buys a $10,000 bond at 102 as an investment. The correct entry is _______________.

credit investment in bonds and debit cash for $10,200

debit investment in bonds and credit cash for $10,200

credit investment in bonds and debit cash for $9,800

debit investment in bonds and credit cash for $9,800

12. A company issues bonds having a stated value of $100,000 for $102,500. At maturity, the company will _______________.

credit bonds payable for $102,500

debit bonds payable for $102,500

credit bonds payable for $100,000

debit bonds payable for $100,000

13. A company uses the percentage-of-receivables method for establishing the bad-debt reserve. They want the reserve balance to equal 0.5% of debts 30 days old or less, 2% of debts aged 31 to 60 days, and 4% of debts aged over 60 days. An aging report shows $780,000 relating to the past month, $232,600 relating to the prior month, and $89,200 relating to more than two months ago. The balance in the reserve account before adjustment is $10,175. What is the adjusting journal entry?

debit bad-debt expense, credit allowance for bad debts $1,945

debit bad-debt expense, credit allowance for bad debts $12,120

debit bad-debt expense, credit accounts receivable $1,945

debit allowance for bad debts, credit bad-debt expense $1,945

14. A company is closing out the accounting period. The inventory balance at the beginning of the period was $222,750, and at the end of the period it was $215,600. Purchases of goods for resale during the period equaled $682,500. What was the cost of goods sold total?

$689,650

$675,350

$682,500

$905,250

15. A merchandising company has beginning inventory of 50 units with a total cost of $500. They have the following transactions during the month of January: 1/5 bought 10 units at $11.00 each; 1/8 bought 15 units at $11.25 each; 1/15 sold 8 units for $16 each; 1/22 bought 10 units at $11.50 each and sold 12 units for $16.50 each. The ending inventory is $693.75. What inventory costing method is the company using?

weighted average

LIFO – perpetual

FIFO

LIFO – periodic

Short Answer

Prepare the following journal entries. Dates and descriptions are not required.

16. What is the difference between the periodic-inventory and perpetual-inventory methods?

17. Name two costs, in addition to the purchase price, that are added to merchandise inventory cost

18 What will be the result to inventory values, cost of goods sold, and net income if the LIFO method is used during times of inflation?

19. When comparing financial ratios, it is important to make comparisons only within an industry or between like companies. Why might a retail store have a much higher accounts receivable turnover than a manufacturing company?

20. How is gross margin or gross profit calculated on a merchandizing company income statement?

21. If a retail store has a sale with everything listed at 30% off, and a rack of clothing is also marked as "an additional 20% off," what is the total discount offered?

22. What does 1/10, n/30 mean?

23. What cash control is compromised when the purchasing manager is one of the authorized check signers?

24. Name at least three out of the four documents that the accounting department should have access to in order to pay an invoice.

25. What item from the company’s records must be added to the bank balance when reconciling the bank statement?