### Financial Accounting Fundamentals – Week 3 Quiz (ACC201)

This financial accounting fundamentals quiz from Week 3 include terms cost of goods sold, gross profit, gross margin, gross method, perpetual inventory system, credit terms, periodic inventory system, weighted-average perpetual inventory system, ending inventory balance, Perpetual LIFO Inventory

A company has sales of \$742,600 and cost of goods sold of \$297,600. Its gross profit equals:

• \$(445,000).
• \$742,600.
• \$297,600.
• \$445,000.
• \$1,040,200. Correct

Explanation Gross Margin = Sales – Cost of Goods Sold
Gross Margin = 742,600 – \$297,600 = \$445,000

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A company purchased \$3,500 of merchandise on July 5 with terms 3/10, n/30. On July 7, it returned \$700 worth of merchandise. On July 12, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 12 is:

• Debit Merchandise Inventory \$2,800; credit Cash \$2,800.
• Debit Cash \$2,800; credit Accounts Payable \$2,800.
• Debit Accounts Payable \$2,800; credit Merchandise Inventory \$84; credit Cash \$2,716. Correct
• Debit Accounts Payable \$3,500; credit Cash \$3,500.
• Debit Accounts Payable \$2,800; credit Cash \$2,800.

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A company purchased \$4,600 worth of merchandise. Transportation costs were an additional \$405. The company returned \$315 worth of merchandise and then paid the invoice within the 1% cash discount period. The total cost of this merchandise is:

• \$4,510.00.
• \$4,476.00.
• \$4,644.00.
• \$4,647.15. Correct
• \$4,690.00.
##### Explanation

Cash Paid = [(\$4,600 – \$315) * 0.99] + \$405 = \$4,647.15

No discount may be taken on the transportation costs.

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On February 3, Smart Company sold merchandise in the amount of \$4,500 to Truman Company, with credit terms of 1/10, n/30. The cost of the items sold is \$3,100. Smart uses the perpetual inventory system and the gross method. Truman pays the invoice on February 8, and takes the appropriate discount. The journal entry that Smart makes on February 8 is:

• Correct
##### Explanation

Sales Discounts = \$4,500 * .01 = \$45
Cash = \$4,500 – \$45 = \$4,455

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On September 12, Vander Company sold merchandise in the amount of \$7,100 to Jepson Company, with credit terms of 2/10, n/30. The cost of the items sold is \$5,300. Vander uses the periodic inventory system and the gross method of accounting for sales. The journal entry or entries that Vander will make on September 12 is:

• Correct

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Cushman Company had \$846,000 in sales, sales discounts of \$12,690, sales returns and allowances of \$19,035, cost of goods sold of \$401,850, and \$291,025 in operating expenses. Net income equals:

• \$814,275.
• \$153,125.
• \$412,425.
• \$121,400. Correct
• \$184,850.
##### Explanation

Net Income = \$846,000 – \$12,690 – \$19,035 – \$401,850 – \$291,025 = \$121,400

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Bedrock Company reported a December 31 ending inventory balance of \$416,000. The following additional information is also available:

• The ending inventory balance of \$416,000 included \$72,800 of consigned inventory for which Bedrock was the consignor.
• The ending inventory balance of \$416,000 included \$23,600 of office supplies that were stored in the warehouse and were to be used by the company’s supervisors and managers during the coming year.

Based on this information, the correct balance for ending inventory on December 31 is:

• \$247,000
• \$392,400 Correct
• \$309,000
• \$363,600
• \$343,400
##### Explanation

Start with beginning inventory of \$416,000. The information in the first bullet point was handled correctly since inventory should include consigned goods for which the subject company is the consignor. No adjustment. With respect to the second bullet point, inventory should not include office supplies held for use. Subtract \$23,600. Ending inventory should be \$416,000 − \$23,600 = \$392,400.

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A company had the following purchases and sales during its first year of operations:

On December 31, there were 42 units remaining in ending inventory. Using the Perpetual LIFO inventory valuation method, what is the cost of the ending inventory? (Assume all sales were made on the last day of the month.)

• \$14,174.
• \$9,060. Correct
• \$13,596.
• \$14,751.
• \$20,945.
##### Explanation

Ending Inventory

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Marquis Company uses a weighted-average perpetual inventory system and has the following purchases and sales:

What is the amount of the cost of goods sold for this sale? (Round average cost per unit to 2 decimal places.)

• \$130.00
• \$189.00
• \$301.00
• \$132.50
• \$146.52 Correct
##### Explanation

Average cost = [(16 * \$7) + (21 * \$9)]/37 units = \$8.14/unit
Cost of sale = 18 units * \$8.14/unit = \$146.52

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Grays Company has inventory of 21 units at a cost of \$9 each on August 1. On August 3, it purchased 31 units at \$11 each. 23 units are sold on August 6. Using the FIFO perpetual inventory method, what amount will be reported as cost of goods sold for the 23 units that were sold?

• \$152.
• \$211. Correct
• \$215.
• \$483.
• \$217.
##### Explanation

(21 units * \$9) + (2 units * \$11) = \$211.00

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A company’s normal selling price for its product is \$20 per unit. However, due to market competition, the selling price has fallen to \$15 per unit. This company’s current inventory consists of 200 units purchased at \$16 per unit. Replacement cost has fallen to \$13 per unit. Calculate the value of this company’s inventory at the lower of cost or market.

• \$2,600. Correct
• \$2,550.
• \$3,000.
• \$3,200.
• \$2,700.

Explanation

200 units @ \$13 per unit = \$2,600

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A company had beginning inventory of 11 units at a cost of \$23 each on March 1. On March 2, it purchased 11 units at \$40 each. On March 6 it purchased 5 units at \$28 each. March 8, it sold 25 units for \$71 each. Using the FIFO perpetual inventory method, what was the cost of the 25 units sold?

• \$833.
• \$621.
• \$693.
• \$700
• \$777. Correct
##### Explanation

(11 * \$23) + (11 * \$40) + (3 * \$28) = \$777

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At the end of the day, the cash register’s record shows \$1,258, but the count of cash in the cash register is \$1,249. The correct entry to record the cash sales is

• Debit Cash \$1,249; Credit Sales \$1,249.
• Debit Cash Over and Short \$9, credit Sales \$9.
• Debit Cash \$1,258; credit Sales \$1,258.
• Debit Cash \$1,249; debit Cash Over and Short \$9; credit Sales \$1,258. Correct
• Debit Cash \$1,258; credit Cash Over and Short \$1,249; credit Sales \$9.

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Assume that the custodian of a \$450 petty cash fund has \$57.10 in coins and currency plus \$388.00 in receipts at the end of the month. The entry to replenish the petty cash fund will include:

• A credit to Cash Over and Short for \$4.90.
• A credit to Cash for \$392.90. Correct
• A debit to Cash for \$383.10.
• A debit to Cash for \$392.90.
• A credit to Petty Cash for \$388.00.
##### Explanation

\$450 – \$57.10 – \$388.00 = \$4.90 cash shortage
\$450 – \$57.10 = \$392.90 cash reimbursement needed

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If a check correctly written and paid by the bank for \$748 is incorrectly recorded in the company’s books for \$784, how should this error be treated on the bank reconciliation?

• Subtract \$36 from the bank’s balance.
• Add \$36 to the book balance. Correct
• Subtract \$36 from the bank’s balance and add \$45 to the book’s balance.
• Add \$36 to the bank’s balance.
• Subtract \$36 from the book balance.

Explanation

\$784 – \$748 = \$36 too much deducted from the company’s cash account balance that must be added back to cash.

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During the month of July, Clanton Industries issued a check in the amount of \$856 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:

• Add the check amount to the book balance of cash.
• Deduct the check amount from the book balance of cash.
• Deduct the check amount from the bank balance. Correct
• Add the check amount to the bank balance.
• Make a journal entry in the company records for an error.

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In the process of reconciling its bank statement for April, Donahue Enterprises’ accountant compiles the following information:

The adjusted cash balance per the books on April 30 is:

• \$6,920
• \$5,800
• \$4,400
• \$8,120
• \$6,400 Correct
##### Explanation

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Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on August 31, its Cash account shows a debit balance of \$14,162. Franklin’s August bank statement shows \$15,037 on deposit in the bank. Determine the adjusted cash balance using the following information:

The adjusted cash balance should be:

• \$19,837
• \$10,937.
• \$15,797
• \$14,102
• \$15,737 Correct
##### Explanation

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The interest accrued on \$3,600 at 7% for 30 days is: (Use 360 days a year.)

• \$126.
• \$25.
• \$294.
• \$21. Correct
• \$29.

Explanation

\$3,600 × 0.07 × 30/360 = \$21

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Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the \$4,100 noncollectable account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

• Correct

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On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of \$98,500; Allowance for Doubtful Accounts, credit balance of \$1,091. What amount should be debited to Bad Debts Expense, assuming 4% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible?

• \$2,849. Correct
• \$1,091.
• \$1,957.
• \$5,031.
• \$3,940.
##### Explanation

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A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that \$24,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of \$675. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

• Correct
##### Explanation

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A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company’s unadjusted trial balance reported the following selected amounts:

All sales are made on credit. Based on past experience, the company estimates that 0.4% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

• \$3,240 Correct
• \$3,840
• \$860
• \$2,640
• \$2,060

Explanation

\$810,000 × 0.004 = \$3,240

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A company has \$106,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a(n) \$960 credit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

• \$4,340 Correct
• \$5,252
• \$5,348
• \$5,300
• \$6,260

Explanation

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Jasper makes a \$83,000, 90-day, 7% cash loan to Clayborn Co. Jasper’s entry to record the transaction should be:

• Debit Notes Receivable for \$83,000; credit Cash \$83,000. Correct
• Debit Accounts Receivable \$83,000; credit Notes Receivable \$83,000.
• Debit Cash \$83,000; credit Notes Receivable for \$83,000.
• Debit Notes Payable \$83,000; credit Accounts Payable \$83,000.
• Debit Notes Receivable \$83,000; credit Sales \$83,000.

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