Week 2 Quiz All Questions Details given below (Please Check) Question 1 On December 30, 2004, Astor Corp. sold merchandise for $75,000 to Day Co. The terms of the sale were net 30, FOB shipping point. The merchandise was shipped on December 31, 2004, and arrived at Day on January 5, 2005. Due to a clerical error, the sale was not recorded until January 2005 and the merchandise, sold at a 25% markup, was included in Astor’s inventory at December 31, 2004. As a result, Astor’s cost of goods sold for the year ended December 31, 2004, was Question 2 � Foster Co. adjusted its allowance for uncollectible accounts at year end. The general ledger balances for the accounts receivable and the related allowance account were $1,000,000 and $40,000, respectively. Foster uses the percentage-of-receivables method to estimate its allowance for uncollectible accounts. Accounts receivable were estimated to be 5% uncollectible. What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year end? Question 3 � Jones Wholesalers stocks a changing variety of products. Which inventory costing method will be most likely to give Jones the lowest ending inventory when its product lines are subject to specific price increases? Question 4 � Fenn Stores, Inc. had sales of $1,000,000 during December 2004. Experience has shown that merchandise equaling 7% of sales will be returned within 30 days and an additional 3% will be returned within 90 days. Returned merchandise is readily resalable. In addition, merchandise equaling 15% of sales will be exchanged for merchandise of equal or greater value. What amount should Fenn report for net sales in its income statement for the month of December 2004? Question 5 � During January 2004, Metro Co., which maintains a perpetual inventory system, recorded the following information pertaining to its inventory: Under the LIFO method, what amount should Metro report as inventory at January 31, 2004? Question 6 Anders Co. uses the moving-average method to determine the cost of its inventory. During January 2005, Anders recorded the following information pertaining to its inventory: What amount of inventory should Anders report in its January 31, 2005, balance sheet? Question 7 When the double extension approach to the dollar-value LIFO inventory method is used, the inventory layer added in the current year is multiplied by an index number. Which of the following correctly states how components are used in the calculation of this index number? Question 8 Fireworks, Inc. had an explosion in its plant that destroyed most of its inventory. Its records show that beginning inventory was $40,000. Fireworks made purchases of $480,000 and sales of $620,000 during the year. Its normal gross profit percentage is 25%. It can sell some of its damaged inventory for $5,000. The insurance company will reimburse Fireworks for 70% of its loss. What amount should Fireworks report as loss from the explosion? Question 9 � When the dollar-value LIFO (DV LIFO) retail method is used, what is the first step in the calculation? Question 10 Smith Co. has a checking account at Small Bank and an interest-bearing savings account at Big Bank. On December 31, year 1, the bank reconciliations for Smith are as follows: What amount should be classified as cash on Smith’s balance sheet at December 31, year 1? Question 11 At the end of the current year (calendar-fiscal year), a creditor firm’s 6% note receivable balance is $10,000. Two years remain in the note term. Interest is due each December 31. The debtor’s financial position has deteriorated causing the creditor to reevaluate the note. After careful consideration, the creditor believes that only 60% of the principal ($10,000) will be collected at the end of the term. The only interest expected to be received is 2% of the original principal for one year, also to be collected at the end of the term. At the end of the current year, what amount of expense or loss is recognized by the creditor for this loan impairment? The present value of $1 two years hence at 6% is .89, and at 2% is .961. Question 12 Hutch, Inc. uses the conventional retail inventory method to account for inventory. The following information relates to 2004 operations: What amount should be reported as cost of sales for 2004? Question 13 � � Trans Co. uses a periodic inventory system. The following are inventory transactions for the month of January: Trans uses the average pricing method to determine the value of its inventory. What amount should Trans report as cost of goods sold on its income statement for the month of January? Question 14 At December 31, 2004, Kale Co. had the following balances in the accounts it maintains at First State Bank: Kale classifies investments with original maturities of three months or less as cash equivalents. In its December 31, 2004 balance sheet, what amount should Kale report as cash and cash equivalents? Question 15 Gar Co. factored its receivables without recourse with Ross Bank. Gar received cash as a result of this transaction, which is best described as a Question 16 A material overstatement in ending inventory was discovered after the year-end financial statements of a company were issued to the public. What effect did this error have on the year-end financial statements? Question 17 The following costs pertain to Den Co.’s purchase of inventory: What amount should Den record as the cost of inventory as a result of this purchase? Question 18 Loft Co. reviewed its inventory values for proper pricing at year-end. The following summarizes two inventory items examined for the lower of cost or market: What amount should Loft include in inventory at year-end, if it uses the total of the inventory to apply the lower of cost or market? Question 19 On January 1, 2004, Card Corp. signed a three-year, noncancelable purchase contract, which allows Card to purchase up to 500,000 units of a computer part annually from Hart Supply Co. at $.10 per unit and guarantees a minimum annual purchase of 100,000 units. During 2004, the part unexpectedly became obsolete. Card had 250,000 units of this inventory at December 31, 2004 and believes these parts can be sold as scrap for $.02 per unit. What amount of probable loss from the purchase commitment should Card report in its 2004 income statement? Question 20 Mill Co.’s allowance for uncollectible accounts was $100,000 at the end of 2005 and $90,000 at the end of 2004. For the year ended December 31, 2005, Mill reported bad debt expense of $16,000 in its income statement. What amount did Mill debit to the appropriate account in 2005 to write off actual bad debts?