ACCT 301 Quiz 3 solutions complete answers

ACCT 301 Quiz 3 solutions complete answers 

 

During Burns Company’s first year of operations, credit sales totaled $150,000 and collections on credit sales totaled $110,000. Burns estimates that bad debt losses will be 1.0% of credit sales. By year-end, Burns had written off $350 of specific accounts as uncollectible.
 
Required:
1. Prepare all appropriate journal entries relative to uncollectible accounts and bad debt expense.
2. Show the year-end balance sheet presentation for accounts receivable.

 

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 sales discounts.

What entry would Oswego make on April 12?

 

The following information is taken from the 2015 annual report to shareholders of Hughe-Pockets (HP) Co. 

 
For Fiscal 2015
For Fiscal 2014
Provision for doubtful
accounts
$
40
million
$
117
million
 
 
 
 
 
 
 
 
At Fiscal Year-end 2015
At Fiscal Year-end 2014
Accounts receivable, net
 
15,961
million
 
16,492
million
Accounts receivable, gross
 
16,378
million
 
17,041
million
 
What is the balance in HP’s allowance for doubtful accounts at the end of the fiscal years 2015 and 2014, respectively? (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)

 

Frankenstein Enterprises received two notes from customers for sales that Frankenstein made in 2021. The notes included:
Note A: Dated 5/31/2021, principal of $136,000 and interest due 3/31/2022.
Note B: Dated 7/1/2021, principal of $225,000 and interest at 9% annually, due on 4/1/2022.
Frankenstein had accrued a total of $16,400 interest receivable from these notes in its 12/31/2021 balance sheet.
 
The annual interest rate on Note A is closest to:

 

Important elements of an internal control system for cash disbursements include each of the following except:

 

Calistoga Produce estimates bad debt expense at 0.30% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $477,000 and $1,650, respectively, at December 31, 2020. During 2021, Calistoga’s credit sales and collections were $315,000 and $310,000, respectively, and $1,810 in accounts receivable were written off.
 
Calistoga’s accounts receivable at December 31, 2021, are:

 

Cash equivalents would include investments in marketable equity securities as long as management intends to sell the securities in the next three months.

 

When you use an aging schedule approach for estimating uncollectible accounts:

 

The allowance method for estimating bad debts requires an adjusting entry at the end of the period to reduce receivables to their appropriate carrying value.

 

A summary of Klugman Company’s December 31, 2021, accounts receivable aging schedule is presented below along with the estimated percent uncollectible for each age group: 

Age Group
Amount
 
%
0–60 days
$
66,000
 
 
0.5
 
61–90 days
 
25,000
 
 
1.0
 
91–120 days
 
3,600
 
 
10.0
 
Over 120 days
 
1,000
 
 
50.0
 
 
The allowance for uncollectible accounts had a balance of $1,460 on January 1, 2021. During the year, bad debts of $810 were written off.
Required:
Prepare all journal entries for 2021 with respect to bad debts and the allowance for uncollectible accounts. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)

 

Slinky Company purchased merchandise on June 10, 2021, at a price of $32,000, subject to credit terms of 3/10, n/30. Slinky uses the net method for recording purchases and uses a perpetual inventory system.
Required:
1. Prepare the journal entry to record the purchase.
2. & 3. Prepare the journal entries to record the appropriate payment if the entire invoice is paid on June 18, 2021 and July 8, 2021.

 

Slinky Company purchased merchandise on June 10, 2021, at a price of $20,000, subject to credit terms of 2/10, n/30. Slinky uses the net method for recording purchases and uses a perpetual inventory system. 
Required:
1. Prepare the journal entry to record the purchase.
2. & 3. Prepare the journal entries to record the appropriate payment if the entire invoice is paid on June 18, 2021 and July 8, 2021.

 

Hazelton Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2021 with $93,300 in inventory of its only product. The beginning inventory consisted of the following layers: 

 
 
 
 
5,100 units at $7 per unit
$
35,700
 
7,200 units at $8 per unit
 
57,600
 
Total
$
93,300
 
 
During 2021, 7,100 units were purchased at $9 per unit and during 2022, 9,200 units were purchased at $10 per unit. Sales, in units, were 9,200 and 16,400 during 2021 and 2022, respectively. 

Required:

1. Calculate cost of goods sold for 2021 and 2022.

2. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for 2021 and 2022.

 

On January 1, 2021, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $102,000. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below: 

Year-end
Ending inventory at
year-end costs
 
Cost Index
2021
$
132,300
 
 
 
1.05
 
2022
 
151,800
 
 
 
1.10
 
2023
 
162,000
 
 
 
1.20
 
 
What inventory balance should Badger report on its 12/31/2021 balance sheet?

 

Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $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?

 

Shown below is activity for one of the products of Denver Office Equipment: 

 
 
January 1 balance, 700 units @ $55 per unit $38,500
Purchases:
 
January 10:
700 units @ $60 per unit
January 20:
1,100 units @ $62 per unit
Sales:
 
January 12:
1,000 units
January 28:
840 units
 
Required:
Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses FIFO.

 

Inventory records for Herb’s Chemicals revealed the following:

March 1, 2021, inventory: 1,000 gallons @ $7.20 per gallon = $7,200 

 
 
 
 
 
 
 
 
 
 
Purchases:
 
 
 
 
 
 
Sales:
 
 
Mar. 10
600
gals
@
$
7.25
 
Mar. 5
400
gals
Mar. 16
800
gals
@
$
7.30
 
Mar. 14
700
gals
Mar. 23
600
gals
@
$
7.35
 
Mar. 20
500
gals
 
 
 
 
 
 
 
Mar. 26
700
gals
 
Ending inventory assuming LIFO in a periodic inventory system would be:

 

The Foxworthy Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 40,000 units consisted of the following, listed in chronological order of acquisition: 

 
 
 
 
24,000 units at a cost of $6.00 per unit =
$
144,000
 
16,000 units at a cost of $7.00 per unit =
 
112,000
 
 
During 2021, inventory quantity declined by 18,000 units. All units purchased during 2021 cost $8.00 per unit.
Required:
Calculate the before-tax LIFO liquidation profit or loss that the company would report in a disclosure note assuming the amount determined is material.

 

Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $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.

Assuming CBC uses the gross method to record purchases, ending inventory would be:

 

Dollar-value LIFO eliminates the risk of LIFO liquidations.

 

California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2021. In preparing its insurance claim on the inventory loss, the company developed the following data: Inventory January 1, 2021, $430,000; sales and purchases from January 1, 2021, to May 1, 2021, $1,260,000 and $945,000, respectively. California consistently reports a 35% gross profit. The estimated inventory on May 1, 2021, is:

 

Montana Co. has determined its year-end inventory on a FIFO basis to be $600,000. Information pertaining to that inventory is as follows: 

 
Selling price
$
620,000
 
Costs to sell
 
30,000
 
Replacement cost
 
520,000
 
 
What should be the reported value of Montana’s inventory?

 

Clarabell Inc. uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:  

 
Cost
 
Retail
 
Beginning inventory
$
107,000
 
$
203,000
 
Net purchases
 
426,000
 
 
727,000
 
Net markups
 
 
 
 
55,000
 
Net markdowns
 
 
 
 
21,000
 
Net sales
 
 
 
 
697,000
 
 
 The conventional cost-to-retail percentage (rounded) is:

 

Novelli’s Nursery has developed the following data in order to calculate the lower of cost or net realizable value for its products. The individual products are listed within the categories of trees. 

 
Selling
Price
Cost
Broad leaf trees:
 
 
 
 
 
 
Ash
$
1,650
 
$
1,560
 
Beech
 
2,710
 
 
1,460
 
Needle leaf trees:
 
 
 
 
 
 
Cedar
$
3,180
 
$
1,610
 
Fir
 
3,200
 
 
3,210
 
Fruit trees:
 
 
 
 
 
 
Apple
$
2,140
 
$
1,260
 
Cherry
 
2,810
 
 
1,660
 
 
The costs to sell are 10% of selling price.
Required:
Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to individual trees.

 

 

Data related to the inventories of Alpine Ski Equipment and Supplies is presented below: 

 
Skis
 
Boots
 
Apparel
 
Supplies
Selling price
$
180,000
 
 
$
140,000
 
 
$
120,000
 
 
$
60,000
 
Cost
 
128,000
 
 
 
133,000
 
 
 
90,000
 
 
 
45,000
 
Replacement cost
 
120,000
 
 
 
130,000
 
 
 
110,000
 
 
 
41,000
 
Sales commission
 
10
%
 
 
10
%
 
 
10
%
 
 
10
%
 
In applying the lower of cost or net realizable value rule, the inventory of skis would be valued at:

 

Data related to the inventories of Alpine Ski Equipment and Supplies is presented below: 

 
Skis
 
Boots
 
Apparel
 
Supplies
Selling price
$
180,000
 
 
$
140,000
 
 
$
120,000
 
 
$
60,000
 
Cost
 
128,000
 
 
 
133,000
 
 
 
90,000
 
 
 
45,000
 
Replacement cost
 
120,000
 
 
 
130,000
 
 
 
110,000
 
 
 
41,000
 
Sales commission
 
10
%
 
 
10
%
 
 
10
%
 
 
10
%
 
In applying the lower of cost or net realizable value rule, the inventory of boots would be valued at:

 

For companies that have net markdowns, the cost-to-retail percentage used in the average cost retail method will be lower than the percentage used in the conventional retail method.

 

Haskell Corporation has determined its year-end inventory on a FIFO basis to be $801,000. Information pertaining to that inventory is as follows: 

 
 
 
 
Selling price
$
829,000
 
Costs to sell
 
43,000
 
Replacement cost
 
773,000
 
 
What should be the reported value of Haskell’s inventory if the company prepares its financial statements according to International Financial Reporting Standards (IFRS)?

 

Data below for the year ended December 31, 2021, relates to Houdini Inc. Houdini started business January 1, 2021, and uses the LIFO retail method to estimate ending inventory.   

 
Cost
 
Retail
 
Beginning inventory
$
86,000
 
$
120,000
 
Net purchases
 
400,960
 
 
580,000
 
Net markups
 
 
 
 
36,000
 
Net markdowns
 
 
 
 
56,000
 
Net sales
 
 
 
 
519,000
 
 
Estimated ending inventory at retail is:

 

Data related to the inventories of Costco Medical Supply are presented below: 

 
Surgical
Equipment
 
Surgical
Supplies
 
Rehab
Equipment
 
Rehab
Supplies
Selling price
$
270
 
 
$
139
 
 
$
338
 
 
$
156
 
Cost
 
152
 
 
 
93
 
 
 
284
 
 
 
154
 
Costs to sell
 
20
 
 
 
11
 
 
 
30
 
 
 
9
 
 
In applying the lower of cost or net realizable value rule, the inventory of rehab equipment would be valued at:

 

 

 

Alison’s dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17 and received an invoice with a list price amount of $5,800 and payment terms of 3/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at:              

Alison’s dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17 and received an invoice with a list price amount of $6,500 and payment terms of 4/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at:              

Andover Stores uses the average cost retail method to estimate its ending inventory. Information as of June 30, 2021, is as follows:

 

 

Cost Retail

Beginning inventory $ 49,000 $ 86,000

Net purchases 249,000 414,000

Net sales 404,000

 

Required:

Use the retail method to estimate the June 30, 2021, inventory.                   

As of January 1, 2021, Farley Co. had a credit balance of $535,000 in its allowance for uncollectible accounts. Based on experience, 2% of Farley’s credit sales have been uncollectible. During 2021, Farley wrote off $642,000 of accounts receivable. Credit sales for 2021 were $18,500,000. In its December 31, 2021, balance sheet, what amount should Farley report as allowance for uncollectible accounts?            

The balance in accounts receivable at the beginning of 2021 was $600. During 2021, $1,900 of credit sales were recorded. If the ending balance in accounts receivable was $150 and $200 in accounts receivable were written off during the year, the amount of cash collected from customers during 2021 was:                  

The balance in accounts receivable at the beginning of 2021 was $650. During 2021, $2,100 of credit sales were recorded. If the ending balance in accounts receivable was $130 and $200 in accounts receivable were written off during the year, the amount of cash collected from customers during 2021 was:                  

Billingsly Products uses the conventional retail method to estimate its ending inventories. The following data has been summarized for the year 2021:

 

 

Cost Retail

Inventory, January 1 $ 57,000 $ 80,000

Purchases 323,304 467,600

Net markups 8,400

Net markdowns 17,100

Net sales 396,000

 

Required:

Estimate the ending inventory as of December 31, 2021                   

          Cindy Lou Linens uses the conventional retail method to estimate its ending inventories. The company records sales net of employee discounts. The following partial data has been summarized for the year ended December 31, 2021:

 

 

Cost Retail

Inventory, January 1 $ 555,460 $ 826,000

Purchases 1,502,000 2,434,000

Net markups ???

Net markdowns 49,100

Normal spoilage 44,100

Employee discounts 76,500

Net sales 2,318,000

Inventory, Dec. 31 499,860 833,100

 

Required:

Compute the net markups for Cindy Lou Linens during 2021.            

Data below for the year ended December 31, 2021, relates to Houdini Inc. Houdini started business January 1, 2021, and uses the LIFO retail method to estimate ending inventory.

 

 

Cost Retail

Beginning inventory $ 78,000 $ 116,000

Net purchases 370,240 540,000

Net markups 32,000

Net markdowns 52,000

Net sales 483,000

 

Estimated ending inventory at cost is: (Do not round intermediate calculations):                   

Data related to the inventories of Costco Medical Supply are presented below:

 

 

Surgical

Equipment Surgical

Supplies Rehab

Equipment Rehab

Supplies

Selling price $ 280 $ 128 $ 359 $ 153

Cost 158 99 263 152

Costs to sell 17 14 26 8

 

In applying the lower of cost or net realizable value rule, the inventory of surgical equipment would be valued at:                   

Data related to the inventories of Costco Medical Supply are presented below:

 

 

Surgical Surgical Rehab Rehab

Equipment Supplies Equipment Supplies

Selling price $ 260 $ 100 $ 340 $ 165

Cost 170 90 250 162

Costs to sell 30 15 25 10

 

In applying the lower of cost or net realizable value rule, the inventory of surgical equipment would be valued at:                   

Excerpts from Huckabee Company’s December 31, 2021 and 2020, financial statements are presented below:

 

 

2021 2020

Accounts receivable $ 84,000 $ 76,000

Merchandise inventory 62,000 76,000

Net sales 404,000 376,000

Cost of goods sold 244,000 224,000

 

Huckabee’s 2021 receivables turnover (rounded to 2 decimal places) is:          

Fad City sells novel clothes that are subject to a great deal of price volatility. A recent item that cost $20 was marked up $12, marked down for a sale by $6 and then had a markdown cancellation of $3. The latest selling price is:           

Fad City sells novel clothes that are subject to a great deal of price volatility. A recent item that cost $21.20 was marked up $13.80, marked down for a sale by $5.60 and then had a markdown cancellation of $3.60. The latest selling price is:           

The following information is taken from the 2015 annual report to shareholders of Hughe-Pockets (HP) Co.

 

 

For Fiscal 2015 For Fiscal 2014

Provision for doubtful

accounts $ 34 million $ 111 million

 

At Fiscal Year-end 2015 At Fiscal Year-end 2014

Accounts receivable, net 15,931 million 16,462 million

Accounts receivable, gross 16,318 million 16,981 million

 

What is the balance in HP’s allowance for doubtful accounts at the end of the fiscal years 2015 and 2014, respectively? (Enter your answers in millions (i.e., 10,000,000 should be entered as 10).)                

The Foxworthy Corporation uses a periodic inventory system and the LIFO inventory cost method for its one product. Beginning inventory of 56,000 units consisted of the following, listed in chronological order of acquisition:

 

 

 

 

32,000 units at a cost of $7.00 per unit = $ 224,000

24,000 units at a cost of $8.00 per unit = 192,000

 

 

During 2021, inventory quantity declined by 26,800 units. All units purchased during 2021 cost $9.00 per unit.

 

 

 

Required:

 

Calculate the before-tax LIFO liquidation profit or loss that the company would report in a disclosure note assuming the amount determined is material.               

Frasquita acquired equipment from the manufacturer on 6/30/2021 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $550,000 on 4/30/2022 to satisfy the obligation in full.

 

If Frasquita accrued interest of $15,000 on the note in its 2021 year-end financial statements, what amount would it have recorded the equipment for on 6/30/2021?                  

Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

 

 

41 units at $97 per unit

72 units at $88 per unit

170 units at $59 per unit

 

 

Sales for the year totaled 267 units, leaving 16 units on hand at the end of the year.

 

 

Ending inventory using the FIFO method is:              

In applying LCM, market cannot be:              

In the balance sheet at the end of its first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $82,200. During the year, Dinty wrote off $30,500 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,220,000, and cash collections from credit customers totaled $1,760,000.

 

What bad debt expense would Dinty report in its first-year income statement?          

The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:             

Novelli’s Nursery has developed the following data in order to calculate the lower of cost or net realizable value for its products. The individual products are listed within the categories of trees.

 

 

Selling

Price Cost

Broad leaf trees:

Ash $ 1,860 $ 1,760

Beech 2,290 1,660

Needle leaf trees:

Cedar $ 2,620 $ 1,810

Fir 3,450 3,410

Fruit trees:

Apple $ 1,860 $ 1,460

Cherry 2,390 1,860

 

The costs to sell are 10% of selling price.

 

Required:

Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to individual trees.             

Novelli’s Nursery has developed the following data in order to calculate the lower of cost or net realizable value for its products. The individual products are listed within the categories of trees.

 

 

Selling

Price Cost

Broad leaf trees:

Ash $ 1,980 $ 1,880

Beech 2,470 1,780

Needle leaf trees:

Cedar $ 2,860 $ 1,930

Fir 4,050 3,530

Fruit trees:

Apple $ 1,980 $ 1,580

Cherry 2,570 1,980

 

The costs to sell are 10% of selling price.

 

Required:

Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to categories of trees.                   

Novelli’s Nursery has developed the following data in order to calculate the lower of cost or net realizable value for its products. The individual products are listed within the categories of trees.

 

 

Selling

Price Cost

Broad leaf trees:

Ash $ 2,180 $ 1,520

Beech 2,770 1,420

Needle leaf trees:

Cedar $ 3,260 $ 1,570

Fir 4,550 3,170

Fruit trees:

Apple $ 2,180 $ 1,220

Cherry 2,870 1,620

 

The costs to sell are 10% of selling price.

 

Required:

Determine the reported inventory value assuming the lower of cost or net realizable value rule is applied to the total inventory.                 

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?                  

On June 30, 2021, Blondie Fixtures was considering alternatives to bolster its cash position. Option One called for transferring $420,000 in accounts receivable to Dogwood Finance Company without recourse for a 4% fee. Option Two calls for Blondie to transfer the $420,000 in receivables to Dogwood with recourse. Dogwood’s charges a 3% fee for receivables factored with recourse. Option Two meets the conditions to be considered a sale, but Blondie estimates a $3,200 recourse liability. Under either option, Dogwood will immediately remit 85% of the factored receivables to Blondie, and retain 15%. When Dogwood collects the remaining receivables, it remits the amount, less the fee, to Blondie. Blondie estimates that the fair value of the final 15% of the receivables is $26,000 (ignoring the factoring fee).

 

Required:

1. Prepare any necessary journal entry or entries if receivables are factored under Option One.

2. Prepare any necessary journal entry or entries if receivables are factored under Option Two.          

On November 10 of the current year, Flores Mills sold carpet to a customer for $7,400 with credit terms 2/10, n/30. Flores uses the gross method of accounting for sales discounts.

 

What is the correct entry for Flores on November 10?           

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 sales discounts.

 

What entry would Oswego make on April 12?            

Oswego Clay Pipe Company sold $46,700 of pipe to Southeast Water District #45 on April 12 of the current year with terms 2/15, n/60. Oswego uses the gross method of accounting for sales discounts.

 

What entry would Oswego make on April 12?            

Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,600, and its ending inventory on December 31 was understated by $16,800. In addition, a purchase of merchandise costing $20,500 was incorrectly recorded as a $2,050 purchase. None of these errors were discovered until the next year. As a result, Poppy’s cost of goods sold for this year was:            

Slinky Company purchased merchandise on June 10, 2021, at a price of $28,000, subject to credit terms of 3/10, n/30. Slinky uses the net method for recording purchases and uses a perpetual inventory system.

 

Required:

1. Prepare the journal entry to record the purchase.

2. & 3. Prepare the journal entries to record the appropriate payment if the entire invoice is paid on June 18, 2021 and July 8, 2021.                  

A summary of Klugman Company’s December 31, 2021, accounts receivable aging schedule is presented below along with the estimated percent uncollectible for each age group:

 

 

Age Group Amount %

0-60 days $ 62,000 0.5

61-90 days 23,000 1.0

91-120 days 3,200 10.0

Over 120 days 1,200 50.0

 

The allowance for uncollectible accounts had a balance of $1,420 on January 1, 2021. During the year, bad debts of $770 were written off.

 

Required:

Prepare all journal entries for 2021 with respect to bad debts and the allowance for uncollectible accounts.              

A summary of Klugman Company’s December 31, 2021, accounts receivable aging schedule is presented below along with the estimated percent uncollectible for each age group:

 

 

Age Group Amount %

0-60 days $ 64,000 0.5

61-90 days 24,000 1.0

91-120 days 3,400 10.0

Over 120 days 1,100 50.0

 

The allowance for uncollectible accounts had a balance of $1,440 on January 1, 2021. During the year, bad debts of $790 were written off.

 

Required:

Prepare all journal entries for 2021 with respect to bad debts and the allowance for uncollectible accounts.              

          A summary of Klugman Company’s December 31, 2021, accounts receivable aging schedule is presented below along with the estimated percent uncollectible for each age group:

 

 

Age Group Amount %

0-60 days $ 67,000 0.5

61-90 days 25,500 1.0

91-120 days 3,700 10.0

Over 120 days 1,100 50.0

 

The allowance for uncollectible accounts had a balance of $1,470 on January 1, 2021. During the year, bad debts of $820 were written off.

 

Required:

Prepare all journal entries for 2021 with respect to bad debts and the allowance for uncollectible accounts. (If no entry is required for a transaction/event, select “No journal entry required” in the first account field.)            

          Thompson TV and Appliance reported the following in its 2021 financial statements:

 

 

2021

Sales $ 424,000

Cost of goods sold:

Inventory, January 1 65,000

Net purchases 331,000

Goods available for sale 396,000

Inventory, December 31 94,000

Cost of goods sold 302,000

Gross profit $ 122,000            

Thompson TV and Appliance reported the following in its 2021 financial statements:

 

 

2021

Sales $ 425,000

Cost of goods sold:

Inventory, January 1 82,000

Net purchases 336,000

Goods available for sale 418,000

Inventory, December 31 92,000

Cost of goods sold 326,000

Gross profit $ 99,000

 

Thompson’s 2021 inventory turnover ratio is:             

Thompson TV and Appliance reported the following in its 2021 financial statements:

 

 

2021

Sales $ 431,000

Cost of goods sold:

Inventory, January 1 63,000

Net purchases 335,000

Goods available for sale 398,000

Inventory, December 31 96,000

Cost of goods sold 302,000

Gross profit $ 129,000

 

Thompson’s 2021 gross profit ratio is:            

Thompson TV and Appliance reported the following in its 2021 financial statements:

 

 

2021

Sales $ 436,000

Cost of goods sold:

Inventory, January 1 70,000

Net purchases 340,000

Goods available for sale 410,000

Inventory, December 31 97,000

Cost of goods sold 313,000

Gross profit $ 123,000

 

Thompson’s 2021 gross profit ratio is: (          

Using the balance sheet approach, bad debt expense is an indirect result of estimating the appropriate balance for the allowance for uncollectible accounts.                  

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 $ 61,000 $ 78,000

Net purchases 169,000 245,000

Net markups 37,000

Net markdowns 50,000

Net sales 235,000

 

The conventional cost-to-retail percentage (rounded) is:                   

 

 

In a perpetual inventory system, the cost of purchases is debited to:

A) Purchases.

B) Cost of goods sold.

C) Inventory.

D) Accounts payable.             

In a periodic inventory system, the cost of purchases is debited to:

A) Purchases.

B) Cost of goods sold.

C) Inventory.

D) Accounts payable.             

 In a perpetual inventory system, the cost of inventory sold is:

A) Debited to accounts receivable.

B) Credited to cost of goods sold.

C) Debited to cost of goods sold.

D) Not recorded at the time goods are sold.             

 In a perpetual inventory system, which of the following is recorded at the time of the sale?

A) Sales revenue only.

B) Both sales revenue and cost of goods sold.

C) Cost of goods sold only.

D) Neither sales revenue nor cost of goods sold.                  

 Important elements of an internal control system for cash disbursements include each of the following except:

A) Only authorized personnel should sign checks.

B) All expenditures should be authorized before a check is prepared.

C) All disbursements, other than very small disbursements, should be made by check.

D) The same person that prepares the check should also record it in the proper journal.                  

 In a periodic inventory system, the cost of inventory sold is:

A) Debited to accounts receivable.

B) Credited to cost of goods sold.

C) Debited to cost of goods sold.

D) Not recorded at the time goods are sold.             

 COSO defines internal control as a process, affected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in:

A) Effectiveness and efficiency of operations.

B) Reliability of financial advice.

C) Compliance with local ordinances.

D) All of these answer choices are correct.                

 One difference between periodic and perpetual inventory systems is:

A) Cost of goods sold is not recorded under a perpetual system until the end of the period.

B) Cost of goods sold is not recorded under a periodic system until the end of the period.

C) Cost of goods sold is always significantly higher under a perpetual system.

D) Cost of goods sold is always significantly higher under a periodic system.             

 Cashmere Soap Corporation had the following items listed in its trial balance at 12/31/2021:

 

Currency and coins $ 650

Balance in checking account 2,600

Customer checks waiting to be deposited 1,200

Treasury bills, purchased on 11/1/2021,

mature on 4/30/2022 3,000

Marketable equity securities 10,200

Commercial paper, purchased on 11/1/2021,

mature on 1/30/2022 5,000

 

What amount will Cashmere Soap include in its year-end balance sheet as cash and cash equivalents?

A) $9,450.

B) $12,450.

C) $7,450.

D) $19,650.                

 The largest expense on a retailer’s income statement is typically:

A) Salaries and wages.

B) Cost of goods sold.

C) Income tax expense.

D) Depreciation expense.                  

 A company has decided that because it employs a perpetual system, a physical count of inventory at the end of the year is not needed. Which of the following choices most likely identifies a flaw with this decision?

A) A physical count is needed because there is no record of units sold during the year.

B) A physical count is needed to understand whether inventory costs have increased or decreased during the year.

C) A physical count is needed because theft, breakage, and spoilage during the year likely have not been captured in a perpetual system.

D) A physical count is needed to understand whether the selling prices of inventory have increased or decreased during the year.          

 Cash equivalents do not include:

A) Money market funds.

B) High grade marketable equity securities.

C) U.S. treasury bills.

D) Commercial paper.            

 Cash may not include:

A) Foreign currency.

B) Money orders.

C) Restricted cash.

D) Undeposited customer checks.                 

 Which of the following might explain why a company has switched from a periodic system to a perpetual system to record inventory transactions?

A) An attempt by management to overstate performance and total assets in the year-end financial statements.

B) The cost of inventory has increased during the year.

C) The selling price of inventory has decreased during the year.

D) The company has made several technological upgrades to its system for tracking inventory items.            

 Compensating balances represent:

A) Cash in a bank account that can’t be spent

B) Balances in a payroll checking account.

C) Accounts that are subject to bank service charges.

D) Accounts on which banks pay interest, e.g., NOW accounts.          

 For companies using FIFO or average cost, inventory is valued at:

A) Net realizable value.

B) Cost.

C) Replacement cost.

D) Lower of cost or net realizable value.                   

 The Mateo Corporation’s inventory at December 31, 2021, 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, 2021, was received on January 5, 2022.

• Merchandise costing $22,000, shipped f.o.b. destination from a vendor on December 28, 2021, was received on January 3, 2022.

• 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, 2022.

• Merchandise costing $12,000 was being held on consignment by Traynor Company.

 

What amount should Mateo Corporation report as inventory in its December 31, 2021, balance sheet?

A) $367,000.

B) $427,000.

C) $405,000.

D) $325,000.              

 An argument against use of the lower of cost or net realizable value rule is its lack of:

A) Relevance.

B) Reliability.

C) Consistency.

D) Objectivity.            

 Cash that is restricted and not available for current operations is reported in the balance sheet as:

A) Equity.

B) Investments.

C) Liabilities.

D) A separate section between liabilities and equity.              

 Ending inventory is equal to the cost of items on hand plus:

A) Items in transit sold f.o.b. shipping point.

B) Purchases in transit f.o.b. destination.

C) Items in transit sold f.o.b. destination.

D) None of these answer choices is correct.              

 A company implements the following policy regarding inventory in transit: Goods purchased are included in inventory records, while goods sold are not included in inventory records. Management feels this policy is reasonable because it assigns inventory in transit to the party that initiated the transactions. Which of the following concepts is management not considering in implementing this policy?

A) The likelihood that inventory purchased or sold will be returned.

B) The quantity of the inventory involved in the transaction.

C) The party who has title to the inventory while in transit.

D) The materiality of shipping costs.              

 Logistics Company had the following items listed in its trial balance at 12/31/2021:

 

Balance in checking account, Bank of the East $ 442,000

Treasury bills, purchased on 11/1/2021,

mature on 1/30/2022 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) $412,000.

B) $462,000.

C) $392,000.

D) $442,000.              

 Management has adopted a policy of reporting its unsold inventory at the end of each year at the lower of FIFO cost or the most recent selling price of that inventory in the current year. Which of the following statements is correct?

A) Management should instead choose the higher of the two amounts to report inventory.

B) Management should instead compare the inventory’s cost to an estimate of its selling price in the next year.

C) Management’s policy is acceptable.

D) Management should instead report inventory at the lower of cost or market value based on replacement cost.                   

 A company does not include in ending inventory any goods that have been shipped to consignees to be sold on consignment. The company has a policy of removing those goods from the inventory records at the time of shipment. Which of the following is an accurate statement regarding the company’s policy?

A) The policy is correct if management believes it is probable the inventory will be sold within the next year.

B) The policy is not correct because the company has title to consignment goods until those goods are sold to a third-party customer.

C) The policy is correct if the current selling price of inventory is above its original purchase cost.

D) The policy is not correct because inventory is recorded at fair value, and fair value is not known until those goods are sold.                   

 Management has adopted a policy of reporting its unsold inventory at the end of each year at the lower of LIFO cost or the estimated selling price of that inventory in the next year. Which of the following statements is correct?

A) Management’s policy is acceptable.

B) Management should instead choose the higher of the two amounts to report inventory.

C) Management also needs to consider the inventory’s replacement cost.

D) Management should instead report inventory at the lower of cost or the most recent selling price in the current year.              

 Which of the following is true about reporting cash under IFRS?

A) Cash accounts include loans made to customers, but not to related parties.

B) Overdrafts typically cannot be offset against positive balance in other cash accounts on the balance sheet.

C) Cash overdrafts are not allowed.

D) Overdrafts typically are not shown as current liabilities on the balance sheet.                  

 Mogul Company ships merchandise to Ski Outfit in a consignment arrangement. The arrangement specifies that Ski Outfit will attempt to sell the merchandise, and in return, Mogul will pay to Ski Outfit a 20% sales commission on any merchandise sold. During the year, Mogul ships inventory with a cost of $80,000 to Ski Outfit. By the end of the year, $60,000 of the merchandise has been sold to customers for a total of $85,000. What amount of inventory will Mogul report at year end?

A) $0.

B) $5,000.

C) $16,000.

D) $20,000.                

 Montana Co. has determined its year-end inventory on a FIFO basis to be $600,000. Information pertaining to that inventory is as follows:

 

 

Selling price $ 620,000

Costs to sell 30,000

Replacement cost 520,000

 

What should be the reported value of Montana’s inventory?

A) $600,000.

B) $520,000.

C) $590,000.

D) $620,000.              

 Wilson Company had the following cash balance items listed in its trial balance at 12/31/2021:

 

Peterson Savings and Loan: $ 50,000

Right Bank: (5,000 )

Clinton County Trust Bank: 10,000

 

If Wilson reports under IFRS, its 12/31/2021 balance sheet would show what cash balance?

A) ($5,000).

B) $55,000.

C) $60,000.

D) None of these answer choices are correct.            

 Data related to the inventories of Costco Medical Supply are presented below:

 

Surgical Surgical Rehab Rehab

Equipment Supplies Equipment Supplies

Selling price $ 260 $ 100 $ 340 $ 165

Cost 170 90 250 162

Costs to sell 30 15 25 10

 

In applying the lower of cost or net realizable value rule, the inventory of surgical equipment would be valued at:

A) $230.

B) $240.

C) $170.

D) $152.                   

 Mogul Company ships merchandise to Ski Outfit in a consignment arrangement. The arrangement specifies that Ski Outfit will attempt to sell the merchandise, and in return, Mogul will pay to Ski Outfit a commission of 20% of the selling price on any merchandise sold. During the year, Mogul ships inventory with a cost of $80,000 to Ski Outfit and pays shipping costs of $8,000. By the end of the year, $60,000 of the merchandise has been sold to customers for a total of $85,000. Mogul allocates $6,000 of the shipping costs to inventory sold and the other $2,000 to inventory not sold. Mogul also paid advertising costs during the year of $10,000. What amount of inventory will Mogul report at year end?

A) $20,000.

B) $22,000.

C) $42,000.

D) $52,000.                

 Wilson Company had the following cash balance items listed in its trial balance at 12/31/2021:

 

Peterson Savings and Loan: $ 50,000

Right Bank: (5,000 )

Clinton County Trust Bank: 10,000

 

If Wilson reports under U.S. GAAP, its 12/31/2021 balance sheet would show what cash balance?

A) ($5,000).

B) $55,000.

C) $60,000.

D) None these answer choices are correct.                

 A company’s estimate of merchandise that will be returned by customers should be:

A) Included in inventory at an amount equal to the selling price of the merchandise.

B) Included in inventory at an amount equal to the cost of the merchandise.

C) Excluded from inventory but deducted from sales revenue and accounts receivable.

D) None of these answer choices are correct.            

 Data related to the inventories of Costco Medical Supply are presented below:

 

Surgical Surgical Rehab Rehab

Equipment Supplies Equipment Supplies

Selling price $ 260 $ 100 $ 340 $ 165

Cost 170 90 250 162

Costs to sell 30 15 25 10

 

In applying the lower of cost or net realizable value rule, the inventory of surgical supplies would be valued at:

A) $100.

B) $90.

C) $85.

D) $75.           

 On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. Flores uses the gross method of accounting for sales discounts.

 

What is the correct entry for Flores on November 10?

A)

Accounts receivable 7,840

Sales 7,840

 

B)

Accounts receivable 8,000

Sales 8,000

 

C)

Accounts receivable 7,840

Sales discounts 160

Sales 8,000

 

D)

Accounts receivable 8,000

Sales discounts 160

Sales 7,840                

 Data related to the inventories of Costco Medical Supply are presented below:

 

Surgical Surgical Rehab Rehab

Equipment Supplies Equipment Supplies

Selling price $ 260 $ 100 $ 340 $ 165

Cost 170 90 250 162

Costs to sell 30 15 25 10

 

In applying the lower of cost or net realizable value rule, the inventory of rehab equipment would be valued at:

A) $315.

B) $340.

C) $225.

D) $250.                   

 On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. Flores uses the gross method of accounting for sales discounts.

 

What is the correct entry for Flores on November 17, assuming the correct payment was received on that date?

A)

Cash 7,840

Accounts receivable 7,840

B)

Cash 7,840

Sales discounts 160

Accounts receivable 8,000

C)

Cash 7,840

Sales 160

Accounts receivable 8,000

D)

Cash 8,000

Sales discounts 160

Accounts receivable 8,000

Sales 160                  

 The Constance Corporation’s inventory at December 31, 2021, was $125,000 (at cost) based on a physical count of inventory on hand, before any necessary adjustment for the following:

 

• Merchandise costing $15,000, shipped f.o.b. shipping point from a vendor on December 27, 2021, was received by Constance on January 5, 2022.

• Merchandise costing $45,000 was shipped to a customer f.o.b. shipping point on December 28, 2021, arrived at the customer’s location on January 6, 2022.

• Merchandise costing $21,000 was being held on hand for Jess Company on consignment.

• Estimated sales returns are 10% of annual sales. Sales revenue was $550,000 with a gross profit ratio of 25%.

 

What amount should Constance Corporation report as inventory in its December 31, 2021, balance sheet?

A) $160,250.

B) $145,250.

C) $187,250.

D) $190,250.              

 Data related to the inventories of Costco Medical Supply are presented below:

 

Surgical Surgical Rehab Rehab

Equipment Supplies Equipment Supplies

Selling price $ 260 $ 100 $ 340 $ 165

Cost 170 90 250 162

Costs to sell 30 15 25 10

 

In applying the lower of cost or net realizable value rule, the inventory of rehab supplies would be valued at:

A) $165.

B) $152.

C) $162.

D) $155.                   

 On November 10 of the current year, Flores Mills sold carpet to a customer for $8,000 with credit terms 2/10, n/30. Flores uses the gross method of accounting for sales discounts.

 

What is the correct entry for Flores on December 5, assuming the correct payment was received on that date?

A)

Cash 8,000

Accounts receivable 7,840

Sales discounts revenue 160

 

B)

Cash 8,000

Accounts receivable 7,840

Interest revenue 160

 

C)

Cash 8,160

Accounts receivable 8,000

Sales discounts forfeited 160

 

D)

Cash 8,000

Accounts receivable 8,000                 

 Purchases equal the invoice amount:

A) Plus freight-in, plus discounts lost.

B) Less purchase returns, plus purchase allowances.

C) Plus freight-in, less purchase discounts.

D) Plus discounts, less purchase returns.                  

 A company purchases inventory for $10,000, with terms 3/10, n/30. The company uses a perpetual system and the net method to record purchases. To record this transaction, the company debits the Inventory account for $9,970. Which of the following statements is correct?

A) The company should instead credit Inventory.

B) The company should instead debit Purchases.

C) The recorded amount should instead be $9,700.

D) Two of the other answers are correct.                  

 Data related to the inventories of Alpine Ski Equipment and Supplies is presented below:

 

Skis Boots Apparel Supplies

Selling price $ 180,000 $ 140,000 $ 120,000 $ 60,000

Cost 128,000 133,000 90,000 45,000

Replacement cost 120,000 130,000 110,000 41,000

Sales commission 10 % 10 % 10 % 10 %

 

In applying the lower of cost or net realizable value rule, the inventory of skis would be valued at:

A) $162,000.

B) $128,000.

C) $120,000.

D) $180,000.              

 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 sales discounts.

 

What entry would Oswego make on April 12?

A)

Accounts receivable 46,000

Sales 46,000

 

B)

Accounts receivable 46,000

Sales 45,540

Sales discounts 460

 

C)

Accounts receivable 45,540

Sales 45,540

 

D)

Accounts receivable 45,540

Sales discounts 460

Sales 46,000              

 Data related to the inventories of Alpine Ski Equipment and Supplies is presented below:

 

Skis Boots Apparel Supplies

Selling price $ 180,000 $ 140,000 $ 120,000 $ 60,000

Cost 128,000 133,000 90,000 45,000

Replacement cost 120,000 130,000 110,000 41,000

Sales commission 10 % 10 % 10 % 10 %

 

In applying the lower of cost or net realizable value rule, the inventory of boots would be valued at:

A) $140,000.

B) $133,000.

C) $126,000.

D) $130,000.              

 Management adopts of policy of reporting all shipping costs (freight-in and freight-out) in an operating expense account—Shipping Expense—at the time those costs are incurred. The cost of the physical units sold are reported in the Cost of Goods Sold account at the time those units are sold. Management believes this policy better communicates its inventory decisions to financial statement users. Which of the following statements is correct?

A) Management’s policy is not correct because the cost of inventory includes all costs necessary to get the inventory ready for sale.

B) Management’s policy is not correct because freight-in should be expensed only when the inventory is sold.

C) Management’s policy is not correct because the cost of freight-out represents a reduction of revenue, not an expense.

D) Two of the other answers are correct.                  

 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 sales 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

Sales discounts forfeited 460

 

C)

Cash 45,540

Sales discounts 460

Accounts receivable 46,000

 

D)

Cash 46,000

Accounts receivable 45,540

Sales 460                  

 Data related to the inventories of Alpine Ski Equipment and Supplies is presented below:

 

Skis Boots Apparel Supplies

Selling price $ 180,000 $ 140,000 $ 120,000 $ 60,000

Cost 128,000 133,000 90,000 45,000

Replacement cost 120,000 130,000 110,000 41,000

Sales commission 10 % 10 % 10 % 10 %

 

In applying the lower of cost or net realizable value rule, the inventory of apparel would be valued at:

A) $108,000.

B) $90,000.

C) $110,000.

D) $99,000.                

 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 sales discounts.

 

What entry would Oswego make on June 10, assuming the customer made the correct payment on that date?

A)

Cash 46,000

Accounts receivable 45,540

Discounts receivable 460

 

B)

Cash 46,000

Accounts receivable 45,540

Sales discounts forfeited 460

 

C)

Cash 46,000

Accounts receivable 46,000

 

D)

Cash 46,460

Accounts receivable 46,000

Sales discounts forfeited 460             

 Using the gross method, purchase discounts lost are:

A) Included in inventory purchased.

B) Added to accounts payable.

C) Included as a reduction to purchase returns.

D) Deducted from discount income.              

 Data related to the inventories of Alpine Ski Equipment and Supplies is presented below:

 

Skis Boots Apparel Supplies

Selling price $ 180,000 $ 140,000 $ 120,000 $ 60,000

Cost 128,000 133,000 90,000 45,000

Replacement cost 120,000 130,000 110,000 41,000

Sales commission 10 % 10 % 10 % 10 %

 

In applying the lower of cost or net realizable value rule, the inventory of supplies would be valued at:

A) $45,000.

B) $54,000.

C) $41,000.

D) $60,000.                

 Inventory does not include:

A) Materials used in the production of goods to be sold.

B) Assets intended to be sold in the normal course of business.

C) The cost of office equipment.

D) Assets currently in production for normal sales.                

 On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for sales discounts.

 

What entry would Cherokee make on November 10?

A)

Accounts receivable 7,840

Sales 7,840

 

B)

Accounts receivable 8,000

Sales 8,000

 

C)

Accounts receivable 7,840

Sales discounts 160

Sales 8,000

 

D)

Accounts receivable 8,000

Sales discounts 160

Sales 7,840                

 For companies using LIFO, inventory is valued at:

A) Net realizable value.

B) Cost.

C) Replacement cost.

D) Lower of cost or market.               

 On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for sales discounts.

 

What entry would Cherokee make on November 17, assuming the correct payment was received on that date?

A)

Cash 7,840

Accounts receivable 7,840

 

B)

Cash 7,840

Sales discounts 160

Accounts receivable 8,000

 

C)

Cash 7,840

Sales 160

Accounts receivable 8,000

 

D)

Cash 8,000

Sales discounts 160

Accounts receivable 8,000

Sales 160                  

 Under the gross method, purchase discounts taken are:

A) Deducted from purchase allowances.

B) Added to net purchases.

C) Added to interest income.

D) Deducted from inventory purchased.                   

 Alison’s dress shop buys dresses from McGuire Manufacturing. Alison purchased dresses from McGuire on July 17 and received an invoice with a list price amount of $6,000 and payment terms of 2/10, n/30. Alison uses the net method to record purchases. Alison should record the purchase at:

A) $5,940.

B) $5,880.

C) $6,000.

D) $6,120.                 

 In applying LCM, market cannot be:

A) Less than net realizable value.

B) Greater than the normal profit.

C) Less than the normal profit margin.

D) Greater than net realizable value.              

 On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for sales discounts.

 

What entry would Cherokee make on December 10, assuming the correct payment was received on that date?

A)

Cash 8,000

Accounts receivable 7,840

Discounts revenue 160

 

B)

Cash 8,000

Accounts receivable 7,840

Sales discounts forfeited 160

 

C)

Cash 8,160

Accounts receivable 8,000

Sales discounts forfeited 160

 

D)

Cash 8,000

Accounts receivable 8,000                 

 Harvey’s Wholesale Company sold supplies of $46,000 to Northeast Company on April 12 of the current year, with terms 1/15, n/60. Harvey uses the net method of accounting for sales discounts.

 

What entry would Harvey’s make on April 12?

A)

Accounts receivable 46,000

Sales 46,000

 

B)

Accounts receivable 46,000

Sales 45,540

Sales discounts 460

 

C)

Accounts receivable 45,540

Sales 45,540

 

D)

Accounts receivable 45,540

Sales discounts 460

Sales 46,000              

 In applying LCM, market cannot be:

A) Less than net realizable value minus a normal profit margin.

B) Net realizable value less reasonable completion and disposal costs.

C) Greater than net realizable value reduced by an allowance for normal profit margin.

D) Less than cost.                 

 Northwest Fur Co. started 2021 with $94,000 of merchandise inventory on hand. During 2021, $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.

What is ending inventory assuming Northwest uses the gross method to record purchases?

A) $112,490.

B) $112,550.

C) $116,500.

D) $120,300.              

 Harvey’s Wholesale Company sold supplies of $46,000 to Northeast Company on April 12 of the current year, with terms 1/15, n/60. Harvey uses the net method of accounting for sales discounts.

 

What entry would Harvey’s 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

Sales discounts forfeited 460

 

C)

Cash 45,540

Sales discounts 460

Accounts receivable 46,000

 

D)

Cash 45,540

Accounts receivable 45,540               

 Masterlink Co., in applying the lower of cost or market method, reports its inventory at net realizable value. Which of the following statements is correct?

A) NRV is greater than replacement cost.

B) Cost is less than net realizable value.

C) Cost is greater than net realizable value.

D) Cost is less than NRV minus a normal profit margin.          

 Northwest Fur Co. started 2021 with $94,000 of merchandise inventory on hand. During 2021, $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) $492,500.

B) $496,500.

C) $490,500.

D) $492,550.              

 Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $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.

 

Assuming CBC uses the gross method to record purchases, ending inventory would be:

A) $6,480.

B) $15,400.

C) $15,480.

D) $21,000.                

 Harvey’s Wholesale Company sold supplies of $46,000 to Northeast Company on April 12 of the current year, with terms 1/15, n/60. Harvey uses the net method of accounting for sales discounts.

 

What entry would Harvey’s make on June 10, assuming the customer made the correct payment on that date?

A)

Cash 46,000

Accounts receivable 45,540

Sales discounts revenue 460

 

B)

Cash 46,000

Accounts receivable 45,540

Sales discounts forfeited 460

 

C)

Cash 46,000

Accounts receivable 46,000

 

D)

Cash 46,460

Accounts receivable 46,000

Sales discounts forfeited 460             

 Madison Co. has determined its year-end inventory on a LIFO basis to be $600,000. Information pertaining to that inventory is as follows:

 

 

Selling price $ 720,000

Costs to sell 30,000

Normal profit margin 80,000

Replacement cost 620,000

 

What should be the reported value of Madison’s inventory?

A) $600,000.

B) $620,000.

C) $690,000.

D) $610,000.              

 Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $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) $312,480.

B) $326,000.

C) $331,480.

D) $337,000.              

 Data related to the inventories of Kimzey Medical Supply are presented below:

 

Surgical Surgical Rehab Rehab

Equipment Supplies Equipment Supplies

Selling price $ 260 $ 120 $ 340 $ 165

Cost 170 90 250 162

Replacement cost 240 80 235 158

Costs to sell 30 5 25 10

Normal gross profit ratio 30 % 30 % 30 % 20 %

In applying the lower of cost or market rule, the inventory of surgical equipment would be valued at:

A) $230.

B) $240.

C) $170.

D) $152.                   

 Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. Gershwin would record this reduction by debiting sales returns and crediting:

A) Sales.

B) Sales discounts.

C) Allowance for uncollectible accounts.

D) Accounts receivable.          

 Cinnamon Buns Co. (CBC) started 2021 with $52,000 of merchandise on hand. During 2021, $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.

 

Assume instead that (a) freight costs were paid by the vendor, (b) no discounts were taken, and (c) the merchandise on hand at the beginning of 2021 was determined by a physical count that failed to realize that $10,000 of merchandise was being held on consignment for Frosting R Us Inc. What is cost of goods available for sale, assuming CBC uses the gross method to record purchase discounts?

A) $318,000.

B) $327,000.

C) $321,480.

D) $337,000.              

 Data related to the inventories of Kimzey Medical Supply are presented below:

Surgical Surgical Rehab Rehab

Equipment Supplies Equipment Supplies

Selling price $ 260 $ 120 $ 340 $ 165

Cost 170 90 250 162

Replacement cost 240 80 235 158

Costs to sell 30 5 25 10

Normal gross profit ratio 30 % 30 % 30 % 20 %

In applying the lower of cost or market rule, the inventory of surgical supplies would be valued at:

A) $100.

B) $90.

C) $80.

D) $75.           

 Tom’s Textiles shipped the wrong material to a customer, who refused to accept the order. Upon receipt of the material, Tom’s would credit accounts receivable and debit:

A) Sales.

B) Sales discount.

C) Sales returns.

D) Sales allowances.              

 Cost of goods sold is given by:

A) Beginning inventory − net purchases + ending inventory.

B) Beginning inventory + accounts payable − net purchases.

C) Net purchases + ending inventory − beginning inventory.

D) Net Purchases + beginning inventory − ending inventory.            

 Data related to the inventories of Kimzey Medical Supply are presented below:

Surgical Surgical Rehab Rehab

Equipment Supplies Equipment Supplies

Selling price $ 260 $ 120 $ 340 $ 165

Cost 170 90 250 162

Replacement cost 240 80 235 158

Costs to sell 30 5 25 10

Normal gross profit ratio 30 % 30 % 30 % 20 %

In applying the lower of cost or market rule, the inventory of rehab equipment would be valued at:

A) $315.

B) $247.

C) $150.

D) $235.                   

 Memorex Disks sells computer disk drives with right-of-return privileges. Returns are material and reasonably predictable. Memorex should:

A) Not record sales until the right to return has expired.

B) Record a refund liability in the year of the sale.

C) Debit sales returns in the period of the return.

D) Debit sales in the period of the return.                

 Data related to the inventories of Kimzey Medical Supply are presented below:

Surgical Surgical Rehab Rehab

Equipment Supplies Equipment Supplies

Selling price $ 260 $ 120 $ 340 $ 165

Cost 170 90 250 162

Replacement cost 240 80 235 158

Costs to sell 30 5 25 10

Normal gross profit ratio 30 % 30 % 30 % 20 %

In applying the lower of cost or market rule, the inventory of rehab supplies would be valued at:

A) $122.

B) $158.

C) $162.

D) $155.                   

 During 2021, its first year of operations, Ashbaugh Industries recorded sales of $21,000,000 and experienced returns of $1,400,000. Returns are accounted for as they occur, with additional estimated returns accrued at the end of the period. Cost of goods sold totaled $12,600,000 (60% of sales). The company estimates that 8% of all sales will be returned. The year-end adjusting journal entry to account for anticipated sales returns would include a:

A) Credit to sales returns of $280,000.

B) Credit to refund liability of $280,000.

C) Debit to sales returns of $1,680,000.

D) Debit to cost of sales of $168,000.             

 The inventory method that will always produce the same amount for cost of goods sold in a periodic inventory system as in a perpetual inventory system would be:

A) FIFO.

B) LIFO.

C) Weighted average.

D) None of these answer choices are correct.            

 Data related to the inventories of Mountain Ski Equipment and Supplies is presented below:

Skis Boots Apparel Supplies

Selling price $ 180,000 $ 150,000 $ 120,000 $ 60,000

Cost 128,000 133,000 90,000 48,000

Replacement cost 120,000 130,000 110,000 50,000

Sales commission 10 % 10 % 10 % 10 %

Normal gross profit ratio 20 % 20 % 15 % 15 %

In applying the lower of cost or market rule, the inventory of skis would be valued at:

A) $162,000.

B) $128,000.

C) $120,000.

D) $126,000.              

 Galaxy sells used video games for cash and provides a one-week return right. Returns are material and reasonably predictable. Galaxy should:

A) Not record sales until the right to return has expired.

B) Record a contra-receivable in the year of the sale.

C) Recognize a refund liability associated with estimated returns.

D) Credit sales in the period of the return.                

 In a perpetual average cost system:

A) A new weighted-average unit cost is calculated each time additional units are purchased.

B) The cost allocated to ending inventory is generally the same as it would be in a periodic inventory system.

C) The moving-average unit cost is determined following each sale.

D) The average is determined by dividing the total number of units sold by the cost of units purchased during the period.           

 Data related to the inventories of Mountain Ski Equipment and Supplies is presented below:

Skis Boots Apparel Supplies

Selling price $ 180,000 $ 150,000 $ 120,000 $ 60,000

Cost 128,000 133,000 90,000 48,000

Replacement cost 120,000 130,000 110,000 50,000

Sales commission 10 % 10 % 10 % 10 %

Normal gross profit ratio 20 % 20 % 15 % 15 %

In applying the lower of cost or market rule, the inventory of boots would be valued at:

A) $135,000.

B) $133,000.

C) $130,000.

D) $105,000.              

 False Value Hardware began 2021 with a credit balance of $32,000 in the refund liability account. Sales and cash collections from customers during the year were $650,000 and $610,000, respectively. False Value estimates that 6% of all sales will be returned. During 2021, customers returned merchandise for credit of $28,000 to their accounts.

 

What is the balance in the refund liability account at the end of 2021?

A) $11,000.

B) $39,000.

C) $43,000.

D) $21,000.                

 In a period when costs are rising and inventory quantities are stable, the inventory method that would result in the highest ending inventory is:

A) Weighted average.

B) Moving average.

C) FIFO.

D) LIFO.          

 Data related to the inventories of Mountain Ski Equipment and Supplies is presented below:

 

Skis Boots Apparel Supplies

Selling price $ 180,000 $ 150,000 $ 120,000 $ 60,000

Cost 128,000 133,000 90,000 48,000

Replacement cost 120,000 130,000 110,000 50,000

Sales commission 10 % 10 % 10 % 10 %

Normal gross profit ratio 20 % 20 % 15 % 15 %

 

In applying the lower of cost or market rule, the inventory of apparel would be valued at:

A) $108,000.

B) $90,000.

C) $110,000.

D) $115,000.              

 During periods when costs are rising and inventory quantities are stable, cost of goods sold will be:

A) Higher under FIFO than LIFO.

B) Higher under FIFO than average cost.

C) Lower under average cost than LIFO.

D) Lower under LIFO than FIFO.          

 False Value Hardware began 2021 with a credit balance of $32,000 in the refund liability account. Sales and cash collections from customers during the year were $650,000 and $610,000, respectively. False Value estimates that 6% of all sales will be returned. During 2021, customers returned merchandise for credit of $28,000 to their accounts.

 

False Value Hardware’s 2021 income statement would report net sales of:

A) $622,000.

B) $607,000.

C) $646,000.

D) $611,000.              

 Data related to the inventories of Mountain Ski Equipment and Supplies is presented below:

 

Skis Boots Apparel Supplies

Selling price $ 180,000 $ 150,000 $ 120,000 $ 60,000

Cost 128,000 133,000 90,000 48,000

Replacement cost 120,000 130,000 110,000 50,000

Sales commission 10 % 10 % 10 % 10 %

Normal gross profit ratio 20 % 20 % 15 % 15 %

 

In applying the lower of cost or market rule, the inventory of supplies would be valued at:

A) $45,000.

B) $54,000.

C) $50,000.

D) $48,000.                

 During periods when costs are rising and inventory quantities are stable, ending inventory will be:

A) Higher under LIFO than FIFO.

B) Lower under average cost than LIFO.

C) Higher under average cost than FIFO.

D) Higher under FIFO than LIFO.                  

 Rusty Hardware makes only cash sales. It began 2021 with a credit balance of $32,000 in the refund liability account. Sales during 2021 were $600,000. Rusty estimates that 6% of all sales will be returned. During 2021, customers returned merchandise for credit of $28,000 to their accounts.

 

What is the balance in the refund liability account at the end of 2021?

A) $32,000.

B) $39,000.

C) $43,000.

D) $40,000.                

 Rusty Hardware makes only cash sales. It began 2021 with a credit balance of $32,000 in the refund liability account. Sales during 2021 were $600,000. Rusty estimates that 6% of all sales will be returned. During 2021, customers returned merchandise for credit of $28,000 to their accounts.

 

Rusty’s 2021 income statement would report net sales of:

A) $600,000.

B) $564,000.

C) $568,000.

D) $604,000.              

 The use of LIFO during a long inflationary period can result in:

A) A net increase in income tax expense.

B) An inflated balance sheet.

C) Significant cash flow advantages over FIFO.

D) A reduction in inventory turnover over FIFO.          

 When using the gross profit method to estimate ending inventory, it is not necessary to know:

A) Beginning inventory.

B) Net purchases.

C) Cost of goods sold.

D) Net sales.             

 Accounts receivable are normally reported at the:

A) Present value of future cash receipts.

B) Current value plus accrued interest.

C) Expected amount to be collected.

D) Current value less expected collection costs.          

 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) $192,000.

B) $490,000.

C) $510,000.

D) $280,000.              

 Which of the following is false regarding the FIFO inventory method?

A) FIFO under a perpetual inventory system results in the same cost of goods sold as FIFO under a periodic inventory system.

B) A company can choose to account for the flow of inventory using the FIFO method even if this doesn’t match the actual flow of its inventory.

C) Perishable goods often follow an actual physical flow that is consistent with the FIFO method assumptions.

D) All of the other answer choices are true.               

 California Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2021. In preparing its insurance claim on the inventory loss, the company developed the following data: Inventory January 1, 2021, $300,000; sales and purchases from January 1, 2021, to May 1, 2021, $1,300,000 and $875,000, respectively. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2021, is:

A) $302,500.

B) $360,000.

C) $395,000.

D) $455,000.              

 Company A is identical to Company B in every regard except that Company A uses FIFO and Company B uses LIFO. In an extended period of rising inventory costs, Company A’s gross profit and inventory turnover ratio, compared to Company B’s, would be:

 

Gross Profit Inventory Turnover

a. lower lower

b. higher higher

c. higher lower

d. lower higher

 

A) Option A

B) Option B

C) Option C

D) Option D              

 The allowance for uncollectible accounts is a:

A) Deferred charge to expense.

B) Contra asset account.

C) Deferred revenue account.

D) Quasi-liability account.                 

 A company uses the allowance method to account for bad debts. What is the effect on each of the following accounts of the collection of an account previously written off?

Allowance for Accounts

Uncollectible Accounts Receivable

a. Increase Decrease

b. No effect Decrease

c. Increase No effect

d. No effect No effect

 

A) Option A

B) Option B

C) Option C

D) Option D              

 Company C is identical to Company D in every respect except that Company C uses LIFO and Company D uses average costs. In an extended period of rising inventory costs, Company C’s gross profit and inventory turnover ratio, compared to Company D’s, would be:

 

Gross Profit Inventory Turnover

a. higher higher

b. higher lower

c. lower lower

d. lower higher

 

A) Option A

B) Option B

C) Option C

D) Option D              

 Howard’s Supply Co. suffered a fire loss on April 20, 2021. The company’s last physical inventory was taken January 30, 2021, at which time the inventory totaled $220,000. Sales from January 30 to April 20 were $600,000 and purchases during that time were $450,000. Howard’s consistently reports a 30% gross profit. The estimated inventory loss is:

A) $490,000.

B) $238,000.

C) $250,000.

D) None of these answer choices are correct.            

 A company uses the periodic average cost method to account for inventory. For the year, the company had the following beginning inventory and purchases:

 

Beginning inventory on January 1 100 units at $ 2,800 per unit

Purchase on March 1 400 units at $ 3,000 per unit

Purchase on September 1 800 units at $ 3,200 per unit

 

Sales for the year totaled 1,000 units, leaving 300 units on hand at the end of the year. The company reported ending inventory for $900,000. Which of the following is correct?

A) The amount reported for ending inventory is incorrect because management used a simple average instead of weighted-average to calculate the unit cost of inventory for the year.

B) The amount reported for ending inventory cannot be determined with the information given because the amount depends on which of the 1,000 units were assumed to be sold.

C) The amount reported for ending inventory is incorrect because the unit cost of ending inventory should be the average cost of the last 300 units purchased.

D) The amount reported for ending inventory is correct.                  

 Coastal Shores Inc. (CSI) was destroyed by Hurricane Fred on August 5, 2021. At January 1, CSI reported an inventory of $170,000. Sales from January 1, 2021, to August 5, 2021, totaled $480,000 and purchases totaled $195,000 during that time. CSI consistently marks up its products 60% over cost to arrive at a selling price. The estimated inventory loss due to Hurricane Fred would be:

A) $131,175.

B) $65,000.

C) $69,000.

D) None of these answer choices are correct.            

 Collection of accounts receivable that previously have been written off results in an increase in cash and an increase in:

A) Accounts receivable.

B) Allowance for uncollectible accounts.

C) Bad debts expense.

D) Retained earnings.            

 A company uses the periodic FIFO method to account for inventory. For the year, the company had the following beginning inventory and purchases:

 

Beginning inventory on January 1 100 units at $ 2,800 per unit

Purchase on March 1 400 units at $ 3,000 per unit

Purchase on September 1 800 units at $ 3,200 per unit

 

Sales for the year totaled 1,000 units, leaving 300 units on hand at the end of the year. The company reported cost of goods sold as $3,120,000 [(400 units @ $3,000) + (600 units @ $3,200)]. Which of the following is correct?

A) The amount reported for cost of goods sold is incorrect because it assumes the units sold based on a perpetual system instead of a periodic system.

B) The amount reported for cost of goods sold is incorrect because the units assumed sold would first include those in beginning inventory.

C) The amount reported for cost of goods sold is incorrect because the units assumed sold would include all of those purchased on September 1.

D) The amount reported for cost of goods sold is correct.                

 Under the LIFO retail method, the denominator in the cost-to-retail percentage includes:

A) Net markups and net markdowns.

B) Neither net markups nor net markdowns.

C) Net markups, but not net markdowns.

D) Net markdowns, but not net markups.                 

 Which of the following does not reduce the balance in accounts receivable?

A) Returns on credit sales.

B) Collections from customers.

C) Recognizing bad debts expense.

D) Write-offs.             

 Chez Fred Bakery estimates the allowance for uncollectible accounts at 3% of the ending balance of accounts receivable. During 2021, Chez Fred’s credit sales and collections were $125,000 and $131,000, respectively. What was the balance of accounts receivable on January 1, 2021, if $180 in accounts receivable were written off during 2021 and if the allowance account had a balance of $750 on December 31, 2021?

A) $5,820.

B) $31,000.

C) $31,180.

D) None of these answer choices are correct.            

 Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

 

• 40 units at $100 per unit

• 70 units at $80 per unit

• 170 units at $60 per unit

 

Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

 

Ending inventory using the average cost method (rounded) is:

A) $650.

B) $1,000.

C) $707.

D) $600.                   

 Under the retail method, the denominator in the cost-to-retail percentage does not include:

A) Purchases.

B) Purchase returns.

C) Abnormal shortages.

D) Freight-in.             

 Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

 

• 40 units at $100 per unit

• 70 units at $80 per unit

• 170 units at $60 per unit

 

Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

 

Ending inventory using the FIFO method is:

A) $650.

B) $1,000.

C) $707.

D) $600.                   

 The following information relates to Halloran Co.’s accounts receivable for 2021:

 

Accounts receivable balance, 1/1/2021 $ 840,000

Credit sales for 2021 3,300,000

Accounts receivable written off during 2021 70,000

Collections from customers during 2021 3,100,000

Allowance for uncollectible accounts balance, 12/31/2021 210,000

 

What amount should Halloran report for accounts receivable, before allowances, at December 31, 2021?

A) $1,040,000.

B) $970,000.

C) $760,000.

D) None of these answer choices are correct.            

 Under the retail method, the numerator in the cost-to-retail percentage includes:

A) Beginning inventory.

B) Purchases.

C) Freight-in.

D) All of the other choices are included in the numerator.                

 Calistoga Produce estimates bad debt expense at 1/2% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $471,000 and $1,650, respectively, at December 31, 2020. During 2021, Calistoga’s credit sales and collections were $315,000 and $319,000, respectively, and $1,720 in accounts receivable were written off.

 

Calistoga’s accounts receivable at December 31, 2021, are:

A) $467,000.

B) $473,280.

C) $465,280.

D) $469,280.              

 Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

 

• 40 units at $100 per unit

• 70 units at $80 per unit

• 170 units at $60 per unit

 

Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

 

Ending inventory using the LIFO method is:

A) $650.

B) $1,000.

C) $707.

D) $600.                   

 Under the retail inventory method:

A) A company measures inventory on its balance sheet by converting retail prices to cost.

B) A company measures inventory on its balance sheet at current selling prices.

C) A company measures inventory on its balance sheet on a LIFO basis.

D) None of the other answer choices are correct.                 

 Calistoga Produce estimates bad debt expense at 1/2% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $471,000 and $1,650, respectively, at December 31, 2020. During 2021, Calistoga’s credit sales and collections were $315,000 and $319,000, respectively, and $1,720 in accounts receivable were written off.

 

Calistoga’s 2021 bad debt expense is:

A) $1,720.

B) $1,650.

C) $1,505.

D) $1,575.                 

 Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition):

 

• 40 units at $100 per unit

• 70 units at $80 per unit

• 170 units at $60 per unit

 

Sales for the year totaled 270 units, leaving 10 units on hand at the end of the year.

 

In comparing the ending inventory balances of FIFO and LIFO, the ending inventory value under FIFO less the ending inventory balance under LIFO results in a difference of:

A) $400.

B) $(400).

C) $0.

D) $50.           

 Under the LIFO retail method, which of the following is used to calculate the denominator of the current-period cost-to-retail percentage?

A) Beginning inventory.

B) Employee discounts.

C) Normal spoilage.

D) None of the other answer choices are correct.                 

 Calistoga Produce estimates bad debt expense at 1/2% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $471,000 and $1,650, respectively, at December 31, 2020. During 2021, Calistoga’s credit sales and collections were $315,000 and $319,000, respectively, and $1,720 in accounts receivable were written off.

 

Calistoga’s final balance in its allowance for uncollectible accounts at December 31, 2021, is:

A) $1,575.

B) $1,505.

C) $1,650.

D) $1,720.                 

 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 25 %

Ending inventories:

If LIFO is elected 820

If FIFO is elected 1,060

 

What is Nu’s net income if it elects FIFO?

A) $480.

B) $360.

C) $1,360.

D) $180.                   

 Under the retail method, in determining the cost-to-retail percentage for the current year:

A) Net markups are included.

B) Net markdowns are excluded.

C) Beginning inventory is excluded.

D) All of these answer choices are correct.                

 A company using the LIFO retail method has the following information for the current year’s operations:

 

Cost Retail

Beginning inventory $ 50,000 $ 80,000

Net purchases during the year 425,000 740,000

Net sales 710,000

 

To convert ending inventory to cost, management calculates the cost-to-retail percentage as cost of $475,000 ($50,000 + $425,000) divided by retail of $820,000 ($80,000 + $740,000). Which of the following statements is correct?

A) The retail amount used to calculate the cost-to-retail percentage should be $110,000 ($80,000 + $740,000 − $710,000).

B) Only net purchases during the year are used to calculate the cost-to-retail percentage to convert ending inventory to cost.

C) Separate cost-to-retail percentages for beginning inventory and net purchases are needed to convert ending inventory to cost.

D) The calculation of the cost-to-retail percentage is correct.             

 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 25 %

Ending inventories:

If LIFO is elected 820

If FIFO is elected 1,060

 

What is Nu’s net income if it elects LIFO?

A) $288.

B) $180.

C) $240.

D) $480.                   

 The balance in accounts receivable at the beginning of 2021 was $300. During 2021, $1,600 of credit sales were recorded. If the ending balance in accounts receivable was $250 and $100 in accounts receivable were written off during the year, the amount of cash collected from customers during 2021 was:

A) $1,600.

B) $1,650.

C) $1,550.

D) $1,900.                 

 A company has the following information for the current year’s operations:

 

Cost Retail

Beginning inventory $ 40,000 $ 60,000

Purchases 400,000 660,000

Net markups 50,000

Net markdowns 10,000

Net sales 580,000

 

Management calculates the cost-to-retail percentage as 57.9%, equal to cost of $440,000 ($40,000 + $400,000) divided by retail of $760,000 ($60,000 + $660,000 + $50,000 − $10,000). Which application of the retail inventory method is the company using?

A) Average cost.

B) LIFO.

C) Conventional.

D) Dollar-value LIFO.              

 In the balance sheet at the end of its first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $82,000. During the year, Dinty wrote off $32,000 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,200,000, and cash collections from credit customers totaled $1,950,000.

 

What bad debt expense would Dinty report in its first-year income statement?

A) $50,000.

B) $82,000.

C) $114,000.

D) Can’t be determined from the given information              

 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 25 %

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) 80%.

B) 49%.

C) 40%.

D) 6.4%.                   

 Fad City sells novel clothes that are subject to a great deal of price volatility. A recent item that cost $20 was marked up $12, marked down for a sale by $6 and then had a markdown cancellation of $3. The latest selling price is:

A) $23.

B) $26.

C) $29.

D) $35.           

 In the balance sheet at the end of its first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $82,000. During the year, Dinty wrote off $32,000 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,200,000, and cash collections from credit customers totaled $1,950,000.

 

What accounts receivable balance would Dinty report in its first year-end balance sheet?

A) $196,000.

B) $218,000.

C) $230,000.

D) None of these answer choices are correct.            

 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 25 %

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) 30%.

B) 32%.

C) 12.9%.

D) 60%.          

 Harvey’s Junk Jewelry started business January 1, 2021, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2021:

Cost Retail

Beginning inventory $ 15,000 $ 23,000

Purchases 49,000 78,000

Freight-in 2,500

Purchase returns 1,700 2,600

Net markups 2,000

Net markdowns 4,100

Net sales 70,600

Employee discounts 700

The numerator for the current period’s cost-to-retail percentage is:

A) $64,800.

B) $48,100.

C) $47,700.

D) $49,800.                

 In the balance sheet at the end of its first year of operations, Dinty Inc. reported an allowance for uncollectible accounts of $82,000. During the year, Dinty wrote off $32,000 of accounts receivable it had attempted to collect and failed. Credit sales for the year were $2,200,000, and cash collections from credit customers totaled $1,950,000.

In Dinty’s adjusting entry for bad debts at year-end, which of these would be included?

A) Debit to bad debt expense for $114,000.

B) Credit to allowance for uncollectible accounts for $82,000.

C) Debit to accounts receivable for $32,000.

D) All of these answer choices are correct.                

 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 25 %

Ending inventories:

If LIFO is elected 618

If FIFO is elected 798

 

What is Nueva’s net income if it elects FIFO?

A) $440.

B) $330.

C) $620.

D) $465.                   

 For 2021, Rahal’s Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2020. During 2021, Rahal’s credit sales and collections were $404,000 and $408,000, respectively, and $2,340 in accounts receivable were written off.

Rahal’s accounts receivable at December 31, 2021, are:

A) $90,500.

B) $88,160.

C) $82,500.

D) $80,160.                

 Harvey’s Junk Jewelry started business January 1, 2021, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2021:

 

Cost Retail

Beginning inventory $ 15,000 $ 23,000

Purchases 49,000 78,000

Freight-in 2,500

Purchase returns 1,700 2,600

Net markups 2,000

Net markdowns 4,100

Net sales 70,600

Employee discounts 700

 

The denominator for the current period’s cost-to-retail percentage is:

A) $96,300.

B) $73,300.

C) $101,000.

D) $81,500.                

 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 25 %

Ending inventories:

If LIFO is elected 618

If FIFO is elected 798

 

What is Nueva’s net income if it elects LIFO?

A) $440.

B) $330.

C) $620.

D) $465.                   

 For 2021, Rahal’s Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2020. During 2021, Rahal’s credit sales and collections were $404,000 and $408,000, respectively, and $2,340 in accounts receivable were written off.

Rahal’s 2021 bad debt expense is:

A) $2,100.

B) $2,340.

C) $4,080.

D) None of these answer choices are correct.            

 Harvey’s Junk Jewelry started business January 1, 2021, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2021:

 

Cost Retail

Beginning inventory $ 15,000 $ 23,000

Purchases 49,000 78,000

Freight-in 2,500

Purchase returns 1,700 2,600

Net markups 2,000

Net markdowns 4,100

Net sales 70,600

Employee discounts 700

 

The estimated ending inventory at retail is:

A) $27,300.

B) $25,000.

C) $26,600.

D) $26,400.                

 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 25 %

Ending inventories:

If LIFO is elected 618

If FIFO is elected 798

 

How much more will Nueva report in income tax if it elects FIFO instead of LIFO?

A) $135.

B) $110.

C) $155.

D) $45.           

 For 2021, Rahal’s Auto Parts estimates bad debt expense at 1% of credit sales. The company reported accounts receivable and an allowance for uncollectible accounts of $86,500 and $2,100, respectively, at December 31, 2020. During 2021, Rahal’s credit sales and collections were $404,000 and $408,000, respectively, and $2,340 in accounts receivable were written off.

Rahal’s final balance in its allowance for uncollectible accounts at December 31, 2021, is:

A) $4,340.

B) $4,100.

C) $3,800.

D) $4,040.                 

 Harvey’s Junk Jewelry started business January 1, 2021, and uses the LIFO retail method to estimate ending inventory. Listed below is data accumulated for the year ended December 31, 2021:

Cost Retail

Beginning inventory $ 15,000 $ 23,000

Purchases 49,000 78,000

Freight-in 2,500

Purchase returns 1,700 2,600

Net markups 2,000

Net markdowns 4,100

Net sales 70,600

Employee discounts 700

To the nearest thousand, the estimated ending inventory at cost is (round cost-to-retail ratio to whole percentage):

A) $16,000.

B) $15,000.

C) $13,000.

D) $19,000.                

 Inventory records for Herb’s Chemicals revealed the following:

 

March 1, 2021, inventory: 1,000 gallons @ $7.20 per gallon = $7,200

 

Purchases: Sales:

Mar. 10 600 gals @ $ 7.25 Mar. 5 400 gals

Mar. 16 800 gals @ $ 7.30 Mar. 14 700 gals

Mar. 23 600 gals @ $ 7.35 Mar. 20 500 gals

Mar. 26 700 gals

 

Ending inventory assuming LIFO in a periodic inventory system would be:

A) $5,040.

B) $5,055.

C) $5,075.

D) $5,135.                 

 Inventory records for Herb’s Chemicals revealed the following:

 

March 1, 2021, inventory: 1,000 gallons @ $7.20 per gallon = $7,200

 

Purchases: Sales:

Mar. 10 600 gals @ $ 7.25 Mar. 5 400 gals

Mar. 16 800 gals @ $ 7.30 Mar. 14 700 gals

Mar. 23 600 gals @ $ 7.35 Mar. 20 500 gals

Mar. 26 700 gals

 

Ending inventory assuming LIFO in a perpetual inventory system would be:

A) $4,960.

B) $5,060.

C) $5,080.

D) $5,140.                 

 Lacy’s Linen Mart uses the average cost retail method to estimate inventories. Data for the first six months of 2021 include: beginning inventory at cost and retail were $60,000 and $120,000, net purchases at cost and retail were $312,000 and $480,000, and sales during the first six months totaled $490,000. The estimated inventory at June 30, 2021, would be:

A) $68,200.

B) $55,000.

C) $71,500.

D) $63,250.                

 The following aging information pertains to Jacobsen Co.’s accounts receivable at December 31, 2021:

Days Outstanding Amount Estimated % Uncollectible

0-30 $ 420,000 2 %

31-60 140,000 5 %

61-120 100,000 10 %

Over 120 120,000 20 %

During 2021, Jacobsen wrote off $18,000 in receivables and recovered $6,000 that had been written off in prior years. Jacobsen’s December 31, 2020, allowance for uncollectible accounts was $40,000. Using the balance sheet approach, what amount of allowance for uncollectible accounts should Jacobsen report at December 31, 2021?

A) $55,400.

B) $28,000.

C) $49,400.

D) $31,400.                

 Hawkeye Auto Parts uses the average cost retail method to estimate inventories. Data for the first six months of 2021 include: beginning inventory at cost and retail were $55,000 and $100,000, net purchases at cost and retail were $785,000 and $1,300,000, and sales during the first six months totaled $800,000. The estimated inventory at June 30, 2021, would be:

A) $330,000.

B) $360,000.

C) $362,300.

D) None of these answer choices are correct.            

 Inventory records for Herb’s Chemicals revealed the following:

 

March 1, 2021, inventory: 1,000 gallons @ $7.20 per gallon = $7,200

 

 

Purchases: Sales:

Mar. 10 600 gals @ $ 7.25 Mar. 5 400 gals

Mar. 16 800 gals @ $ 7.30 Mar. 14 700 gals

Mar. 23 600 gals @ $ 7.35 Mar. 20 500 gals

Mar. 26 700 gals

 

The ending inventory assuming FIFO is:

A) $5,140.

B) $5,080.

C) $5,060.

D) $5,050.                 

 Inventory records for Herb’s Chemicals revealed the following:

 

March 1, 2021, inventory: 1,000 gallons @ $7.20 per gallon = $7,200

 

Purchases: Sales:

Mar. 10 600 gals @ $ 7.25 Mar. 5 400 gals

Mar. 16 800 gals @ $ 7.30 Mar. 14 700 gals

Mar. 23 600 gals @ $ 7.35 Mar. 20 500 gals

Mar. 26 700 gals

 

The ending inventory under a periodic inventory system assuming average cost (rounding unit cost to three decimal places) is:

A) $5,087.

B) $5,107.

C) $5,077.

D) $5,005.                 

 Marilee’s Electronics uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of June 2021:

 

Cost Retail

Beginning inventory $ 80,000 $ 130,000

Net purchases 261,000 500,000

Net markups 25,000

Net markdowns 35,000

Net sales 520,000

 

The average cost-to-retail percentage is:

A) 52.2%.

B) 61.5%.

C) 56.8%.

D) 55%.          

 Which of the following is recorded by a credit to accounts receivable?

A) Sale of inventory on account.

B) Estimating the annual allowance for uncollectible accounts.

C) Estimating annual sales returns.

D) Write-off of bad debts.                

 If a company uses the balance sheet approach to estimate bad debt expense, bad debt expense for a period can be determined by:

A) Multiplying net credit sales by the bad debt experience ratio.

B) Adding the beginning balance in the allowance for uncollectible accounts to the provision for uncollectible accounts and deducting the desired ending balance in the allowance for uncollectible accounts.

C) Multiplying ending accounts receivable in each age category by the expected loss ratio for each age category.

D) Taking the difference between the unadjusted balance in the allowance account and the desired balance of the allowance account.               

 Marilee’s Electronics uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of June 2021:

 

Cost Retail

Beginning inventory $ 80,000 $ 130,000

Net purchases 261,000 500,000

Net markups 25,000

Net markdowns 35,000

Net sales 520,000

 

To the nearest thousand, estimated ending inventory is:

A) $55,000.

B) $52,000.

C) $57,000.

D) None of these answer choices are correct.            

 Texas Petrochemical reported the following April activity for its VC-30 lubricant, which had a balance of 300 qts. @ $2.40 per quart on April 1.

 

Purchases: Sales:

Apr. 10 500 qts @ $ 2.50 Apr. 3 200 qts

Apr. 14 400 qts @ $ 2.60 Apr. 12 500 qts

Apr. 20 400 qts @ $ 2.65 Apr. 26 300 qts

 

The ending inventory assuming LIFO and a periodic inventory system is: (Round your final answer to nearest whole dollar amount.)

A) $1,580.

B) $1,510.

C) $1,575.

D) $1,470.                 

 As of January 1, 2021, Farley Co. had a credit balance of $520,000 in its allowance for uncollectible accounts. Based on experience, 2% of Farley’s credit sales have been uncollectible. During 2021, Farley wrote off $650,000 of accounts receivable. Credit sales for 2021 were $18,000,000. In its December 31, 2021, balance sheet, what amount should Farley report as allowance for uncollectible accounts?

A) $230,000.

B) $360,000.

C) $590,000.

D) $880,000.              

 Benny’s Bed Co. uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of September 2021.

 

Cost Retail

Beginning inventory $ 30,000 $ 50,000

Net purchases 125,000 220,000

Net markups 15,000

Net markdowns 6,000

Net sales 208,000

 

The average cost-to-retail percentage (rounded) is:

A) 74.5%.

B) 55.6%.

C) 57.4%.

D) 58.7%.                  

 The LIFO Conformity Rule states that if LIFO is used for:

A) One class of inventory, it must be used for all classes of inventory.

B) Tax purposes, it must be used for financial reporting.

C) One company in an affiliated group, it must be used by all companies in an affiliated group.

D) Domestic companies, it must be used by foreign partners.            

 As of January 1, 2021, Barley Co. had a credit balance of $520,000 in its allowance for uncollectible accounts. Based on experience, 2% of Barley’s gross accounts receivable have been uncollectible. During 2021, Barley wrote off $650,000 of accounts receivable. Barley’s gross accounts receivable as December 31, 2021 is $18,000,000.

 

In its December 31, 2021, balance sheet, what amount should Barley report as allowance for uncollectible accounts?

A) $230,000.

B) $360,000.

C) $490,000.

D) $880,000.              

 Benny’s Bed Co. uses a periodic inventory system and the average cost retail method to estimate ending inventory and cost of goods sold. The following data is available from the company records for the month of September 2021.

 

Cost Retail

Beginning inventory $ 30,000 $ 50,000

Net purchases 125,000 220,000

Net markups 15,000

Net markdowns 6,000

Net sales 208,000

 

To the nearest thousand, estimated ending inventory is:

A) $41,000.

B) $37,000.

C) $51,000.

D) None of these answer choices are correct.            

 The use of LIFO in accounting for a firm’s inventory:

A) Usually matches the physical flow of goods through the business.

B) Is usually used for internal management purposes.

C) Usually provides a better match of expenses with revenues.

D) None of these answer choices are correct.            

 As of January 1, 2021, Barley Co. had a credit balance of $520,000 in its allowance for uncollectible accounts. Based on experience, 2% of Farley’s gross accounts receivable have been uncollectible. During 2021, Farley wrote off $650,000 of accounts receivable. Barley’s gross accounts receivable as December 31, 2021 is $18,000,000.

 

How much bad debt expense should Barley record for 2021?

A) $230,000.

B) $360,000.

C) $490,000.

D) $880,000.              

 Data below for the year ended December 31, 2021, relates to Houdini Inc. Houdini started business January 1, 2021, 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

 

Current period cost-to-retail percentage is:

A) 70.0%.

B) 68.7%.

C) 63.6%.

D) 63.5%.                  

 In a period when costs are falling and inventory quantities are stable, the lowest taxable income would be reported by using the inventory method of:

A) Weighted average.

B) LIFO.

C) Moving average.

D) FIFO.          

 Data below for the year ended December 31, 2021, relates to Houdini Inc. Houdini started business January 1, 2021, 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) $65,000.

B) $169,600.

C) $25,000.

D) $129,000.              

 San Mateo Company had the following account balances at December 31, 2021, before recording bad debt expense for the year:

Accounts receivable $ 1,400,000

Allowance for uncollectible accounts (credit balance) 22,000

Credit sales for 2021 1,950,000

San Mateo is considering the following approaches for estimating bad debts for 2021:

• 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 2021 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 A

B) Option B

C) Option C

D) Option D              

 The primary reason for the popularity of LIFO is that it:

A) Provides better matching of physical flow and cost flow.

B) Saves income taxes currently.

C) Simplifies recordkeeping.

D) Provides a permanent reduction of income taxes.             

 As of December 31, 2020, Gill Co. reported accounts receivable of $216,000 and an allowance for uncollectible accounts of $8,400. During 2021, accounts receivable increased by $22,000 (that change includes $7,800 of bad debts that were written off). An analysis of Gill Co.’s December 31, 2021, accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for 2021 would be:

A) $6,540.

B) $7,800.

C) $7,140.

D) None of these answer choices are correct.            

 Data below for the year ended December 31, 2021, relates to Houdini Inc. Houdini started business January 1, 2021, 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 cost is:

A) $90,720.

B) $83,500.

C) $91,600.

D) None of these answer choices are correct.            

 Which of the following statements is/are true?

A) In a period of rising costs and stable inventory levels, using the LIFO method leads to a lower taxable income and higher net income compared to the FIFO method.

B) In a period of rising costs and stable inventory levels, using the FIFO method leads to a higher taxable income and higher net income compared to the LIFO method.

C) In a period of falling costs and stable inventory levels, cost of goods sold is the same under LIFO and FIFO.

D) All of the other answer choices are true.               

 As of December 31, 2021, Amy Jo’s Appliances had unadjusted account balances in accounts receivable of $311,000 and $970 in the allowance for uncollectible accounts, following 2021 write-offs of $6,450 in bad debts. An analysis of Amy Jo’s December 31, 2021, accounts receivable suggests that the allowance for uncollectible accounts should be 2% of accounts receivable. Bad debt expense for 2021 should be:

A) $6,220.

B) $6,450.

C) $5,250.

D) None of these answer choices are correct.            

 In periods when costs are rising, LIFO liquidations:

A) Can’t occur.

B) Are used to reduce tax liabilities.

C) Are a source of off-balance-sheet financing.

D) Distort the net income.                

 When computing the cost-to-retail percentage for the average cost retail method, included in the denominator are:

A) Net markups and net markdowns.

B) Neither net markups nor net markdowns.

C) Net markups, but not net markdowns.

D) Net markdowns, but not net markups.                 

 Nontrade receivables do not include:

A) Sales to customers.

B) Loans to employees.

C) Income tax refund receivable.

D) Advances to affiliated companies.              

 The conventional retail inventory method is based on:

A) Average cost.

B) LIFO cost.

C) Lower of average cost or market value.

D) Lower of LIFO cost or market value.           

 When reported in financial statements, a LIFO allowance account usually:

A) Is shown in the firm’s income statement.

B) Is added to LIFO cost to indicate what the inventory would cost on a FIFO basis.

C) Indicates the effect on income if LIFO were not used.

D) Shows the current rate of inflation for that asset.              

 CMN Inc. uses LIFO and has experienced increasing costs since its founding. CMN disclosed that the LIFO reserve (also known as the LIFO allowance) at the end of 2021 was $3 million. The balance sheet showed ending inventory of $17 million at the end of 2021. What would the ending inventory have been if CMN had always used FIFO?

A) $20 million.

B) $17 million.

C) $14 million.

D) None of these answer choices are correct.            

 Long-term notes receivable issued for noncash assets at an unrealistically low interest rate will be:

A) Discounted at an imputed interest rate.

B) Recorded at the contract amount.

C) Recorded at an amount equal to the future cash flows.

D) Accounted for on the installment basis.                

 Under the conventional retail method, the denominator in the cost-to-retail percentage includes:

A) Net markups and net markdowns.

B) Neither net markups nor net markdowns.

C) Net markups, but not net markdowns.

D) Net markdowns, but not net markups.                 

 Long-term interest-bearing notes receivable issued at an unrealistically low interest rate will be:

A) Discounted at an imputed interest rate.

B) Recorded at the contract amount.

C) Recorded at an amount equal to the future cash flows.

D) Accounted for on the installment basis.                

 TNM Inc. uses LIFO and was founded in on January 1, 2020. At the end of 2020, TNM disclosed that the LIFO reserve was $1 million, indicating that the ending inventory balance would have been $1 million higher under FIFO. At the end of 2021, the LIFO reserve decreased to $0.5 million and inventory balances were relatively stable compared to 2020. Which of the following is true regarding TNM’s costs?

A) Costs have been increasing since TNM was founded because the LIFO reserve is greater than zero.

B) Costs have been decreasing since TNM was founded because the LIFO reserve is greater than zero.

C) Costs were increasing in 2021, but decreasing in 2020.

D) Costs were decreasing in 2021, but increasing in 2020.                 

 Under the conventional retail method, which of the following are not included in the denominator of the current period cost-to-retail conversion percentage?

A) Purchase returns.

B) Net markups.

C) Purchases.

D) Net markdowns.               

 A company using the conventional retail method has the following information for the current year’s operations:

Cost Retail

Beginning inventory $ 100,000 $ 150,000

Purchases 500,000 800,000

Net markups 85,000

Net markdowns 35,000

Net sales 750,000

 

Management calculates the cost-to-retail percentage as 60%, equal to cost of $600,000 ($100,000 + $500,000) divided by retail of $1,000,000 ($150,000 + $800,000 + $85,000 − $35,000). Which of the following statements is correct?

A) The cost-to-retail percentage should be calculated as cost of $600,000 divided by retail of $750,000 (Net sales).

B) The retail amount should be $1,035,000, excluding net markdowns.

C) The cost and retail amounts should not include beginning inventory of $100,000 and $150,000, respectively.

D) The retail amount should be $950,000, excluding net markups and net markdowns.          

 A journal entry to record receipt of interest on an interest-bearing notes receivable will include a:

A) credit to cash.

B) credit to interest revenue.

C) debit to notes receivable.

D) debit to bad debt expense.           

 If a company uses LIFO, a LIFO liquidation causes a company’s income taxes to increase:

A) When inventory purchase costs are rising.

B) When inventory purchase costs are declining.

C) Whether inventory purchase costs are declining or rising.

D) LIFO liquidations have no effect on a company’s income taxes.                

 A company using the conventional retail method has the following information for the current year’s operations:

 

Cost Retail

Beginning inventory $ 100,000 $ 150,000

Purchases 500,000 800,000

Net markups 85,000

Net markdowns 35,000

Net sales 750,000

 

Management reports ending inventory in the balance sheet as $200,000 ($150,000 + $800,000 − $750,000). Which of the following statements is correct?

A) The calculation of ending inventory should involve adding net markups.

B) The calculation of ending inventory should involve subtracting net markdowns.

C) The calculation of ending inventory should involve converting retail prices to cost.

D) All of the other answer choices are correct.           

 GG Inc. uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2021 would have been $16 million higher than the difference between LIFO and FIFO at the end of 2020. Assuming GG has a 25% income tax rate:

A) Its reported cost of goods sold for 2021 would have been $12 million higher if it had used FIFO rather than LIFO for its financial statements.

B) Its reported cost of goods sold for 2021 would have been $16 million higher if it had used FIFO rather than LIFO for its financial statements.

C) Its reported net income for 2021 would have been $12 million higher if it had used FIFO rather than LIFO for its financial statements.

D) Its reported net income for 2021 would have been $16 million higher if it had used FIFO rather than LIFO for its financial statements.              

 On June 1, Parson Assoc. sold equipment to Arleo and agreed to accept a 3-month, $50,000, 10% interest-bearing note in payment at a time when the prevailing rate of interest for similar transactions was 10%. When the note was collected upon maturity, Parson would recognize interest revenue of:

A) $0

B) $1,250.

C) $2,500.

D) $3,750.                 

 A company has the following information related to its ending inventory:

 

FIFO LIFO

12/31/2020 $ 400,000 $ 300,000

12/31/2021 480,000 350,000

 

The company makes an adjusting entry with a debit to Cost of Goods Sold and a credit to LIFO Reserve for $130,000 at the end of 2021 ($480,000 − $350,000). Which of the following statements is correct?

A) The company should instead debit the LIFO Reserve.

B) The adjusting entry should instead be made for $30,000.

C) Cost of goods sold is higher under LIFO than under FIFO by $130,000 in 2021.

D) Two of the other answers are correct.                  

 Cloverdale, Inc., uses the conventional retail inventory method to account for inventory. The following information relates to current year’s operations:

 

Cost Retail

Beginning inventory and purchases $ 313,500 $ 540,000

Net markups 30,000

Net markdowns 20,000

Net sales 480,000

 

What amount should be reported as cost of goods sold for the year?

A) $273,600.

B) $272,861.

C) $275,000.

D) None of these answer choices are correct.            

 Priscilla’s Exotic Pets discounted a note receivable without recourse and the sales criteria were met. The discounting is recorded as:

A) A secured borrowing.

B) Only note disclosure of the arrangement is required.

C) A sale.

D) None of these answer choices are correct.            

 A company has the following information related to its ending inventory:

 

FIFO LIFO

12/31/2020 $ 230,000 $ 200,000

12/31/2021 280,000 260,000

 

The company’s accountant informs the CEO that because the company reports using LIFO instead of FIFO, gross profit will be lower in 2021. Which of the following statements is correct?

A) The accountant is incorrect because the LIFO reserve has increased in the current year.

B) The accountant is correct.

C) The accountant is incorrect because the choice of LIFO or FIFO does not affect gross profit.

D) The accountant is incorrect because the LIFO reserve has decreased in the current year.               

 Drebin Security Systems sold merchandise to a customer in exchange for a $50,000, five-year, noninterest-bearing note when an equivalent loan would carry 10% interest. Drebin would record sales revenue on the date of sale equal to:

A) $50,000.

B) Zero.

C) The future value of $50,000 using a 10% interest rate.

D) The present value of $50,000 using a 10% interest rate.                

 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

 

The conventional cost-to-retail percentage (rounded) is:

A) 82.6%.

B) 66.7%.

C) 71.9%.

D) 75.5%.                  

 A note receivable Mild Max Cycles discounted with recourse was dishonored on its maturity date. Mild Max would debit:

A) A loss on dishonored receivable.

B) A receivable.

C) Dishonored note expense.

D) Interest expense.              

 HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2021 would have been $20 million lower than the difference between LIFO and FIFO at the end of 2020. Assuming HH has a 25% income tax rate:

A) Its reported cost of goods for 2021 would have been $15 million less if it had used FIFO rather than LIFO for its financial statements.

B) Its reported cost of goods for 2021 would have been $20 million less if it had used FIFO rather than LIFO for its financial statements.

C) Its reported cost of goods sold for 2021 would have been $15 million higher if it had used FIFO rather than LIFO for its financial statements.

D) Its reported cost of goods sold for 2021 would have been $20 million higher if it had used FIFO rather than LIFO for its financial statements.               

 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) $37,000.

B) $32,000.

C) $34,000.

D) $30,000.                

 Clarabell Inc. uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:

 

Cost Retail

Beginning inventory $ 112,000 $ 191,000

Net purchases 402,000 703,000

Net markups 43,000

Net markdowns 21,000

Net sales 685,000

 

The conventional cost-to-retail percentage (rounded) is:

A) 54.9%.

B) 58.9%.

C) 53.6%.

D) 70.6%.                  

 During 2021, WW Inc. reduced its LIFO eligible inventory quantities due to a problem with its major supplier. The effect of this liquidation was to increase its cost of goods sold by approximately $40 million. WW has a 25% income tax rate. If WW had not experienced these supplier problems and the resulting liquidation:

A) Its 2021 net income would have been $30 million lower because inventory purchase prices were rising.

B) Its 2021 net income would have been $30 million lower because inventory purchase prices were declining.

C) Its 2021 net income would have been $30 million higher because inventory purchase prices were rising.

D) Its 2021 net income would have been $30 million higher because inventory purchase prices were declining.                 

 Peecher accepted a three-year, noninterest-bearing note in exchange for merchandise sold. Which of the following is true?

A) Peecher would credit a discount on notes receivable when recording the sale.

B) Peecher would debit interest revenue over the life of the note.

C) Peecher would debit notes receivable when the note is collected.

D) Peecher would multiply sales revenue by the effective interest rate to determine interest revenue each period.              

 Baker Inc. acquired equipment from the manufacturer on 10/1/2021 and gave a noninterest-bearing note in exchange. Baker is obligated to pay $918,000 on 4/1/2022 to satisfy the obligation in full. If Baker accrued interest of $9,000 on the note in its 2021 year-end financial statements, what is its imputed annual interest rate?

A) 2%.

B) 4%.

C) 6%.

D) None of these answer choices are correct.            

 Clarabell Inc. uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:

 

Cost Retail

Beginning inventory $ 112,000 $ 191,000

Net purchases 402,000 703,000

Net markups 43,000

Net markdowns 21,000

Net sales 685,000

 

To the nearest thousand, estimated ending inventory using the conventional retail method is:

A) $163,000.

B) $124,000.

C) $127,000.

D) $136,000.              

 Thompson TV and Appliance reported the following in its 2021 financial statements:

 

2021

Sales $ 420,000

Cost of goods sold:

Inventory, January 1 82,000

Net purchases 340,000

Goods available for sale 422,000

Inventory, December 31 86,000

Cost of goods sold 336,000

Gross profit $ 84,000

 

Thompson’s 2021 gross profit ratio is:

A) 25%.

B) 19%.

C) 20%.

D) None of these answer choices are correct.            

 Frasquita acquired equipment from the manufacturer on 6/30/2021 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $550,000 on 4/30/2022 to satisfy the obligation in full.

 

If Frasquita accrued interest of $15,000 on the note in its 2021 year-end financial statements, what amount would it have recorded the equipment for on 6/30/2021?

A) $500,000.

B) $515,000.

C) $550,000.

D) $525,000.              

 Portman Inc. uses the conventional retail inventory method. Expressed in millions of dollars, information about Portman’s 2021 inventory account is expressed in the table below:

 

Cost Retail

Beginning inventory $ 55 $ 90

Purchases 1,160 2,170

Freight-in 30

Purchase returns 45 115

Net markups 255

Net markdowns 100

Normal spoilage 60

Net sales 1,940

 

What is the value of Portman’s inventory at 12/31/2021?

A) $150 million.

B) $252 million.

C) $300 million.

D) None of these answer choices are correct.            

 Thompson TV and Appliance reported the following in its 2021 financial statements:

 

2021

Sales $ 420,000

Cost of goods sold:

Inventory, January 1 82,000

Net purchases 340,000

Goods available for sale 422,000

Inventory, December 31 86,000

Cost of goods sold 336,000

Gross profit $ 84,000

 

Thompson’s 2021 inventory turnover ratio is:

A) 3.91.

B) 4.00.

C) 4.88.

D) 5.00.          

 Frasquita acquired equipment from the manufacturer on 6/30/2021 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay $550,000 on 4/30/2022 to satisfy the obligation in full.

 

If Frasquita accrued interest of $15,000 on the note in its 2021 year-end financial statements, what would the manufacturer record in its 2021 income statement for this transaction?

A) $15,000 of interest revenue.

B) $25,000 of interest revenue.

C) $15,000 of interest revenue and $525,000 of sales revenue.

D) $550,000 of sales revenue.            

 Robertson Corporation’s inventory balance was $22,000 at the beginning of the year and $20,000 at the end. The inventory turnover ratio for the year was 6.0 and the gross profit ratio 40%. What were net sales for the year?

A) $126,000.

B) $200,000.

C) $120,000.

D) $210,000.              

 Using the dollar-value LIFO retail method for inventory:

A) Is the same as dollar-value LIFO, except that the inventory is measured at retail, rather than at cost.

B) Combines retail LIFO accounting with dollar-value LIFO accounting.

C) Allows companies to report inventory on the balance sheet at retail prices.

D) All of these answer choices are correct.                

 Anthony Thomas Candies (ATC) reported the following financial data for 2021 and 2020:

 

2021 2020

Sales $ 305,000 $ 284,000

Sales returns and allowances 9,000 6,000

Net sales $ 296,000 $ 278,000

Cost of goods sold:

Inventory, January 1 43,000 36,000

Net purchases 152,000 146,000

Goods available for sale 195,000 182,000

Inventory, December 31 57,000 43,000

Cost of goods sold 138,000 139,000

Gross profit $ 158,000 $ 139,000

 

ATC’s gross profit ratio (rounded) in 2021 is:

A) 53.4%.

B) 51.9%.

C) 50.3%.

D) None of these answer choices are correct.            

 Frankenstein Enterprises received two notes from customers for sales that Frankenstein made in 2021. The notes included:

Note A: Dated 5/31/2021, principal of $120,000 and interest due 3/31/2022.

Note B: Dated 7/1/2021, principal of $200,000 and interest at 8% annually, due on 4/1/2022.

Frankenstein had accrued a total of $14,400 interest receivable from these notes in its 12/31/2021 balance sheet.

 

The annual interest rate on Note A is closest to:

A) 9.14%.

B) 8%.

C) 9.74%.

D) 9.44%.                  

 The first step, when using dollar-value LIFO retail method for inventory, is to:

A) Determine the estimated ending inventory at current year retail prices.

B) Determine the estimated cost of goods sold for the current year.

C) Determine the cost-to-retail percentage for the current year transactions.

D) Price index adjust the LIFO inventory layers.          

 Anthony Thomas Candies (ATC) reported the following financial data for 2021 and 2020:

 

2021 2020

Sales $ 305,000 $ 284,000

Sales returns and allowances 9,000 6,000

Net sales $ 296,000 $ 278,000

Cost of goods sold:

Inventory, January 1 43,000 36,000

Net purchases 152,000 146,000

Goods available for sale 195,000 182,000

Inventory, December 31 57,000 43,000

Cost of goods sold 138,000 139,000

Gross profit $ 158,000 $ 139,000

 

ATC’s inventory turnover ratio for 2021 is:

A) 2.42.

B) 2.76.

C) 3.21.

D) None of these answer choices are correct.            

 Frankenstein Enterprises received two notes from customers for sales that Frankenstein made in 2021. The notes included:

Note A: Dated 5/31/2021, principal of $120,000 and interest due 3/31/2022.

Note B: Dated 7/1/2021, principal of $200,000 and interest at 8% annually, due on 4/1/2022.

Frankenstein had accrued a total of $14,400 interest receivable from these notes in its 12/31/2021 balance sheet.

Assume Frankenstein views the financing component of these sales to be significant. What amount of interest revenue would Frankenstein earn on these notes during 2022?

A) Above $12,000.

B) Between $7,000 and 10,000.

C) Less than $5,000.

D) None of these answer choices are correct.            

 The second step, when using dollar-value LIFO retail method for inventory, is to determine the estimated:

A) Ending inventory at current year retail prices.

B) Cost of goods sold for the current year.

C) Ending inventory at cost.

D) Ending inventory at base year retail prices.            

 Anthony Thomas Candies (ATC) reported the following financial data for 2021 and 2020:

 

2021 2020

Sales $ 305,000 $ 284,000

Sales returns and allowances 9,000 6,000

Net sales $ 296,000 $ 278,000

Cost of goods sold:

Inventory, January 1 43,000 36,000

Net purchases 152,000 146,000

Goods available for sale 195,000 182,000

Inventory, December 31 57,000 43,000

Cost of goods sold 138,000 139,000

Gross profit $ 158,000 $ 139,000

 

The average days inventory for ATC (rounded) for 2021 is:

A) Less than 100 days.

B) 114 days.

C) 132 days.

D) 151 days.              

 Plunder Inc. accepted a six-month noninterest-bearing note for $2,800 on January 1, 2021. The note was accepted as payment of a delinquent receivable of $2,500.

What is the correct entry to record the note?

A)

Notes receivable 2,500

Accounts receivable 2,500

B)

Notes receivable 2,800

Accounts receivable 2,500

Discount on notes receivable 300

C)

Notes receivable 2,800

Reserve for delinquent accounts 2,500

Allowance for bad debts 300

D)

Notes receivable 2,800

Accounts receivable 2,500

Gain on delinquent account 300                   

 Under the dollar-value LIFO retail method, to determine if the increase in the value of inventory was due to an increase in quantities:

A) Compare beginning and ending inventory amounts at current year prices.

B) Compare beginning and ending inventory amounts after adjusting both amounts to the average price level for the year.

C) Inflate beginning inventory amount to end of year prices and compare to ending inventory amount.

D) Deflate the ending inventory amount to beginning of year prices and compare to the beginning inventory amount.                   

 Dollar-value LIFO:

A) Starts with ending inventory measured at current costs and re-creates LIFO layers for measuring inventory costs.

B) Increases the recordkeeping costs of LIFO.

C) Only is allowed for internal reporting purposes.

D) None of these answer choices are correct.            

 Plunder Inc. accepted a six-month noninterest-bearing note for $2,800 on January 1, 2021. The note was accepted as payment of a delinquent receivable of $2,500.

 

The cash collection on July 1, 2021, would be recorded as:

A)

Discount on notes receivable 300

Interest revenue 300

Cash 2,800

Note receivable 2,800

 

B)

Cash 2,500

Note receivable 2,500

 

C)

Cash 2,800

Accounts receivable 2,500

Interest revenue 300

 

D)

Cash 2,500

Discount on notes receivable 300

Note receivable 2,800            

 Under the dollar-value LIFO retail method, to determine the value of a LIFO layer:

A) Divide the LIFO layer by the layer-year price index and multiply by the layer-year cost-to-retail percentage.

B) Multiply the LIFO layer by the base year price index and the current year cost-to-retail percentage.

C) Multiply the LIFO layer by the layer-year price index and by the layer-year cost-to-retail percentage.

D) Divide the LIFO layer by the layer-year cost-to-retail percentage and multiply by the layer-year price index.           

 Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2021. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%.

 

What is the correct entry to record the note?

A)

Notes receivable 605,000

Accounts receivable 605,000

 

B)

Notes receivable 500,000

Accounts receivable 500,000

 

C)

Notes receivable 605,000

Discount on notes receivable 105,000

Sales revenue 500,000

 

D)

Notes receivable 605,000

Interest revenue 105,000

Cost of sales 500,000             

 Compared to dollar-value LIFO, unit LIFO is:

A) Less costly to implement.

B) Less susceptible to LIFO liquidation.

C) More costly to implement.

D) More concerned with cost indexes.            

 Harlequin Co. has used the dollar-value LIFO retail method since it began operations in early 2020 (its base year). Its beginning inventory for 2021 was $36,000 at cost and $72,000 at retail prices. At the end of 2021, it computed its estimated ending inventory at retail to be $120,000. Assuming its cost-to-retail percentage for 2021 transactions was 60%, what is the inventory balance that Harlequin Co. would report in its 12/31/2021 balance sheet?

A) $64,800.

B) $72,000.

C) $120,000.

D) The balance can’t be determined with the given information.                   

 A company uses the dollar-value LIFO method to report inventory. In the current year, the cost index for inventory has increased. If the company reports ending inventory at its year-end cost, which of the following statements is correct?

A) Reported ending inventory is understated.

B) Reported ending inventory is correct.

C) Reported ending inventory is overstated.

D) Cannot determine with the information given.                  

 Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2021. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%.

 

The entry to record interest on December 31, 2021 would be:

A)

Cash 50,000

Interest receivable 50,000

 

B)

Cash 50,000

Discount on notes receivable 50,000

 

C)

Discount on notes receivable 50,000

Note receivable 50,000

 

D)

Discount on notes receivable 50,000

Interest revenue 50,000          

 Harlequin Co. adopted the dollar-value LIFO retail method at the beginning of 2021 (its base year). Its beginning inventory for 2021 was $36,000 at cost and $72,000 at retail prices. At the end of 2021, it computed its estimated ending inventory at retail to be $110,000. Assuming its cost-to-retail percentage for 2021 transactions was 60%, and that the retail price index at the end of 2021 was 1.10, what is the inventory balance that Harlequin Co. would report in its 12/31/2021 balance sheet?

A) $66,000.

B) $54,480.

C) $110,000.

D) $60,000.                

 A company has the following information available that was used to report inventory using the dollar-value LIFO method.

Year Year-End Cost Cost Index

12/31/2020 $ 250,000 1.00

12/31/2021 259,000 1.06

 

For the year ended 12/31/2021, the company reported inventory of $274,540 ($259,000 × 1.06). Which of the following statements is correct?

A) The amount reported for ending inventory should be calculated as $250,000 + ($9,000/1.06).

B) The amount reported for ending inventory should be calculated as $250,000 + ($9,000 × 1.06).

C) The amount reported for ending inventory should be calculated as $259,000/1.06.

D) The amount reported for ending inventory is correct.                  

 Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2021. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%.

 

The cash collection on December 31, 2022, would be recorded as:

A)

Discount on notes receivable 55,000

Cash 605,000

Notes receivable 605,000

Interest revenue 55,000

 

B)

Cash 605,000

Notes receivable 605,000

 

C)

Cash 605,000

Notes receivable 500,000

Discount on notes receivable 105,000

 

D)

Cash 605,000

Discount on notes receivable 105,000

Notes receivable 605,000

Interest revenue 105,000                   

 On January 1, 2021, the Coldstone Corporation adopted the dollar-value LIFO retail inventory method. Beginning inventory at cost and at retail were $180,000 and $282,000, respectively. Net purchases during the year at cost and at retail were $604,500 and $920,000, respectively. Markups during the year were $10,000. There were no markdowns. Net sales for 2021 were $900,000. The retail price index at the end of 2021 was 1.04. What is the inventory balance that Coldstone would report in its 12/31/2021 balance sheet?

A) $195,000.

B) $312,000.

C) $192,168.

D) $202,800.              

 A company has the following information available that was used to report ending inventory using the dollar-value LIFO method.

 

Year Year-End Cost Cost Index

12/31/2020 $ 320,000 1.05

12/31/2021 347,000 1.08

 

For the year ended 12/31/2021, the company reported ending inventory at its year-end cost of $347,000. Which of the following statements is correct?

A) The company should have multiplied $347,000 by 1.08 to determine ending inventory.

B) Most of the ending inventory should be reported at a cost index of 1.05, with the remainder at 1.08.

C) The company should have divided $347,000 by 1.05 to determine ending inventory.

D) Most of the ending inventory should be reported at a cost index of 1.08, with the remainder at 1.05.                  

 Retrospective treatment of prior years’ financial statements is required when there is a change from:

A) Average cost to FIFO.

B) FIFO to average cost.

C) LIFO to average cost.

D) All of these answer choices are correct.                

 Which of the following is considered a sale of receivables?

A) Pledging receivables.

B) Assigning receivables.

C) Factoring receivables without recourse.

D) None of these answer choices are correct.            

 Bond Company adopted the dollar-value LIFO inventory method on January 1, 2021. In applying the LIFO method, Bond uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO:

 

Ending Inventory

Year At Year-End At Base

Year Cost Cost Index

1/1/2021 $ 300,000 $ 300,000 1.00

12/31/2021 345,600 320,000 1.08

12/31/2022 420,000 350,000 1.20

 

Under the dollar-value LIFO method, the inventory at December 31, 2022, should be

A) $357,600.

B) $350,000.

C) $351,600.

D) None of these answer choices are correct.            

 The transferor is considered to have surrendered control over its receivables if:

A) The transferred assets have been isolated from the transferor.

B) Each transferee has the right to pledge or exchange the assets it received.

C) The transferor does not maintain effective control over the transferred assets through either repurchase or redemption agreements before maturity or the ability to cause the transferee to return the assets.

D) All of these answer choices must occur.                

 When changing from the average cost method to FIFO, the company:

A) Includes in current year’s income the cumulative after-tax difference that would have resulted if the company had used FIFO in all prior years.

B) Revises comparative financial statements.

C) Records a journal entry to adjust the book balances from their current amounts to what those balances would have been using FIFO.

D) All of these answer choices are correct.                

 Accounting for the pledging of accounts receivable as collateral for a loan requires:

A) Reporting the receivables net of the borrowed amount.

B) Removal of the pledged receivables from current assets and including them with noncurrent investments.

C) Disclosure of the arrangement in notes to the financial statements.

D) None of these answer choices are correct.            

 On January 1, 2021, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

 

Year-end Ending inventory at

year-end costs Cost Index

2021 $ 126,000 1.05

2022 143,000 1.10

2023 153,600 1.20

 

What inventory balance should Badger report on its 12/31/2021 balance sheet?

A) $126,000

B) $121,000

C) $120,000

D) $100,000               

 Which of the following would not require the company to account for the change retrospectively?

A) From average cot to FIFO.

B) From FIFO to LIFO.

C) From LIFO to FIFO.

D) From LIFO to average cost.           

 In deciding whether financing with receivables is a secured borrowing or a sale under U.S. GAAP, the critical element is the extent to which:

A) The transferee has received substantially all the risks and rewards of ownership.

B) The age of the receivables transferred differs from the average age of the receivables.

C) The transferor of the receivable surrenders control over the assets transferred.

D) The transferee relies on assets received from the transferor to maintain operations.           

 On January 1, 2021, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

 

Year-end Ending inventory at

year-end costs Cost Index

2021 $ 126,000 1.05

2022 143,000 1.10

2023 153,600 1.20

 

In determining the inventory balance for Badger to report in its 12/31/2022 balance sheet:

A) An additional layer of $23,000 is added to the 12/31/2021 balance.

B) An additional layer of $22,000 is added to the 12/31/2021 balance.

C) An additional layer of $11,000 is added to the 12/31/2021 balance.

D) None of these answer choices are correct.            

 Sampress, Inc., reported inventory in the 2020 year-end balance sheet, using the average cost method, as $342,000. In 2021, the company decided to change its inventory method to FIFO. If the company had used the FIFO method in 2020, ending inventory would have been $367,000. What adjustment would Sampress make for this change in inventory method?

A) Debit Inventory for $25,000; Credit Retained earnings for $25,000.

B) Debit Inventory for $367,000; Credit Cost of goods sold for $367,000.

C) Debit Cost of goods sold for $25,000; Credit Inventory for $25,000.

D) No adjustment is necessary.          

 In deciding whether financing with receivables is a secured borrowing or a sale under IFRS, the critical element is the extent to which:

A) The transferee has received substantially all the risks and rewards of ownership.

B) The age of the receivables transferred differs from the average age of the receivables.

C) The transferor of the receivable surrenders control over the assets transferred.

D) The transferee relies on assets received from the transferor to maintain operations.           

 Nidal Company reported inventory in the 2020 year-end balance sheet, using the FIFO method, as $185,000. In 2021, the company decided to change its inventory method to average cost. If the company had used the average cost method in 2020, ending inventory would have been $171,000. What adjustment would Nidal make for this change in inventory method?

A) Debit Inventory for $14,000; Credit Cost of goods sold for $14,000.

B) Debit Retained earnings for $14,000; Credit Inventory for $14,000.

C) Debit Retained earnings for $14,000; Credit Cost of goods sold for $14,000.

D) No adjustment is necessary.          

 On January 1, 2021, Badger Inc. adopted the dollar-value LIFO method. The inventory cost on this date was $100,000. The ending inventory, valued at year-end costs, and the relative cost index for each of the next three years is below:

Year-end Ending inventory at

year-end costs Cost Index

2021 $ 126,000 1.05

2022 143,000 1.10

2023 153,600 1.20

What inventory balance would Badger report on its 12/31/2023 balance sheet?

A) $128,000.

B) $129,800.

C) $153,600.

D) None of these answer choices are correct.            

 Connors Academy reported inventory in the 2020 year-end balance sheet, using the FIFO method, as $154,000. In 2021, the company decided to change its inventory method to LIFO. If the company had used the LIFO method in 2020, the company estimates that ending inventory would have been in the range $130,000-$135,000. What adjustment would Connors make for this change in inventory method?

A) Debit Inventory for $21,500; Credit Cost of goods sold for $21,500.

B) Debit Retained earnings for $24,000; Credit Inventory for $24,000.

C) Debit Retained earnings for $19,000; Credit Cost of goods sold for $19,000.

D) No adjustment is necessary.          

 Ramen Inc. adopted dollar-value LIFO (DVL) as of January 1, 2021, when it had a cost inventory of $600,000. Its inventory as of December 31, 2021, was $667,800 at year-end costs and the cost index was 1.06. What was DVL inventory on December 31, 2021?

A) $630,000.

B) $631,800.

C) $636,000.

D) None of these answer choices are correct.            

 The purpose of assigning accounts receivable is to:

A) Satisfy a court order.

B) Complete the legal prerequisites to record their sale.

C) Comply with form and content rules of bankruptcy proceedings.

D) Provide collateral for a loan.          

 Ireland Corporation obtained a $40,000 note receivable from a customer on June 30, 2021. The note, along with interest at 6%, is due on June 30, 2022. On September 30, 2021, Ireland discounted the note at Cloverdale bank. The bank’s discount rate is 10%. What amount of cash did Ireland receive from Cloverdale Bank?

A) $40,600.

B) $36,000.

C) $39,220.

D) $36,820.                

 Suppose a company overstates its ending inventory in the current year. What effect will this have on the reported amount of cost of goods sold in the current year?

A) Overstate cost of goods sold.

B) Understate cost of goods sold.

C) No effect on cost of goods sold.

D) Cannot be determined without knowing the amount of the error.             

 Udon Inc. adopted dollar-value LIFO (DVL) as of January 1, 2021, when it had an inventory of $700,000. Its inventory as of December 31, 2021, was $777,000 at year-end costs and the cost index was 1.05. What was DVL inventory on December 31, 2021?

A) $735,000.

B) $740,000.

C) $742,000.

D) $777,000.              

 If a company overstates its ending balance of inventory in Year 1 and it reports inventory correctly in Year 2, which one of the following is true?

A) Net income is overstated in Year 2.

B) Cost of goods sold is overstated in Year 1.

C) Net income is understated in Year 1.

D) Retained earnings is overstated in Year 1.             

 Linguini Inc. adopted dollar-value LIFO (DVL) as of January 1, 2021, when it had an inventory of $800,000. Its inventory as of December 31, 2021, was $811,200 at year-end costs and the cost index was 1.04. What was DVL inventory on December 31, 2021?

A) $780,000.

B) $800,000.

C) $811,200.

D) $832,000.              

 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 deferred interest expense for $25,000.

B) Credit factored accounts receivable for $85,000.

C) Debit discount on liability for $25,000.

D) Debit loss on sale of receivables for $25,000.                   

 Buckeye Corporation adopted dollar-value LIFO on January 1, 2021, when the inventory value was $500,000 and the cost index was 1.0. On December 31, 2021, the inventory value at year-end costs was $535,000 and the cost index was 1.06. Buckeye would report a LIFO inventory of:

A) $504,717.

B) $530,000.

C) $505,000.

D) $533,019.              

 If a company adopts an accounts receivable factoring program, and accounts for the factoring as a sale of receivables, which of the following is true in the period the company starts the program (all else equal)?

A) The accounts receivable balance will increase.

B) Cash flow from operations may increase.

C) A retroactive restatement is necessary due to a change in accounting principle.

D) The factoring arrangement needs to be with a consolidated entity to qualify for sale accounting.             

 If a company understates its ending balance of inventory in Year 1 and it reports inventory correctly in Year 2, which one of the following is true?

A) Net income is overstated in Year 1.

B) Cost of goods sold is understated in Year 2.

C) Net income is understated in Year 2.

D) Retained earnings is understated in Year 2.            

 Assume a company has been maintaining a receivables factoring program for the past five years and has been experiencing the same level of sales, factoring, and bad debts over that period. Customers typically pay their receivables within 60 days. Which of the following is true with respect to the current period (all else equal)?

A) The accounts receivable balance will decrease.

B) Cash flow from operations is stable.

C) Net income is likely to decline.

D) Accounts receivable payable within 60 days cannot be factored.               

 If a company understates its count of ending inventory in Year 1 and it reports inventory correctly in Year 2, which of the following is true?

A) Costs of goods sold is understated at the end of Year 1.

B) Net income is correct in Year 2.

C) The balance of retained earnings is overstated at the end of Year 1.

D) The balance of retained earnings is correct at the end of Year 2.               

 Tiger Inc. adopted dollar-value LIFO on January 1, 2021, when the inventory value was $360,000 and the cost index was 1.25. On December 31, 2021, the inventory was valued at year-end cost of $395,000 and the cost index was 1.30. Tiger would report a LIFO inventory of:

A) $410,800.

B) $374,400.

C) $379,808.

D) $380,600.              

 A company’s correct ending balance for the inventory account at the end of Year 1 should be $57,000, but the company incorrectly reported it as $43,000. In Year 2, the company correctly recorded its ending balance of the inventory account. Which one of the following is true?

A) Gross profit is overstated by $14,000 in Year 1.

B) Retained earnings is understated by $14,000 in Year 2.

C) Gross profit is overstated by $14,000 in Year 2.

D) Cost of goods sold is understated by $14,000 in Year 1.               

 A company that prepares its financial statements according to International Financial Reporting Standards (IFRS) can use each of the following inventory valuation methods except:

A) Average cost.

B) FIFO.

C) LIFO.

D) All of these methods can be used.            

 Which of the following is not true regarding accounting for transfers of receivables under IFRS?

A) Transfers of receivables sometimes are treated as a sale of receivables.

B) Transfers of receivables sometimes are treated as a secured borrowing.

C) Transfers of receivables can be treated as a sale if the transferee is a QSPE.

D) Transfer of substantially all the risk and rewards of ownership is an important consideration.                   

 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) Overstated by $94,000.

B) Overstated by $30,000.

C) Understated by $94,000.

D) Understated by $30,000.               

 Trell Corporation transferred $50,000 of accounts receivable to a local bank. The transfer was made without recourse. The local bank remits 80% of the factored amount to Trell and retains the remaining 20%. When the bank collects the receivables, it will remit to Trell the retained amount less a fee equal to 3% of the total amount factored. Trell estimates a fair value of its 20% interest in the receivables of $8,000 (not including the 3% fee). Trell will show an amount receivable from factor of:

A) $10,000.

B) $8,500.

C) $8,000.

D) $6,500.                 

 A company’s investment in receivables is influenced by several variables, including:

A) The level of sales.

B) The nature of the product or service sold.

C) The credit and collection policies.

D) All of these answer choices are correct.                

 A company understated its ending inventory in Year 1 by $25,000 and also understated its ending inventory in Year 2 by $20,000. Neither error was discovered until Year 3. As a result, of these two errors, gross profit for Year 2 was:

A) Overstated by $5,000.

B) Understated by $45,000.

C) Understated by $20,000.

D) Overstated by $25,000.                 

 A company overstated its ending inventory in Year 1 by $60,000. The error was not discovered until Year 3. No errors were made in Year 2. After finding the error in Year 3, management provides restated balance sheets for Year 1 and Year 2 by reducing the reported ending inventory in both Year 1 and Year 2 by $60,000. Which of the following statements is correct for Year 2?

A) Only the amount reported for retained earnings in Year 2 needs to be decreased by $60,000.

B) The amounts reported for both inventory and retained earnings in Year 2 should instead be increased by $60,000.

C) The amount reported for inventory in Year 2 needs to be increased by $60,000, and the amount reported for retained earnings in Year 2 needs to be decreased by $60,000.

D) No adjustments to the amounts reported for inventory or retained earnings are needed in

Year 2.           

 Excerpts from Huckabee Company’s December 31, 2021 and 2020, financial statements are presented below:

2021 2020

Accounts receivable $ 80,000 $ 72,000

Merchandise inventory 58,000 72,000

Net sales 400,000 372,000

Cost of goods sold 240,000 220,000

Huckabee’s 2021 receivables turnover (rounded) is:

A) 3.69.

B) 5.00.

C) 5.26.

D) 3.16.          

 Excerpts from Huckabee Company’s December 31, 2021 and 2020, financial statements are presented below:

 

2021 2020

Accounts receivable $ 80,000 $ 72,000

Merchandise inventory 58,000 72,000

Net sales 400,000 372,000

Cost of goods sold 240,000 220,000

 

Huckabee’s 2021 average collection period (rounded) is:

A) 69 days.

B) 116 days.

C) 111 days.

D) 73 days.               

 Poppy Co. uses a periodic inventory system. Beginning inventory on January 1 was understated by $30,000, and its ending inventory on December 31 was understated by $17,000. In addition, a purchase of merchandise costing $20,000 was incorrectly recorded as a $2,000 purchase. None of these errors were discovered until the next year. As a result, Poppy’s cost of goods sold for this year was:

A) Overstated by $31,000.

B) Overstated by $5,000.

C) Understated by $31,000.

D) Understated by $48,000.               

 Alliance Software began 2021 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 2021?

A) 4.00.

B) 5.03.

C) 2.90.

D) 6.78.          

 On July 10, 2021, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2022. The company’s fiscal year-end is December 31. The contract was exercised on February 1, 2022, and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2021, was $180,000. The company uses a perpetual inventory system.

 

How much loss on purchase commitment will Johnson recognize in 2021?

A) $10,000.

B) $20,000.

C) $30,000.

D) None.                  

 On July 1, 2021, Cromartie Furniture established a $150 petty cash fund. A check for $150 was made out to the petty cash custodian. During July, the petty cash custodian paid the following bills from the petty cash fund:

 

Office supplies $ 36

Postage 22

Delivery charges 40

Bottled water 28

Total $ 126

 

At the end of July the petty cash fund was replenished.

 

The journal entry to establish the petty cash fund includes:

A) A credit to petty cash and a debit to cash for $150.

B) A debit to petty cash and a credit to cash for $150.

C) A credit to cash and a debit to various expenses for $126.

D) A credit to petty cash and a debit to various expenses for $126.               

 On July 10, 2021, Johnson Corporation signed a purchase commitment to purchase inventory for $200,000 on or before February 15, 2022. The company’s fiscal year-end is December 31. The contract was exercised on February 1, 2022, and the inventory was purchased for cash at the contract price. On the purchase date of February 1, the market price of the inventory was $210,000. The market price of the inventory on December 31, 2021, was $180,000. The company uses a perpetual inventory system.

 

At what amount will Johnson record the inventory purchased on February 1, 2022?

A) $210,000.

B) $200,000.

C) $180,000.

D) $190,000.              

 On July 1, 2021, Cromartie Furniture established a $150 petty cash fund. A check for $150 was made out to the petty cash custodian. During July, the petty cash custodian paid the following bills from the petty cash fund:

 

Office supplies $ 36

Postage 22

Delivery charges 40

Bottled water 28

Total $ 126

 

At the end of July the petty cash fund was replenished.

 

The journal entry to replenish the petty cash fund includes:

A) A credit to petty cash and a debit to various expenses for $126.

B) A debit to petty cash and a credit to cash for $150.

C) A credit to cash and a debit to various expenses for $126.

D) None of these answer choices are correct.            

 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

Costs to sell 30,000

Replacement cost 440,000

 

What should be the reported value of Sullivan’s inventory?

A) $500,000.

B) $440,000.

C) $470,000.

D) $490,000.              

 Hazelton Manufacturing prepares a bank reconciliation at the end of every month. At the end of May, the general ledger checking account showed a balance of $1,360 and the bank statement showed a bank balance of $1,445. Outstanding checks totaled $350 and deposits in transit were $150. The bank statement listed service charges of $30 and NSF checks totaling $85. The corrected cash balance is:

A) $1,130.

B) $1,160.

C) $1,245.

D) $1,445.                 

 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

Costs to sell 30,000

Replacement cost 440,000

 

What should be the reported value of Sullivan’s inventory if the company prepares its financial statements according to International Financial Reporting Standards (IFRS)?

A) $500,000.

B) $440,000.

C) $470,000.

D) $490,000.              

 Brockton Carpet Cleaning prepares a bank reconciliation at the end of every month. At the end of July, the balance in the general ledger checking account was $2,750 and the bank balance on the bank statement was $2,980. Outstanding checks totaled $680 and deposits in transited were $400. The bank statement revealed that a check written for $120 was incorrectly recorded by Brockton as a $220 disbursement. The bank statement listed service charges and NSF check charges totaling $150. The corrected cash balance is:

A) $2,270.

B) $2,550.

C) $2,470.

D) $2,700.                 

 Under International Financial Reporting Standards (IFRS), inventory is valued at the lower of cost and:

A) Replacement cost.

B) Net realizable value.

C) Net realizable value reduced by a normal profit margin.

D) None of these answer choices are correct.            

Haskell Corporation has determined its year-end inventory on a FIFO basis to be $785,000. Information pertaining to that inventory is as follows:

 

Selling price $ 805,000

Costs to sell 35,000

Replacement cost 765,000

 

What should be the reported value of Haskell’s inventory if the company prepares its financial statements according to International Financial Reporting Standards (IFRS)?

A) $765,000.

B) $785,000.

C) $770,000.

D) $750,000.              

1 Which of the following is true about accounting for a troubled debt restructuring?

A) If a receivable is expected to be uncollectible, it is remeasured at the discounted present value of the cash flows that were originally expected to be collected, but at a revised discount rate.

B) Receivables are not remeasured; instead, fair values are obtained from reliable factors.

C) If a receivable is continued, but with modified terms, a loss is typically recorded.

D) Receivables are never settled outright at the time of a restructuring.          

Brewer Inc. is owed $200,000 by Carol Co. under a 10% note with two years remaining to maturity. Due to financial difficulties Carol Co. did not pay the prior year’s interest. Brewer agrees to settle the receivable (and accrued interest) in exchange for a cash payment of $150,000. The journal entry that Brewer would make to record this transaction would include a loss on troubled debt restructuring as bad debt expense in the amount of:

A) $0.

B) $20,000.

C) $50,000.

D) $70,000.                

The O’Hara Group is owed $1,000,000 by Hilton Enterprises under an 8% note with three years remaining to maturity. The prior year of interest was unpaid. O’Hara agrees to restructure the note under terms that yield a present value of $880,000. The journal entry that O’Hara would make to record this transaction would include a loss on troubled debt restructuring as bad debt expense in the amount of:

A) $0.

B) $80,000.

C) $200,000.

D) $220,000.              

The Nile Group is owed $1,000,000 by Scorpion Enterprises under an 8% note with three years remaining to maturity. The prior year of interest was unpaid. Nile estimates credit losses with respect to this receivable and calculates that it will only receive amounts equal to a present value of $880,000. The journal entry that O’Hara would make to record this transaction would include a credit loss as bad debt expense in the amount of:

A) $0.

B) $80,000.

C) $200,000.

D) $220,000.              

The Salamander Company has evaluated its receivables, and has identified the following possible credit losses:

 

• Note #1 has recently deteriorated in credit quality. For Note #1, Salamander estimates the present value of credit losses occurring in the next twelve months is $50,000, and the present value of credit losses occurring after twelve months is $20,000.

 

• Note #2 has not deteriorated in credit quality. For Note #2, Salamander estimates the present value of credit losses occurring in the next twelve months is $5,000, and the present value of credit losses occurring after twelve months is $10,000.

 

If Salamander is using the CECL model, it would recognize a bad debt expense of:

A) $50,000.

B) $55,000.

C) $75,000.

D) $85,000.                

The Salamander Company has evaluated its receivables, and has identified the following possible credit losses:

 

• Note #1 has recently deteriorated in credit quality. For Note #1, Salamander estimates the present value of credit losses occurring in the next twelve months is $50,000, and the present value of credit losses occurring after twelve months is $20,000.

 

• Note #2 has not deteriorated in credit quality. For Note #2, Salamander estimates the present value of credit losses occurring in the next twelve months is $5,000, and the present value of credit losses occurring after twelve months is $10,000.

 

If Salamander is reporting under IFRS and therefore uses the ECL model, it would recognize a bad debt expense of:

A) $50,000.

B) $55,000.

C) $75,000.

D) $85,000.                

 

 

The choice of cost flow assumption (FIFO, LIFO, or average) does not depend on the actual physical flow of the product.                   

A company that prepares its financial statements according to International Financial Reporting Standards can use all of the same inventory valuation methods as a company that prepares its statements under U.S. GAAP.          

Cost of goods on consignment is included in the consignee's inventory until sold                

During periods of falling prices, LIFO ending inventory will be less than FIFO ending inventory          

FIFO periodic and FIFO perpetual always produce the same dollar amounts for cost of goods sold.              

The gross profit ratio is calculated by dividing gross profit by average inventory.                  

Inventory costing methods are merely means by which costs are allocated between ending inventory and cost of goods sold.               

LIFO liquidation profits occur when inventory quantity declines and costs are rising.             

LIFO periodic and LIFO perpetual always produce the same dollar amounts for ending inventory.                 

LIFO usually provides a better match of revenue and expense than does FIFO.           

The main difference between perpetual and periodic inventory systems is the timing of the allocation of costs between inventory and cost of goods sold.                 

Net purchases are reduced for discounts taken whether the net method is used or the gross method is used.           

Physical counts of inventory are never made with perpetual inventory systems           

Shipping charges on outgoing goods are included in either cost of goods sold or selling expenses.              

Unit LIFO is more costly to implement than dollar-value LIFO.