Question 1

A company purchases $$5,000 of merchandise inventory on account with credit terms 2/10, n/30 and pays the freight cost of 200 ($$FOB Shipping Point). The company returns $500 of the inventory before payment. If the company pays within the discount period, what is the total cash paid?

Accepted Answer

$4,410

Question 2

Which of the following is the correct journal entry for a buyer to record the return of merchandise previously purchased on account?

Accepted Answer

Debit Accounts Payable; Credit Merchandise Inventory

Question 3

A company sells merchandise for $$2,000 on account. The cost of the merchandise sold is 1$$,200. What is the correct compound journal entry to record this sale?

Accepted Answer

Debit Accounts Receivable $$2,000; Credit Sales Revenue 2$$,000; Debit Cost of Goods Sold $$1,200; Credit Merchandise Inventory 1$$,200

Question 4

A customer returns $$300 of merchandise previously sold on account. The cost of the returned merchandise is 180. $$What is the correct journal entry from the seller's perspective?

Accepted Answer

Debit Sales Returns and Allowances $$300; Credit Accounts Receivable 300$$; Debit Merchandise Inventory $$180; Credit Cost of Goods Sold 180$$

Question 5

A company’s beginning inventory is $$10,000, purchases are 25$$,000, purchase returns are $$2,000, purchase discounts are 1$$,000, and freight-in is $1,500. What is the net cost of inventory purchased?

Accepted Answer

$23,500

Question 6

If a company’s ending inventory is understated by $2,000, what is the effect on Cost of Goods Sold (CoGS) and Gross Profit (GP)?

Accepted Answer

CoGS is overstated by $$2,000; GP is understated by 2$$,000

Question 7

A company uses the weighted average method for inventory costing. It has 100 units at $$10 each and purchases 200 units at 12 $$each. What is the weighted average cost per unit?

Accepted Answer

$11.33

Question 8

A company’s inventory records show the following: 50 units at $$8, then 70 units at 10. If 80 $$units are sold, what is the Cost of Goods Sold using FIFO?

Accepted Answer

$660

Question 9

Which of the following best describes the materiality concept in accounting?

Accepted Answer

Only information that would influence a decision-maker needs to be disclosed

Question 10

A company’s merchandise inventory has a cost of $$15,000 and a market value of 13$$,500. According to the lower-of-cost-or-market rule, what amount should be reported on the balance sheet?

Accepted Answer

$13,500

Question 11

Which account is used by the buyer to record freight costs under FOB Shipping Point?

Accepted Answer

Merchandise Inventory

Question 12

A company’s unadjusted bank balance is $$8,000. Outstanding checks total 1$$,200, and deposits in transit are $500. What is the adjusted bank balance?

Accepted Answer

$7,300

Question 13

Which of the following is a book-side adjustment in a bank reconciliation?

Accepted Answer

Bank service charges

Question 14

A petty cash fund is established for $$300. At the end of the month, the fund contains 40 in $$cash and receipts for $255. What is the cash overage or shortage?

Accepted Answer

$5 shortage

Question 15

Which of the following statements about the Allowance for Bad Debts account is correct?

Accepted Answer

It is a contra-asset account that reduces Accounts Receivable

Question 16

A company estimates bad debts expense as 2% of $120,000 credit sales. What is the adjusting journal entry for bad debts expense under the percent-of-sales method?

Accepted Answer

Debit Bad Debts Expense $$2,400; Credit Allowance for Bad Debts 2$$,400

Question 17

A company writes off a $1,000 uncollectible account under the allowance method. What is the correct journal entry?

Accepted Answer

Debit Allowance for Bad Debts $$1,000; Credit Accounts Receivable 1$$,000

Question 18

A company recovers a $500 account previously written off under the allowance method. What are the correct journal entries?

Accepted Answer

Debit Accounts Receivable $$500; Credit Allowance for Bad Debts 500$$; Debit Cash $$500; Credit Accounts Receivable 500$$

Question 19

A company has the following accounts receivable: $$2,000 (current), 1$$,000 (31-60 days), $500 (over 60 days). Estimated uncollectible rates are 2% (current), 5% (31-60 days), and 10% (over 60 days). What is the estimated total uncollectible value?

Accepted Answer

$95

Question 20

A company has Accounts Receivable of $$10,000 and Allowance for Bad Debts of 800 ($$credit balance). What is Accounts Receivable, Net?

Accepted Answer

$9,200

Question 21

A 90-day, 8% note for $5,000 is issued on October 1 and matures in the same year. What is the interest revenue earned at maturity? (Assume a 360-day year.)

Accepted Answer

$100

Principles of Accounting: Exam 3 Study Guide (Chapters 5-7)

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