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1 For the last several years Monte Cristo Corp. has operated with a gross profit rate of 30%. On January 1 of the current year, the company had on hand inventory with a cost of $150,000. Purchases of merchandise during January amounted to $48,000 and revenues for the month were $90,000. With the gross profit method, estimated inventory at January 31 is: 1. $ $ $ $135000

2 When a perpetual inventory system is in use, the sale of merchandise may require an entry as follows: 1. Debit A/R; debit inventory 2. Debit COGS; credit inventory 3. Debit A/R; credit COGS 4. Debit inventory; credit COGS

3 During the current year, Callaway Stores had net sales of $120 million, cost of goods sold of $72 million average A/R of 20 million and average inventory of $18 million. Callaway s inventory turnover rate is: some other amount

4 Mark Co. and Miller Corp. purchased identical assets and both companies estimated the useful life at 10 years with no salvage value. Mark uses straight line depreciation in its financial statements, while Miller uses an accelerated method. 1. Miller will show greater income during the first few years of using the new equipment 2. Mark will show greater income during the first few years of using the new equipment 3. The depreciation method will have no effect on the net income of either company 4. None of the above are true

5 Midas Company which has an adequate amount in its allowance for doubtful accounts and writes off as uncollectible an account receivable from a bankrupt customer. This action will: 1. have no effect on total current assets 2. reduce total current assets 3. reduce net income for the period 4. reduce the amount of owner s equity

6 Which of the following is NOT descriptive or apply to the lower of cost and market rule? 1. It is often used to write down the value of old inventory 2. the lower of cost and market rule can be applied to the total of the entire inventory or categories of inventory 3. Inventory can be shown at an amount lower than what the company paid for the inventory 4. market is the amount the merchandising company would have to pay to replace its inventory including transportation in charges

7 Use the following information for the next two questions: At the end of January, the unadjusted trial balance of Butler Ltd. included the following accounts: DR CR Sales (80% represent credit sales) $300,000 Accounts receivable $220,000 Allowance for doubtful accounts $1,760 If Butler Ltd. use the balance sheet approach (% of AR) in estimating uncollectible accounts expense, and aging the accounts receivable indicates the estimated uncollectible portion to be $5600. The net realizable value of Butler Ltd.s A/R in the January 31 balance sheet is: 1. $ $ $ $214400

8 Use the following information for the next two questions: At the end of January, the unadjusted trial balance of Butler Ltd. included the following accounts: DR CR Sales (80% represent credit sales) $300,000 Accounts receivable $220,000 Allowance for doubtful accounts $1,760 If Butler Ltd. uses the income statement approach (% of revenue) in estimating uncollectible accounts expense and uncollectible accounts is estimated to be 2% of credit sales. What is the amount of uncollectible accounts expense recognized in Butler Ltd s income statement for January? 1. $ $ $ $6000

9 Two categories of expenses in merchandising companies are 1. cost of goods sold and financing expenses. 2. operating expenses and financing expenses. 3. cost of goods sold and operating expenses. 4. sales and cost of goods sold.

10 Which of the following expressions is incorrect? 1. Gross profit - operating expenses = net income 2. Sales - cost of goods sold - operating expenses = net income 3. Net income + operating expenses = gross profit 4. Operating expenses - cost of goods sold = gross profit

11 Under a perpetual inventory system, the following entry would be made to record the purchase of inventory on account: Merchandise Inventory Accounts Payable Purchases Accounts Payable Cost of Goods Sold Accounts Payable Merchandise Inventory Cost of Goods Sold

12 Kristi Company purchased merchandise from Jennifer Company with freight terms of FOB shipping point. The freight costs will be paid by the 1. seller 2. transportation company 3. buyer 4. buyer and the seller

13 Sales revenues are usually considered earned when 1. cash is received from credit sales. 2. an order is received. 3. goods have been transferred from the seller to the buyer. 4. adjusting entries are made

14 Merchandise inventory is 1. reported under the classification of Capital Assets on the balance sheet. 2. often reported as a miscellaneous expense on the income statement. 3. reported as a current asset on the balance sheet. 4. generally valued at the price for which the goods can be sold.

15 Tokyo Company sells merchandise on account for $1,200 to Thomas Company. Thomas Company returns $400 (cost $250) of merchandise that was damaged, along with a cheque to settle the account. What entry does Tokyo Company make upon receipt of the cheque? Cash 800 Accounts Receivable 800 Cash 784 Sales Returns and Allowances 416 Accounts Receivable 1,200 Cash 800 Sales Returns & Allowances 400 Inventory 250 Accounts Receivable 1,200 Cost of Goods Sold 250 Cash 800 Sales Returns & Allowances 400 Damaged Inventory expense 250 Accounts Receivable 1,200 Cost of Goods Sold 250

16 In a perpetual inventory system, the cost of goods sold is recorded 1. on a monthly basis 2. on an annual basis 3. on a daily basis 4. with each sale

17 If a company fails to record estimated bad debts expense 1. net realizable value is understated. 2. expenses are understated. 3. revenues are understated. 4. receivables are understated.

18 The Sales Returns and Allowances account is classified as a(n) 1. asset account. 2. contra asset account. 3. expense account. 4. contra revenue account.

19 Benedict Shoe Store had a beginning merchandise inventory of $18,000. During the period, Purchases were $70,000; Purchase Returns, $3,000; and Freight in $6,000. A physical count of inventory at the end of the period revealed that $12,000 was still on hand. Using a perpetual inventory system, the cost of goods sold was 1. $88, $79, $91, $85,000.

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