Use the following information for questions 1 through 3. Assume the perpetual inventory method is used.
Event a: The company purchased $5,000 of merchandise on account under terms 2/10, n/30.
Event b: The company returned $600 of merchandise to the supplier before payment was made.
Event c: The liability was paid within the discount period.
Event d: All of the merchandise purchased was sold for $6,500 cash.
1. What effect will the return of merchandise to the supplier have on the accounting equation?
a. Assets and equity are reduced by $600.
b. Assets and liabilities are reduced by $570.
c. Assets and liabilities are reduced by $600.
d. Liabilities and equity are reduced by $600
2. The amount of gross margin from the sale is:
a. $1,500.
b. $2,188.
c. $2,320.
d. $1,283.
3. The net cash flow from operating activities as a result of the four transactions is:
a. $2,320.
b. $6,500.
c. $2,188.
d. $2,540.
Use the following information for questions 4 through 6:
The Jones Company engaged in the following transactions during 2012:
1) Started the business by issuing $7,500 of common stock for cash.
2) The company paid cash to purchase $4,500 of inventory.
3) The company sold inventory that cost $3,000 for $7,250 cash.
4) Operating expenses incurred and paid during the year totaled $2,500.
Jones Company engaged in the following transactions during 2013:
1) The company paid cash to purchase $5,800 of inventory.
2) The company sold inventory that cost $7,000 for $15,150 cash.
3) Operating expenses incurred and paid during the year, $3,500.
Note: The company uses the perpetual inventory system.
4. Jones' gross profit (margin) for 2013 is:
a. $7,650.
b. $4,250.
c. $8,150.
d. $9,350.
5. The balance in the inventory account shown at December 31, 2013 is:
a. $300.
b. $1,500.
c. $4,500.
d. $11,150.
6 The amount of retained earnings at December 31, 2013 is:
a. $4,650.
b. $6,400.
c. $11,650.
d. $12,400.
7. If the cost of goods sold equals $12,000 and ending inventory equals $14,000, what is the total amount of goods available for sale?
a. $14,000
b. $16,000
c. $10,000
d. $26,000
8. If Ajax Company has sales for a given month of $340,000 and the gross margin (profit) equals $160,000, what is the amount of the cost of goods sold?
a. $500,000
b. $180,000
c. $520,000
d. Some other amount
9. The Wilson Company sold goods on account for $18,000 under the terms 1/10, n/45. If the customer took advantage of the discount, how much discount would the customer be entitled to?
a. $1,800
b. $180
c. $17,820
d. some other amount
10. If a customer purchased inventory of $25,000 under the terms 2/10, n/30, returned $500 worth of damaged goods three days later, and then paid the balance in fifteen days, what would be the payment?
a. $24,500
b. $24,010
c. $24,000
d. some other number
11. If raw land that was purchased for $100,000 five years ago is sold for $150,000 today, the result is:
a. A loss of $50,000
b. An increase in equity of $150,000
c. A gain of $100,000
d. An increase in equity of $50,000
12. The Ivory Company's books showed ending inventory amounting to $250,000. A physical count showed that the inventory only totaled $235,000. What is the effect on the accounting records because of the adjustment?
a. A decrease in liabilities
b. An increase in inventory
c. A decrease in dividends
d. A decrease in retained earnings
13. Jackson Company purchased 250 units of merchandise for $1.00 each. Later on, it purchased 375 units for $1.00 each. It sold 450 units. Which would show a larger ending inventory?
a. FIFO
b. LIFO
c. It doesn't matter
d. Weighted average
The following relates to questions 14 and 15:
14. Wombat Corporation purchased 100 units of inventory at $2.00 each on April 1. On May 15 it purchased 150 units at $2.20 each. Wombat made its first sale on June 5 when it sold 125 units. What was the cost of goods sold for the June 5 sale, assuming Wombat used FIFO?
a. $275
b. $255
c. $200
d. some other amount.
15. Referring to question 14, what would the ending inventory have been if Wombat had used LIFO?
a. $275
b. $200
c. $255
d. some other amount.
16. The lower of cost or market method can be used
a. For each individual item of inventory
b. Major classes of inventory
c. The entire stock of inventory
d. All the above.
17. Historically, the Amber Company's gross margin has amounted to 25% of sales. Its beginning inventory for the period amounted to $51,000 and purchases were $185,000 before the fire. Sales before the fire amounted to $220,000. What was the estimated amount of inventory that was destroyed in the fire?
a. 236,000
b. 55,000
c. 165,000
d. 71,000
18. Shazam Company's beginning inventory consisted of 120 items at $80 each. It had the following purchases and sales during the year:
Date Transaction Description
March 5 Purchased 100 items @ $90
April 10 Sales 70 items @ $175
June 19 Sales 80 items @ $175
Sept. 16 Purchased 50 items @ $95
Nov 28 Sales 60 items @ $180
Shazam uses the FIFO inventory method. Determine Shazam's ending inventory
a. $6,300
b. $5,650
c. $5,400
d. $5,600
19. Ajax Company's records disclosed the following information:
Balance per checkbook 3,748.68
Deposits in transit 685.14
21.08
Interest earned on account 15.87
NSF check 330.00
Outstanding checks 38.00
42.16
387.54
21.05
75.63
891.25
Balance per bank statement 4,178.96
Bank charges 5.00
The true adjusted balance of the checking account is
a. 3,764.55
b. 3,885.18
c. 3,429.55
d. 4,094.55
20. Maxwell Company's petty cash began with a $250.00 balance. At present, the amount of cash and coin in the petty cash drawer amounts to 42.87. When the fund is replenished, how much cash and coin will be used?
a. 250.00
b. 292.87
c. 175.87
d. 207.13