LIFO Method Answer Key

Top 25 For Final Exam 1. Many companies choose to report inventory using the LIFO method because it results in: a. Fewer taxes paid b. Matches the actual inventory sold c. Higher revenues reported d. Lower cost of immplementing e. Higher assets reported 2. On january 23, a company purchases inventory for $100. On february 12, the inventory is sold for $150 on account. Which of the following is recorded on february 12 a. Debit accounts receivbale for $100 b. Two of the answers are correct c. Debit cost of goods sold for $100 d. Debit sales revebue for $!50 e. Credit inventory for $150 3. The balance sheet of company 1 shows book value of assets of $85,400 and liabilities of $14,200. The fair value of assets is $89,200 and the fair value of its liabilities is $14,200. Company 2 paid company 1 $83,620 to aquire it. Company 2 should record goodwill on this purchase of: a. $5,300 b. $0 c. $12,420 d. $1,780 e. $8,620 4. The adjusting entry to record the expieration of insurance over the year would include: a. A credit to insurance payable b. A credit to cash c. A debit to prepaid insurance d. A credit to insurance expense e. A credit to prepaid insurance 5. Given the information below, what is the amount of gross profit? a. Sales revenue $320,000 b. Accounts receivable $50,000 c. Ending inventory $100,000 d. Cost of goods sold $250,000 e. Salaries expense $20,000 a. $220,000. b. $250,000. c. $70,000. d. $50,00 6. A company had the following associated with the purchase of a piece of land that it will use to re-build an office building: a. Purchase price of the land $640,000 b. Sale of salvaged parts already on land $ 21,000 c. Cost to demolish old building $ 27,000 d. Cost of ground breaking ceremony (food and supplies) $ 2,100 e. Cost of land preparation and leveling $ 6,900 What amount should be recorded for the purchase of the land? a. $652,900 b. $676,000 c. $655,000 d. $673,900 7. When a company earns revenue from current operations but has not received cash for that revenue in the current period, the accounting equation would be affected as follows: a. Assets increase and stockholders’ equity increase. b. Liabilities decrease and stockholders’ equity increases. c. Assets decrease and liabilities increase. d. Liabilities increase and stockholders' equity decreases. e. The accounting equation would not be affected. 8. A company uses the aging method and has the following receivables and estimates of uncollectible accounts at the end of the year before any adjusting entries: a. Due date Receivable Estimate of Uncollectible i. Not yet due $9,000 7% ii. Less than 30 days past due $1,600 15% iii. Greater than 30 days past due $1,600 40% b. What amount will be reported in the balance sheet for the allowance for uncollectible accounts, assuming the balance of this account is $400 (credit) before adjustment? a. $480. b. $1,510. c. $1,110. d. $400. e. $1,910. 9. On December 31, 2018, a company had balances in Accounts Receivable of $53,600 (debit) and in Allowance for Uncollectible Accounts of $1,325 (credit). During 2019, the company wrote off $1,465 in accounts receivable and determined that there should be an allowance for uncollectible accounts of $1,280 at December 31, 2019. Bad debt expense for 2019 would be: a. $1,465. b. $1,420. c. $1,280. d. $1,365. e. $1,140. 10. Consider the following items: a. Land b. Accounts Receivable c. Notes Payable (due in three years) d. Accounts Payable e. Retained Earnings f. Supplies g. Deferred Revenue (all services due to be performed in the current year) h. Buildings i. Notes Payable (due in six months) j. Equipment k. How many of the items listed above are generally reported as current liabilities? a. Three. b. Four. c. Five. d. Two. 11. If the direct write-off method is used to account for uncollectible accounts, which of the following statements is true? a. Bad debt expense is recorded at the time of actual bad debts. b. An allowance for uncollectible accounts is established for the estimate of future bad debts. c. Actual bad debts are not recorded. d. Only cash sales to customers are recorded. 12. On November 10 of the current year, a company provides services on account to a customer for $8,000 with credit terms 2/10, n/30. The customer made the correct payment on November 17. How would the company record the collection of cash on November 17? a. Cash 8,000 Accounts Receivable 8,000 b. Cash 7,840 Accounts Receivable 7,840 c. Cash 8,000 Sales Discount 160 Accounts Receivable 7,840 d. Cash 7,840 Sales Discount 160 Accounts Receivable 8,000 e. Cash 7,840 Sales Revenue 160 Accounts Receivable 8,000 13. Which of the following statements regarding liquidity ratios is false? a. All of the other statements are true. b. A high current ratio generally indicates the ability to pay current liabilities on a timely basis. c. Providing services to customers for cash improves liquidity. d. As a rule of thumb, a current ratio of 1 or higher often reflects an acceptable level of liquidity. e. The purchase of a building for cash has no effect on liquidity. 14. A company shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a: a. Sales discount. b. Sales revenue. c. Sales return. d. Sales allowance. e. Trade discount 15. A company has the following at the end of the year: a. Inventory Quantity Purchase Cost Market Value i. Item A 100 $5 $8 ii. Item B 200 $9 $7 b. For what amount would ending inventory be reported in the balance sheet? a. $1,900. b. $2,600. c. $2,400. d. $2,300. e. $2,200. 16. Which of the following costs would be capitalized? a. Repayment of loan to the bank. b. Purchase of equipment. c. Research and development. d. Payment of dividends to stockholders. e. Salaries in the current period. 17. Calculate the gross profit percentage for company A and B, respectively. (round to the nearest tenth) a. Data to analyze: Company A Company B a. Net Sales $ Cost of Goods Sold $ 50,000 $ 75,000 20,000 $ 25,000 Gross Profit ??? ??? Gross Profit % ??? ??? 60.0 and 66.7 percent, respectively. b. 40.0 and 33.3 percent, respectively. c. 250.0 and 300.0 percent, respectively. d. 100.0 and 100.0 percent, respectively. 18. A company has the following at the end of the year: Book value Fair value Estimated Cash Flows a. Equipment $35,000 $28,000 $30,000 b. Building $68,000 $65,000 $70,000 c. Patent $30,000 $32,000 $34,000 What amount of loss should be recorded due to asset impairments? a. $10,000 b. $6,000. c. $9,000. d. $7,000. e. $8,000. 19. Which depreciation method generally results in the lowest net income in the first year of an asset’s life? a. LIFO. b. FIFO. c. Activity-based. d. Straight-line. e. Double Declining Balance 20. Consider the following inventory data: a. Beginning inventory $150,000 b. Ending inventory $100,000 c. Purchases $310,000 d. Purchase Returns $20,000 What is the amount of cost of goods sold? a. $360,000. b. $260,000. c. $340,000 d. $310,000. e. $460,000. 21. If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is reasonably possible, a contingent liability should be a. Neither disclosed nor reported as a liability. b. Reported as a liability, but not disclosed. c. Disclosed, but not reported as a liability. d. Disclosed and reported as a liability. 22. A company sells soccer goals to customers over the Internet. History shows that 2% of the company’s goals will need repair under the warranty program. For the year, the company has sold 4,100 goals and 48 have been repaired. If the estimated cost to repair a goal is $140, what would be the Warranty Liability at the end of the year? a.$11,480. b.$5,260 c.$0. d.$4,810. e.$4,760. 23. A company purchased equipment for $80,000 on January 1, 2015. The equipment is expected to have a ten-year life, with a residual value of $8,000 at the end of ten years. Using the straight-line method, depreciation expense for 2016 would be: a. $12,000 b. $16,000 c. $7,200 d. $14,400 e. $8,000 24. Using the allowance method to account for uncollectible accounts, the write off of an actual bad debt results in: a. Two of the other answers are correct. b. An increase in total expenses. c. A decrease in total assets. d. No change to the accounting equation. e. An increase in total assets. 25. Shipping cost associated with the purchase of inventory is recorded as a debit to: a. Shipping expense. b. Inventory. c. Sales revenue. d. Accounts receivable. e. Sales allowance