FINANCIAL ACCOUNTING

Quiz 4

PROBLEM 1—FINANCIAL STATEMENTS

INSTRUCTIONS: Indicate the placement on financial statements
of the items listed below by inserting the appropriate letter or letters in the
Answers column. Assume the use of the multiple-step income statement and the
perpetual inventory system.

STATEMENTS

Income Statement G. Retained Earnings Statement Balance
Sheet

A. Administrative expenses H. Current assets

B. Cost of merchandise sold I. Current liabilities

C. Other expense J. Long-term liabilities

D. Other income K. Stockholders’ equity

E. Revenue from sales L. Property, plant, and equipment

F. Selling expenses

For

Scoring

ITEMS APPEARING ON STATEMENTS

Answers

0. Cash
……………………………………………………………………………………………………….

0. ____

1. Merchandise inventory at end of period
………………………………………………..

1. ____

2. Cost of merchandise
sold……………………………………………………………………….

2. ____

3. Sales discounts
………………………………………………………………………………………

3. ____

4. Interest expense
…………………………………………………………………………………….

4. ____

5. Loss on sale of fixed assets
…………………………………………………………………..

5. ____

6. Dividends
……………………………………………………………………………………………….

6. ____

7. Interest receivable
………………………………………………………………………………….

7. ____

8. Accumulated depreciation—store equipment
……………………………………….

8. ____

9. Interest revenue ……………………………………………………………………………………..

9. ____

10. Retained earnings at end of period
……………………………………………………….

10. ____

11. Sales
………………………………………………………………………………………………………

11. ____

12. Store supplies expense
………………………………………………………………………….

12. ____

13. Mortgage note payable (payable in 2015)
…………………………………………….

13. ____

PROBLEM 2—ANALYSIS OF TRANSACTIONS

INSTRUCTIONS: For O’Neill’s, indicate the accounts to be
debited and credited in recording the selected transactions described below by
inserting the letter designation for the accounts in the appropriate columns.
The perpetual inventory system is used.

ACCOUNTS

A. Accounts Payable E. Merchandise Inventory I. Dividends

B. Accounts Receivable F. Office Supplies J. Sales

C. Cash G. Office Supplies Expense K. Sales Discounts

D. Cost of Merchandise Sold H. Capital Stock L. Sales
Returns and Allowances

For

Scoring

For

Scoring

TRANSACTIONS

Debit

Credit

0. Purchased office supplies for cash
……………………………………………………..

1–2. Sold merchandise on account
……………………………………………………………..

3–4. Received a return of part of the merchandise sold in
Question 1–2 ……

5–6. Received cash for merchandise sold in Questions 1–2 and
3–4 within the discount period
……………………………………………………………………………….

7–8. Purchased merchandise on account
……………………………………………………

9–10. Returned part of the merchandise purchased in Question
7–8 …………..

FILL-IN-THE-BLANK 1—PRINCIPLES AND TERMINOLOGY

INSTRUCTIONS: Complete the following statements by writing
the appropriate words or amounts in the Answers column.

For

Scoring

STATEMENTS

Answers

0….The form of balance sheet with assets, liabilities, and
stockholders’ equity listed in a downward sequence is referred to as the
…………………..

0. ____

1….The document that the seller sends to the buyer listing
the terms of the sale is called the
…………………………………………………………………………………….

1. ____

2….The inventory accounting system in which the amount of
inventory on hand can always be determined is called the
……………………………………….

2. ____

3….The inventory accounting system in which the cost of
the merchandise sold is determined at the end of the accounting period is
called the …….

3. ____

4….If the purchaser is to assume the cost of delivering
the goods, the terms of the sale are stated as FOB
…………………………………………………………………

4. ____

5….If the seller is to assume the cost of delivering the
goods, the terms of sale are stated as FOB
…………………………………………………………………………..

5. ____

6–8….A sales invoice for $25,000, terms 2/10, n/30, FOB
shipping point, is paid within the discount period. The seller has prepaid
transportation costs of $125. Purchases of $450 are returned to the
seller………………….

6….The amount of the sales discount is
………………………………………………………

6. ____

7….The title of the account in which the discount is
recorded by the seller is
………………………………………………………………………………………………………………..

7. ____

8….The amount of cash received from the customer assuming
payment is not made in the discount period is
…………………………………………………………

8. ____

9….Gross profit is the difference between sales and
…………………………………..

9. ____

10….If ownership (title) to merchandise passes to the
buyer when merchandise is delivered to the freight carrier, the shipping terms
are ..

10. ____

FILL-IN-THE-BLANK 2—PRINCIPLES AND TERMINOLOGY

INSTRUCTIONS: Complete each of the following statements by
writing the appropriate words in the Answers column.

For

Scoring

STATEMENTS

Answers

0. In which section of the balance sheet is merchandise
inventory reported?……………………………………………………………………………………………..

0. ____

1–3. Would a perpetual inventory system normally be
practical for the following types of businesses without a computerized system?
(answer yes or no)

1. Retail jewelry store
……………………………………………………………………………..

1. ____

2. Wholesale clothing store
…………………………………………………………………….

2. ____

3. Retail candy store
……………………………………………………………………………….

3. ____

4. If the cost of an item of inventory is $75, the current
replacement cost is $64, and the selling price is $95, the amount included in
inventory

according to the lower of cost or market concept is
……………………………

4. ____

5. Merchandise in transit should not be included in the
seller’s inventory if the terms are FOB
……………………………………………………………………………

5. ____

6. The inventory method where the last units purchased are assumed
to be sold and the ending inventory is made up of the first units purchased.
………………………………………………………………………………………….

6. ____

7. A method that is useful for estimating the cost of inventory
that has been destroyed that uses the relationship between cost and retail
value is
………………………………………………………………………………………………..

7. ____

8. During a period of consistently falling prices, the
method (FIFO or LIFO) that will result in reporting the greater cost of
merchandise sold
is………………………………………………………………………………………………………………………………………………………………………………………………………………………….

8. ____

9–11. Inventory at the end of the current fiscal year was
understated. State

whether each of the following will be overstated,
understated, or not affected:

9. Cost of merchandise sold reported on the income statement
for the

current year
…………………………………………………………………………………………

9. ____

10. Net income reported on the income statement for the
current year …..

10. ____

11. Retained earnings reported on the balance sheet at the
end of the current year
…………………………………………………………………………………………

11. ____

12. Damaged merchandise that can only be sold at below cost
should be

valued at
……………………………………………………………………………………………..

12. ____

PROBLEM 3—PROBLEMS

INSTRUCTIONS: Solve the following problems and record the
answers in the Answers column.

For

Scoring

Answers

0. The amount credited to sales for the sale of merchandise
costing $500,

with 40% added to the cost price to determine selling price,
is ……………..

0. ____

1. Summarized data on sales and merchandise available for
sale are as follows:

April 1 Merchandise inventory…………………… $
415,000

April 1–30 Purchases
(net)………………………………. 675,000

April 1–30 Sales
(net)………………………………………. 1,400,000

If the estimated rate of gross profit is 40%, the estimated
cost of the

merchandise inventory on April 30 is
……………………………………………………..

1. ____

2. The following lots of a particular commodity were
available for sale during the year:

Beginning
inventory…………………………………………….. 10 units at $61

First purchase……………………………………………………….
40 units at $62

Second
purchase………………………………………………… 35 units at
$65

Third
purchase…………………………………………………….. 15 units
at $63

Based on the periodic system, the total cost of the 23 units
in inventory at the end of the year, according to the first-in, first-out
method, is ……….

2. ____

3. Based on the data in Question 2, the total cost of the 23
units in inventory by the last-in, first-out method is
…………………………………………….

3. ____

4. Based on the data in Question 2, the total cost of the 23
units in inventory by the average cost method is
……………………………………………….

4. ____

5. A purchase order for $15,000 of merchandise was mailed to
a supplier on December 22, 2011. The merchandise was shipped by the supplier

on December 29, 2011, under terms of FOB shipping point, and
the

merchandise was received on January 3, 2012. If 50% is added
to its

cost by the purchaser to determine selling price, the amount
to be

included in the inventory of the purchaser on December 31,
2011, is….

5. ____

6. Beginning inventory, purchases, and sales of a commodity
are presented below:

Inventory: July 1
…………………………………………… 15 units at $55

Sales: July 6
…………………………………………… 10 units at $57

12 …………………………………………… 30
units at $58

22 …………………………………………… 40
units at $59

Purchases: July 9
…………………………………………… 30 units at $60

18 …………………………………………… 50
units at $65

Assuming that the perpetual inventory system is used, the
cost of the

inventory balance on July 31 by the FIFO method is
……………………………..

6. ____

7. Based on the data in Question 6, the cost of the
inventory balance on July 31 by the LIFO method is
………………………………………………………………..

7. ____

8. Summarized data on sales and merchandise available for
sale are as follows:

Cost Retail

June 1 Merchandise inventory $137,000 $210,000

June 1–30 Purchases (net) 252,000 300,000

June 1–30 Sales (net) 350,000

The estimated cost of the merchandise inventory on June 30
by the retail method is
………………………………………………………………………………………

8. ____