Based on the
information provided in the Figure 1, calculate the adjusted cash balance if it
is reconciled from cash per books.

CORRECT ANSWER

(B) $710,650.00

EXPLANATION

Adjusted cash balance
= Cash per books of $700,000 + Interest income of $7,000 - Bank charges of $350
+ Interest collection by bank of $4,000 = $710,650  No outstanding checks or deposits in transit

A company's records
indicate that 82 units are currently in stock, costing $50 per unit. The
physical inventory finds that only 79 units are actually on hand. Which of the
following adjusting entries is required to bring perpetual inventory records in
line with the physical count?

YOU ANSWERED: CONFIDENT

CORRECT ANSWER

(B) Debit Cost of
Goods Sold and credit Inventory for $150.

EXPLANATION

Inventory count as per
books - Physical inventory = 82 units - 79 units = 3 units; 3 units x $50 =
$150. The inventory account is reduced (credited) by $150 to mirror the
shortfall (three missing units at $50 each). To increase expenses, Cost of
Goods Sold must be debited by the same amount.

Tanix Inc. purchased
inventory of $130,000 and the transportation cost is $1,500. The company
follows a periodic inventory system. Identify the journal entry for the
purchase of inventory.

CORRECT ANSWER

(D) Debit
Purchase of Inventory and credit Accounts Payable for $130,000.

EXPLANATION

In a periodic system, when inventory is
purchased, Purchase of Inventory is debited and Accounts Payable is credited
for $130,000. It will not include the transportation cost.

QUESTION 3

Surist Inc. uses a
periodic inventory system. Surist purchased inventory worth $180,000. The
company's accountant accidentally debited Accounts Payable and credited
Purchases. Which of the following statements is true?

YOU ANSWERED: CONFIDENT

CORRECT ANSWER

(B) The company's
retained earnings are overstated.

EXPLANATION

The accountant should debit Purchases and
credit Accounts Payable. As the entry is wrong, its assets and liabilities are
understated. As expenses are understated, net income and retained earnings are
overstated.

dividing the cost of goods sold for a period by the average inventory for
that period

Utopus Inc. is
following the FIFO cash flow assumption. As per FIFO, the opening inventory
values $65,000, the purchases during the year amount to $540,000 and the ending
inventory values $95,000. Assuming the company changes its inventory valuation
method to LIFO, calculate the inventory turnover.

CORRECT ANSWER

(A) The inventory
turnover for the period is 6.375 times.

EXPLANATION

Inventory turnover =
cost of goods sold / average inventory; cost of goods sold = opening inventory
+ purchases - ending inventory = $65,000 + $540,000 - $95,000 = $ 510,000;
average inventory = (opening inventory + closing inventory) /2 = ($65,000 +
$95,000) / 2 = $80,000; Inventor turnover = $510,000 / $80,000 = 6.375 times.

Homegoods Inc. finds
that in the ending inventory of the flooring tiles, six-year-old cost is being
carried as the LIFO cash flow assumption is being applied. What will be the
impact on financial statements in the year in which the old costs are expensed?

YOU ANSWERED: CONFIDENT

CORRECT ANSWER

(B) Homegoods
Inc.'s ending inventory will have inventory items from the earlier period of
the year.

EXPLANATION

The year in which the
old costs are expensed will have inventory items from the earlier period of the
year.

QUESTION 5

Which of the following
is true of the moving average inventory system?

CORRECT ANSWER

(D) A moving
average cost is applied to the cost of goods sold for the entire period.

EXPLANATION

The moving average
inventory system uses a moving average cost to the cost of goods sold for the
entire period.

QUESTION 3

Which of the following
is true about the LIFO cash flow assumption?

CORRECT ANSWER

(C) The ending
inventory reported in LIFO in inflationary times is not realistic.

EXPLANATION

The ending inventory
reported in LIFO in inflationary times is not realistic as the real value of
the ending inventory will be higher as compared to the value as per the LIFO
cash flow assumption.

Universe Inc. follows
the LIFO cash flow assumption. It has 1,450 units of gears valued at $11,600 in
inventory for the last 3 years. From Figure 2-C.7, what is the amount of LIFO
liquidation, assuming that each unit was sold for $18 each?

YOU ANSWERED: SKIPPED

you skipped the
question

Skipped

CORRECT ANSWER

(C) $1,000.00

EXPLANATION

1,650 units sold
consist of 1,000 units of $11,000, 550 units of $6,600, and 100 units of oldest
inventory of $800. So, the LIFO Liquidation = 100 x ($18 - $8) = $1,000.

Total cost of sale..
1650..   lifo..  last purchase is 1000@ 11000 that’s gone. Leaving
650 to account for..  the next to last
purchase of inventory is 550@ 6600 that’s gone too, now we have 100 to account
for, this comes from 1450@11600 base inventory. Dividing 1450/11600 gives us
the 8, 8x100 is the 800.  The 18 is
giving in the question the current sale amount per item.  Items of base inv. (100) times (current price
– base inv per item price)(18-8) is 100x10 or 1000

QUESTION 8

Larison Inc. finds
that in the ending inventory of the flooring tiles, eight-year-old cost is
being carried as the LIFO cash flow assumption is being applied. What will be
the impact on financial statements in the year in which the old costs are
expensed?

CORRECT ANSWER

(D) Larison Inc.
will have a lower ending inventory as compared to the inventory as per the FIFO
cash flow assumption.

EXPLANATION

As Larison is
following the LIFO method, ending inventory will be lower as compared to the
ending inventory as per the FIFO cash flow assumption.

dentify a feature of
the LIFO cash flow assumption.

CORRECT ANSWER

(B) The profit
taxable is lower if the LIFO cash flow assumption is followed.

EXPLANATION

The profit taxable is lower if the LIFO cash
flow assumption is followed.

QUESTION 2

Mercury,
Inc. follows the LIFO cash flow assumption. It has 4,500 units of floor panels
valued at $45,000 in inventory for the last 5 years. From Figure 7, what is the
amount of LIFO liquidation on the oldest inventory sold, assuming that each unit
was sold for $50 each?

CORRECT ANSWER

(C)

$24,000.00

EXPLANATION

This
problem can be solved in two steps. Step 1 is to identify the quantity of the
oldest inventory sold, which is calculated by taking 4,500 units sold, as given
in the problem, and subtracting 2,400 units of purchases, and 1,500 units of
the opening inventory quantity. This would leave 600 units of the oldest
inventory. Step 2 is to identify the LIFO liquidation value, which is
calculated by taking the selling price of $50 per unit and subtracting $10 from
the original value per unit (calculated by $45,000/4,500). This is then
multiplied by 600 as follows: LIFO Liquidation = 600 x ($50 - $10) = $24,000.

QUESTION 3

Ultra Energy Corp.
finds that in the ending inventory, five-year-old cost is being carried as the
LIFO cash flow assumption is being applied. What will be the impact on
financial statements in the year in which the old costs are expensed?

CORRECT ANSWER

(A) Ultra Energy
Corp. needs to add the value of old inventory in the cost of goods sold in the
year it is expensed.

EXPLANATION

In the year of expense, Ultra Energy Corp.
needs to add the value of old inventory in the cost of goods sold in the year
it is expensed.

QUESTION 4

Which of the following
is true about the moving average system?

CORRECT ANSWER

(A) In this
system, moving average is applied to ending inventory.

EXPLANATION

In the moving average system, moving average
is applied to ending inventory.

Select a feature of
the LIFO cash flow assumption.

CORRECT ANSWER

(D) LIFO reports
low profit in inflationary times in comparison to other methods of cash flow
assumption.

EXPLANATION

LIFO reports low profit in inflationary times
in comparison to other methods of cash flow assumption as the expensive recent
inventory is taken to the cost of goods sold.

QUESTION 2

Jupiter Inc. follows
the LIFO cash flow assumption. It has 440 units of floor panels valued at
$5,280 in inventory for the last 6 years. From Figure 1-C.7, what is the amount
of LIFO liquidation assuming that each unit was sold for $40 each?

CORRECT ANSWER

(A) $4,200.00

EXPLANATION

4,200 units sold consist of 2,550 units of
$66,300, 1,500 units of $37,500, and 150 units of the oldest inventory of
$1,800. So, the LIFO Liquidation = 150 x ($40 - $12) = $4,200.

QUESTION 3

Homegoods Inc. finds
that in the ending inventory of the flooring tiles, six-year-old cost is being
carried as the LIFO cash flow assumption is being applied. What will be the
impact on financial statements in the year in which the old costs are expensed?

YOU ANSWERED: CONFIDENT

you gave the correct
answer

(B) Homegoods Inc.'s ending inventory
will have inventory items from the earlier period of the year.

QUESTION 4

Identify a feature of
the moving average system.

CORRECT ANSWER

(C) It
reclassifies costs from inventory to cost of goods sold at the time of sale
until the next purchase is made.

EXPLANATION

The moving average system reclassifies costs
from inventory to cost of goods sold at the time of sale until the next
purchase is made.

Which of the following
is true about the LIFO cash flow assumption?

CORRECT ANSWER

(C) The ending
inventory reported in LIFO in inflationary times is not realistic.

EXPLANATION

The ending inventory reported in LIFO in
inflationary times is not realistic as the real value of the ending inventory
will be higher as compared to the value as per the LIFO cash flow assumption.

QUESTION 2

Universe Inc. follows
the LIFO cash flow assumption. It has 1,450 units of gears valued at $11,600 in
inventory for the last 3 years. From Figure 2-C.7, what is the amount of LIFO
liquidation, assuming that each unit was sold for $18 each?

YOU ANSWERED: CONFIDENT

you gave the correct
answer

(C) $1,000.00

QUESTION 3

Which of the following
is true of the moving average inventory system?

CORRECT ANSWER

(D) A moving
average cost is applied to the cost of goods sold for the entire period.

EXPLANATION

The moving average inventory system uses a
moving average cost to the cost of goods sold for the entire period.

Identify a feature of
the moving average system.

CORRECT ANSWER

(C) It
reclassifies costs from inventory to cost of goods sold at the time of sale
until the next purchase is made.

EXPLANATION

The moving average
system reclassifies costs from inventory to cost of goods sold at the time of
sale until the next purchase is made.

(C) It
reclassifies costs from inventory to cost of goods sold at the time of sale
until the next purchase

QUESTION 4

Charles Tech Corp. has
acquired 700 shares of Melia Computers for $7.5 each. Melia computers has
50,000,000 shares outstanding at the time of purchase by Charles Tech Corp. It
has no intention of selling these shares in the foreseeable future. Using which
accounting method will the shares be reported in the financial statements?

CORRECT ANSWER

(B) Accounting
for available-for-sale securities

EXPLANATION

Since the shares do not provide any control
over Melia computers, accounting for mergers and acquisitions and accounting
for investments by means of the equity method cannot be used. Also since,
shares are not intended to be sold in the foreseeable future, accounting for
trading securities cannot be used. The shares will be reported in the financial
statements using accounting for available-for-sale securities method.

QUESTION 5

A company has acquired
certain investments which are to be accounted using equity method. At what
value would the investment be reported in the balance sheet?

CORRECT ANSWER

(C) Cost plus
portion of income

EXPLANATION

Investments accounted using equity method are
reported at cash plus the portion of income value in the balance sheet.

QUESTION 6

Zhong Car Company
received dividends worth $1,500 from its investment in shares of Yu Motors and
$1,000 as dividends from Zi Motor Company. It reported both these dividends as
income for the year. The company has recorded the appreciation from Zi Motor Company
as income for the year. Which of the following statements is most likely to be
true?

CORRECT ANSWER

(D) The
management of Zhong Car intends to sell shares of Zi Motor Company in the near
term.

EXPLANATION

Since appreciation from Zi Motor Company was
accounted for as income for the year, they are classified as investments in
trading securities. Investments are classified as such only when they are
intended to be sold in the near future.

QUESTION 7

Harry Musicals pays
its annual rent of $12,000 in advance for the year on the first day of January.
On the last day of March, Harry Musicals passes the following entry in its
books.

Prepaid Rent $9,000

Rent Expense $9,000

What can be concluded from the information provided?

CORRECT ANSWER

(A) It recorded
rent premium paid on January 1st as an expense.

EXPLANATION

The given journal entry is passed as an
adjustment entry when the original entry recorded is rent expense.

QUESTION 2

Nigel Corp had paid
annual insurance on its premises in advance in the previous year. Out of this,
insurance for three months had been expensed in the previous year. In the
current year, it also paid its annual insurance expense in advance and expensed
three months out of it. What can be inferred from the information above if the
company pays monthly rent for all the remaining months in the current year?

CORRECT ANSWER

(C) Its ending
prepaid insurance account balance will neither increase nor decrease as
compared to the opening balance.

EXPLANATION

The opening prepaid rent account will have a
balance of nine months and its closing prepaid rent account will also have a
balance of nine months. Hence, there will be no change in the closing balance
of prepaid rent as compared to the opening balance.

QUESTION 3

Charles Tech Corp. has
acquired 700 shares of Melia Computers for $7.5 each. Melia computers has
65,000,000 shares outstanding at the time of purchase by Charles Tech Corp. It
has no intention of selling these shares in the foreseeable future. Using which
accounting method will the shares be reported in the financial statements?

YOU ANSWERED: CONFIDENT

you gave the correct
answer

(B) Accounting for available-for-sale
securities

QUESTION 4

Gigantic Corporation
has acquired shares of Julian Inc. at market price. It has no intention of
selling these shares in the foreseeable future. Using which accounting method
will the shares be reported in the financial statements?

CORRECT ANSWER

(B) Accounting
for available-for-sale securities

EXPLANATION

Since the shares do not provide any control
over Julian Inc. computers, accounting for mergers and acquisitions and
accounting for investments by means of the equity method cannot be used. Also,
since shares are not intended to be sold in the foreseeable future, accounting
for trading securities cannot be used. The shares will be reported in the
financial statements using accounting for available-for-sale securities method.

QUESTION 5

Claude Car Company
received dividend worth $1,500 from its investment in shares of Chantal Motors
and $1,000 as dividends from Louis Motor Company. It reported both these
dividends as income of the year. Both the shares had appreciated in value;
however, only appreciation from Louis Motor Company was accounted for as income
of the year. Which of the following statements is most likely to be true?

CORRECT ANSWER

(D) The
management of Claude Car intends to sell shares of Louis Motor Company in the
near term.

EXPLANATION

Since appreciation from Louis Motor Company
was accounted for as income for the year, they are classified as investments in
trading securities. Investments are classified as such only when they are
intended to be sold in the near future.