Intermediate Accounting 2 Flashcards by Renee Crooks

Which of the following is classified as a cash equivalent?
A) Inventory held for resale
B) 5-year certificate of deposit
C) Treasury bills with 60 days to maturity
D) Restricted cash held for long-term

Treasury bills with 60 days to maturity

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A note receivable was issued at face value with a 12% annual interest rate. How much interest income should be recognized after 3 months on a $20,000 note?
A) $200
B) $400
C) $600
D) $2,400

C) $600

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Fujita Company has beginning raw material inventory of $62,800, purchases of $54,000, and materials used of $83,500. What is the ending raw material inventory?
A) $33,300
B) $92,300
C) $114,800
D) $29,300

A) $33,300

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Under a perpetual inventory system, when a sale occurs, the journal entry includes:
A) Debit to purchases
B) Debit to inventory
C) Debit to Cost of Goods Sold
D) Credit to purchases

C) Debit to Cost of Goods Sold

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Using FIFO, if the beginning inventory is 500 units @ $3.50, purchases are 300 units @ $4.00 and 200 units @ $5.00, wat is COGS for 350 units sold?
A) $1,750
B) $1,400
C) $1,650
D) $1,850

A) $1,750

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Under the dollar-value LIFO method, if base year inventory is $100,000 and current year inventory at current cost is $120,000 with a price index of 1.20, what is ending inventory?
A) $100,000
B) $110,000
C) $120,000
D) $130,000

A) $100,000

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A company issues a $10,000, non-interest-bearing note discounted at 12%. How much cash does the company receive?
A) $10,000
B) $9,700
C) $9,400
D) $9,100

B) $9,700

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Calculate the estimated inventory lost in a fire if: Beginning inventory = $100,000, Purchases = $140,000, Sales = $220,000, Gross margin = 30%
A) $120,000
B) $110,000
C) $140,000
D) $130,000

D) $130,000

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Which cost flow assumption generally results in the highest net income during periods of rising prices?
A) FIFO
B) LIFO
C) Weighted Average
D) Specific Identification

FIFO

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A company has a gross profit of 25% on cost. If net sales are $400,000, what is the estimated cots of goods sold?
A) $100,000
B) $320,000
C) $300,000
D) $250,000

B) $320,000

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Under GAAP, how are bad debts typically estimated?
A) Direct write-off method
B) Percentage of net credit sales
C) Cash basis accounting
D) Only after legal actions

B) Percentage of net credit sales

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What is a legal liability?
A) A planned obligation
B) Arises only through normal operations
C) Arises from contracts or legal requirements
D) Created by public announcements

C) Arises from contracts or legal requirements

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The Allowance for Doubtful Accounts appears on the balance sheet as a:
A) Liability
B) Expense
C) contra-asset
D) Asset

C) contra-asset

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Which inventory system provides better control inventory?
A) Periodic
B) LIFO
C) Perpetual
D) LIFO

C) Perpetual

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If the NRV (Net realizable value) of inventory falls below cost, what rule is applied?
A) Conservatism
B) accrual
C) Going concern
D) Materiality

A) Conservatism

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Which of the following is a constructive liability?
A) A trade payable
B) A lawsuit settlement
C) Warranty obligations created by past practice
D) a signed promissory note

C) Warranty obligations created by past practice

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A note payable classified as a current means it is:
A) due within 3 months
B) due within 6 months
C) due within one year
D) Due in 5 years

C) due within one year

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Which inventory method typically results in the lowest taxable income during periods of rising prices?
A) FIFO
B) LIFO
C) Average cost
D) Specific identification

LIFO

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Accounts receivables are classified as:
A) noncurrent assets
B) current assets
C) current liabilities
D) deferred revenues

B) current assets

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When goods are shipped FOB destination, who owns the goods during transit?
A) Customer
B) seller
C) freight company
D) insurer

seller

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Net purchases are calculated as:
A) Purchases - Purchase Returns
B) Purchases - Purchase Returns - Purchase discounts
C) Purchases - Feight-in
D) Purchases + Freight-out

Purchases - Purchase Returns - Purchase discounts

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Which of the following qualifies as a contingency?
A) a definite account payable
B) a future income tax refund
C) a pending lawsuit
D) a trade discount

a pending lawsuit

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What is recognized when a dividend is declared?
A) revenue
B) expense
C) asset
D) liability

liability

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Which item is included in cash and cash equivalent?
A) Inventory
B) accounts receivable
C) treasury bills maturity in 60 days
D) 1-year certificate of deposit

treasury bills maturity in 60 days

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When a short-term note is refinanced into long-term debt before financial statements are issues, it is classified as: A) Long-term liability B) current liability C) deferred revenue D) accrued liability

Long-term liability

Under the gross price method, a cash discount not taken results in: A) Extra revenue B) no effect C) extra expense D) asset write-off

no effect

Inventory shipped FOB shipping point should be included in: A) seller's inventory B) buyer's inventory C) freight carrier's inventory D) no one's inventory until arrival

buyer's inventory

Which ratio best measures immediate liquidity? A) debt-to-equity ratio B) quick ratio C) Inventory turnover ratio D) gross margin ratio

quick ratio

If the market price declines after signing a noncancelable purchase contract, wha tis recognized? A) Revenue B) liability C) asset D) expense

liability

Which cost flow method assumes the last goods purchased are sold first? A) FIFO B) Average Cost C) LIFO D) Specific identification

LIFO

Which of the following is not classified as a cash? A) Travel advances B) checking accounts deposits C) coins and currency D) postdated checks

Postdated checks

What does the receivables turnover ratio measure? A) company profitability B) inventory management C) cash flow from operations D) efficiency in collecting receivables

D) efficiency in collecting receivables

Bad debt expense under the allowance method is recorded: A) only when an account is deemed uncollectible B) at the time of sale, based on an estimate C) only after legal proceedings D) as an adjusting entry to inventory

at the time of sale, based on an estimate

What best describes a trade receivable? A) employee loan B) customer credit sale C) Note receivable from shareholders D) interest income

customer credit sale

Which item would not qualify as a cash equivalent? A) treasury bill due in 2 months B) money market fund C) 6-month CD D) accounts receivable

accounts receivable

A petty cash fund is used to: A) pay large capital purchases B) finance accounts payable C) handle small incidental expenses D) record employee wages

handle small incidental expenses

Which method recognizes inventory losses immediately? A) LIFO B) Retail inventory method C) specific identification D) lower of cost or net realizable value

lower of cost or net realizable value

The primary benefit of internal cash controls is to: A) increase cash flow B) detect and prevent fraud C) increase inventory turnover D) reduce taxes

detect and prevent fraud

Under which method does inventory reflect the most current costs? A) LIFO B) FIFO C) Average cost D) specific identification

FIFO

A trade discount is recorded: A) as a separate item B) as a reduction in sales revenue C) as an increase to accounts receivable D) not recorded at all

not recorded at all

What type of account is Allowance for Doubtful Accounts? A) Asset B) liability C) contra-asset D) expense

contra-asset

A company uses 2/10, n/30 terms. What does it mean? A) 2% discount if paid within 10 days; otherwise full amount due in 30 days B) 10% discount if paid within 2 days; otherwise full amount due in 30 days C) full payment required within 2 days D) no discount allowed after 10 days

2% discount if paid within 10 days; otherwise full amount due in 30 days

Compensating balances are reported as: A) operating expenses B) investments C) restricted cash D) accounts payable

restricted cash

Net realizable value for accounts receivable is: A) total accounts receivable B) accounts receivable minus uncollectibles C) cash equivalents D) accounts receivable plus bad debt expense

accounts receivable minus uncollectibles

The inventory turnover ratio indicates: A) how often inventory is sold and replaced B) profit per unit sold C) company's debt position D) cash conversion cycle

how often inventory is sold and replaced

Which GAAP principle requires inventory to be stated at lower of cost or NRV? A) full disclosure B) matching C) conservatism D) revenue recognition

conservatism

Which of the following would not be considered a contingent liability? A) pending lawsuit B) bank loan C) product warranty D) Environment cleanup obligation

Bank loan

What is the main difference between a secured borrowing and a sale of receivables? A) risk transfer B) cash received C) recordkeeping complexity D) accounts payable involvemen

risk transfer

When a company collects an account that was previously written off, it: A) recognizes new revenue B) credits Allowance for Doubtful Accounts C) debits bad debt expense D) credits accounts receivable

credits Allowance for Doubtful Accounts

What does a high receivables turnover ratio suggest? A) poor collections B) strong collections C) high bad debt risk D) high inventory levels

strong collections

If cash sales for the month are $40,000 and credit sales are $80,000, what is total net sales? A) $80,000 B) $40,000 C) $120,000 D) $100,000

$120,000

A $5,000, 90-day note bears interest at 8%. How much interest revenues should be recognized? A) $100 B) $80 C) $120 D) $200

$100

The net realizable value of accounts receivable is $100,000 and the Allowance for Doubtful Accounts is $5,000. What is the gross accounts receivable balance? A) $95,000 B) $100,000 C) $105,000 D) $110,000

$105,000

Ending inventory error overstated by $10,000 causes: A) understatement of income B) overstatement of income C) overstatement of liabilities D) understatement of liabilities

overstatement of income

The cost-to-retail is 70%. Ending inventory at retail is $200,000. What is ending inventory at cost? A) $130,000 B) $140,000 C) $150,000 D) $170,000

$140,000

A company uses FIFO. Beginning inventory was $2,000. Purchases during the year were $12,000. Ending inventory was $3,000. What is cost of goods sold? A) $12,000 B) $11,000 C) $13,000 D) $14,000

$11,000 (2,000+12,000-3,000=11,000)

If a company sells $300,000 on credit and estimates bad debts at 1%, what is bad debt expense? A) $1,500 B) $3,000 C) $2,000 D) $5,000

$3,000 (300,000*0.01=3,000)

Warranty expense for the year is estimated at 2% of $500,000 in sales. What amount of warranty liability is recorded? A) $5,000 B) $10,000 C) $15,000 D) $20,000

$10,000

Company sells inventory for $15,000 with a cost of $9,000. What is gross profit? A) $9,000 B) $6,000 C) $24,000 D) $15,000

$6,000

Company issues a $10,000, 6-month note payable at 6% interest. How much interest payable should be recorded after 4 months? A) $200 B) $400 C) $300 D) $500

$200

What type of account is Notes Receivable? A) liability B) revenue C) asset D) expense

asset

What are compensating balances? A) Discounts on inventory B) minimum cash balances held at banks C) employee bonuses D) long-term payables

minimum cash balances held at banks

Which method reports higher ending inventory under rising prices? A) FIFO B) LIFO C) Average Cost D) specific identification

FIFO

What does the gross profit methed estimate? A) net income B) ending inventory C) operating expenses D) sales returns

ending inventory

What happens when a company writes off a bad debt under the allowance method? A) total assets decrease B) total assets stay the same C) total assets increase D) total liabilities increase

total assets stay the same

A contingent liability is accrued if it is: A) probable and reasonably estimable B) reasonably possible C) remote D) unlikely

probable and reasonably estimable

What is included in the quick ratio? A) cash, accounts receivable, inventory B) cash, marketable securities, accounts receivable C) cash, inventory, prepaid expenses D) accounts payable, inventory, notes payable

cash, marketable securities, accounts receivable

Which best describes a trade discount? A) discount for paying early B) discount off list price C) volume purchase discount D) advertising rebate

discount off list price

Which inventory system continuously updates inventory records? A) periodic B) Perpetual C) physical count D) LIFO reverse

perpetual

Which item below is NOT considered a cash equivalent? A) 60-day treasury bill B) certificate of deposit maturing in 1 year C) commercial paper D) money market fraud

certificate of deposit maturing in 1 year

What principle requires inventory to be stated at lower of cost or market? A) full disclosure B) conservatism C) consistency D) matching

conservatism

Which receivables method violates GAAP? A) allowance method B) direct write-off method C) percentage of sales method D) percentage of receivables method

direct write-off method

An example of a contingent loss would be: A) trade discount B) lawsuit C) sale discount D) bank reconciliation

lawsuit pending

Which ratio best measures immediate liquidity? A) current ratio B) debt ratio C) quick ratio D) gross margin ratio

quick ratio

Allowance for Doubtful Accounts normally carries what balance? A) debit B) credit C) zero D) no balance

credit

Gross profit is equal to: A) Net sales minus COGS B) total revenue minus operating expenses C) net income minus dividends D) net cash inflow

Net sales minus COGS

A noncelable purchase agreement is considered: A) revenue B) asset C) commitment D) liability

commitment

Sales returns and allowances are ported as: A) liabilities B) contra-revenue C) expenses D) asset

contra-revenue

Which cost flow assumption most closely matches actual flow for food products? A) LIFO B) FIFO C) average Cost D) Specific Identification

FIFO

If the sales price is $500 and cost is $300, gross margin % is: A) 60% B) 40% C) 50% D) 30%

40%

Uncollectible accounts are reported as: A) operating expenses B) liabilities C) reductions of revenues D) contra-assets

contra-assets

A dishonored note should be transferred to: A) inventory B) accounts receivable C) allowance for bad debts D) deferred revenue

accounts receivable

Which account would credit memo affect? A) Notes payable B) cash C) accounts receivable D) unearned revenue

accounts receivable

At what point is revenue recognized for a sale of goods FOB shipping point? A) when the order is placed B) when goods reach the buyer C) when goods leave seller's dock D) buyer inspects goods

when goods leaves seller's dock

Which account will NOT appear on a post-closing trial balance? A) accounts receivable B) inventory C) sales revenue D) notes payable

sales revenue

LIFO conformity rule requires: A) companies using LIFO for taxes must use LIFO for financials B) companies using FIFO must disclose LIFP C) companies adjust to average cost D) inventory counts every 6 months

companies using LIFO for taxes must use LIFO for financials

A company using gross profit method estimate ending inventory by: A) physical count B) purchases C) sales and gross margin D) operating expenses

sales and gross margin

Purchase returns are: A) debit to accounts payable B) credit to inventory C) debit to purchases D) credit to sales revenue

credit to inventory

Sales discounts forfeited are reported as: A) revenue B) contra-revenue C) expense D) inventory

revenue

Accounts receivable turnover ratio is calculated as: A) Sale/accounts receivable B) accounts receivable/sales C) net income/sales D) gross profit/sales

Sale/accounts receivable

A note due in 10 months is classified as: A) long-term liability B) investment C) current liability D) deferred expense

current liability

Which of the following affects the cost of inventory? A) interest expense B) purchase discounts C) dividends paid D) salaries payable

purchase discounts

Warranty expense is recognized when: A) The warranty is paid B) the product sold C) the warranty expires D) the lawsuit

the product sold

What kind of account is accrued expense? A) revenue B) asset C) liability D) expense

liability

Which of the following decreases retained earnings? A) Net income B) Dividends declared C) issuance of stock D) purchase of inventory

dividends declared

Net sales are calculated as: A) sales - sales discounts - sales returns B) sales - COGS C) Sales + purchases D COGS - operating expenses

sales - sales discounts - sales returns

Which inventory method results in highest COGS during inflation? A) FIFO B) LIFO C) Average cost D) specific identification

LIFO

An accrued liability arises when: A) cash is paid before expense B) Expense is incurred before cash is paid C) cash is collected before revenue D) revenue is recognized before delivery

Expense is incurred before cash is paid

What is a disadvantage of LIFO? A) higher taxable income B) lower ending inventory value C) increased gross profit D) inventory costs overstated

lower ending inventory value

Ending inventory is misstated. What other item is impacted? A) net sales B) gross profit C) depreciation D) accounts receivable

gross profit

Intermediate Accounting 2 Flashcards

(100 cards)