ACCOUNTING 201

PRACTICE FINAL - (Covering Chapters 6 - 9)

Problem - I Multiple Choice
Circle the one best answer.
1.

Inventoriable costs include all of the following except the

a. cost of the goods purchased.
b. freight out.
c. cost of the beginning inventory.
d. freight in.

2.

Abaco Enterprises had beginning inventory of $15,000 at March 1, 2006. During the
month, the company made purchases of $120,000. The inventory at the end of the month
is $17,000. What is cost of goods available for sale for the month of March?
a. $15,000
b. $17,000
c. $118,000
d. $135,000

3.

A check correctly written and paid by the bank for $361 is incorrectly recorded on the
company's books for $316. The appropriate adjustment on a bank reconciliation would be to
a. deduct $361 from the book's balance.
b. deduct $45 from the book's balance.
c. deduct $45 from the bank's balance.
d. add $45 to the bank's balance.

4.

A 90-day promissory note dated May 28 matures on

a. August 28.
b. August 27.
c. August 26.
d. August 25.

5.

An error in the physical count of goods on hand at the end of the current period resulted in
a $3,000 understatement of the ending inventory. The effect of this error in the current
period is to
a. overstate cost of goods sold.
b. understate cost of goods available for sale.
c. overstate gross profit.
d. overstate net income.

6.

In a period of rising prices, the inventory method that will show the highest net income is
a. Average Cost.
b. FIFO.
c. LIFO.
d. Moving Average.

7.

Cost of goods available for sale includes each of the following except
a. beginning inventory.
b. freight-in.
c. ending inventory.
d. net purchases.
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Problem - II Computation of Net Purchases/Cost of Goods Sold

Barkley Company uses a periodic inventory system and has the following account balances:
Beginning Inventory $50,000, Ending Inventory $70,000, Freight-in $12,000, Purchases
$450,000, Purchase Returns and Allowances $8,000, and Purchase Discounts $6,000.
Instructions
Compute each of the following:
(a) Net purchases
(b) Cost of goods available for sale
(c) Cost of goods sold
Problem - III Bank Reconciliation
Thome Company received a bank statement for the month of October 2005, which showed a
balance per bank of $3,102. The company's Cash account in the general ledger showed a
balance of $1,204 at October 31. Other information that may be relevant in preparing a bank
reconciliation for October follows:
1. The bank returned an NSF check from a customer for $480.
2. The company recorded cash receipts of $932 on October 31 but this amount does not appear
on the bank statement.
3. A check correctly written and paid by the bank for $1,740 was incorrectly recorded in the cash
payments journal for $1,470. The check was a payment on account.
4. Checks which were written in September but still had not been presented to the bank for
payment at October 31 amounted to $780.
5. The bank statement included a credit memorandum for $1,620, which represents a collection
of a customer's note by the bank for the company; principal amount of the note was $1,500
and the remainder was interest.
6. The bank statement included a $20 debit memorandum for service charges for the month of
October.
7. Checks written in October which have not been paid by the bank at October 31 amounted to
$1,200.
Instructions
1. Prepare a bank reconciliation for Thome Company for October which reconciles the balance
per books and the balance per bank to their adjusted correct balances.
2. Prepare the necessary adjusting entries for Thome Company at October 31, 2005.

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Problem - IV Periodic Inventories

Carson Company uses the periodic inventory method and had the following inventory information
available for the month of November.
Date
11/1
11/5
11/12
11/18
11/25
11/30

Transaction
Beginning inventory
Purchase No. 1
Sale No. 1
Purchase No. 2
Sale No. 2
Purchase No. 3

Units
400
600
400
500
1,000
500

Unit Cost
$3
$5
$6
$7

A physical count of units on November 30 revealed that 600 units were on hand.
Answer the following independent questions and show computations supporting your answers.
1. Assume that the company uses the average cost method. What is the dollar value of the
ending inventory on November 30?

2. Assume that the company uses the LIFO inventory method. What is the dollar value of the
cost of goods sold during November?

3. Assume that the company uses the FIFO inventory method. The dollar value of the ending
inventory on November 30 is:

Problem - V Accounts Receivable

Dolan Company uses the allowance method to account for uncollectible accounts. Prepare the
appropriate journal entries to record the following transactions during 2006. You may omit journal
entry explanations.
June 20

The account of Ken Unruh for $1,000 was deemed to be uncollectible and is written off
as a bad debt.

Oct. 14

Received a check for $1,000 from Ken Unruh, whose account had previously been
written off as uncollectible.

Dec. 31

Use the following information for the year-end adjusting entry:

The balance of Accounts Receivable and Allowance for Doubtful Accounts at year end
are $131,000 and $2,900, respectively. It is estimated that bad debts will be 3% of
accounts receivable.

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Problem - VI Notes Receivable

Instructions
Prepare journal entries to record the following events:

Jul.

James Company accepted an 8%, 3-month, $15,000 note dated July 1 from Flint
Company for account balance due.

Jul. 31

James accrued interest on the above note for the month of July.

Oct. 1

Collected Flint Company note in full. Assume interest was correctly accrued on August
31 and September 30.

Oct. 1

Assume instead that the note is dishonored and that no interest has been accrued.
Flint Company is expected to eventually pay the amount owed.

10.

Meyer Company reported net income of $30,000 for the year. During the year, accounts receivable
increased by $7,000, accounts payable decreased by $3,000 and depreciation expense of $5,000
was recorded. Net cash provided by operating activities for the year is
a. $25,000.
b. $45,000.
c. $29,000.
d. $30,000.

11.

Stone Company had a cost of purchases of $250,000. The comparative balance sheet analysis
revealed a $10,000 decrease in inventory and a $20,000 increase in accounts payable. What were
Stone's cash payments to suppliers?
a. $230,000.
b. $220,000.
c. $260,000.
d. $280,000.

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Solutions Practice Final 200

Problem - I Solution
1.
5.

c
a

2. d
6. b

3. b
7. c

4. c

Problem - II Solution
(a)

Net purchases: $450,000 $8,000 $6,000 = $436,000

(b)

Cost of goods available for sale: $50,000 + $436,000 + $12,000 = $498,000

(c)

Cost of goods sold: $498,000 $70,000 = $428,000

Problem - III Solution

1.

THOME COMPANY
Bank Reconciliation
October 31, 2005

Cash balance per bank statement................................................................................................

Add:
Deposit in transit .............................................................................................................
Less:

Outstanding checksSeptember ..................................................................................

Outstanding checksOctober .......................................................................................
Adjusted cash balance per bank ..................................................................................................

$3,102
932
4,034
$ 780
1,200

Cash balance per books................................................................................................................

Add:
Collection of note receivable and interest ....................................................................
Less:

NSF check ........................................................................................................................

Bank service charge........................................................................................................
Error in recording a check ..............................................................................................
Adjusted cash balance per books................................................................................................
2.

Cash

1,980
$2,054
$1,204
1,620
2,824

480
20
270

.................................................................................................................................
Notes Receivable ...................................................................................................
Interest Revenue....................................................................................................

1,620

Accounts Receivable.........................................................................................................
Cash ........................................................................................................................

480

Miscellaneous Expense ....................................................................................................

Cash ........................................................................................................................

20

Accounts Payable ..............................................................................................................

Cash ........................................................................................................................

270

770
$2,054

1,500
120

480

20

270

Problem - IV Solution
1.

Weighted average cost = ($1,200 + $3,000 + $3,000 + $3,500) 2,000 = $5.35

Units available
2,000
Units sold
1,400
Ending inventory
600 $5.35 = $3,210

2.

Ending inventory
11/1
400 units
11/5
200 units
600 units

3.

Ending inventory
11/30 Purchase
11/18 Purchase

$3 =
$5 =

500 units
100 units
600 units

$1,200
1,000
$2,200

$7 =
$6 =

Cost of goods sold

Cost of goods available
Less: Ending inventory
Cost of goods sold

$3,500
600
$4,100

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$10,700
2,200
$ 8,500

Problem - V Solution
June

20

Oct.

14

Dec.

31

Allowance for Doubtful Accounts....................................................................

Accounts ReceivableKen Unruh ......................................................

1,000

Accounts ReceivableKen Unruh ..................................................................

Allowance for Doubtful Accounts........................................................
Cash .................................................................................................................
Accounts ReceivableKen Unruh ..................................................

1,000

Bad Debts Expense ...........................................................................................

Allowance for Doubtful Accounts........................................................
[($131,000 3%) $2,900]

1,030

1,000

1,000
1,000
1,000

1,030

Problem - VI Solution
Jul.

Jul.

Oct.

Oct.

10. A

31

Notes Receivable ...................................................................................................

Accounts Receivable ............................................................................

15,000

Interest Receivable ................................................................................................

Interest Revenue....................................................................................

100

Cash ........................................................................................................................
Notes Receivable...................................................................................
Interest Receivable................................................................................

15,300

Accounts Receivable.............................................................................................
Notes Receivable...................................................................................
Interest Revenue....................................................................................

15,300

11. A

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15,000

100

15,000
300

15,000
300