MOCK TEST

1. In a perpetual inventory system,

a. LIFO cost of goods sold will be the same as in a periodic inventory system.
b. average costs are based entirely on unit cost simple averages.
c. a new average is computed under the average cost method after each sale.
d. FIFO cost of goods sold will be the same as in a periodic inventory system.

2. Company Y has the following inventory data:

August 1 Beginning inventory 20 units at $10

8 Purchases 130 units at $15
17 Sale 80 units
25 Purchases 30 units at $20
30 Sale 60 units

Assuming that a perpetual inventory system is used, what is ending inventory (rounded) under the
average cost method for August? (DO NOT ROUND INTERMEDIATE CALCULATIONS).
a. $641.33
b. $611.11
c. $800.00
d. $500.00

3. Simpson Inc. purchased inventory as follows:

Jan. 5 500 units at $10.00
Jan. 15 1,000 units at $15.00
Jan. 25 200 units at $20.00

What is the average unit cost of inventory?

a. $14.12
b. $15.00
c. $13.00
d. $15.83

4. Delightful Discs has the following inventory data:

Nov. 1 Inventory 30 units @ $6.00 each

8 Purchase 120 units @ $6.45 each
17 Purchase 60 units @ $6.30 each
25 Purchase 90 units @ $6.60 each
A physical count of merchandise inventory on November 30 reveals that there are 100 units on hand.
Ending inventory under LIFO periodic inventory system is
a. $657
b. $632
c. $1,269
d. $1,295
5. Hardaway Inc. purchased inventory as follows:
Jan. 10 200 units at $5.00
Jan. 20 500 units at $10.00
Jan. 30 800 units at $15.00

Hardaway Inc. had no beginning inventory and has 500 units on hand as of January 31. Assuming the
specific identification method is used and ending inventory consists of 100 units from the Jan. 10
purchase, 300 units from the Jan. 20 purchase, and 100 units from the Jan. 30 purchase, ending
inventory would be
a. $13,000
b. $4,000
c. $7,500
d. $5,000

6. Hardaway Inc. purchased inventory as follows:

Jan. 10 200 units at $5.00
Jan. 20 500 units at $10.00
Jan. 30 800 units at $15.00

Hardaway Inc. had no beginning inventory and has 500 units on hand as of January 31. Assuming the
specific identification method is used and ending inventory consists of 100 units from the Jan. 10
purchase, 300 units from the Jan. 20 purchase, and 100 units from the Jan. 30 purchase, cost of goods
sold would be
a. $13,000
b. $4,000
c. $7,500
d. $5,000

7. Baker Bakery Company just began business and made the following four inventory purchases in June:

June 1 150 units $ 1,040

June 10 200 units 1,560
June 15 200 units 1,680
June 28 150 units 1,320
$5.600

A physical count of merchandise inventory on June 30 reveals that there are 210 units on hand. Using the
FIFO periodic inventory method, the amount allocated to ending inventory for June is
a. $1,456
b. $1,508
c. $1,824
d. $1,848
 8. Goods held on consignment are
a. never owned by the consignee.
b. included in the consignee’s ending inventory.
c. kept for sale on the premises of the consignor.
d. included as part of no one’s ending inventory.

9. Reeves Company is taking a physical inventory on March 31, the last day of its fiscal year. Which of the
following must be included in this inventory count?
a. Goods in transit to Reeves, FOB destination
b. Goods that Reeves is holding on consignment for Parker Company
c. Goods in transit that Reeves has sold to Smith Company, FOB shipping point
d. Goods that Reeves is holding in inventory on March 31 for which the related Accounts Payable
is 15 days past due

10. At December 31, 2019 Mohling Company’s inventory records indicated a balance of $632,000. Upon further
investigation it was determined that this amount included the following:

• $112,000 in inventory purchases made by Mohling shipped from the seller 12/27/19 terms FOB
destination, but not due to be received until January 2nd,
• $74,000 in goods sold by Mohling with terms FOB destination on December 27th. The goods are not
expected to reach their destination until January 6th.
• $6,000 of goods received on consignment from Dollywood Company

What is Mohling’s correct ending inventory balance at December 31, 2019?

a. $520,000
b. $626,000
c. $440,000
d. $514,000

11. Zimmerman Inc. uses a periodic inventory system. Details for the inventory account for the month of
October are shown below:

Assume that on October 31, there is 80 units on hand. If the company uses FIFO, what is the value of
ending inventory?
a. $400
b. $335
c. $373
d. $360
12. Zimmerman Inc. uses a periodic inventory system. Details for the inventory account for the month
of October are shown below:

Assume that on October 31, there is 80 units on hand. If the company uses LIFO, what is the value of
cost of goods sold for October?
a. $1,000
b. $1,200
c. $1,065
d. $1,028

13. Nelson Corporation sells three different products. The following information is available on December
31:

Inventory Item Units Cost per unit Market value per unit
X 300 $4.00 $3.50
Y 600 $2.00 $1.50
Z 1,500 $3.00 $4.00

When applying the lower of cost or market rule to each item, what will Nelson's total ending inventory
balance be?
a. $6,900
b. $6,450
c. $7,950
d. $6,600

14. Inventory costing methods place primary reliance on assumptions about the flow of
a. goods.
b. costs.
c. resale prices.
d. values.
15. The Boxwood Company sells blankets for $60 each. The following
was taken from the inventory records during May. The company had no beginning
inventory on May 1.

Date Blankets Units Cost

May 3 Purchase 5 $20
10 Sale 3
17 Purchase 10 $24
20 Sale 6
23 Sale 3
30 Purchase 10 $30

Assuming that the company uses the perpetual inventory system, determine the COST OF GOODS
SOLD for the
month of May using the LIFO
inventory cost method.
a. $364
b. $300
c. $268
d. $27
16-20: Match the items below by entering the appropriate code letter in the space provided.

A. Merchandise Inventory F. First-in, first-out (FIFO) method

B. Work in process G. Last-in, first-out (LIFO) method
C. FOB shipping point H. Average cost method
D. FOB destination I. LIFO reserve
E. Specific identification method J. Inventory turnover ratio

1. The difference between inventory reported using LIFO and inventory using FIFO.

2. Tracks the actual physical flow for each inventory item available for sale.

3. Goods that are only partially completed in a manufacturing company.

4. Cost of goods sold consists of the most recent inventory purchases.

5. Goods ready for sale to customers by retailers and wholesalers.

6. Title to the goods transfers when the public carrier

accepts the goods from the seller.

7. Ending inventory valuation consists of the most recent inventory purchases.

8. The same unit cost is used to value ending inventory and cost of goods sold.

9. Title to goods transfers when the goods are delivered to the buyer.

10. Measures the number of times the inventory sold during the period.

21. The accounts affected by the journal entry made by Hank's Sport Shop to record the finance charge
are

a. Accounts Receivable

Cash

b. Cash

Finance Receivable

c. Accounts Receivable

Interest Payable

d. Accounts Receivable

Interest Revenue
22. Which of the following practices by a credit card company results in lower interest charges

to the cardholder?

a. The card company states interest as a monthly percentage rather than an annual percentage.

b. The card company allows a grace period before interest is accrued.

c. The card company allows cardholders to skip payments on their cards.

d. The card company calculates finance charges from the date of purchase to the date the amount is paid.

23. An aging of a company's accounts receivable indicates that $9,000 are estimated to be uncollectible.
If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for
the period will require a

a. debit to Bad Debts Expense for $9,000.

b. debit to Allowance for Doubtful Accounts for $7,900.

c. debit to Bad Debts Expense for $7,900.

d. credit to Allowance for Doubtful Accounts for $9,000.

24. Larson Company on July 15 sells merchandise on account to Stuart Co. for $1,000, terms 2/10, n/30.
On July 20 Stuart Co. returns merchandise worth $400 to Larson Company. On July 24 payment is received
from Stuart Co. for the balance due. What is the amount of cash received?

a. $600

b. $588

c. $580

d. $1,000

25. Two methods of accounting for uncollectible accounts are the

a. allowance method and the accrual method.

b. allowance method and the net realizable method.

c. direct write-off method and the accrual method.

d. direct write-off method and the allowance method.

26. When an account is written off using the allowance method, accounts receivable

a. is unchanged and the allowance account increases.

b. increases and the allowance account increases.

c. decreases and the allowance account decreases.

d. decreases and the allowance account increases.

27. Using the percentage of receivables method for recording bad debts expense, estimated uncollectible
accounts are $10,000. If the balance of the Allowance for Doubtful Accounts is $2,000 credit before
adjustment, what is the amount of bad debts expense for that period?

a. $10,000

b. $8,000

c. $12,000

d. $2,000

28. A company has net credit sales of $900,000 for the year and it estimates that uncollectible accounts
will be 2% of sales. If Allowance for Doubtful Accounts has a credit balance of $1,000 prior to adjustment,
its balance after adjustment will be a credit of

a. $18,000.

b. $19,000.

c. $17,980.

d. $17,000.

29. In 2008, Carpenter Company had net credit sales of 1,125,000. On January 1, 2008, Allowance for
Doubtful Accounts had a credit balance of $27,000. During 2008, $45,000 of uncollectible accounts
receivable were written off. Past experience indicates that the allowance should be 10% of the balance in
receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was
$300,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2008?

a. $30,000

b. $112,500

c. $48,000

d. $45,000
Use the following information for questions 30-31

12/31/07 :

Accounts receivable: $525,000

Allowance (45,000)

Cash realizable value $480,000

During 2008, sales on account were $145,000 and collections on account were $86,000. Also during 2008,
the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivable accounts
at year end indicated that bad debts should be estimated at $54,000.

30. The change in the cash realizable value from the balance at 12/31/07 to 12/31/08 was a

a. $50,000 increase.

b. $59,000 increase.

c. $42,000 increase.

d. $51,000 increase.

31. Bad debts expense for 2008 is

a. $17,000.

b. $9,000.

c. $54,000

d. $1,000.

32. Manning Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July
1. Citibank charges 4% for its credit card use. The entry to record this transaction by Manning Retailers
will include a credit to Sales of $75,000 and a debit(s) to

a. Cash $72,000 and Service Charge Expense $3,000.

b. Accounts Receivable $72,000 and Service Charge Expense $3,000.

c. Cash $72,000 and Interest Expense $3,000.

d. Accounts Receivable $75,000.

33. ABC Company accepted a national credit card for a $3,000 purchase. The cost of the goods sold is
$2,400. The credit card company charges a 3% fee. What is the impact of this transaction on net operating
income?

a. Increase by $582

b. Increase by $600

c. Increase by $510

d. Increase by $2,910

34. Major advantages of credit cards to the retailer include all of the following except the

a. issuer does the credit investigation of customers.

b. issuer undertakes the collection process.

c. retailer receives more cash from the credit card issuer.

d. All of these are advantages.

35. A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount
of receivables purchased. Which of the following statements is true for the seller of the receivables?

a. The loss section of the income statement will increase each time receivables are sold.

b. The credit to Accounts Receivable is less than the debit to Cash when the accounts are sold.

c. Selling expenses will increase each time accounts are sold.

d. The other expense section of the income statement will increase each time accounts are sold.
36. Winsor Furniture factors $800,000 of receivables to Fast Factors, Inc. Fast Factors assesses a 2% service
charge on the amount of receivables sold. Winsor Furniture factors its receivables regularly with Fast
Factors. What journal entry does Winsor make when factoring these receivables?

a. Cash............................................................................... 784,000

Loss on Sale of Receivables.......................................... 16,000

Accounts Receivable............................................. 800,000

b. Cash............................................................................... 784,000

Accounts Receivable............................................. 784,000

c. Cash............................................................................... 800,000

Accounts Receivable............................................. 784,000

Gain on Sale of Receivables ................................. 16,000

d. Cash............................................................................... 784,000

Service Charge Expense................................................ 16,000

Accounts Receivable............................................. 800,000

37. Herbert Company lends Newton Company $30,000 on April 1, accepting a four-month, 9% interest
note. Herbert Company prepares financial statements on April 30. What adjusting entry should be made
before the financial statements can be prepared?

a. Note Receivable ............................................................ 30,000

Cash ..................................................................... 30,000

b. Interest Receivable ........................................................ 225

Interest Revenue .................................................. 225

c. Cash .............................................................................. 225

Interest Revenue .................................................. 225

d. Interest Receivable ........................................................ 900

Interest Revenue .................................................. 900

38. The direct write-off method

a. is acceptable for financial reporting purposes.

b. debits Allowance for Doubtful Accounts to record write-offs of accounts.

c. shows only actual losses from uncollectible accounts receivable.

d. estimates bad debt losses

39. Which of the following statements concerning receivables is incorrect?

a. Notes receivable are often listed last under receivables.

b. The contingent liability from selling notes receivable should be disclosed.

c. Both the gross amount of receivables and the allowance for doubtful accounts should be reported.

d. Interest revenue and gain on sale of notes receivable are shown under other revenues and gains.

40. Risen Company receives a $5,000, 3-month, 8% promissory note from Dodd Company in settlement
of an open accounts receivable. What entry will Risen Company make upon receiving the note?

a. Notes Receivable............................................................ 5,100

Accounts Receivable—Dodd Company................. 5,100

b. Notes Receivable............................................................ 5,100

Accounts Receivable—Dodd Company................. 5,000

Interest Revenue ................................................... 100

c. Notes Receivable............................................................ 5,000

Interest Receivable ................................................ 100

Accounts Receivable—Dodd Company................. 5,000

Interest Revenue ................................................... 100

d. Notes Receivable............................................................ 5,000

Accounts Receivable—Dodd Company................. 5,000

 ANSWERS

1 D 11 A 21 D 31 A
2 A 12 C 22 B 32 A
3 A 13 B 23 C 33 C
4 B 14 B 24 B 34 C
5 D 15 D 25 D 35 C
6 A 16 M 26 C 36 D
7 C 17 M 27 B 37 B
8 A 18 M 28 B 38 C
9 D 19 M 29 C 39 A
10 D 20 M 30 C 40 D

16-20, MATCHING:

1 I 6 C
2 E 7 F
3 B 8 H
4 G 9 D
5 A 10 J