Review For MidtermI 1092

Review for Midterm I of
Financial Accounting (2)

2021/4/1
1

Part I: Multiple-Choice Questions (60 points)
1. Sawyer Company uses the perpetual inventory system and the LIFO method to value inventories. On August 1, there were 10,000 units valued at $60,000 in
the beginning inventory. On August 10, 20,000 units were purchased for $12 per unit. On August 15, 24,000 units were sold for $24 per unit. The
amount charged to ending inventory on August 15 was
a. $36,000.
b. $60,000.
c. $240,000.
d. $264,000.
2

2. Sawyer Company uses the perpetual inventory system and the LIFO method to value inventories. On August 1, there were 10,000 units valued at $60,000 in
amount charged to cost of goods sold on August 15 was
a. $36,000.
b. $60,000.
c. $240,000.
d. $264,000.
3

3. Sawyer Company uses the perpetual inventory system and the FIFO method to value inventories. On August 1, there were 10,000 units valued at $60,000 in
amount charged to ending inventory on August 15 was
a. $60,000.
b. $72,000.
c. $240,000.
d. $228,000.
4

4. Sawyer Company uses the perpetual inventory system and the FIFO method to value inventories. On August 1, there were 10,000 units valued at $60,000 in
amount charged to cost of goods sold on August 15 was
a. $60,000.
b. $72,000.
c. $240,000.
d. $228,000.
5

5. Sawyer Company uses the perpetual inventory system and the weighted average method to value inventories. On August 1, there were 10,000 units valued at
$60,000 in the beginning inventory. On August 10, 20,000 units were purchased for $12 per unit. On August 15, 24,000 units were sold for $24 per unit.
The amount charged to ending inventory on August 15 was
a. $60,000.
b. $72,000.
c. $240,000.
d. $228,000.
6

6. Sawyer Company uses the perpetual inventory system and the moving-average (or average-cost) method to value inventories. On August 1, there were
10,000 units valued at $60,000 in the beginning inventory. On August 10, 20,000 units were purchased for $12 per unit. On August 15, 24,000 units
were sold for $24 per unit. The amount charged to cost of goods sold on August 15 was
a. $60,000.
b. $72,000.
c. $240,000.
d. $228,000.
7

7. Bordeaux Corp., a French subsidiary of a US company, sells one product and uses a perpetual inventory system. The beginning inventory consisted of 40
units that cost €2,000 per unit. During the current month, the company purchased: 240 units at €2,100 each. Sales during the month totaled 180 units for
€4,350 each. What is the cost of goods sold using the LIFO cost flow assumption?
a. €360,000.
b. €374,000.
c. €378,000.
d. €375,429.
8

€4,350 each. What is the cost of goods sold using the FIFO cost flow assumption?
a. €360,000.
b. €374,000.
c. €378,000.
d. €375,429.
9

€4,350 each. What is the cost of goods sold using the weighted-average cost flow assumption?
a. €360,000.
b. €374,000.
c. €378,000.
d. €375,429.
10

10. Brocken Co. has the following data related to an item of inventory:
Inventory, May 1 3,000 units @ £4.20
Purchase, May 7 10,500 units @ £4.40
Inventory, May 31 3,900 units
The value assigned to cost of goods sold if Brocken uses average-cost is

a. £51,188.
b. £50,700.
c. £50,883.
d. £51,690.
11

The value assigned to cost of goods sold if Brocken uses FIFO is

a. £50,700.
b. £50,880.
c. £51,207.
d. £51,690.
12

The value assigned to cost of goods sold if Brocken uses LIFO is

a. £50,700.
b. £50,880.
c. £51,207.
d. £51,690.
13

13. Shandy Shutters has the following inventory information.
Nov. 1 Inventory 45 units @ €6.00
8 Purchase 180 units @ €6.45
A physical count of merchandise inventory on November 30 reveals that there are 150 units on hand. Assume a periodic inventory system is used. Cost
of goods sold under the average-cost method is
a. €1,904.
b. €1,926.
c. €1,942.
d. €2,011.
14

of goods sold under the FIFO method is
a. €1,904.
b. €1,926.
c. €1,942.
d. €2,011.
15

of goods sold under the LIFO method is
a. €1,904.
b. €1,926.
c. €1,942.
d. €2,011.
16

16. Neighborly Industries has the following inventory information.
July 1 Beginning Inventory 30 units at $60
5 Purchases 180 units at $56
14 Sale 120 units
21 Purchases 90 units at $57.50
30 Sale 84 units
Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a LIFO basis?
a. $5,496
b. $5,511
c. $11,544
d. $11,559
17

14 Sale 120 units
30 Sale 84 units
Assuming that a periodic inventory system is used, what is the amount allocated to cost of goods sold (COGS) on a LIFO basis?
a. $5,496
b. $5,511
c. $11,544
d. $11,559
18

14 Sale 120 units
30 Sale 84 units
Assuming that a periodic inventory system is used, what is the amount allocated to ending inventory on a FIFO basis?
a. $5,496
b. $5,511
c. $11,544
d. $11,559
19

14 Sale 120 units
30 Sale 84 units
Assuming that a periodic inventory system is used, what is the amount allocated to cost of goods sold (COGS) on a FIFO basis?
a. $5,496
b. $5,511
c. $11,544
d. $11,559
20

14 Sale 120 units
30 Sale 84 units
Assuming that a periodic inventory system is used, what is the amount allocated to cost of goods sold (COGS) on a weight-average cost basis?
a. $5,200
b. $5,253
c. $11,541
d. $13,253
21

14 Sale 120 units
30 Sale 84 units
Assuming that a perpetual inventory system is used, what is the amount allocated to cost of goods sold (COGS) on a weight-average cost basis?
a. $5,200
b. $5,253
c. $11,541
d. $13,253
22

14 Sale 120 units
30 Sale 84 units
Assuming that a perpetual inventory system is used, what is the amount allocated to cost of goods sold (COGS) on a FIFO basis?
a. $5,496
b. $5,511
c. $11,544
d. $12,559
23

14 Sale 120 units
30 Sale 84 units
Assuming that a perpetual inventory system is used, what is the amount allocated to cost of goods sold (COGS) on a LIFO basis?
a. $15,496
b. $15,511
c. $11,550
d. $12,559
24

24. If the month-end bank statement shows a balance of $75,000, outstanding checks are $30,000, a deposit of $10,000 was in transit at month end, and a check
for $1,250 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is
a. $53,750.
b. $56,250.
c. $36,250.
d. $93,750.
25

25. Wynn Company developed the following reconciling information in preparing its September bank
reconciliation:
Cash balance per bank statement, 9/30 $9,000

Note receivable collected by bank 4,000
Outstanding checks 6,000
Deposits in transit 3,000
Bank service charge 50
NSF check 800
Determine the cash balance per books (before adjustments) for Wynn Company.
a. $6,850.
b. $12,000.
c. $2,850.
d. $10,000.
26

26. Osborn Company assembled the following information in completing its March bank reconciliation:
balance per bank $3,820; outstanding checks $775; deposits in transit $1,250; NSF check $80; bank service
charge $25; cash balance per books $4,400. As a result of this reconciliation, Osborn will
a. reduce its cash (per books) account by $475.
b. reduce its cash (per books) account by $25.
c. increase its cash (per books) account by $55.
d. reduce its cash (per books) account by $105.
27

27. Tavarez Company assembled the following information in completing its July bank reconciliation:
balance per bank $7,640; outstanding checks $1,550; deposits in transit $2,500; NSF check $160; bank
service charge $50; cash balance per books $8,800. As a result of this reconciliation, Tavarez will
a. reduce its cash (per books) account by $950.
b. reduce its cash (per books) account by $50.
c. increase its cash (per books) account by $110.
d. reduce its cash (per books) account by $210.
28

28. Bertram Company assembled the following information in completing its May bank reconciliation: balance per bank ₤15,640 outstanding checks ₤3,550;
deposits in transit ₤2,500; NSF check ₤1,360; bank service charge ₤50; cash balance per books ₤16,000.
As a result of this reconciliation, Bertram will

a. reduce its cash (per books) account by ₤50.
b. reduce its cash (per books) account by ₤1,410.
c. increase its cash (per books) account by ₤1,050.
d. increase its cash (per books) account by ₤360.

29

29. The following information is available for 2020 for Greenwich Company:
Beginning inventory £ 2,816,000

Purchases 7,999,000
Sales 15,000,000
Markup on sales (or gross profit ratio) 35%
In May 2020, a flood washed away Greenwich’s inventory. Using the gross profit method, the estimated value of the inventory destroyed is:
a. £3,785,250
b. £2,799,650
c. £1,065,000
d. £525,000
30

30. Quigley Company's records indicate the following information for the year:
Inventory, 1/1 ₤ 660,000
Purchases 2,700,000
Net sales 3,600,000
On December 31, a physical inventory determined that ending inventory of ₤720,000 was in the warehouse. Quigley's gross profit on sales has remained
constant at 30%. Quigley suspects some of the inventory may have been taken by some new employees. At December 31, what is the estimated cost of
missing inventory?
a. ₤120,000
b. ₤240,000
c. ₤360,000
d. ₤840,000
31

Part II: Problem-Solving (40 points)
P1. Dyna Distribution markets CDs of the performing artist King James. At the beginning of March, Dyna had in beginning inventory 1,500 King James CDs
with a unit cost of €22. During March, Dyna made the following purchases of King James CDs.
March 5 3,500 @ €21; March 21 2,000 @ €19
March 13 4,000 @ €20; March 26 2,000 @ €18
During March, 10,000 units were sold. Dyna uses a periodic inventory system.
Instructions
a. Determine the cost of goods available for sale.
b. Determine (1) the ending inventory and (2) the cost of goods sold under the three assumed cost flow methods (FIFO, average-cost, LIFO).
c. Which cost flow method results in (1) the higher inventory amount for the statement of financial position and (2) the lower cost of goods sold for the income
statement?
Under FIFO:
cost of ending inventory x1
cost of goods sold x2
Under Weighted-Average:
32

Under LIFO:
Higher ending inventory x7

Lower net income x8
33

P2. The cost of goods sold computations for Gouda Company and Edam Company are shown below.
Gouda Edam
Company Company
Beginning inventory € 47,000 € 71,000
Cost of goods purchased 200,000 290,000
Cost of goods available 247,000 361,000
for sale
Ending inventory 58,000 69,000
Cost of goods sold €189,000 €292,000
Instructions
a. Compute inventory turnover and days in inventory for each company.
b. Which company moves its inventory more quickly?
Days in Inventory for Gouda Company x9
Which company has higher days in inventory x10
34

P3. This information is available for Sepia Photos for 2018, 2019, and 2020.
2018 2019 2020

Beginning £ 100,000 £ 330,000 £ 400,000
inventory
Ending inventory 330,000 400,000 480,000
Cost of goods 900,000 1,120,000 1,300,000
sold
Sales revenue 1,200,000 1,600,000 1,900,000
Instructions
Calculate inventory turnover, days in inventory, and gross profit rate for Sepia Photos for 2018, 2019, and 2020. Comment on any trends.
Days in Inventory in 2018 x11
Which year has higher days in inventory x12
35

P4. Premier Bank and Trust is considering giving Alan Company a loan. Before doing so, management decides that further discussions with Alan’s accountant
may be desirable. One area of particular concern is the inventory account, which has a year-end balance of £297,000. Discussions with the accountant reveal the
following.
1. Alan sold goods costing £38,000 to Comerico Company, FOB shipping point, on December 28. The goods are not expected to arrive at Comerico until
January 12. The goods were not included in the physical inventory because they were not in the warehouse.
2. The physical count of the inventory did not include goods costing £91,000 that were shipped to Alan FOB destination on December 27 and were still in
transit at year-end.
3. Alan received goods costing £25,000 on January 2. The goods were shipped FOB shipping point on December 26 by Grant Co. The goods were not included
in the physical count.
4. Alan sold goods costing £35,000 to Emerick Co., FOB destination, on December 30. The goods were received at Emerick on January 8. They were not
included in Alan’s physical inventory.
5. Alan received goods costing £44,000 on January 2 that were shipped FOB shipping point on December 29. The shipment was a rush order that was supposed
to arrive December 31. This purchase was included in the ending inventory of £297,000.
Instructions
Determine the correct inventory amount on December 31.
The correct inventory amount x13
The correct inventory amount x14
36

P5. Kale Wilson, an auditor with Sneed Chartered Accountants, is performing a review of Platinum Stereos’ inventory account. Platinum did not have a good
year, and top management is under pressure to boost reported income. According to its records, the inventory balance at year-end was £740,000. However, the
following information was not considered when determining that amount.
1. Included in the company’s count were goods with a cost of £250,000 that the company is holding on consignment. The goods belong to Superior Ltd.
2. The company received an order on December 29 that was boxed and sitting on the loading dock awaiting pick-up on December 31. The shipper picked up the
goods on January 1 and delivered them on January 6. The shipping terms were FOB shipping point. The goods had a selling price of £49,000 and a cost of
£33,000. The goods were not included in the count because they were sitting on the dock.
Instructions
Prepare a schedule to determine the correct inventory amount. Provide explanations for each item above, saying why you did or did not make an adjustment for
each item.
Correct inventory amount x15

Correct inventory amount x16
37

P6. Anya Clark opened Anya’s Cleaning Service on July 1, 2020. During July, the following transactions were completed.
July 1 Shareholders invested €35,000 cash in the business in exchange for

ordinary shares.
1 Purchased used truck for €12,000, paying €5,000 cash and the balance on
account
3 Purchased cleaning supplies for €2,100 on account.
5 Paid €3,000 cash on a 1-year insurance policy effective July 1.
12 Billed customers €6,500 for cleaning services.
18 Paid €1,500 cash on amount owed on truck and €1,400 on amount owed
on cleaning supplies.
20 Paid €2,800 cash for employee salaries.
21 Collected €3,400 cash from customers billed on July 12
25 Billed customers €6,000 for cleaning services.
31 Paid €350 for the monthly gasoline bill for the truck.
31 Declared and paid a €6,600 cash dividend.
Instructions
a. Journalize and post the July transactions. Use page J1 for the journal and the three-column form of account.
b. Prepare a trial balance at July 31 on a worksheet.
c. Enter the following adjustments on the worksheet and complete the worksheet.
38

1. Unbilled and uncollected revenue for services performed at July 31 were €2,700.
2. Depreciation on equipment for the month was €500.
3. One-twelfth of the insurance expired.
4. An inventory count shows €500 of cleaning supplies on hand at July 31.
5. Accrued but unpaid employee salaries were €1,000.
d. Journalize and post adjusting entries. Use page J2 for the journal.
e. Prepare the income statement and a retained earnings statement for July and a classified statement of financial position at July 31.
On Trial Balance
Debit total balance x17

Debit total balance x18
On Adjusted Trial Balance
Credit total balance x19

Credit total balance x20
39

Student#:__________________________ Score: _______________
Signature: __________________________Name:_______________
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Financial Accounting (2)

Inventory, May 31 3,900 units

The value assigned to cost of goods sold if Brocken uses average-cost is

Inventory, May 31 3,900 units

The value assigned to cost of goods sold if Brocken uses FIFO is

Inventory, May 31 3,900 units

The value assigned to cost of goods sold if Brocken uses LIFO is

Cash balance per bank statement, 9/30 $9,000

As a result of this reconciliation, Bertram will

Beginning inventory £ 2,816,000

March 5 3,500 @ €21; March 21 2,000 @ €19

March 13 4,000 @ €20; March 26 2,000 @ €18

a. Determine the cost of goods available for sale.

Higher ending inventory x7

a. Compute inventory turnover and days in inventory for each company.

b. Which company moves its inventory more quickly?

Days in Inventory for Gouda Company x9

Which company has higher days in inventory x10

2018 2019 2020

Days in Inventory in 2018 x11

Which year has higher days in inventory x12

Determine the correct inventory amount on December 31.

The correct inventory amount x13

The correct inventory amount x14

Correct inventory amount x15

July 1 Shareholders invested €35,000 cash in the business in exchange for

3 Purchased cleaning supplies for €2,100 on account.

5 Paid €3,000 cash on a 1-year insurance policy effective July 1.

12 Billed customers €6,500 for cleaning services.

20 Paid €2,800 cash for employee salaries.

21 Collected €3,400 cash from customers billed on July 12

25 Billed customers €6,000 for cleaning services.

31 Declared and paid a €6,600 cash dividend.

b. Prepare a trial balance at July 31 on a worksheet.

2. Depreciation on equipment for the month was €500.

3. One-twelfth of the insurance expired.

4. An inventory count shows €500 of cleaning supplies on hand at July 31.

5. Accrued but unpaid employee salaries were €1,000.

Debit total balance x17

On Adjusted Trial Balance

Credit total balance x19

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