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Turblad Company has several items in its safe at December 31, Year 1. Which of these items would not be included in Turblad's cash & cash equivalents in its Year 1 balance sheet?
A treasury bill would be considered an investment, not cash or a cash equivalent.
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Globe Company began April of Year 3 with a cash balance of $68,000 in its operating account. During the month of April, Globe issued new checks totaling $14,000 to vendors. Of these newly issued checks, $9,000 cleared the bank in April. Globe also transferred $8,000 to its payroll account to pay employees during the month. Globe received $22,000 in checks from its customers in April and deposited $18,000 of those checks during the month. Also during April $6,000 of checks issued during March of Year 3 cleared the bank. What is Globe's cash balance in its operating account at the end of April, Year 3?
Globe's adjusted cash balance is calculated by taking the beginning balance of $68K - $14K for newly issued checks - $8K transferred to payroll + $18K deposited checks. It is irrelevant when Globe's issued checks actually cleared the bank.
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ABC Company is reconciling its cash balance at December 31, Year 1. Which of the following items would require an adjusting entry to the cash account by ABC Company?
ABC has cancelled its check with the bank, but this adjustment is not yet reflected in its ledger. Therefore, ABC would need to make an adjustment to its ledger to increase its cash balance.
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Of the following, which would not be included in the cash and cash equivalent account?
Stock investments classify as their own asset class and are not a cash account.
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A company has two pieces of Inventory, A and B. Inventory A cost the company $40 per unit and can now be sold for $60 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $35 per unit and a normal profit of $4 per unit. Inventory B cost the company $52 per unit and can now be sold for $63 per unit after incurring $15 in selling expenses per unit. It has a replacement cost of $55 per unit and a normal profit of $4 per unit. If the company uses the retail method to value its inventory, how much should be reported on the balance sheet for these items?
The inventory should be reported at the lower of cost or market, subject to a ceiling and floor. Replacement cost is used unless it is higher than the ceiling or lower than the floor. For Item A, the ceiling value is $45 ($60 selling price - $15 selling expenses). The floor value is $41 ($45 - $4 profit margin). The historical cost of Item A is lower and thus is used in inventory valuation. For Item B, the ceiling value is $48 (sales price of $63 - $15 selling expenses). The floor value is $44 ($48 - $4 profit margin). Replacement cost is used because it isn't above the ceiling for Item B.
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A company counts its inventory and arrives at a total of $167,000. The company fears that some merchandise has been stolen and seeks to estimate the amount of the loss. Sales for the period were $600,000. Gross profit is set by the company at a standard 40% of the sales price. According to ledger balances, inventory on the first day of the year was $150,000 and purchases of $390,000 were made during the period. How much theft has occurred?
If gross profit is 40%, COGS is 60%, meaning that the sales of $600K had a cost of $360K ($600K x 60%). Ending inventory should be $150K beginning inventory plus purchases of $390K minus sales of $360K, for correct ending inventory of $180K. The inventory count only found $167K, for a difference of $13K.
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A company buys 100 units of inventory for $20 each. Later, 90 of these units are sold on credit for $50 each. The company then buys an additional 40 units but the cost has risen to $22 each. The company sells a final 30 units for $55 each. The company uses a moving average system for calculating its cost of goods sold. What should be reported as the cost of the 120 units sold during the year?
The moving average cost of inventory is calculated by recalculating the average cost each time a sale is made. When 90 units are sold, the average cost is $20 per unit. After the second purchase, the remaining units have a total cost of $1,080 (10 x $20 + 40 x $22) and the average cost is $21.6 ($1,080/50 units). The total cost of the sold units is $21.6 x 30 + $20 x 90.
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Of the following, which is not a legitimate method of inventory costing?
There is no such concept of a Discounted Method in inventory valuation.
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Barkley Inc prepaid for an insurance policy on July 31, Year 2, in the amount of $6,000. The entry to adjust the prepaid expense account on December 31, Year 2, would include which of the following?
Barkley needs to recognize insurance expense for 5 months (August-December). Insurance expense should be recorded at $500 per month ($6K/12 months). $500 x 5 months = $2,500, and this should be a credit to prepaid insurance to reduce that asset account.
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Beaumont Inc is finalizing its prepaid insurance account at December 31, Year 3. The account includes $15,000 for a general insurance policy beginning and paid for on December 1, Year 3; $4,000 for an auto policy beginning January 1, Year 4; and $12,000 paid key man life insurance policy running from July 1, Year 2, through June 30, Year 3. What amount should be reported as an expense in Beaumont's Year 3 income statement?
The company should expense what has been incurred as of the end of Year 3. This includes $1,250 for the general insurance policy ($15K/12 months x 1 month) and all $12K of the key man policy.
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Which of the following transactions would be initially recorded in the prepaid expense account?
Annual real estate taxes paid at the beginning of the year would be entered into prepaid taxes and then amortized to expenses throughout the year. Unearned revenue, immaterial prepaid subscriptions, and office supplies for the current period would not go to prepaid expenses.
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Of the following, which would be an intangible asset?
Of the following, goodwill is an intangible asset, R&D is an expense, investments are their own asset class, and leasehold improvements are capitalized.
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Walnut Company received from a customer an 1-year, $200,000 note bearing annual interest of 8%. After holding the note for 8 months, Walnut discounted the note at a local bank at an effective rate of 12%. What is the maturity value of the note?
The maturity value of the note is the principal of $200K plus the interest due of $16K ($200K x 8%).
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Which of the following situations is most likely to be treated as a sale of accounts receivables?
Factoring without recourse means that the original owner of the receivable has no responsibility should the customer never pay. This effectively means the the receivable has been sold.
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On July 1, Year 10, Cabaret Corporation factored $80,000 of its accounts receivable without recourse to Playtime Company. Playtime retains 10% of the accounts receivable as an allowance for sales returns and charges a 5% commission on the gross amount of factored receivables. How much cash did Cabaret receive from factoring its receivables?
A total of 15% was held back by Playtime (10% for the allowance and 5% for the commission). Therefore, Cabaret received $80K x 85% (100% - 15%) = $68K.
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Of the following, which is a method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement?
Aging receivables focuses on the balance sheet and emphasizes assets. It results in a good matching of revenue and expenses.
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Turblad Company has several items in its safe at December 31, Year 1. Which of these items would not be included in Turblad's cash & cash equivalents in its Year 1 balance sheet?
A treasury bill would be considered an investment, not cash or a cash equivalent.
Compare your answer with the correct one above
Barkley Inc prepaid for an insurance policy on July 31, Year 2, in the amount of $6,000. The entry to adjust the prepaid expense account on December 31, Year 2, would include which of the following?
Barkley needs to recognize insurance expense for 5 months (August-December). Insurance expense should be recorded at $500 per month ($6K/12 months). $500 x 5 months = $2,500, and this should be a credit to prepaid insurance to reduce that asset account.
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Globe Company began April of Year 3 with a cash balance of $68,000 in its operating account. During the month of April, Globe issued new checks totaling $14,000 to vendors. Of these newly issued checks, $9,000 cleared the bank in April. Globe also transferred $8,000 to its payroll account to pay employees during the month. Globe received $22,000 in checks from its customers in April and deposited $18,000 of those checks during the month. Also during April $6,000 of checks issued during March of Year 3 cleared the bank. What is Globe's cash balance in its operating account at the end of April, Year 3?
Globe's adjusted cash balance is calculated by taking the beginning balance of $68K - $14K for newly issued checks - $8K transferred to payroll + $18K deposited checks. It is irrelevant when Globe's issued checks actually cleared the bank.
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ABC Company is reconciling its cash balance at December 31, Year 1. Which of the following items would require an adjusting entry to the cash account by ABC Company?
ABC has cancelled its check with the bank, but this adjustment is not yet reflected in its ledger. Therefore, ABC would need to make an adjustment to its ledger to increase its cash balance.
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