Question

7. Michael Jackson's Strings uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below:

Cost       Retail

Beginning inventory        $46,000               $63,000

Net purchases    154,000               215,000

Net markups                      22,000

Net markdowns                35,000

Net sales                            220,000

To the nearest thousand, estimated ending inventory using the conventional retail method is

  A. $30,000.

   B. $32,000.

   C. $34,000.

   D. $37,000.

8.   Mario Brothers Company adopted the dollar-value LIFO inventory method on January 1, 2015. In applying the LIFO method, Mario Brothers uses internal cost indexes and the multiple-pools approach. The following data were available for Inventory Pool No. 3 for the two years following the adoption of LIFO:

Ending Inventory

At Current           At Base

Year       Cost       Year Cost             Cost Index

1/1/2015             $300,000             $300,000             1.00

12/31/2016         345,600               320,000               1.08

12/31/2017         420,000               350,000               1.20

Under the dollar-value LIFO method, the inventory at December 31, 2016, should be:

A. $351,600.                         D. $357,600.

   B. $600,120.                       C. $350,000.

9.   Thatch Fencing Company sold $46,000 of fencing to Southeast Water District #45 on April 12 of the current year with terms 1/15, n/60. Thatch uses the gross method of accounting for cash discounts.

What entry would Thatch make on April 12?

A.

Accounts receivable        45,540

Sales                     45,540

    B.

Accounts receivable        46,000

Sales                     46,000

    C.

Accounts receivable        46,000

Sales                     45,540

Sales discounts                 460

    D.

Accounts receivable        45,540

Sales discounts                 460

Sales                     46,0004

10.   Lingua Company reported the following pretax data for its first year of operations.

Net sales             7,340

Cost of goods available for sale   5,790

Operating expenses         1,728

Effective tax rate              40%

Ending inventories:

If LIFO is elected               618

If FIFO is elected               798

What's Lingua's net income if it elects LIFO?

A. $264

   B. $440

   C. $620

   D. $372

11.   When using the gross profit method to estimate ending inventory, it's not necessary to know

   A. net purchases.

   B. beginning inventory.

   C. net sales.

   D. cost of goods sold.

12.   Tannis Design began 2015 with accounts receivable of $115,000. All sales are made on credit. Sales and cash collections from customers for the year were $780,000 and $700,000, respectively. Cost of goods sold for the year was $450,000. What was Tannis's receivables turnover ratio (rounded) for 2015?

   A. 4.00

   B. 2.90

   C. 6.78

   D. 5.03

13.   San Juan Company had the following account balances at December 31, 2015, before recording bad debt expense for the year:

Accounts receivable        $1,400,000

Allowance for uncollectible accounts (credit balance)       22,000

Credit sales for 2015       1,950,000

San Juan is considering the following approaches for estimating bad debts for 2015:

Based on 3% of credit sales

Based on 6% of year-end accounts receivable

What amount should San Juan charge to bad debt expense at the end of 2015 under each method?

   

   A. Percentage of credit sales: $58,500; percentage of accounts receivable: $62,000

   B. Percentage of credit sales: $117,000; percentage of accounts receivable: $95,000

   C. Percentage of credit sales: $58,500; percentage of accounts receivable: $84,000

   D. Percentage of credit sales: $36,500; percentage of accounts receivable: $62,000

Answer 1

7. A. $30000
	Cost	Retail
Beginning Inventory	$46,000	$63,000
Net purchases	$154,000	$215,000
Net markups		$22,000
Total	$200,000	$300,000
Cost/retail ratio	$200,000/$300,000		67%
Cost of goods available for sale	$200,000	$300,000
Sales		($220,000)
Net markdowns		($35,000)
Ending inventory		$45,000
Cost to retail ratio		67%
Ending inventory	$30,000
8. D. 357,600
Date	Cost at current	Cost at base	Price Index	Change from prior year
1/1/2015	$300,000	$300,000	1	$0
12/31/2016	$345,600	$320,000	1.08	$20,000
12/31/2017	$420,000	$350,000	1.2	$30,000
1/1/2015
$300,000 @ 1.00	$300,000
31/12/2016
$300000 @ 1.00	$300,000
$20000 @ 1.08	$        21,600
	$321,600
31/12/2017
$300000 @ 1.00	$300,000
$20000 @ 1.08	$        21,600
$30000 @ 1.20	$        36,000
Dollar value of ending inventory	$357,600
9. B. Accounts receivable	$46,000
Sales		$46,000
Undet gross method, discount is recorded only when the customer take the advantage of the offer,
pay within that period or days
10. A. $264
Cost of goods available for sale	$5,790
Less: ending inventory	($618)
Cost of goods sold	$5,172
Net sales	$7,340
Less: Cost of goods sold	($5,172)
Operating expenses	($1,728)
Profit before tax	$440
Less: Income tax @ 40%	$176
Net profit	$264
11. D. Cost of goods sold
Under this method, we know the gross profit percentage and can calculate the cost of goods sold accordingly.
12. D. 5.03
Receivable turnover ratio = Net credit sales/average accounts receivables
Cash collection	$700,000
Less: beginning accounts receivable	($115,000)
Cash collected from current year sales	$585,000
Credit sales	$780,000
Ending Accounts receivables	$195,000
Average accounts receivable = $115,000+$195,000/2 =$155,000
Receivable turnover ratio = $780,000/$155,000 = 5.03
13. C. Percentage of credit sales: $58500; percentage of accounts receivable : $84000
$1950000 x 3% = $58500
$1400000 x 6% = $84000