Question

Angle Inc. announces that its gross profit rose 5% but its income before income taxes fell. Which of the following statements is correct?

This must mean that cost of goods sold fell.

This is not possible given that net income is determined by gross profit.

This must mean that sales revenue rose more than expenses.

Which of the following accounts would normally have a credit balance?

Sales

Inventory

Sales returns & allowances

Cost of goods sold

This must mean that selling, general, and administrative expenses increased by more than 5%.

Alphabet Company buys different letters for resale. It buys A thru J on January 1 at $4 per letter, and sells C on January 15. On February 1, it buys K and L at $6 per letter and sells A and K on February 9. It then buys M thru O on March 1 at $7 per letter and sells F, L, M, N, and O on March 19. If the company uses the LIFO method on a perpetual basis, what is the cost of goods sold for the three months ended March 31 (rounded to the nearest dollar)?

$56

$41

$32

$45

Which of the following statements regarding the lower of cost or market rule is not true?

Lower of cost or market is an inventory cost method used to determine cost of goods sold and ending inventory.

The lower of cost or market rule sometimes causes the book value of inventory to be written down below cost, but will never cause the book value of inventory to be increased above cost.

The lower of cost or market rule is based on the conservatism concept.

The amount of inventory write-down is an expense which most companies report as cost of goods sold.

Your company uses the aging of accounts receivable method. Net credit sales are unchanged from last year, the year-end balance in Accounts Receivable is unchanged from the previous year's ending balance, and there were no write-offs during the current year. The company previously averaged about 20% of its total accounts receivable in the "over 90 days past due" category and now has 35% in this category at the end of the current year. The dollar amount of the adjustment to record Bad Debt Expense in the current year:

decline, thus increasing the ending balance of the Allowance for Doubtful Accounts account.

increase, thus increasing the ending balance of the Allowance for Doubtful Accounts account.

increase, thus reducing the ending balance of the Allowance for Doubtful Accounts account.

decline, thus reducing the ending balance of the Allowance for Doubtful Accounts account.

Harney Inc. uses the percentage of credit sales method of estimating doubtful accounts. The Allowance for Doubtful Accounts has an unadjusted credit balance of $2,700 and the company had $140,000 of net credit sales during the period. Harney has experienced bad debt losses of 4% of credit sales in prior periods. After making the adjusting entry for estimated bad debts, what is the ending balance in the Allowance for Doubtful Accounts account?

$2,900

$5,400

$5,600

$8,300

Answer 1

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