# MCQ – 061502NR – 25 Questions

MCQ – 061502NR – 25 Questions

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1. On January 1, 2011, Badger, Inc., adopted the dollar-value LIFO method. The inventory cost on this date was \$100,000. The 2011 ending inventory, valued at year-end costs, was \$126,000. The relative cost index for this inventory in 2011 was 1.05. Suppose that Badger’s 2012 ending inventory, valued at yearend costs, was \$143,000 and that the relative cost index for this inventory in 2012 was 1.10. Also. Suppose that Badger’s 2013 ending inventory, valued at year-end costs, was \$153,600 and that the relative cost index for this inventory in 2013 was 1.20. What inventory balance would Badger report on its 12/31/13 balance sheet?

2. So. California, Inc., through no fault of its own, lost an entire plant due to an earthquake on May 1, 2011. In preparing their insurance claim on the inventory loss, they developed the following data: Inventory January 1, 2011, \$300,000; sales and purchases from January 1, 2011, to May 1, 2011, \$1,300,000 and \$875,000, respectively. So. California consistently reports a 40% gross profit. The estimated inventory on May 1, 2011, is

3. Clarabell, Inc., uses the conventional retail method to estimate ending inventory. Cost data for the most recent quarter is shown below: To the nearest thousand, estimated ending inventory using the conventional retail method is

Cost Retail

4. The Mateo Corporation’s inventory at December 31, 2011, was \$325,000 based on a physical count priced at cost, and before any necessary adjustment for the following:

5. Logistics Company had the following items listed in its trial balance at 12/31/11:

Included in the checking account balance is \$50,000 of restricted cash that Bank of the East requires as a compensating balance for the \$300,000 note. What amount will Logistics include in its year-end balance sheet as cash and cash equivalents?

Balance in checking account, Bank of the East \$442,000

Treasury bills, purchased on 11/1/11, mature on 1/30/12 20,000

Loan payable, long-term, Bank of the East 300,000

6. Wilson Company had the following cash balance items listed in its trial balance at 12/31/11:

If Wilson reports under U.S. GAAP, its 12/31/11 balance sheet would show what cash balance?

Peterson Savings and Loan: \$50,000

Right Bank: (5,000)

Clinton County Trust Bank: 10,000

7. Data below for the year ended December 31, 2011, relates to Houdini Inc. Houdini started business January 1, 2011, and uses the LIFO retail method to estimate ending inventory.

Current period cost-to-retail percentage is

Cost Retail

Beginning inventory \$66,000 \$104,000

Net purchases 280,000 420,000

Net markups 20,000

Net markdowns 40,000

Net sales 375,000

8. False Value Hardware began 2011 with a credit balance of \$32,000 in the allowance for sales returns

account. Sales and cash collections from customers during the year were \$650,000 and \$610,000,

respectively. False Value estimates that 6% of all sales will be returned. During 2011, customers returned

merchandise for credit of \$28,000 to their accounts.

False Value’s 2011 income statement would report net sales of

9. Baker Inc. acquired equipment from the manufacturer on 10/1/11 and gave a noninterest-bearing note in

exchange. Baker is obligated to pay \$918,000 on 4/1/12 to satisfy the obligation in full. If Baker accrued

interest of \$9,000 on the note in its 2011 year-end financial statements, what is its imputed annual interest

rate?

10. False Value Hardware began 2011 with a credit balance of \$32,000 in the allowance for sales returns account. Sales and cash collections from customers during the year were \$650,000 and \$610,000, respectively. False Value estimates that 6% of all sales will be returned. During 2011, customers returned merchandise for credit of \$28,000 to their accounts.

What is the balance in the allowance for sales returns account at the end of 2011?

11. Sullivan Corporation has determined its year-end inventory on a FIFO basis to be \$500,000.

Information pertaining to that inventory is as follows:

What should be the carrying value of Sullivan’s inventory if the company prepares its financial statements

12. GG, Inc., uses LIFO. GG disclosed that if FIFO had been used, inventory at the end of 2011 would have been \$15 million higher than the difference between LIFO and FIFO at the end of 2010. Assuming GG has a 40% income tax rate, its reported

13. On January 1, 2011, Badger, Inc., adopted the dollar-value LIFO method. The inventory cost on this date was \$100,000. The 2011 ending inventory, valued at year-end costs, was \$126,000. The relative cost index for this inventory in 2011 was 1.05. What inventory balance should Badger report on its 12/31/11

balance sheet?

14. Nu Company reported the following pretax data for its first year of operations.

Net sales 2,800

Cost of goods available for sale 2,500

Operating expenses 880

Effective tax rate 40%

Ending inventories:

If LIFO is elected 820

If FIFO is elected 1,060

What is Nu’s gross profit ratio if it elects LIFO?

15. The following information pertains to Jacobsen Co.’s accounts receivable at December 31, 2011:

During 2011, Jacobsen wrote off \$18,000 in receivables and recovered \$6,000 that had been written off in

prior years. Jacobsen’s December 31, 2010, allowance for uncollectible accounts was \$40,000. Under the aging method, what amount of allowance for uncollectible accounts should Jacobsen report at December

31, 2011?

Days

Outstanding Amount

Estimated %

Uncollectible

0-30 \$420,000 2%

31-60 140,000 5%

61-120 100,000 10%

Over 120 120,000 20%

17. Northwest Fur Co. started 2011 with \$94,000 of merchandise inventory on hand. During 2011, \$400,000 in merchandise was purchased on account with credit terms of 1/15, n/45. All discounts were taken. Purchases were all made f.o.b. shipping point. Northwest paid freight charges of \$7,500.

Merchandise with an invoice amount of \$5,000 was returned for credit. Cost of goods sold for the year

was \$380,000. Northwest uses a perpetual inventory system.

Assuming Northwest uses the gross method to record purchases, what is the cost of goods available for

sale?

18. On January 1, 2011, Badger, Inc., adopted the dollar-value LIFO method. The inventory cost on this date was \$100,000. The 2011 ending inventory, valued at year-end costs, was \$126,000. The relative cost index for this inventory in 2011 was 1.05.

Suppose that Badger’s 2012 ending inventory, valued at yearend costs, was \$143,000 and that the relative cost index for this inventory in 2012 was 1.10. In determining the inventory balance should Badger report in its 12/31/12 balance sheet:

19. HH Company uses LIFO. HH disclosed that if FIFO had been used, inventory at the end of 2011 would have been \$20 million lower than the difference between LIFO and FIFO at the end of 2010.

Assuming HH has a 30% income tax rate

20. At December 31, 2010, Gill Co reported accounts receivable of \$216,000 and an allowance for uncollectible accounts of \$8,400. During 2011, accounts receivable increased by \$22,000, and \$7,800 of bad debts were written off. An analysis of Gill Co.’s December 31, 2011, accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for 2011

would be

21. Nu Company reported the following pretax data for its first year of operations.

What is Nu’s net income if it elects LIFO?

Net sales 2,800

Cost of goods available for sale 2,500

Operating expenses 880

Effective tax rate 40%

Ending inventories:

If LIFO is elected 820

If FIFO is elected 1,060

22. Frasquita acquired equipment from the manufacturer on 6/30/11 and gave a noninterest-bearing note in exchange. Frasquita is obligated to pay \$550,000 on 4/30/12 to satisfy the obligation in full. If Frasquita accrued interest of \$15,000 on the note in its 2011 year-end financial statements, at what amount would it record the equipment on its 6/30/11 balance sheet?

23. Wilson Company had the following cash balance items listed in its trial balance at 12/31/11:

If Wilson reports under IFRS, its 12/31/11 balance sheet would show what cash balance?

Peterson Savings and Loan: \$50,000

Right Bank: (5,000)

Clinton County Trust Bank: 10,000

24. Nueva Company reported the following pretax data for its first year of operations.

Net sales 7,340

Cost of goods available for sale 5,790

End of exam

What is Nueva’s gross profit ratio (rounded) if it elects FIFO?

Operating expenses 1,728

Effective tax rate 40%

Ending inventories:

If LIFO is elected 618

25. Prunedale Co. uses a periodic inventory system. Beginning inventory on January 1 was overstated by \$32,000, and its ending inventory on December 31 was understated by \$62,000. These errors were not discovered until the next year. As a result, Prunedale’s cost of goods sold for this year was