Achievement Test 3: Chapters 5 and 6 Name _________________________

Accounting Principles, 10e Instructor ______________________

Weygandt, Kieso, & Kimmel Section # _______ Date _________

Part I II III IV V Total

Points 36 26 18 10 10 100

Score

PART I — MULTIPLE CHOICE (36 points)

Instructions: Designate the best answer for each of the following questions.

____ 1. When a customer returns merchandise purchased on credit, the:

a. customer should credit Accounts Payable.
b. seller should credit Sales Returns and Allowances.
c. customer should credit Accounts Receivable.
d. None of the above.

____ 2. Credit terms of 2/10, n/30 mean that:

a. a 2% cash discount may be taken if payment is made within 10 days of the invoice
date; otherwise the full amount is due within 30 days.
b. a 10% cash discount may be taken if payment is made immediately; a 2% discount
if paid within 30 days.
c. a 2% cash discount may be taken if payment is made within 10 days of the invoice
date; otherwise the full amount is due at the end of the month.
d. an additional amount equal to 2% of the invoice price must be paid if payment is
not received within 10 days; the account is overdue after 30 days.

____ 3. A periodic inventory system:

a. requires the use of a cost of goods sold account throughout the year.
b. allows for the determination of cost of goods sold after each sale.
c. traditionally has been used with low unit-value items.
d. requires that detailed inventory records be kept.

____ 4. In accordance with the revenue recognition principle, sales revenues are recorded
when:
a. the accountant determines which period's income statement "needs" more
revenue.
b. earned, which typically occurs when the goods are transferred from the seller to
the buyer.
c. cash is received from the customer for items already delivered.
d. an order is received from a customer with delivery of the product expected to take
place within the next 30 days.
AT3- 2 Test Bank for Accounting Principles, Tenth Edition

____ 5. Expenses that relate to such activities as personnel management, accounting, and
office security generally should appear in a multiple-step income statement in the:
a. selling expenses section.
b. cost of goods sold section.
c. administrative expenses section.
d. nonoperating section.

____ 6. When a seller grants credit for returned goods, the account that is credited is:
a. Sales Revenue.
b. Sales Returns and Allowances.
c. Inventory.
d. Accounts Receivable.

____ 7. Freight terms of FOB shipping point mean that the:

a. seller must bear the freight costs.
b. buyer must bear the freight costs.
c. seller must debit freight out.
d. goods are placed free on board at the buyer's place of business.

____ 8. With regard to accounting for a merchandising company versus a service enterprise,
which of the following is false?
a. There are just as many steps as in the accounting cycle for a merchandising
company.
b. Additional accounts and entries are typically required for a merchandising
company.
c. Both retail and wholesale enterprises generally use accounting techniques of a
merchandising company.
d. The process of measuring net income is conceptually different.

____ 9. With regard to the accounts used to record freight costs:

a. Freight-out is a contra account to Sales Revenue.
b. Freight-out is added to Cost of Goods Sold.
c. Freight-out's normal balance is a debit.
d. Freight-out is recorded when freight terms are FOB shipping point.

____ 10. The Sales Returns and Allowances account:

a. is used by a merchandising company, but not a service enterprise.
b. normally has a credit balance.
c. should not be closed at the end of the period.
d. is a contra account to Accounts Receivable.

____ 11. Theisman Company reported the following balances at January 31, 2012:
Sales Revenue $16,700
Sales Returns and Allowances 350
Sales Discounts 280
Cost of Goods Sold 9,200
Net sales for the month is:
a. $16,070.
b. $6,870.
c. $16,350.
d. $16,700.
 Achievement Test 3 AT3- 3

____ 12. Which of the following accounts is not included in the computation of net sales?
a. Freight-out.
b. Sales Discounts.
c. Sales Revenue.
d. Sales Returns and Allowances.

____ 13. Given the following information, compute the amount of cash finally remitted by the
customer.
Feb. 14—Sale on credit, terms of 1/15, n/30—$12,000
Feb. 19—Allowance granted due to some items being damaged—$600
Feb. 21—Payment in full received from customer—$?
a. $11,996.
b. $12,000.
c. $11,286.
d. $11,400.

____ 14. Christensburg Trucking Company's inventory records show the following data:
Units Unit Cost
Inventory January 1 3,000 $7.00
Purchases: May 14 4,100 6.00
October 30 3,900 5.00
A physical inventory on December 31 shows 2,000 units on hand. Under the FIFO
method, the December 31 inventory is:
a. $12,000.
b. $14,000.
c. $11,840.
d. $10,000.

____ 15. Which statement is false regarding the lower of cost or market (LCM) method of
inventory?
a. Market is defined as current replacement cost, not selling price.
b. LCM is an example of the accounting concept of conservatism.
c. LCM can be applied to individual items listed on the inventory summary sheets.
d. All of the above are true regarding LCM.

____ 16. Legget Department Store utilizes the retail inventory method to estimate its
inventories. It calculated its cost to retail ratio during the period at 80%. Goods
available for sale at retail amounted to $600,000 and goods were sold during the
period for $420,000. The estimated cost of the ending inventory is:
a. $180,000.
b. $144,000.
c. $480,000.
d. $225,000.

____ 17. Goods in transit should be included in the inventory of the:

a. seller when the terms are FOB shipping point.
b. buyer when the terms are FOB destination.
c. buyer when the terms are FOB shipping point.
d. transportation company when the terms are FOB destination.
AT3- 4 Test Bank for Accounting Principles, Tenth Edition

____ 18. The ending inventory of Larson Company, which uses a periodic inventory system,
was understated $14,000 on December 31, 2012, and overstated $6,000 on
December 31, 2013. Because of these errors, 2013 net income was:
a. overstated $20,000.
b. understated $8,000.
c. overstated $6,000.
d. understated $20,000.

PART II — JOURNAL ENTRIES (26 points)

The ledger accounts given below, with an identification number for each, are used by Kiner
Company which uses a perpetual inventory system.
Instructions: Prepare appropriate entries for the month of August by placing the appropriate
identification number(s) in the debit and credit columns provided and the dollar amounts
pertaining to each account in the adjoining columns.
1. Cash 7. Accounts Payable
2. Accounts Receivable 8. Sales Returns and Allowances
3. Notes Receivable 9. Sales Discounts
4. Inventory 10. Sales Revenue
5. Supplies 11. Cost of Goods Sold
6. Land 12. Freight-out
———————————————————————————————————————————
Account(s) Account(s) Debit Credit
Entry Information Debited Credited Amount(s) Amount(s)
———————————————————————————————————————————
0. Aug. 1 Sold merchandise for cash $300. 1 10 $300 $300
The cost of the merchandise sold
was $200. 11 4 200 200
1. Aug. 2 Purchased merchandise from
ABC Co. on account for $4,000;
terms 1/10, n/30.
2. Aug. 4 Sold excess land for $10,000
accepting a 2-year, 12% note.
The land was purchased for
$10,000 last year.
3. Aug. 6 Sold merchandise to D. Riley
on account for $1,400, terms 1/10,
n/30. D. Riley will pay $50 freight
costs per the shipping terms. The
merchandise sold cost $700.
4. Aug. 8 Accepted a sales return of defective
merchandise from D. Riley—credit
granted was $200. The returned
merchandise cost $100.
5. Aug. 11 Purchased merchandise from
Tanner Hardware on account for
$3,000; terms 2/10, n/30.
 Achievement Test 3 AT3- 5

6. Aug. 12 Paid freight of $300 on the shipment

from ABC Co. per the shipping terms.
7. Aug. 15 Received payment in full from D.
Riley.
8. Aug. 19 Paid ABC Co. in full.
9. Aug. 20 Paid Tanner Hardware in full.
10. Aug. 27 Purchased office supplies for $300
cash.

———————————————————————————————————————————
PART III — BASIC INVENTORY COMPUTATIONS (18 points)
Vaughn Company, which uses a periodic inventory system, had a beginning inventory on May 1,
of 300 units of Product A at a cost of $6.25 per unit. During May, the following purchases and
sales were made.

Purchases Sales
May 6 300 units at $7.20 May 4 275 units
14 400 units at $9.10 8 300 units
21 100 units at $11.50 22 400 units
28 500 units at $11.80 24 225 units
1,300 1,200

Instructions: Compute the May 31 ending inventory and May cost of goods sold under (a)
Average Cost, (b) FIFO, and (c) LIFO. Provide appropriate supporting calculations.

1. Average – Ending Inventory = $_________; Cost of Goods Sold = $_________.

2. FIFO – Ending Inventory = $_________; Cost of Goods Sold = $_________.

3. LIFO – Ending Inventory = $_________; Cost of Goods Sold = $_________.

AT3- 6 Test Bank for Accounting Principles, Tenth Edition

PART IV — CLOSING ENTRIES (10 points)

Below is a partial listing of accounts in the general ledger of Denton Co.

Instructions: Place an X in the appropriate column to designate whether the account should be
closed at year end and, if so, whether the appropriate closing entry would require a debit or credit
to the account.
———————————————————————————————————————————
Not Closed
Account Closed Debit Credit
———————————————————————————————————————————
1. Interest Expense .............................................................. ___ ___ ___

2. Freight-out ....................................................................... ___ ___ ___

3. Owner’s Capital ............................................................... ___ ___ ___

4. Inventory.......................................................................... ___ ___ ___

5. Sales Returns and Allowances ........................................ ___ ___ ___

6. Owner’s Drawing ............................................................. ___ ___ ___

7. Cost of Goods Sold.......................................................... ___ ___ ___

8. Sales Discounts ............................................................... ___ ___ ___

9. Sales Revenue ................................................................ ___ ___ ___

10. Accumulated Depreciation ............................................... ___ ___ ___

 Achievement Test 3 AT3- 7

PART V — INVENTORY: SHORT PROBLEMS (10 points)

Instructions: Complete the requirements specified for each of the following independent
situations.

1. State the missing items identified by “?”.

A. ? + Purchases – Purchases discounts – Purchases returns and allowances

+ Freight-in = ?

B. Net purchases + ? = Cost of goods purchased

C. Net purchases + ? + ? = Purchases

2. Pettitte Company uses the lower of cost or market (LCM) basis for its inventory. The
following information relates to its December 31, 2012, inventory. Determine the amount of
the ending inventory applying LCM to individual items.

December 31, 2012

Product Units Unit Cost Market
A 600 $17 20
B 350 28 25
C 400 15 17
D 250 31 29
E 380 20 19
AT3- 8 Test Bank for Accounting Principles, Tenth Edition

Solutions — Achievement Test 3: Chapters 5 and 6

PART I — MULTIPLE CHOICE (36 points)

1. d 4. b 7. b 10. a 13. c 16. b
2. a 5. c 8. d 11. a 14. d 17. c
3. c 6. d 9. c 12. a 15. d 18. a

PART II — JOURNAL ENTRIES (26 points)

Account(s) Account(s) Debit Credit
Debited Credited Amount(s) Amount(s)
0. 1 10 $ 300 $ 300
11 4 200 200
1. 4 7 4,000 4,000
2. 3 6 10,000 10,000
3. 2 10 1,400 1.400
11 4 700 700
4. 8 2 200 200
4 11 100 100
5. 4 7 3,000 3,000
6. 4 1 300 300
7. 1 2 1,188 1,200
9 12
8. 7 1 4,000 4,000
9. 7 4 3,000 60
1 2,940
10. 5 1 300 300

PART III — BASIC INVENTORY COMPUTATIONS (18 points)

1. Average ending inventory: Average cost of goods sold
400 × $9.20 = $3,680 Cost of goods available for sale $14,725
Less: Ending inventory 3,680
$14,725
Average cost = ———— = $9.20 Cost of goods sold $11,045
1,600

2. FIFO ending inventory: FIFO cost of goods sold

400 × $11.8 = $4,720 Cost of goods available for sale $14,725
Less: Ending inventory 4,720
Cost of goods sold $10,005

3. LIFO ending inventory: LIFO cost of goods sold

300 × $6.25 = $1,875 Cost of goods available for sale $14,725
100 × $7.20 = 720 Less: Ending inventory 2,595
$2,595 Cost of goods sold $12,130
 Achievement Test 3 AT3- 9

PART IV — CLOSING ENTRIES (10 points)

———————————————————————————————————————————
Not Closed
Account Closed Debit Credit
———————————————————————————————————————————
1. Interest Expense ........................................................ X
2. Freight-out .................................................................. X
3. Owner’s Capital .......................................................... X
4. Inventory .................................................................... X
5. Sales Returns and Allowances ................................... X
6. Owner’s Drawing ....................................................... X
7. Cost of Goods Sold .................................................... X
8. Sales Discounts.......................................................... X
9. Sales Revenue ........................................................... X
10. Accumulated Depreciation .......................................... X

PART V — INVENTORY: SHORT PROBLEMS (10 points)

1. A. Beginning inventory, Cost of goods available for sale.
B. Freight-in.
C. Purchases discounts, Purchases returns and allowances.

2. Product Units LCM Total

A 600 $17 $ 10,200
B 350 25 8,750
C 400 15 6,000
D 250 29 7,250
E 380 19 7,220
$39,420