Solved by verified expert :Penn Foster 06100901 Financial Accounting (Part 8) Questions 1–25: Select the one best answer to each question. 1. Assume that the Dinnerbell Company currently owns 20 shares of the Bankard Company’s common stock and that the Bankard Company’s board of directors declared a $2.50 per share dividend on May 15 that will be paid on June 15 to the stockholders of record on May 24. The entry that Dinnerbell should make on May 15 isA. No entry is required on May 15. B. Dividends Receivable $50.00 Dividend Income $50.00 C. Cash $50.00 Dividends Receivable $50.00 D. Dividends Receivable $50.00 Cash $50.00 Base your answers to questions 2 and 3 on the following information. The following purchases and sales of item L211 were made by the Davis Supply Store during 20X1. On January 1, 20X1, the inventory of this item was 300 units at a unit cost of $75. Purchases Date Units Cost Units Sold2-Feb 200 16,00010-Feb 12022-Mar 8527-Mar 190 14,8203-May 17519-May 5027-Jun 200 16,20015-Jul 21014-Aug 150 12,3003-Sep 1004-Sep 2510-Nov 200 16,6006-Dec 150 REQUIRED: Using the FIFO inventory method, complete the perpetual inventory control record at the back of this unit and then answer question 2. Note that the January 1 balance and the February 2 and 10 transactions have been filled in on the record. 2. The inventory balance at December 31, 20X1, under the FIFO method is comprised of A. 25 units purchased at $80 and 300 units purchased at $75. B. 125 units purchased at $82 and 200 units purchased at $83. C. 200 units purchased at $82 and 125 units purchased at $83. D. 325 units purchased at $83. 3. Assume that the Davis Supply Store uses the periodic inventory system. The ending inventory balance at December 31, 20X1, under the LIFO inventory method would be comprised of A. 200 units purchased at $83 and 125 units purchased at $81. B. 325 units purchased at $83. C. 325 units purchased at $75. D. 300 units purchased at $75 and 25 units purchased at $80. Base your answers to questions 4 through 6 on the following information. The May 31, 20X3, inventory records of Carson’s Supply Center show the data below. Unit Price Item Quantity Cost MarketAutomotive: Mufflers 52 18.00 17.50Batteries 42 14.00 14.25Oil Filters 73 2.50 2.40Lawn furniture: Chairs 42 8.00 7.75Tables 33 10.00 10.50Swings 27 12.50 13.00Garden tools: Rakes 85 3.50 3.25Shovels 62 3.25 3.50Hoes 72 3.50 3.25 REQUIRED: Using the work sheet at the back of this unit, compute the dollar amount of the ending inventory at the lower of cost or market value, and then answer questions 4 through 6. In computing the dollar amounts, you should apply the following methods: 1) Item-by-item method 2) Group method 3) Total inventory method 4. The inventory valuation as calculated under the item-by-item (each item) method isA. $3,414.45. B. $3,408.75. C. $3,377.95. D. $3,362.55. 5. The inventory valuation as calculated under the group (each category) method is A. $3,362.55. B. $3,377.95. C. $3,402.75. D. $3,414.45. 6. The inventory valuation as calculated under the total inventory method is A. $3,414.45. B. $3,433.95. C. $3,502.85. D. $3,519.65. Base your answer to question 7 on the following data obtained from the records of the Quality Men’s Shop as of December 31, 20X1. Inventory—December 31, 20X0: Cost 15,210Selling price 28,420Purchases: Cost 93,450Selling price 154,900Transportation-in 1,560Returns: Purchases: Cost 2,220Selling price 3,320Sales 173,500 REQUIRED: Using the work sheet provided at the back of this unit, compute the December 31, 20X1, inventory at cost, using the retail inventory method. Then answer the following question. 7. The ending inventory at cost is A. $10,833. B. $6,500. C. $3,900. D. $2,600. Base your answer to question 8 on the following account balances taken from the ledger of the Wizard Company as of December 31, 20X3. Sales 725,200 Sales returns and allowances 15,240Purchases 529,210 Transportation-in 5,900 Purchase returns and allowances 4,750 Merchandise inventory, December 31, 20X2 90,450 REQUIRED: The gross profit was 30% of net sales in all previous years. Prepare an estimate of the December 31, 20X3, inventory, using the work sheet provided at the back of this unit, and then answer question 8. 8. The estimated December 31, 20X3, inventory, computed by using the gross-profit method of estimating inventories is A. $123,838. B. $117,938. C. $113,170. D. $111,210. Base your answer to question 9 on the following information taken from the records of the Dickinson Office Supply Company, pertaining to calculators it had in inventory: Units Price Total AmountBeginning inventory Jan. 1, 20X3 40 80 3,200Purchase Jan. 8, 20X3 30 81 2,430Purchase Jan. 13, 20X3 30 81 2,430Purchase Jan. 18, 20X3 40 81 3,240Purchase Jan. 22, 20X3 30 84 2,520Purchase Jan. 27, 20X3 30 86 2,580 9. There were 30 calculators on hand in inventory as of January 31, 20X3. Which of the following is the correct inventory valuation, using the average cost method? A. $2,400 B. $2,460 C. $2,580 D. $2,610 10. Dandy Dan’s Variety Store had an error in its December 31, 20X4, balance sheet. The ending inventory was listed at a value of $40,000 instead of $38,000. Assuming that there are no other errors, which of the following is a true statement concerning the following year’s financial statements prepared on December 31, 20X5?A. The cost of goods sold for the year will be overstated.B. The ending inventory on the balance sheet will be overstated.C. The net income for the year will be overstated.D. The beginning inventory on the balance sheet will be understated.11. If the ending inventory is overstated on a balance sheet, which of the following items will also be misstated on the balance sheet?A. Total long-term assetsB. Total current assetsC. Cost of goods soldD. Cash12. The Phillips Company is in the process of converting to a cost price basis its inventory taken at retail. The pertinent facts are as follows: At Cost At Retail Purchases 90,100 156,900Beginning inventory 32,900 54,100 Transportation-in 3,600 Ending inventory 30,000 The estimated cost value of the ending inventory, as determined by applying the cost-to-retail ratio, is A. $16,977. B. $18,000. C. $20,000. D. $21,300. 13. A company that uses the perpetual inventory accounting method must useA. a Purchases account to record inventory acquisitions. B. the FIFO inventory valuation method. C. a hand-posted ledger account system. D. an inventory card for each item in the inventory. 14. On February 1, 20X1, Dawson Brothers purchased as a short-term investment five $1,000 Doyle Publishing Company 20-year 6% bonds at 98 plus a brokerage fee of $40. Bond interest is paid semiannually on February 1 and August 1. Which of the following journal entries correctly records this purchase on February 1, 20X1? A. Short-Term Investments—Bonds $4,940 Cash $4,940B. Short-Term Investments—Bonds $4,940 Bond Interest Receivable 150 Cash $5,090C. Short-Term Investments—Bonds $4,900 Cash $4,900D. Short-Term Investments—Bonds $4,900 Bond Interest Receivable 150 Cash $5,050 15. On February 1, 20X1, as a short-term investment, the Friedman Company purchased 20 Lynch Corporation bonds having a face value of $1,000 each at 98 plus accrued interest. Interest on these 6% Lynch Corporation bonds is paid semiannually on January 1 and July 1. Which of the following journal entries represents the correct recording of this transaction? A. Short-Term Investment—Bonds 20,000 Bond Interest Receivable 100 Cash 20,100B. Short-Term Investment—Bonds 19,600 Bond Interest Receivable 100 Cash 19,700 C. Short-Term Investment—Bonds 20,000 Bond Interest Receivable 600 Cash 20,600D. Short-Term Investment—Bonds 19,600 Bond Interest Receivable 600 Cash 20,200 16. On February 15, 20X1, the Sanders Company purchased 900 shares of Carney Brothers common stock at $12 per share as a short-term investment. The $12 price included a dividend of $0.25 per share. The dividend was declared on February 10 and payable to holders of record as of February 20. Dividend checks were disbursed on February 28 and received by Sanders Company on March 2. On June 12, 300 shares of Carney Brothers common stock were sold for 183/4. The correct journal entry to record the June 12 transaction is A. Cash 3,600 Short-Term Investment—Stocks 3,600 B. Cash 5,625 Short-Term Investment—Stocks 3,600 Gain on Sale of Securities 2,025 C. Cash 5,625 Short-Term Investment—Stocks 5,625 D. Cash 5,625 Short-Term Investment—Stocks 3,525 Gain on Sale of Securities 2,100 17. Which of the following items would not be affected by an inventory valuation error? A. Total liabilities B. Net income C. Retained earnings D. Cost of goods sold 18. On June 15, 20X1, the board of directors of the Harford Company declared a dividend on outstanding common stock of $1.25 per share payable on July 31, 20X1, to stockholders of record on July 11, 20X1. Under which of the following situations would you be entitled to the dividend declared by the Harford Company? 1) You purchased Harford’s stock on July 9 and sold it on August 1. 2) You purchased Harford’s stock on July 1 and sold it on July 20. 3) You purchased Harford’s stock on July 1 and sold it on August 5. 4) You purchased Harford’s stock on July 9 and sold it on July 20. You would be entitled to the dividend inA. situation 3.B. situations 2 and 3.C. situations 1, 2, and 3.D. situations 1 and 3.19. Assume that Browny Company purchased 100 shares of the Dumbstone Company’s common stock at a total cost of $80 per share. Assume also that this purchase price includes the right to a dividend of $1.75 per share which has been declared but not yet paid. The necessary entry to record this purchase on Browny’s books would be A. Short-Term Investments—Stocks 8,000 Dividends Receivable 175 Cash 8,175 B. Short-Term Investments—Stocks 7,825 Dividends Receivable 175 Cash 8,000 C. Short-Term Investments—Stocks 8,000 Dividends Receivable 175 Cash 7,825 D. Short-Term Investments—Stocks 8,175 Dividend Revenue 175 Cash 8,000 20. The Advark Company’s portfolio of short-term investments consists of the following securities: Marketable Securities Acquisition Cost Current Market Value Bangle Company—Stocks 12,500 14,000 Starfly Company—Stocks 8,700 7,000 Downtree Company—Stocks 17,800 17,500 The net amount that should appear on Advark’s balance sheet for short-term investments would beA. $37,000.B. $38,000.C. $38,500.D. $39,000.21. During its first year of operation, the Fast and Fancy Company purchased short-term investments for a total cost of $89,700. At the end of its first year of operation, the company needs to prepare financial statements. The cost of its portfolio is still $89,700 at year’s end, but the market value of the portfolio has declined to $85,000. No entry has been made up to this time to reflect any difference in the cost and market values of the portfolio. The adjusting entry required to reflect this information on the soon-to-be-prepared financial statements would be A. Decline in Value of Short-Term Investments $ 4,700 Allowance for Decline in Value of Short-Term Investments $ 4,700B. Decline in Value of Short-Term Investments $85,000 Allowance for Decline in Value of Short-Term Investments $85,000 C. Allowance for Decline in Value of Short-Term Investments $ 4,700 Decline in Value of Short-Term Investments $ 4,700 D. None of the above because no entry would be required. 22. Assume that the Uptown Company purchased the bonds of the Antel Company. These bonds have a total face value of $4,000, a stated annual interest rate of 18%, and interest payment dates of September 1 and March 1. Uptown purchased these bonds on July 1 at 96 plus four months of accrued interest and a brokerage fee of $50. The entry to record the receipt of interest on September 1 on Uptown’s books would be A. Cash $360 Bond Interest Income $360 B. Cash $360 Bond Interest Receivable $360 C. Cash $360 Bond Interest Receivable $240 Bond Interest Income $120 D. Cash $720 Bond Interest Receivable $240 Bond Interest Income $480 Base your answers to questions 23 and 24 on the following information. The following information about the bonds of the Rmart Company was found in the pages of the New York Times. Current Yield Sales in $1,000 Last ChangeRmart 91/2 X8 9.9 148 101 3/4 – ¾23. If you purchased 10 Rmart bonds outstanding that had a total face value of $10,000, how much cash would you receive for interest from the Rmart Company each year?A. $990.00B. $980.00C. $950.00D. $101.7524. If each Rmart bond has a face value of $1,000, the change in the market value of each bond from the prior trading day was aA. decrease of $75.00.B. decrease of $20.00.C. decrease of $7.50.D. decrease of $0.75.25. The Sheeba Company issued bonds with a face value of $1,000 and with a stated rate of interest of 18% per year. The interest payment dates for these bonds are November 1 and May 1. The Remote Company bought eight of these bonds three years ago. If Remote is preparing financial statements on December 31, it will need to make an adjusting entry to record the interest that has accrued on the Sheeba bonds. Which of the following entries would be correct?A. Bond Interest Receivable $ 240 Bond Interest Income $ 240B. Bond Interest Receivable $1,440 Bond Interest Income $1,440C. Bond Interest Income $ 480 Bond Interest Income $ 480D. Cash $ 720 Bond Interest Income $ 720
