Exam 7: Reporting and Interpreting Cost of Goods Sold and Inventory

You are the new manager of Muff Company. The company distributes goods throughout the Rocky Mountain area. Customers are billed after the shipments are sent. Most customers pay within two weeks. You notice that one employee is responsible for opening all incoming payments, recording them in the accounting records, and depositing all receipts in the bank daily. When asked why this one person performed all of these duties, you were told that it was more efficient for one person to handle cash and to keep track of things. If any cash was missing, responsibility could be easily determined. Do you agree with this arrangement? If you were to make changes, what would you do, and why?

"FOB shipping point" means that title to the shipped goods passes to the buyer when they are delivered.

Profit for T Co. in 2013 was $59,156 (in thousands). There was a deduction from profit on the statement of cash flows for $2,781 (in thousands) for the change in trade receivables. The trade receivables balance on December 31, 2013 was $79,024 (in thousands). How much was the trade receivables balance on December 31, 2012?

Under the completed contracted method of accounting for long-term construction projects, revenue is not recognized until the project is complete.

A portion of the statement of earnings for Tea Company is shown below. Provide the missing account titles and amounts.

A company purchased goods on credit with credit terms of 3/15, n/45. Although the company does not have cash available to pay within the discount period, the manager of the company is considering borrowing money to take advantage of the discount. In order to make the appropriate decision, the manager computed the annual interest rate associated with the sales discount. What is the approximate annual rate?

Which of the following is true about bad debt expense?

When preparing a bank reconciliation, which of the following would be deducted from the company's cash balance?

When using the allowance method for bad debts, how should bad debt expense be recorded?

Both credit card discounts and cash discounts can be recorded either as contra revenues or as expenses.

If a customer pays her bill after her account has already been written off, the company receiving the payment should record the account reinstatement with which of the following?

During 20A, Lau Inc. recorded credit sales of $1,500,000. Based on prior experience, it estimates a 1 percent bad debt rate on credit sales. At the beginning of the year, the balance in trade receivables, net was $100,000. At the end of the year, but before the bad debt expense adjustment was recorded and before any bad debts had been written off, the balance in trade receivables, net was $125,000. 1. Assume that on December 31, 20A, the appropriate bad debt expense adjustment was recorded for the year 20A and trade receivables totalling $10,000 were written off for the year, what was the receivables turnover ratio for the year? 2. Assume that on December 31, 20A, the appropriate bad debt expense adjustment was recorded for the year 20A and trade receivables totalling $12,000 were written off for the year, what was the receivables turnover ratio for the year? 3. Explain why the answers to parts 1 and 2 differ or do not differ.

Cawthra Limited gathered the following reconciling information in preparing its June ban reconciliation: The adjusted cash balance per books at June 30 is

Control activities are most effective when several people are responsible for a given task.

A Co. and G Co. are competitors in the biotechnology market. In 2013, A Co. reported a gross profit percentage of 86.3% while G Co's percentage was 80.7%. What is the most likely cause of G Co.'s lower gross profit percentage?

All documents should be pre-numbered.

Under the allowance method for uncollectible accounts, the recovery of an account receivable results in a credit to the Bad Debt Expense account.

When do most companies usually recognize revenue as earned and record the revenue?

An example of separation of duties is having a cheque signer record cash disbursements.

Under the allowance method for uncollectible accounts, when a year-end adjustment is made for estimated uncollectible accounts,