Ch8 Recording And Evaluating Expenditure Process Exam Prep

Chapter 8

Recording and Evaluating Expenditure Process Activities

MATCHING

1. Match the following terms with the descriptions below.

A. Inventory

B. Net price method

C. Periodic inventory system

D. Perpetual inventory system

E. Purchases

F. Purchased discount

G. Purchase returns and allowance

H. Raw materials inventory

I. Special Journal

J. Subsidiary ledger

_____ 1. The account used by the periodic inventory system to account for the purchase

of products for resale.

_____ 2. A journal used to record transactions that occur frequently and in the same

manner.

_____ 3. When the cost of inventory is recorded assuming the discount available will

be taken.

_____ 4. This inventory system keeps track of the amount of inventory and cost of

good sold continuously.

_____ 5. This account keeps track of the discounts taken under the periodic inventory

system.

_____ 6. This ledger describes the details of a specific general ledger account.

_____ 7. This inventory system determines the amount of inventory by physical count

and calculates the cost of goods sold only at the end of specified time periods.

_____ 8. Account used by the periodic system to record the cost of goods purchased

that did not meet required specifications.

_____ 9. Account used to keep track of inventory used in a manufacturing process.

_____10. Account used by both the period and perpetual inventory system to show the

cost the goods held for resale.

3. Which of the following is not part of the expenditure process?

A) Determine the need for goods/services

B) Receive cash from sales during the period

C) Receive goods and services

D) Pay suppliers of goods and services

4. Which of the following is not a special journal?

A) Depreciation journal

B) Sales journal

C) Cash receipts journal

D) Purchases journal

5. In a purchases journal only one amount is recorded but that amount is posted by:

A) Debiting Accounts Payable and crediting inventory

B) Debiting Inventory and crediting cash

C) Debiting cash and crediting accounts payable

D) Debiting inventory and crediting accounts payable

6. The purpose of the account payable subsidiary ledgers is:

A) Keep track of the various products being manufactured

B) Monitor the balance in the various cash accounts at banks

C) Identify individuals and companies who the company owes money

D) Identify the cash inflow expected from people who owe money to the company

7. The total of the accounts payable subsidiary ledger is equal to:

A) The balance in the general ledger purchases account

B) The balance in the general ledger accounts receivable account

C) The total amount the company owes to those provided inventory to the company

D) The total amount of the liabilities in the general ledger

8. Which of the following entries reflects the use of a periodic inventory system?

A)

B)

C)

D)

9. Which of the following entries reflects the use of a perpetual inventory system?

A)

B)

C)

D)

10. Which of the following entries reflects the use of a periodic inventory system?

A)

A/P

XXXX

Purchases

XXXX

B)

Inventory

XXXX

A/P

XXXX

C)

D)

A/P

XXXX

Purchase Returns and Allowances

XXXX

11. Which of the following entries reflects the use of a perpetual inventory system?

A)

B)

C)

Purchase Returns and Allowances

XXXX

Inventory

XXXX

D)

A/P

XXXX

Inventory

XXXX

12. The gross method records the purchase discount:

A) when it is taken.

B) when the inventory is purchased.

C) when the inventory is sold.

D) when the inventory is returned.

14. If a company uses the perpetual inventory method and it purchases inventory on account worth $2,000 with terms 2/10 n/30 what will be the cost of the inventory when the inventory is purchased if it is using the net method?

A) $2,000

B) $1,800

C) $1,960

D) $2,200

15. The purchase discount lost accounts is used when:

A) the gross method is used with periodic system and the terms of the discount are not met.

B) the net method is used with the perpetual system and the terms of the discount are met.

C) the gross method is used with the periodic system the terms of the discount are not met.

D) the net method applied to either the periodic or perpetual systems and the terms of the discount are not met.

16. Which of the following entries is made when a discount is taken and the perpetual system uses the gross method?

A)

AP XXXX

Cash XXXX

Inventory XXXX

B)

Cost of Goods Sold XXXX

Purchase discount XXXX

C)

Purchase Discount XXXX

Inventory XXXX

D)

A/P XXXX

Purchase Discount XXXX

Cash XXXX

17. Which of the following entries is made when a discount is not taken and the perpetual system uses the net method?

A)

AP XXXX

Cash XXXX

Inventory XXXX

B)

Cost of Goods Sold XXXX

Purchase discount XXXX

C)

Purchase Discount XXXX

Inventory XXXX

D)

A/P XXXX

Purchase Discount Lost XXXX

Cash XXXX

18. A company, using the net method, purchased inventory for $3,000 and term 2/10 net 30 but did not pay the bill in time to take advantage of the discount. The cost recorded in the inventory account after this event would be which of the following?

A) $3,000

B) $2,940

C) $3,060

D) Not enough data to determine

19. Which of the following entries is made when a discount is taken and the periodic system uses the gross method?

A)

B)

C)

D)

20. Which of the following is the entry used to determine cost of goods sold when the periodic inventory system is used?

A)

B)

C)

D)

21. Net pay is equal to:

A) gross pay plus FICA.

B) gross pay plus all deductions.

C) gross pay minus all deductions.

D) gross pay less all deductions plus employer payroll taxes.

22. Which of the following could not be net pay?

A) Gross pay less FICA, union dues, income tax withheld

B) Gross pay less FICA, health insurance, income tax withheld

C) Gross pay less FICA, income tax withheld

D) Gross pay less FICA, income tax withheld, federal unemployment taxes

23. Payroll deductions are a(n) ______ to the employer at the time they are withheld.

A) expense

B) loss

C) liability

D) revenue

24. All of the following payroll taxes are expenses incurred by an employer except:

A) Social Security taxes.

B) federal income taxes.

C) federal unemployment taxes.

D) state unemployment taxes.

25. Which of the following payroll items is an expense to the employer?

A) Federal income taxes

B) Union dues

1. State unemployment taxes
2. United way contributions by employee

26. Which of the following payroll items is not used to determine net pay?

A) Federal income taxes

B) Union dues

1. Social security taxes
2. State unemployment taxes

27. The payroll tax that is paid by both the employee and the employer is

A) FICA.

B) FUTA..

C) SUTA.

D) Federal Income Taxes

28. Purchase Discounts Lost should be:

A) added to the Merchandise Inventory account to determine the cost of inventory on hand.

B) considered a loss account to be reported on the income statement.

C) included on the income statement as a financing expense for the period.

D) part of the cost of goods sold.

29. Purchase Discounts does all of the following except:

A) decrease cost of goods sold.

B) decrease net purchase purchases.

C) increases net income.

D) decreases ending inventory.

30. Orleans Enterprises purchased $37,500 of merchandise on account, terms 2/10, n/30.

Assuming Orleans uses the net price method to account for purchase discounts, the

journal entry to record the purchase would include a:

A) debit to Inventory for $37,500.

B) credit to Accounts Payable for $36,750.

C) credit to Cash for $36,750.

D) debit to Purchase Discounts Lost for $750.

31. Orleans Enterprises purchased $37,500 of merchandise on account, terms 2/10, n/30. Assuming Orleans uses the net price method to account for purchase discounts, and it pays for the merchandise on the 30th day after the invoice date, the journal entry to record the payment would include a:

A) credit to Cash for $36,750.

B) credit to Inventory for $37,500.

C) debit to Accounts Payable for $37,500.

D) debit to Purchase Discounts Lost for $750.

32. Hurricane Enterprises purchased $4,000 of merchandise on account, terms 2/10, n/30. Assuming Hurricane uses the gross price method to account for purchase discounts, and it pays for the merchandise on the 9th day after the invoice date, which of the following would not be used in either the acquisition of the merchandise or the payment of the invoice?

A) Credit to Cash for $3,920

B) Credit to purchase discount for $80

C) Debit to Accounts Payable for $3,920

D) Debit to Purchase $4,000

33. Bonita Industries purchased $5,000 of merchandise on account for resale purposes. Bonita plans to sell the merchandise for $7,500. If Bonita returned $1,000 of merchandise for credit, the journal entry to record the return would include a:

A) debit to Accounts Payable for $1,000.

B) credit to Inventory for $1,500.

C) debit to Sales for $1,500.

D) credit to Cash for $1,000.

34. In a perpetual inventory system, the journal entry to record the purchase of merchandise on account includes a:

A) credit to Cash.

B) debit to Purchases.

C) debit to Inventory.

D) credit to Accounts Receivable.

35. In a perpetual inventory system, if the terms of sale are FOB shipping point the journal entry to record the payment of freight charges on purchased merchandise includes a:

A) debit to Inventory.

B) credit to Freight Out.

C) credit to Accounts Payable.

D) debit to Cost of Goods Sold.

36. In a perpetual inventory system, the journal entry to record the sale of merchandise on account would include a:

A) debit to Cost of Goods Sold.

B) credit to Accounts Payable.

C) debit to Inventory.

D) credit to Cash.

37. In a periodic inventory system, the journal entry to record the sale of merchandise on account would include a:

A) debit to Cost of Goods Sold.

B) credit to Accounts Payable.

C) debit to Inventory.

D) no entry involving Inventory or Cost of Goods Sold.

38. In a perpetual inventory system that uses the gross method which of the following is true?

A) When a discount is taken, the Purchase Discount account is credited.

B) The Accounts Payable account is debited for the cash paid.

C) The Inventory account is reduced when the discount is taken.

D) The Purchase Discount Lost account is debited when the discount is not taken.

39. BLP Corporation reported wages expense of $224,000, wages payable of $89,400 at the beginning of the year, and wages payable of $71,300 at the end of the year. Cash payments for wages during the year were:

A) $205,900.

B) $224,000.

C) $242,100.

D) $295,300.

40. JAFCO, Inc. reported insurance expense of $137,000, prepaid insurance of $8,300 at the beginning of the year, and prepaid insurance of $5,600 at the end of the year. Cash payments for insurance during the year were:

A) $134,300.

B) $137,000.

C) $139,700.

D) $142,600.

41. Corinthian Industries reported cost of goods sold of $765,000, beginning and ending inventory of $85,200 and $98,600, respectively, and beginning and ending accounts payable of $54,300 and $62,500, respectively. Cash payments for merchandise inventory during the year were:

A) $743,400.

B) $759,800.

C) $770,200.

D) $786,600.

42. Omni Manufacturing reported cost of goods sold of $547,000, beginning and ending inventory of $76,400 and $68,600, respectively, and beginning and ending accounts payable of $39,700 and $27,500, respectively. Cash payments for merchandise inventory during the year were:

A) $527,000.

B) $542,600.

C) $551,400.

D) $567,000.

43. If wages payable increases between the beginning and end of a month, this indicates that

A) wages paid were more than wages expense for the month.

B) wages expense was more than wages paid for the month.

C) all wages expense for the month were paid as incurred.

D) no wages were paid during the period.

44. An increase in prepaid insurance indicates that

A) insurance expense and insurance paid were equal.

B) no insurance expense was recorded during the period.

C) insurance expense for the period exceeded insurance paid.

D) insurance paid during the period exceeded insurance expense.

45. Which of the following payroll-related items is paid only by the employee?

A) FICA tax

B) Union dues

C) State unemployment tax

D) Federal unemployment tax

46. Kinsey Company had beginning inventory of $50,000, ending inventory of $54,000, and cost of goods sold of $240,000. What was the cost of goods purchased?

A) $294,000.

B) $290,000.

C) $244,000.

D) $236,000.

47. Acme Paint company had a beginning balance in its prepaid advertising account of $1,000 and an ending balance of $750. During the year it spent $600 cash on advertising. How much advertising expense did Acme incur this year?

1. $850
2. $600
3. $1,600
4. $1,350

48. Wildcat Supply had a beginning balance of $600 in Utilities Payable account at the start of the year and an ending balance of $1,000. During the year Wildcat paid $4,000 cash to the utilities company. How much utilities expense was incurred during this year?

1. $4,000
2. $4,400
3. $4,600
4. Can’t be determined with the information given

49. Park Corp had a beginning balance in its prepaid rent account of $10,000 and an ending balance of $7,500. Rent expense for the year was $12,000. How much cash did Park pay for rent during the year?

1. $14,500
2. $9,500
3. $12,000
4. $7,500

50. Iowa Corporation had a beginning balance of $8,600 in Utilities Payable account at the start of the year and an ending balance of $4,000. During the year, Iowa recorded $10,000 of utilities expense. How much cash did Iowa pay the utility company during the year?

1. $14,600
2. $5,400
3. $10,00
4. Can’t be determined with the information given

51. If a firm overstates its ending inventory, how are its income statement and balance sheet affected for the current and next year?

52. Explain the difference between a periodic inventory system and a perpetual one. If a firm uses a perpetual inventory system, it still has to physically count the inventory on hand at least once a year. Why?

53. Why are subsidiary ledgers used?

54. Why would the amount of supplies expense differ from the amount of cash paid for supplies in a year?

55. Information from the 2010 financial statements of Bravura Corporation is shown below. Calculate the cash paid for merchandise inventory.

56. Thermalite Corporation uses the perpetual inventory system and the net price method. Prepare Thermalite's journal entries to record the following transactions:

57. Ogallah Corporation purchased $100,000 inventory on account with terms of 1/10 net 30 on November 1, 2010.

Required:

Assume periodic inventory system and gross method.

(A) Make the entries to record the purchase of the inventory and subsequent payment of amount due on November 9, 2010.

Assume perpetual inventory system and net method.

(B) Make the entries to record the purchase of the inventory and subsequent payment of the amount due on November 30, 2010.

Answers:

Requirement A

Nov 1, 2010

Purchases

100,000

A/P

100,000

Nov 9, 2010

A/P

100,000

Purchase Discount

1,000

Cash

99,000

Requirement B

Nov 1, 2010

Inventory

99,000

A/P

99,000

Nov 30, 2010

A/P

99,000

Purchase Discount Lost

1,000

Cash

100,000

58. Lacross Corporation purchased $50,000 inventory on account with terms of 1/10 net 30 on September 1, 2010.

Required:

Assume periodic inventory system and net method.

(A) Make the entries to record the purchase of the inventory and subsequent payment of amount due on September 30, 2010.

Assume perpetual inventory system and gross method.

(B) Make the entries to record the purchase of the inventory and subsequent payment of the amount due on September 9, 2010.

59. Gross pay for the employees of Mr. Scott Corporation for February 28, 2010 is as follows:

Information on withholding and payroll taxes are shown below:

Required:

(A) Make the journal entry to record the February payroll.

(B) Record the journal entry for the employer's payroll taxes.

(C) Make the journal entry to record the employer's monthly payment of payroll tax liabilities.

Answers:

60. Carolina Corporation reported the following account balances at the beginning and end of 2010:

Determine the amount of cash paid for (a) supplies, (b) salaries, and (c) inventory during 2010.

Answers:

(a) $4,900 + $2,600 – $3,800 = $3,700 cash paid for supplies

(b) $237,800 + $26,200 – $23,400 = $240,600 cash paid for salaries

(c) $549,500 + $72,300 – $85,700 + $32,300 – $36,100 = $532,300 cash paid for inventory

61. The following information was taken from the accounting records of Swanson Farms in 2010. For each of the following determine the amount of expense Swanson Farms should report on its income statement related to data presented below and give the entry made to record the expense.

A. Beginning balance Prepaid Insurance $1,000

Ending balance Prepaid Insurance $1,400

Cash Paid for Insurance $2,000

B. Beginning Balance Salaries Payable $20,000

Ending Balance Salaries Payable $15,000

Cash Paid for Salaries in 2010 $150,000

C. Beginning Balance Supplies $-0-

Ending Balance Supplies $1,000

Cash paid for supplies $1,600

62. The following information was taken from the accounting records of Trego Farms in 2010. For each of the following determine the amount of cash Trego Farms paid for the item given the data presented below.

A. Beginning balance Prepaid Insurance $1,000

Ending balance Prepaid Insurance $1,400

Insurance Expense for 2010 $2,000

B. Beginning Balance Salaries Payable $20,000

Ending Balance Salaries Payable $15,000

Salaries Expense for 2010 $150,000

C. Beginning Balance Supplies $4,000

Ending Balance Supplies $5,000

Supplies Expense for 2010 $2,800

Answers:

A. Beginning Balance Prepaid Insurance $1,000

Add: Cash Paid for Insurance ?_

Total Possible Expense $

Less: Expense Incurred 2,000

Ending Balance of Prepaid Insurance $1,400

Cash paid for insurance by TF $2,000 + $1,400 - $1,000 = $2,400

B. Beginning Balance Salaries Payable $ 20,000

Add: Salary Expense Incurred 150,000

Total Possible Liability $170,000

Less: Cash Paid $ ?___

Ending Balance of Salaries Payable $15,000

Cash paid for salaries by TF $20,000 + $150,000 - $15,000 = $155,000

C. Beginning Balance Supplies $ 4,000

Add: Cash Paid for Insurance $ ?_ _

Total Possible Expense $ ?

Less: Expense Incurred 2,800

Ending Balance of Supplies $5,000

Cash paid for supplies by TF $5,000 + $2,800 - $4,000 = $3,800

63. The following information was taken from the accounting records of Russell Oil Corp in 2010. For each of the following, make the entries associated with the changes in the account given the data available.

A. Beginning balance Prepaid Insurance $3,000

Ending balance Prepaid Insurance $3,900

Cash paid for insurance for 2010 $3,500

B. Beginning Balance Salaries Payable $15,000

Ending Balance Salaries Payable $ 7,000

Salaries Expense for 2010 $350,000

C. Beginning Balance Supplies $14,000

Ending Balance Supplies $11,000

Supplies Expense for 2010 $32,000

Answers:

A. Beginning Balance Prepaid Insurance $3,000

Add: Cash Paid for Insurance 3,900

Total Possible Expense $ 6,900

Less: Expense Incurred __?___

Ending Balance of Prepaid Insurance $3,500

Insurance Expense Incurred by SF $6,900 - $3,500 = $3,400

Prepaid Insurance $3,900

Cash $3,900

Insurance Expense $3,400

Prepaid Insurance $3,400

B. Beginning Balance Salaries Payable $ 15,000

Add: Salary Expense Incurred 350,000

Total Possible Liability $365,000

Less: Cash Paid $ ?___

Ending Balance of Salaries Payable $ 7,000

Cash Paid by Russell Oil $15,000 + $350,000 – $7,000 = $358,000

Salaries Expense $350,000

Salaries Payable $350,000

Salaries Payable $358,000

Cash $358,000

C. Beginning Balance Supplies $ 14,000

Add: Cash Paid for Insurance $ ?_ _

Total Possible Expense $ ?

Less: Expense Incurred 32,000

Ending Balance of Prepaid Insurance $11,000

Cash Paid by RO $11,000 + $32,000 – $14,000 = $29,000

Supplies $29,000

Cash $29,000

Supplies Expense $32,000

Supplies $32,000