ACCY 111 EXAM 3 UPDATED ACTUAL QUESTIONS
AND CORRECT ANSWERS
Question:
1. Montana Co. has determined its year-end inventory on a
FIFO basis to be $600,000. Information pertaining to that
inventory is as follows:
Selling price$620,000
Costs to sell 30,000
Replacement cost 520,000
What should be the reported value of Montana's
inventory?
a. $600,000
b. $520,000
c. $620,000
d. $590,000
Answer:
d. $590,000
Question:
2. In applying Lower of Cost or Market rule, market cannot
be:
a. Greater than net realizable value
b. Greater than the normal profit
c. Less than the net realizable value
d. Less than the normal profit margin
Answer:
a. Greater than net realizable value
Question:
3. For companies using LIFO, inventory is valued at:
a. Cost
b. Net realizable value
c. Lower of cost or market
d. Replacement cost
Answer:
c. Lower of cost or market
,Question:
4. For companies using FIFO or average cost, inventory is
valued at:
a. Cost
b. Net realizable value
c. Replacement cost
d. Lower of cost or net realizable value
Answer:
d. Lower of cost or net realizable value
Question:
5. Pennylink Co., in applying the lower of cost or market
method, reports its inventory at net realizable value.
Which of the following statements is correct?
a. NRV is greater than replacement cost
b. Cost is less than NRV minus a normal profit margin
c. Cost is less tan net realizable value
d. Cost is greater than net realizable value
Answer:
d. Cost is greater than net realizable value
Question:
6. When using the gross profit method to estimate ending
inventory, it is not necessary to know:
a. Cost of goods sold
b. Beginning inventory
c. Net purchases
d. Net sales
Answer:
a. Cost of goods sold
Question:
7. In applying LCM, market cannot be:
Net realizable value less reasonable completion and
disposal costs
a. Less than net realizable value minus a normal profit
margin
b. Less than cost
c. Greater than net realizable value d. reduced by an
allowance for normal profit margin.
Answer:
a. Less than net realizable value minus a normal profit margin
, Question:
8. Gershwin Wallcovering Inc. shipped the wrong shade of
paint to a customer. The customer agreed to keep the
paint upon being offered a 15% price reduction. Gershwin
would record this reduction by debiting sales returns and
crediting:
a. Sales discounts.
b. Accounts receivable.
c. Allowance for uncollectible accounts.
d. Sales.
Answer:
b. Accounts receivable.
Question:
9. Chez Fred Bakery estimates the allowance for
uncollectible accounts at 3% of the ending balance of
accounts receivable. During 2021, Chez Fred's credit sales
and collections were $125,000 and $131,000, respectively.
What was the balance of accounts receivable on January
1, 2021, if $180 in accounts receivable were written off
during 2021 and if the allowance account had a balance
of $750 on December 31, 2021?
None of these answer choices are correct.
a. $31,000.
b. $31,180.
c. $32,000
d. $5,820.
Answer:
b. $31,180.
Collections (131,000)
Write-offs (180)
Credit sales 125,000
$25,000 [$750 = 3% of AR; so AR = $750 ÷ 0.03 = $25,000]Therefore, A/R, 1/1/2021 =
$31,180
AND CORRECT ANSWERS
Question:
1. Montana Co. has determined its year-end inventory on a
FIFO basis to be $600,000. Information pertaining to that
inventory is as follows:
Selling price$620,000
Costs to sell 30,000
Replacement cost 520,000
What should be the reported value of Montana's
inventory?
a. $600,000
b. $520,000
c. $620,000
d. $590,000
Answer:
d. $590,000
Question:
2. In applying Lower of Cost or Market rule, market cannot
be:
a. Greater than net realizable value
b. Greater than the normal profit
c. Less than the net realizable value
d. Less than the normal profit margin
Answer:
a. Greater than net realizable value
Question:
3. For companies using LIFO, inventory is valued at:
a. Cost
b. Net realizable value
c. Lower of cost or market
d. Replacement cost
Answer:
c. Lower of cost or market
,Question:
4. For companies using FIFO or average cost, inventory is
valued at:
a. Cost
b. Net realizable value
c. Replacement cost
d. Lower of cost or net realizable value
Answer:
d. Lower of cost or net realizable value
Question:
5. Pennylink Co., in applying the lower of cost or market
method, reports its inventory at net realizable value.
Which of the following statements is correct?
a. NRV is greater than replacement cost
b. Cost is less than NRV minus a normal profit margin
c. Cost is less tan net realizable value
d. Cost is greater than net realizable value
Answer:
d. Cost is greater than net realizable value
Question:
6. When using the gross profit method to estimate ending
inventory, it is not necessary to know:
a. Cost of goods sold
b. Beginning inventory
c. Net purchases
d. Net sales
Answer:
a. Cost of goods sold
Question:
7. In applying LCM, market cannot be:
Net realizable value less reasonable completion and
disposal costs
a. Less than net realizable value minus a normal profit
margin
b. Less than cost
c. Greater than net realizable value d. reduced by an
allowance for normal profit margin.
Answer:
a. Less than net realizable value minus a normal profit margin
, Question:
8. Gershwin Wallcovering Inc. shipped the wrong shade of
paint to a customer. The customer agreed to keep the
paint upon being offered a 15% price reduction. Gershwin
would record this reduction by debiting sales returns and
crediting:
a. Sales discounts.
b. Accounts receivable.
c. Allowance for uncollectible accounts.
d. Sales.
Answer:
b. Accounts receivable.
Question:
9. Chez Fred Bakery estimates the allowance for
uncollectible accounts at 3% of the ending balance of
accounts receivable. During 2021, Chez Fred's credit sales
and collections were $125,000 and $131,000, respectively.
What was the balance of accounts receivable on January
1, 2021, if $180 in accounts receivable were written off
during 2021 and if the allowance account had a balance
of $750 on December 31, 2021?
None of these answer choices are correct.
a. $31,000.
b. $31,180.
c. $32,000
d. $5,820.
Answer:
b. $31,180.
Collections (131,000)
Write-offs (180)
Credit sales 125,000
$25,000 [$750 = 3% of AR; so AR = $750 ÷ 0.03 = $25,000]Therefore, A/R, 1/1/2021 =
$31,180
