ACCOUNTING 211 EXAM 2 FULLY SOLVED
TEST PAPER GRADED A+
◉ Amarillo Company experienced the following events during its
first accounting period.
(1) Purchased $5,000 of inventory on account under terms
1/10/n30.
(2) Returned 1,000 of the inventory purchased in Event 1.
(3) Paid the remaining balance in account payable for the inventory
purchased in Event 1.
If the Company pays the account payable after the discount period
has expired, how much cash will be required to settle the liability?
Answer: $4,000
◉ Taha Company purchased $8,000 of inventory under terms FOB
destination. Freight cost amounted to $200. The cost of inventory
and freight were paid with cash. Which of the following shows how
the recognition of this purchase, including freight costs if applicable,
will affect the Company's financial statements?
Answer: (8,000) + 8,000 = NA + NA / NA - NA = NA / (8,000) OA
, ◉ Smith Company sold inventory that cost $5,000 for $9,000 cash.
Freight cost was $600 paid in cash. The freight terms were FOB
destination. Based on this information,
Answer: Net income would be $3,400
◉ McDonald's will recognize a gain if it generates an amount of
revenue that is higher than its operating expenses. This statement is
Answer: =====(False)====
Gains are benefits that are generated from nonoperating activities.
For example, McDonald's operates a fast food business. Its operation
consist primarily of providing food to its customers. Even so,
McDonald's engages in activities that are not related to selling
hamburgers, french fries, etc. For example, while the company is not
in the real estate business it does buy and sell land and buildings
used to house its restaurants. If McDonald's were to sell a plot of
land that cost $120,000 for $150,000, the company would
experience a $30,000 benefit ($150,000 - $120,000). This $30,000
benefit resulting from a non operating activity is called a gain.
Sacrifices occurring as a result of non operating activities are called
losses. For example, if McDonald's had to sell the land that cost
$120,000 for $100,000, the Company would experience a $20,000
($100,000 - $120,000) loss. In summary, revenues and expenses
result from normal operations, while gains and losses result from
non operating events.
◉ Beachwood Clothing Company operates a chain of high end men's
clothing stores. Recently the Company closed one of its stores and
TEST PAPER GRADED A+
◉ Amarillo Company experienced the following events during its
first accounting period.
(1) Purchased $5,000 of inventory on account under terms
1/10/n30.
(2) Returned 1,000 of the inventory purchased in Event 1.
(3) Paid the remaining balance in account payable for the inventory
purchased in Event 1.
If the Company pays the account payable after the discount period
has expired, how much cash will be required to settle the liability?
Answer: $4,000
◉ Taha Company purchased $8,000 of inventory under terms FOB
destination. Freight cost amounted to $200. The cost of inventory
and freight were paid with cash. Which of the following shows how
the recognition of this purchase, including freight costs if applicable,
will affect the Company's financial statements?
Answer: (8,000) + 8,000 = NA + NA / NA - NA = NA / (8,000) OA
, ◉ Smith Company sold inventory that cost $5,000 for $9,000 cash.
Freight cost was $600 paid in cash. The freight terms were FOB
destination. Based on this information,
Answer: Net income would be $3,400
◉ McDonald's will recognize a gain if it generates an amount of
revenue that is higher than its operating expenses. This statement is
Answer: =====(False)====
Gains are benefits that are generated from nonoperating activities.
For example, McDonald's operates a fast food business. Its operation
consist primarily of providing food to its customers. Even so,
McDonald's engages in activities that are not related to selling
hamburgers, french fries, etc. For example, while the company is not
in the real estate business it does buy and sell land and buildings
used to house its restaurants. If McDonald's were to sell a plot of
land that cost $120,000 for $150,000, the company would
experience a $30,000 benefit ($150,000 - $120,000). This $30,000
benefit resulting from a non operating activity is called a gain.
Sacrifices occurring as a result of non operating activities are called
losses. For example, if McDonald's had to sell the land that cost
$120,000 for $100,000, the Company would experience a $20,000
($100,000 - $120,000) loss. In summary, revenues and expenses
result from normal operations, while gains and losses result from
non operating events.
◉ Beachwood Clothing Company operates a chain of high end men's
clothing stores. Recently the Company closed one of its stores and
