Consignment Inventory Chapter 6

Ladies Resale Is a consignment store that sells ladies used clothing. Dorothy May took clothes to the resale shop on December 15 to be sold on consignment. The clothes have not been sold as of December 31. Which company should include the inventory on its December 31 balance sheet?

1. Ladies Resale
2. Dorothy May

FOB Destination Chapter 6

Michael Company shipped merchandise to PJ Sales on December 31, Year 1, terms FOB destination. The merchandise arrives at PJ’s on January 4, Year 2. Which company should include the inventory on its December 31, Year 1 balance sheet?

1. Michael Company
2. PJ Sales

Inventory Set Aside Chapter 6

Allied Company purchased goods from Baker Company on December 28. Allied agreed to pick up the goods from Baker. On December 31 the goods were in Baker’s warehouse separated and identified as Allied’s. Which company should include the inventory on its December 31 balance sheet?

1. Allied Company
2. Baker Company

Categorizing Cash & Cash Equivalents Chapter 6

Which of the following would not be included in the Cash and Cash Equivalents on a Balance Sheet dated December 31, Year 1.

1. A money market account
2. 6 month commercial paper, acquired Nov. 1, Year 1
3. 3 month certificate of deposit, acquired Dec. 15, Year 1
4. 100 share of GE stock, acquired December 1, Year 1; expected sale date of February 15, Year 2
5. 12 month treasury bill, acquired October 15, Year 1

FOB Shipping Chapter 6

Determine the effect on a company’s Assets and Net Income from the following transaction: a company using the perpetual inventory method ships goods costing $5,000 to a customer FOB shipping point. The sale price is $8,000.

FOB Shipping Chapter 6

Ancient Inc. shipped merchandise to Cantor Company on December 26, Year 1, FOB shipping point. The merchandise arrived at Cantor on January 2, Year 2. Which company should include the inventory on its December 31, Year 1 balance sheet?

1. Ancient Inc.
2. Cantor Company

Bank Reconciliation Chapter 6

The treasurer of a company was preparing a bank reconciliation as of March 31. The following items were identified:

• The balance per books was $9,600
• Interest earned on the checking account during March was $10.
• Outstanding checks totaled $875.
• A customer’s NSF check in the amount of $40 was returned with the March bank statement.
• Deposits in transit amounted to $530.
• During March, the bookkeeper for the company recorded payment of an account payable incorrectly as $136. The check was paid by the bank in the correct amount of $361.
• The bank incorrectly credited the company’s account $140 for a check deposited by another company.

What is the balance per the bank statement on March 31?

1. 9,550
2. 9,140
3. 10,280
4. 9,830
5. 8,860

The Effect of Inventory Errors Chapter 6

A company discovered in Year 3 that the following inventory errors had occurred:

• Ending Inventory for Year 1 was understated by $5,000.
• Ending Inventory for Year 2 was overstated by $7,000.

Determine the effect those errors would have on the Year 1 and Year 2 financial statements:

1. How do the errors above affect Assets reported on the Year 1 financial statements? Assets would be...
   • a. Overstated by $2,000
   • b. Overstated by $5,000
   • c. Overstated by $7,000
   • d. Understated by $5,000
   • e. Understated by $12,000
2. How do the errors above affect Net Income reported on the Year 1 financial statements? Net income would be...
   • a. Overstated by $2,000
   • b. Overstated by $5,000
   • c. Overstated by $7,000
   • d. Understated by $5,000
   • e. Understated by $12,000
3. How do the errors above affect Assets reported on the Year 2 financial statements? Assets would be...
   • a. No effect on assets
   • b. Overstated by $2,000
   • c. Overstated by $7,000
   • d. Understated by $2,000
   • e. Understated by $7,000
4. How do the errors above affect Net Income and Shareholders’ Equity reported on the Year 2 financial statements? Net Income and Shareholders’ Equity would be...

   	Net Income	Shareholders’ Equity
   A	Understated by $12,000	Understated by $7,000
   B	Overstated by $5,000	No effect
   C	Overstated by $7,000	Overstated by $2,000
   D	Overstated by $7,000	Overstated by $7,000
   E	Overstated by $12,000	Overstated by $7,000