UP JPIA Sample Exam

BA 99.1
SECOND EXAM
THEORY:
1. Which of the following statements is true?
a. Gross Profit Cost of Goods Sold = Net Sales
b. Net Sales + Gross Profit = Cost of Goods Sold
c. Cost of Goods Sold = Net Sales Gross Profit
d. Gross Profit = Cost of Goods Sold Net Sales
2. Which is not an effect of Sales Allowance on a merchandisers perpetual
inventory system?
a. Increase inventory
b. Decrease accounts receivable
c. Increase cost of goods sold
d. Decrease sales
3. The __________ measures the results of an entitys major on-going business
activities.
a. Gross profit percentage
b. Bottom line
c. Operating income
d. Inventory turnover
4. Assuming that the discount was taken, the journal entry by the seller, for the
sale of merchandise for 2,500 (with cost=1,000), under the perpetual
inventory system with terms 3/15, n/30 would include a:
a. Debit to sales discount for 75
b. Debit to cash for 2,500
c. Credit to sales revenue for 2,425
d. A and C
e. NOTA
5. A sales journal would contain the following information, except:
a. Sales amounts for cash and credit sales of the company
b. Invoice numbers
c. Customer names of whose accounts were debited
d. Cost of products sold
e. AOTA
6. Transportation charges paid to ship goods sold to customers becomes part of
________.
a. Inventory
b. Operating expenses
c. Freight-in
d. Cost of goods sold
e. Both A and D
7. Which of the following accounts are closed by a company using a periodic
inventory system?

a.
b.
c.
d.

Income summary, inventory, capital

Purchase discounts, withdrawals, freight-out
Accounts receivable, sales returns, interest expense
NOTA

8. Which of the following statements about the purchase journal is correct?

a. Every transaction in the purchases journal includes a credit to accounts
payable.
b. Only purchases on the account of inventory and supplies are recorded
in the journal.
c. Individual accounts payable are posted daily in subsidiary ledgers.
d. Both statements A and C are correct.
e. NOTA
9. The inventory account has a debit balance of 375,800 on December 31,
2006. A physical count reveals that the merchandise on hand is 356,900. To
adjust the accounts on December 31, the company should:
a. Credit cost of goods sold, 18,900
b. Credit inventory, 18,900
c. Credit accounts payable, 18,900
d. NOTA
Cost of goods sold
18,900
Merchandise inventory
18,900
10.Which of the following statements about a worksheet is false?
a. The inventory amount that appears in the balance sheet debit column
is the adjusted balance for inventory.
b. Sales discounts appear in the debit column of the income statement.
c. In a perpetual inventory system, freight-in does not appear in the
worksheet.
d. In a periodic inventory system, purchases appear in the debit side of
the balance sheet columns.
11.If the inventory items may be identified individually, the business could easily
use which method of costing inventory?
a. First in, first out
b. Specific identification
c. Weighted average
d. NOTA
12.Using the first in, first out method, the most recent purchases of inventory
are assumed to be contained:
a. On the balance sheet as part of ending inventory
b. On the income statement as part of cost of goods sold
c. Equally split between the income statement and balance sheet
d. Cannot determine from the given data
e. NOTA
13.A seller of heavy equipment would most likely use which method of inventory
costing?

a.
b.
c.
d.

FIFO
Weighted average
Specific identification
NOTA

14.If a company uses the direct inventory reduction method (loss is shown) in
recording the results of applying the lower-of-cost-or-net-realizable-value, the
journal entry to record a decrease in the value of inventory, under the
perpetual inventory system, includes a debit to:
a. Ending inventory
b. Cost of goods sold
c. Decline in value of inventory
d. NOTA
15.Which of the following is true?
a. Understating ending inventory in 2006 will understate net income for
2006
b. Understating ending inventory in 2006 will understate net income for
2007
c. Overstating the beginning inventory in 2006 will understate net income
for 2007
d. NOTA
16.The gross profit method is an estimate of inventory used to estimate:
a. Losses for insurance claims due to fire
b. Losses from employee theft
c. The lower of cost or net realizable value
d. A and B
17.Which of the following may be used as net realizable value?
a. Estimated selling price in the ordinary course of business less
estimated cost to sell for finished goods
b. Replacement costs for materials and supplies
c. Selling prices less normal profit margin
d. AOTA
18.The primary purpose of using an inventory cost flow assumption is to:
a. Parallel the physical flow of units of merchandise
b. Offset against revenues an appropriate cost of goods sold
c. Maximize the reported amount of net income
d. NOTA
19.Every
a.
b.
c.
d.

transaction recorded in the cash receipts journal includes a

Debit to cash
Debit to accounts receivable
Debit to sales discounts
Credit to cash

20.The purchases journal is used to record all

a. Purchase of inventory

b. Purchase on account
c. Purchases of assets
d. Payments of purchases on account
21.The individual accounts in the accounts payable subsidiary ledger identify
a. Customers
b. Debtors
c. Amounts to be collected
d. Creditors
22.A debit memo is a(n)
a. Report of all the debits to the Cash account
b. Document for a purchase return
c. Document for a sales return
d. Entry to the accounts receivable account
23.The discount period is
a. The specified and timing of payments that buyer agrees to make in
return for being granted credit to purchase goods or services
b. A deduction from the invoice price of goods that is granted if payment
is made within a specified period of time
c. The catalog price of an item from which a trade discount, if offered, is
deducted to determine the invoice or gross sales price of the item
d. The period of time during which, if payment is made, a cash discount
may be deducted from the invoice price
e. A deduction from the invoice price granted to customers in return for
early payment, i.e. cash discounts to customers
24.The amount reported as cash on a companys balance sheet normally
should exclude
a. Postdated checks that are payable to the company
b. Cash in payroll account
c. Undelivered checks written and signed by the company
d. Petty cash
25.Which of the following statements is correct?
a. The accounting function should be separated from the custodianship of
a companys assets
b. Certain clerical personnel in a company should be rotated among
various jobs
c. The responsibility for receiving merchandise and paying for it should
usually be given to one person
d. A companys personnel should be given well-defined responsibilities
26.If the balance sheet shown on a companys bank statement is less than the
correct cash balance and neither the company nor the bank has made any
errors, there must be
a. Deposits credited by the bank not yet recorded by the company
b. Outstanding checks
c. Bank charges not yet recorded by the company
d. Deposits in transit

27. Which of the following would not be classified as cash?

a. Personal checks
b. Travellers check
c. Cashiers check
d. Postdated checks
28.Which of the following is not a basic characteristic of a system of cash
control?
a. Use a voucher system
b. Combined responsibility for handling and recording cash
c. Daily deposit of all cash received
d. Internal audits at irregular intervals
29.Bank statements provide information about all of the following except
a. Checks cleared during the period
b. NSF checks
c. Bank charges for the period
d. Errors made by the company
30.Which of the following items would be added to the book a balance on a bank
reconciliation?
a. Outstanding checks
b. A check written for P63 entered as P36 in the accounting records
c. Interest paid by the bank
d. Deposits in transit
31.In preparing a monthly bank reconciliation which of the following items would
be added to the balance reported on the bank statement to arrive at the
correct cash balance?
a. Outstanding checks
b. Bank service charge
c. Deposits in transit
d. A customers note collected by the bank on behalf of the depositor
32.Bank reconciliations are normally prepared on a monthly basis to identify
adjustments needed in the depositors records and to identify bank errors.
Adjustments should be recorded for
a. Bank errors, outstanding checks, and deposits in transit
b. All items except bank errors, outstanding checks, and deposits in
transit
c. Book errors, bank errors, deposits in transit, and outstanding checks
d. Outstanding checks and deposits in transit
SHORT PROBLEMS
1. Using the following data, compute the total cash spent for inventory in 2006:
Accounts Payable
Jan 1, 2006
200,000
Dec 31, 2006
240,000
Cost of Goods Sold 2006
900,000

Inventory
Jan 1, 2006
Dec 31, 2006

300,000
200,000

2. On August 9, Ervin Mamaril Arms purchased inventory priced at P230,000

from Justin Bullet Supply. Terms of the purchase were 3/10, n/20. Ervin
Mamaril Arms also purchased inventory from Ivy Wholesale on August 16 for
a list price of P275,000. Terms of the purchase were 4/10 EOM. On August 21,
Ivy paid both suppliers for these purchases. If Jill does not use a perpetual
inventory system, give the entry to record the invoice payment made.
3. Assume the following data for the current year and determine the companys
ending inventory
Beginning inventory
180,000
Purchases
348,000
Sales
405,000
Gross profit %
46%
4. Eirene Company recognizes inventory only when the title of the goods has
passed to them. On November 30, 2006, the correct inventory level was
8,500 units. During the month of December, sales totalled 3,700 units. A
review of the December purchase orders, to various suppliers, shows the
following
Date
Quantity in
Date
Date
Freight cost Terms
ordered and units
shipped
received
invoiced
12-2-06
4,400
1-2-07
1-3-07
2,500
FOB
shipping
point
12-11-06
1,060
12-22-06
12-24-06
800
FOB
destination
12-23-06
1,200
12-31-06
1-5-07
800
FOB
shipping
point
12-23-06
800
12-26-06
1-3-07
500
FOB
destination
Compute the number of units that should be included in the year-end
inventory and the total freight cost to be included in the value of the year-end
inventory.
For numbers 5 and 6: Aileen Co.
Sales
Sales returns
Inventory, Jan 1, 2005
Purchases
Freight in
Purchase returns
Purchase allowances

2,800,000
65,000
310,000
2,150,000
82,000
45,000
16,000

Purchase discounts
Inventory, Dec 31, 2005

9,600
220,000

5. What is Aileen Co.s inventory turnover rate?

6. What is Aileen Co.s gross profit percentage rate?
7. Prepare the closing entries that make the Inventory and Cost of Goods Sold
accounts correct.
For numbers 8 and 9: Manila Co.
Salesmens salaries
CGS
Depreciation- Head Office Building
Advertising expense
Interest expense
Gain on sale of land
Rent income
Sales return and allowances
Gross profit

10,400
260,000
3,100
37,000
2,000
18,000
7,300
6,500
135,000

8. On a multi-step income statement, operating income is _____________.

9. On a single-step income statement, total revenue is _____________.
For numbers 10-13: The following information was taken from the inventory records
of Roxy Company for June 2006
Purchases
June 10
June 25
Sales (all on account)
June 12
June 30

Unit

Cost

2,000
4,800

16.20
16.25

3,000
5,300

Roxy had 5,000 units with total cost of 80,000 in its inventory as of May 31, 2006.
During June, selling price per unit is 30. The company uses perpetual inventory
records.
10.Journalize the effect of the June 30 sale on inventory using FIFO.
11.How much is the ending inventory using the FIFO method?
12.How much is the cost of goods sold during June using the FIFO method?
13.Assuming Garcia uses the periodic inventory system, how much is the ending
inventory using the weighted average method?

14.Ivy, the owner of EnR Company suspects some inventory may have been
taken by a new employee during 2005. The following information is available:
Inventory, Jan 1, 05
250,000
Purchases
1,250,000
Sales
1,650,000
Sales returns
50,000
A physical inventory taken on December 31, 2005 resulted in an ending inventory of
287,500. Ivys gross profit rate remained constant at 25% in recent years.
Using the information given, what is the estimated cost of the missing inventory?
For numbers 15-17: Jeff Mac Co.s financial statements report the following:
For the year ended Dec 31
Cost of goods sold
Net income
Total current assets

2005
715000
220000
1155000

2006
847000
275000
1265000

Jeff recently discovered that in making physical counts of inventory, it had made the
following errors: inventory on Dec 31, 2005 is understated by 66,000 and inventory
on Dec 31, 2006 is overstated by 30,000.
15.How much is the correct net income in 2005?
16.How much is the correct cost of goods sold in 2006?
17.How much is the correct current assets as of Dec 31, 2006?
For numbers 18 and 19: The inventory of ENR Company as of Dec 31, 2005 is
composed of the following:
Item
Office furniture
Desks
Chairs
Filing cabinets
Lateral

Units

Cost

Per Unit
Selling price

10
58

7,830
1,470

10,500
2,400

1,350
1,110

17

3,120

5,100

1,560

Estimated cost
to sell

The company uses the perpetual inventory system. On January 1, 2005, the account
Allowance for Decline in Value of Inventory has a balance of 15,600.
18.How much is the balance of Allowance for Decline in Value of Inventory as of
December 31, 2005?
19.At what amount should ENR report inventory on the balance sheet?
20.Compute for the correct cash balance as of May 31, 2006

Cash balance per accounting records, May 31, 2006

17,194
Cash balance per bank statement, May 31, 2006
31,948
Bank service charge for May

109

Debit memo for printed checks delivered by the bank;

the charge has not been recorded in the acctg records
125
Outstanding checks, May 31, 2006
6,728
Proceeds of a bank loan on May 31 not recorded in the acctg records
net of interest of 300

5,700

Deposit of May 31 not recorded by the bank until June 1

4,880
Proceeds from customers promissory note, principal amount 8,000,
collected by the bank, not taken up in the books with interest
8,100
Check # 14344 payable to a supplier entered in the acctg records as
2,100 was erroneously deducted in the bank statement for
1,200
Stolen check lacking an authorized signature was deducted from Sams
account
by the bank error
800
Customers check returned by the bank marked NSF, indicating that the
customers balance was not adequate to cover the check; no entry has been
made in the accounting records to record the returned checks
760
For numbers 55 and 56: In preparing its bank reconciliation for the month of
February, Bebemon Co. has provided the following information:
Balance per bank statement, February 28
18,025
Deposits in transit, February 28
Outstanding checks, February 28
2,875
Check erroneously deducted by bank from Mueys account, Feb 10
125
Bank service charges for February
25
21.If the adjusted book balance is 18,485, determine the amount of cash
average and shortage.
22.What is the corrected cash balance at February 28?

3,125

For numbers 23 and 24: The petty cash fund of Justins computer rental service, a
sole proprietorship, contains the following on December 31, 2005:]
Coins and currency
152
An IOU from Ivy, an employee, for cash advance
Petty cash vouchers for the following
Paper
200
3 meals from Kenny Rogers
Printer cartridge

740
1,700
144

The general ledger account Petty Cash has a balance of 3,000

23.Determine the amount of cash overage and shortage of the petty cash
cashier.
24.If no reimbursement was requested on December 31, 2005, determine the
correct balance of the Petty Cash Fund.