Question

1.   Rainer Inc. acquired equipment from the manufacturer on 10/1/15 and gave a noninterest-bearing note in exchange. Rainer is obligated to pay $918,000 on 4/1/16 to satisfy the obligation in full. If Rainer accrued interest of $9,000 on the note in its 2015 year-end financial statements, what is its imputed annual interest rate?

   A. 5%

   B. 4%

   C. 2%

   D. 6%

2.   The Do-It-Yourself Hardware began 2015 with a credit balance of $32,000 in the allowance for sales returns account. Sales and cash collections from customers during the year were $650,000 and $610,000, respectively. The Do-It-Yourself estimates that 6% of all sales will be returned. During 2015, customers returned merchandise for credit of $28,000 to their accounts. What's the balance in the allowance for sales returns account at the end of 2015?

   A. $11,000

   B. $43,000

   C. $39,000

   D. $21,000

3.   If a company uses LIFO, a LIFO liquidation causes a company's income taxes to increase

   

   A. nothing. LIFO liquidations have no effect on a company's income taxes.

   B. when inventory purchase costs are declining.

   C. when inventory purchase costs are rising.

   D. whether inventory purchase costs are declining or rising.

4.   Data below for the year ended December 31, 2015, relates to Bamboo Inc. Bamboo started business January 1, 2015, and uses the LIFO retail method to estimate ending inventory.

Cost       Retail

Beginning inventory        $66,000               $104,000

Net purchases    280,000               420,000

Net markups                      20,000

Net markdowns                40,000

Net sales                            375,000

Estimated ending inventory at cost is

   A. $90,720.

   B. $83,500.

   C. $67,650.

   D. $91,600.

5.   The Do-It-Yourself Hardware began 2015 with a credit balance of $32,000 in the allowance for sales returns account. Sales and cash collections from customers during the year were $650,000 and $610,000, respectively. The Do-It-Yourself estimates that 6% of all sales will be returned. During 2015, customers returned merchandise for credit of $28,000 to their accounts. The Do-It-Yourself's 2015 income statement would report net sales of:

   A. $646,000          C. $607,000

   B. $611,000             D. $622,000

6. The following information pertains to Imogen Co.'s accounts receivable at December 31, 2015:

Days      Estimated

Outstanding        Amount                Uncollectible

0-30       $420,000             2%

31-60     140,000               5%

61-120 100,000               10%

Over 120             120,000               20%

During 2015, Imogen wrote off $18,000 in receivables and recovered $6,000 that had been written off in prior years. Imogen's December 31, 2014, allowance for uncollectible accounts was $40,000. Under the aging method, what amount of allowance for uncollectible accounts should Imogen report at December 31, 2015?

A. $49,400

   B. $55,400

   C. $28,000

   D. $31,400

Answer 1

1. C. 2%

2. B.$43000

OPENING BALANCE IN SALES RETURN ALLOWANCE A/C = $32000

ADD- CURRENT YEAR ESTIMATE = $650000*6% =$39000

LESS- ACTUAL SALES RETURNS = $ 28000

TOTAL AVAILABLE BALANCE  in the allowance for sales returns account at the end of 2015 = $ 43000

3. A. nothing. LIFO liquidations have no effect on a company's income taxes

4.

5. NET SALES = D. $622000

SALES = $650000

LESS - SALES RETURNS =$28000

NET SALES = $622000

6. C. $28000

OPENING BALANCE IN ALLOWANCE FOR UNCOOLECTIBLE ACCOUNTS = $40000

LESS - CURRENT YEAR WRITTEN OFF = 18000

RECOVERED = (6000) $12000

amount of allowance for uncollectible accounts at December 31, 2015 =$28000