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At the beginning of December 2014, ACME has 100 units of merchandise on hand, @ 10
each. In December 2014, ACME acquires 200 units of the same merchandise @ 11 each, and
300 more units @ 12 each (in this order). After all the purchases, ACME sells 400 units of
merchandise in the same month, @ 15 each. What are the consequences of these transactions on
ACMEs 2014 financial statements, if ACME applies LIFO (last-in-first-out) to assign costs to its
merchandise consumptions?
a. Revenue is 5,000;
b. Cost of merchandise sold is 4,700;
c. Profit is 1,600;
d. Ending merchandise inventory is valued at 2,400.
Q2. Which of the following statements is TRUE regarding the financial statements of listed
companies?
a. They are all prepared on a cash basis;
b. The income statement is prepared on an accrual basis;
c. The balance sheet is prepared according to either an accrual or a cash basis;
d. It depends on the jurisdiction (some regulators require the accrual basis, others the cash
basis).
Q3. The Balance Sheet follows which equation?
a. Assets + Stockholders equity = Liabilities;
b. Assets = Liabilities Stockholders Equity;
c. Revenues - Expenses = Income;
d. Assets = Liabilities + Stockholder's Equity.
Q4. The cost of inventory sold appears in which financial statement?
a. Income Statement;
b. Balance Sheet;
c. Statement of Cash Flow;
d. None of the above.
Q5. Which one is TRUE about revenue recognition (more than one answer)?
a. Revenues are recognized as they are earned;
b. Revenue recognition occurs when the accounts receivable is paid;
c. Revenue recognition occurs when the customer order is received;
d. Revenue recognition is a simple application of accounting rules.
Q6. Water Boat purchased a truck for 12,000, by making a down payment of 5,000 in cash and
by accepting a 7,000 payable due in 60 days. As a result of this transaction, Water Boats:
a. total assets have increased by 12,000;
b. total liabilities have increased by 7,000;
c. total assets have decreased by 5,000;
d. total liabilities have increased by 12,000.
Q7. Sunset Tours has a 3,500 claim on Del Mar Rotary. On January 20 th, Del Mar Rotary makes
a partial payment of 2,100 to Sunset Tours. The journal entry made on January 20 th by Sunset
Tours to record the transaction includes:
a. A debit to the Cash account of 2,100;
b. A debit to the Cash account of 1,400;
c. A credit to the accounts payable account of 2,100;
d. A debit to the accounts receivable account of 2,100.
Q8. The records of Inventories Corp. show the following details for its inventory for the month
of April:
Beg. Inventory April 1
90 units * EUR 4 = EUR360
Purchases
April 2
60 units * EUR 3.5 =
EUR210
April 15 40 units * EUR 6 = EUR240
April 27 80 units * EUR 4.5 =
EUR360
Sales
April 7
70 units
April 18 30 units
April 24 40 units
Determine the cost of goods sold and the value of the inventory at the end of April under:
a) The FIFO method
b) The LIFO method
c) The weighted average method
Q9. The initial balance sheet of Alpha includes (all in CU): Equipment 4 000, Merchandise 2
000, Trade receivables 3 000, Cash 4 000, Share capital 2 000, Retained earnings 2 000, Long
term debt 5 000, Trade payables 2 000, wages payable 2 000.
The following transactions occurred during the period:
a) 1 000 are collected from the customers;
b) a new contribution of 2 000 is received from the owners. The par value of the share is half of
its market value.
c) new equipment is purchased for cash for 2 500;
d) new merchandise is purchased on credit for 3 000;
e) the initial inventory and half of the recently purchased merchandise is sold for 5 000 on credit;
f) suppliers are paid for 1 500;
g) dividends of 500 are distributed;
h) the invoice for the rent of the period is received, in the amount of 300;
i) the wages of the period are 800, half paid during the period;
j) the depreciation of equipment for the period is 1000, of which 500 is for the new equipment;
k) the remaining the merchandise is sold for 2,500, for cash.
Prepare the balance sheet and the income statement at the end of the period (ignore VAT and
income tax calculations).
1 April
2 April
7 April
15
April
18
April
24
April
27
April
40
80
4.5
Sale
Inventory
cost
total
70
280
20
10
40
4
3.5
3.5
80
35
140
240
360
Q
90
90
60
20
60
20
60
40
50
40
10
40
10
40
80
cost
4
4
3.5
4
3.5
4
3.5
6
3.5
6
3.5
6
3.5
6
4.5
total
360
360
210
80
210
80
210
240
175
240
35
240
35
240
360
1 April
2 April
7 April
15
April
18
April
24
April
40
Sale
Inventory
cost
total
60
10
3.5
4
210
40
240
27
80
4.5
360
April
CGS = 250 + 180+ 180 = 610
30
180
10
30
6
4
60
120
Q
90
90
60
80
cost
4
4
3.5
4
total
360
360
210
320
80
40
80
10
50
4
6
4
6
4
320
240
320
60
200
50
80
4
4.5
200
360
1 April
2 April
7 April
15
40
6
April
18
April
24
April
27
80
4.5
April
CGS = 583.2
Final inventory = 586.8
Total 1170
Sale
Inventory
cost
total
Q
90
150
80
120
cost
4
3.8
3.8
4.53
total
360
570
304
544
70
3.8
266
30
4.53
136
90
4.53
408
40
4.53
181.2
50
4.53
226.8
130
4.51
586.8
240
360
Amount
7500
5000
800
1000
300
400
Balance sheet
Items
Equipment
Total Non current assets
Merchandise
Trade receivables
Cash
Total Current assets
Total assets
Share capital
Share premium
Retained earnings
Computations
4000+2500-1000
2000+3000-3500-1500=0
3000-1000+5000
2000+1000
0+1000
2000-500
Final amount
5500
5500
0
7000
4600
11600
17100
3000
1000
1500
Profit
Total equity
Long term debt
Total Non current liabilities
Trade payables
Wages payable
Total Current liabilities
Total Equity and liabilities
2000+3000-1500+300
2000+400
400
5900
5000
5000
3800
2400
6 200
17100