Question :
131. Claitin Inc. uses large warehouses to store its finished goods : 1246014
131. Claitin Inc. uses large warehouses to store its finished goods ready for sale. After its personnel and auditors conducted a physical inventory of goods on one side of its warehouses, Claitin Inc. transported a portion of the inventory to another part of the warehouse, removing the inventory tags that indicated that the items had already been counted in inventory, and thereby included the items a second time in inventory. In this way, the firm overstated its ending inventory for the current year, understated its cost of goods sold, and overstated its earnings. This action resulted in an overstatement of the beginning inventory for the next year. Assuming a correct count of the ending inventory for the second year, the action has the result of overstating cost of goods sold for the second year and understating earnings. Net income for the two years combined, however, is correctly stated, the net result of an overstatement in the first year offset by an equal understatement in the second year. The actions
A. are in accordance with U.S. GAAP.
B. are in accordance with IFRS.
C. violate ethical principles.
D. are in accordance with U.S. GAAP, but not IFRS.
E. are in accordance with IFRS, but not U.S. GAAP.
132. On December 10 of the current year, XTREME Sports Inc. receives an advance of $50,000 from a hockey team for 20,000 custom-made shirts with the team’s logo, which the team intends to distribute to fans entering a hockey game during the first week in January. XTREME Sports Inc. completes the manufacturing of the shirts on December 30, intending to ship them on December 31 before its accounting period ends. Unfortunately, a snowstorm on December 31 prevented their shipment. XTREME Sports Inc. recorded this transaction as a sale for December, and reduced its inventory accordingly. It set the items aside in its shipping room on December 31 with a clear sign to its own personnel conducting a physical inventory on that date and to its auditors who were observing the count that the items were not to be counted as inventory. These actions
A. are in accordance with U.S. GAAP.
B. are in accordance with IFRS.
C. violate ethical principles.
D. are in accordance with U.S. GAAP, but not IFRS.
E. are in accordance with IFRS, but not U.S. GAAP.
133. On August 1, Covington Motors pays £18,000 for insurance coverage for the next 12 months. On August 1, the firm records the following journal entry:
A. Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Insurance Expense . . . .. . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 18,000
B. Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
C. Insurance Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
D. Liability for Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
E. Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 18,000
Liability for Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . 18,000
134. On August 1, Covington Motors pays £18,000 for insurance coverage for the next 12 months. On August 1, the firm records the following journal entry:
Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000
At the end of each of the next 12 months, the firm records the following adjusting entry:
A. Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Insurance Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 1,500
B. Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
C. Insurance Expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
D. Liability for Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1,500
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
E. Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . 1,500
Liability for Prepaid Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,500
135. Focus Company sells merchandise with a one year warranty. In 2013, sales consisted of 2,500 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2013 and 70% in 2014. In the 2013 income statement, Focus should show warranty expense of
A. $25,000
B. $7,500
C. $17,500
D. $0
E. $12,500
136. During September, Genesis sold 100 radios for $50 each. Each radio cost Genesis $30 to purchase, and carried a two-year warranty. If 5% typically need to be replaced over the warranty period and one is actually replaced during September, for what amount in September would Genesis debit Product Warranty Expense?
A. $50
B. $150
C. $30
D. $120
E. $52.50
137. Albion Company sells merchandise with a one year warranty. In 2013, sales consisted of 2,500 units. It is estimated that warranty repairs will average $20 per unit sold, and 30% of the repairs will be made in 2013 and 70% in 2014. In the 2013 income statement, Albion should show warranty expense of:
A. $15,000
B. $35,000
C. $50,000
D. $0
E. $25,000
138. Youngstown Company sells merchandise with a one year warranty. Sales consisted of 2,500 units in 2013 and 2,000 units in 2014. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2013 and 70% in 2014 for the 2013 sales. Similarly, 30% of repairs will be made in 2014 and 70% in 2015 for the 2014 sales. In the 2014 income statement, how much of the warranty expense shown will be due to 2013 sales?
A. $7,500
B. $17,500
C. $25,000
D. $0
E. $12,500
139. Under U.S. GAAP, the cost of a product warranty should be included as an expense in the
A. period the cash is collected for a product sold on account.
B. future period when the cost of repairing the product is paid.
C. period of the sale of the product.
D. future period when the product is repaired or replaced.
E. past period when the product is under development.
140. Lager Company sells merchandise with a one year warranty. In 2013, sales consisted of 1,600 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2013 and 70% in 2014. In the 2013 income statement, Lager should show warranty expense of
A. $4,800
B. $11,200
C. $16,000
D. $0
E. $8,000
