Acct ch7

The credit terms offered to a customer by a business firm were 2/10, n/30, which means

C) the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date.

2. Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?
A)
B)
C)
D)

2. B

3. The Allowance for Doubtful Accounts is necessary because

A) when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.

4. Which of the following would be added to the balance per bank on a bank reconciliation?

B) Deposits in transit.

5. If goods in transit are shipped FOB destination

A) the seller has legal title to the goods until they are delivered.

6. Hoover Company had beginning inventory of $15,000 at March 1, 2012. During the month, the company made purchases of $50,000. The inventory at the end of the month is $17,300. What is cost of goods sold for the month of March?

A) $47,700

7. The custodian of a company asset should

C) not have access to the accounting records for that asset.

8. Which one of the following is not an objective of a system of internal controls?

C) Fairness of the financial statements.

9. Which of the following accounts is classified as a contra revenue account?

C) Sales Returns and Allowances

10. Under a perpetual inventory system

A) accounting records continuously disclose the amount of inventory.

12. Under the concept of establishment of responsibility, how many people should have the ultimate responsibility?

C) Only one individual.

14. Using the percentage of receivables method for recording bad debts expense, estimated
uncollectible accounts are $35,000. If the balance of the Allowance for Doubtful Accounts is $11,000 debit before adjustment what is the amount of bad debt expense for that period?

C) $46,000

15. When an account becomes uncollectible and must be written off

B) Accounts Receivable should be credited.

17. When applying the lower of cost or market rule to inventory valuation, market generally means

A) current replacement cost.

18. Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

C) FIFO will have the highest ending inventory.

19. If employees are bonded

C) they have been insured against misappropriation of assets.

Which of the following would not be included in the definition of cash?

NSF checks.

21. The matching rule relates to credit losses by stating that bad debt expense should be recorded

B) in the period of the sale.

22. Freight costs incurred by a seller on merchandise sold to customers will cause an increase

B) in operating expenses for the seller.

Under the allowance method, Bad Debt Expense is recorded

for an amount that the company estimates it will not collect.

24. Simonic Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Simonic Retailers will include a credit to Sales of $75,000 and a debit(s) to:

A) Cash $72,000 and Service Charge Expense $3,000.

25. Gross profit does not appear

B) on a single-step income statement.

26. Using the allowance method, the uncollectible accounts for the year is estimated to be $35,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 debit before adjustment, what is the amount of bad debt expense for the period?

D) $44,000

On January 15, Nifty Company sells merchandise on account to Martinez Associates for $2,000 with terms 3/10, n/05. On January 20, Martinez returns merchandise worth $400 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received?

$1,552

28. Fehr Company sells merchandise on account for $2,500 to Kelly Company with credit terms of 2/10, n/30. Kelly Company returns $500 of merchandise that was damaged,
along with a check to settle the account within the discount period. What is the amount of the check?

D) $1,960

30. Multiple-step income statements show

C) both income from operations and gross profit.

Davies Company purchased merchandise inventory with an invoice price of $7,500 and credit terms of 2/10, n/30. What is the net cost of the goods if Davies Company pays within the discount period?

$7,350

You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to

debit Allowance for Doubtful Accounts and credit Accounts Receivable.

34. The term "receivables" refers to

A) amounts due from individuals or companies.

35. Under a perpetual inventory system, acquisition of merchandise for resale is debited to

A) the Inventory account.

37. Sales revenue less cost of goods sold is called

A) gross profit.

36. Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited

D) when an account is determined to be uncollectible.

38. A 90-day note dated April 30, 2012, would mature on:

B) July 29, 2012.

40. Under the perpetual inventory system, in addition to making the entry to record a sale, a company would

C) debit Cost of Goods sold and credit Inventory.

42. Which of the following is not a basic principle of cash management?

B) Keep inventory levels high.

43. Net income will result if gross profit exceeds

B) operating expenses.

44. Which of the following would be added to the balance per books on a bank reconciliation?

C) Notes collected by the bank.

All of the following bank reconciliation items would result in an adjusting entry on the company's books except

deposits in transit

46. Gross profit for a merchandising concern is net sales minus

B) cost of goods sold

47. An aging of a company's accounts receivable indicates that $4,000 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a

C) debit to Bad Debts Expense for $2,800

The direct write-off method of accounting for uncollectible accounts

is not generally accepted as a basis for estimating bad debts.

50. Assets purchased for resale are recorded in which of the following accounts?

B) Inventory

Before a check authorization is issued, the following documents must be in agreement, except for the

remittance advice.

52. Inventory becomes part of cost of goods sold when a company

C) sells the inventory.

53. What causes the balance on the bank statement to differ from the cash balance in the general ledger?
A) Time lags.
B) Errors by the bank.
C) Errors by the company.
D) All of the above.

53. D

54. Which of the following activities is not a component of the operating cycle?

B) Payment of employees' salaries

55. Goods held on consignment are

A) never owned by the consignee.

56. If a check correctly written and paid by the bank for $626 is incorrectly recorded on the company's books for $662, the appropriate treatment on the bank reconciliation would be to

A) add $36 to the book's balance.

57. The account Allowance for Doubtful Accounts is classified as a(n)

D) contra account to Accounts Receivable.

58. Entries are made to the Petty Cash account when

A) establishing the fund.

62. Deposits in transit

A) have been recorded on the company's books but not yet by the bank.

63. Which of the following is not an internal control procedure for cash?

B) The same individual receives the cash and pays the bills.

64. All of the following are items that would most likely be paid from a petty cash fund except:

C) administrative wages.

Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $20,000. If the balance of the Allowance for Doubtful Accounts is $4,000 credit before adjustment what is the amount of bad debt expense for that period?

$16,000

66. A company purchased inventory as follows:
200 units at $20
300 units at $22
The average unit cost for inventory is

C) $21.20.

A $200 petty cash fund has cash of $34 and receipts of $160. The journal entry to replenish the account would include a

debit to Cash Over and Short for $6.

68. A bank statement

D) shows the activities that increased or decreased the depositor's account balance.

Cash equivalents do not include

long-term investment. highly liquid.

71. The Sales Returns and Allowances account is classified as a(n)

D) contra revenue account

The control principle related to not having the same person authorize and pay for goods is known as

separation of duties.

75. Which one of the following is not an objective of a system of internal controls?

B) Overstate liabilities in order to be conservative.

78. A $100 petty cash fund has cash of $18 and receipts of $86. The journal entry to replenish the account would include a

C) credit to Cash Over and Short for $4.

80. The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit

D) Inventory.

81. Conway Company purchased merchandise inventory with an invoice price of $8,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period?

B) $7,840

82. Gross profit equals the difference between

B) net sales revenues and cost of goods sold.

83. The interest on a $8,000, 6%, 60-day note receivable is

B) $80.

85. The maturity value of a $30,000, 9%, 40-day note receivable dated July 3 is

D) $30,300.

86. A NSF check should appear in which section of the bank reconciliation?

D) Deduction from the balance per books.

Which of the following would be deducted from the balance per bank on a bank reconciliation?

A) Outstanding checks.

88. The specific identification method of costing inventories is used when the

D) company sells a limited quantity of high-unit cost items.

91. A bank reconciliation should be prepared

C) to explain any difference between the depositor's balance per books with the balance per bank.

92. A sales invoice is prepared when goods

B) are sold on credit.

94. If a purchaser using a perpetual inventory system pays the transportation costs, then the

A) Inventory account is increased.

95. If a check correctly written and paid by the bank for $471 is incorrectly recorded on the company's books for $417, the appropriate treatment on the bank reconciliation would be to

B) subtract $54 from the book's balance.

Which of the following would be deducted from the balance per books on a bank reconciliation?

Service charges.

Schofield Retailers accepted $50,000 of Silver Bank MasterCard credit card charges for merchandise sold on August 1. Silver Bank charges 4% for its credit card use. The entry to record this transaction by Schofield Retailers will include a credit to Sales of $50,000 and a debit(s) to

Cash for $48,000 and Service Charge Expense for $2,000.

98. The amount of cost of good available for sale during the year depends on the amounts of

D) beginning merchandise inventory and net costs of purchases.

99. Carson Company on July 15 sells merchandise on account to Tayler Co. for $1,500, terms 2/10, n/30. On July 20 Tayler Co. returns merchandise worth $600 to Carson Company. On July 24 payment is received from Tayler Co. for the balance due. What is the amount of cash received?

B) $882

Materiality constraint

states that an amount can be ignored if its effect on the financial statements is unimportant to users' business decisions.

Interest=

principle x annual interest x time

Ending inventory=

BI+NP-COGS

weighted average =

total cost/ total units

bank balance=

balance- outstanding checks+deposits

net sales=

revenue- sales discounts- sales returns and allowances

The journal entry to record a credit sale is

AR sales revenue

The adjusted cash balance per books=

beg. balance+NR- bank charge- NSF

Young Company lends Dobson industries $30,000 on August 1, 2012, accepting a 9-month, 12% interest note. If Young prepares it financial statements as of December 31, 2012, what adjusting entry must it make?

Accounts Receivable Notes Receivable Interest Revenue

Bank Statement Balance

Add: Deposits in transit. Deduct: Outstanding checks Add or Deduct: Bank errors

Book Balance

Add: Collections made by the bank. Add: Interest earned on checking account. Deduct: Non-sufficient funds check (NSF). Deduct: Bank service charge. Add or Deduct: ?Book errors

write off method entries

bad debt exp AR

allowance method

bad debt exp allowance for DA

Beg balance- disbursements+ receipts

...

GP

net sales- COGS

FIFO- If prices rise then EI for COGS is HIGHER

and LIFO COGS is HIGHEST
higher GP= lower COGS

...

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The credit terms offered to a customer by a business firm were 2/10, n/30, which means

C) the customer can deduct a 2% discount if the bill is paid within 10 days of the invoice date.

2. Nichols Company uses the percentage of receivables method for recording bad debts expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Nichols Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000 before adjustment?
A)
B)
C)
D)

2. B

3. The Allowance for Doubtful Accounts is necessary because

A) when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.

4. Which of the following would be added to the balance per bank on a bank reconciliation?

B) Deposits in transit.

5. If goods in transit are shipped FOB destination

A) the seller has legal title to the goods until they are delivered.

6. Hoover Company had beginning inventory of $15,000 at March 1, 2012. During the month, the company made purchases of $50,000. The inventory at the end of the month is $17,300. What is cost of goods sold for the month of March?

A) $47,700

7. The custodian of a company asset should

C) not have access to the accounting records for that asset.

8. Which one of the following is not an objective of a system of internal controls?

C) Fairness of the financial statements.

9. Which of the following accounts is classified as a contra revenue account?

C) Sales Returns and Allowances

10. Under a perpetual inventory system

A) accounting records continuously disclose the amount of inventory.

12. Under the concept of establishment of responsibility, how many people should have the ultimate responsibility?

C) Only one individual.

14. Using the percentage of receivables method for recording bad debts expense, estimated
uncollectible accounts are $35,000. If the balance of the Allowance for Doubtful Accounts is $11,000 debit before adjustment what is the amount of bad debt expense for that period?

C) $46,000

15. When an account becomes uncollectible and must be written off

B) Accounts Receivable should be credited.

17. When applying the lower of cost or market rule to inventory valuation, market generally means

A) current replacement cost.

18. Two companies report the same cost of goods available for sale but each employs a different inventory costing method. If the price of goods has increased during the period, then the company using

C) FIFO will have the highest ending inventory.

19. If employees are bonded

C) they have been insured against misappropriation of assets.

Which of the following would not be included in the definition of cash?

NSF checks.

21. The matching rule relates to credit losses by stating that bad debt expense should be recorded

B) in the period of the sale.

22. Freight costs incurred by a seller on merchandise sold to customers will cause an increase

B) in operating expenses for the seller.

Under the allowance method, Bad Debt Expense is recorded

for an amount that the company estimates it will not collect.

24. Simonic Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Simonic Retailers will include a credit to Sales of $75,000 and a debit(s) to:

A) Cash $72,000 and Service Charge Expense $3,000.

25. Gross profit does not appear

B) on a single-step income statement.

26. Using the allowance method, the uncollectible accounts for the year is estimated to be $35,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 debit before adjustment, what is the amount of bad debt expense for the period?

D) $44,000

On January 15, Nifty Company sells merchandise on account to Martinez Associates for $2,000 with terms 3/10, n/05. On January 20, Martinez returns merchandise worth $400 to Nifty. On January 24, payment is received from Martinez for the balance due. What is the amount of cash received?

$1,552

28. Fehr Company sells merchandise on account for $2,500 to Kelly Company with credit terms of 2/10, n/30. Kelly Company returns $500 of merchandise that was damaged,
along with a check to settle the account within the discount period. What is the amount of the check?

D) $1,960

30. Multiple-step income statements show

C) both income from operations and gross profit.

Davies Company purchased merchandise inventory with an invoice price of $7,500 and credit terms of 2/10, n/30. What is the net cost of the goods if Davies Company pays within the discount period?

$7,350

You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to

debit Allowance for Doubtful Accounts and credit Accounts Receivable.

34. The term "receivables" refers to

A) amounts due from individuals or companies.

35. Under a perpetual inventory system, acquisition of merchandise for resale is debited to

A) the Inventory account.

37. Sales revenue less cost of goods sold is called

A) gross profit.

36. Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited

D) when an account is determined to be uncollectible.

38. A 90-day note dated April 30, 2012, would mature on:

B) July 29, 2012.

40. Under the perpetual inventory system, in addition to making the entry to record a sale, a company would

C) debit Cost of Goods sold and credit Inventory.

42. Which of the following is not a basic principle of cash management?

B) Keep inventory levels high.

43. Net income will result if gross profit exceeds

B) operating expenses.

44. Which of the following would be added to the balance per books on a bank reconciliation?

C) Notes collected by the bank.

All of the following bank reconciliation items would result in an adjusting entry on the company’s books except

deposits in transit

46. Gross profit for a merchandising concern is net sales minus

B) cost of goods sold

47. An aging of a company’s accounts receivable indicates that $4,000 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to record bad debts for the period will require a

C) debit to Bad Debts Expense for $2,800

The direct write-off method of accounting for uncollectible accounts

is not generally accepted as a basis for estimating bad debts.

50. Assets purchased for resale are recorded in which of the following accounts?

B) Inventory

Before a check authorization is issued, the following documents must be in agreement, except for the

remittance advice.

52. Inventory becomes part of cost of goods sold when a company

C) sells the inventory.

53. What causes the balance on the bank statement to differ from the cash balance in the general ledger?
A) Time lags.
B) Errors by the bank.
C) Errors by the company.
D) All of the above.

53. D

54. Which of the following activities is not a component of the operating cycle?

B) Payment of employees’ salaries

55. Goods held on consignment are

A) never owned by the consignee.

56. If a check correctly written and paid by the bank for $626 is incorrectly recorded on the company’s books for $662, the appropriate treatment on the bank reconciliation would be to

A) add $36 to the book’s balance.

57. The account Allowance for Doubtful Accounts is classified as a(n)

D) contra account to Accounts Receivable.

58. Entries are made to the Petty Cash account when

A) establishing the fund.

62. Deposits in transit

A) have been recorded on the company’s books but not yet by the bank.

63. Which of the following is not an internal control procedure for cash?

B) The same individual receives the cash and pays the bills.

64. All of the following are items that would most likely be paid from a petty cash fund except:

C) administrative wages.

Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $20,000. If the balance of the Allowance for Doubtful Accounts is $4,000 credit before adjustment what is the amount of bad debt expense for that period?

$16,000

66. A company purchased inventory as follows:
200 units at $20
300 units at $22
The average unit cost for inventory is

C) $21.20.

A $200 petty cash fund has cash of $34 and receipts of $160. The journal entry to replenish the account would include a

debit to Cash Over and Short for $6.

68. A bank statement

D) shows the activities that increased or decreased the depositor’s account balance.

Cash equivalents do not include

long-term investment. highly liquid.

71. The Sales Returns and Allowances account is classified as a(n)

D) contra revenue account

The control principle related to not having the same person authorize and pay for goods is known as

separation of duties.

75. Which one of the following is not an objective of a system of internal controls?

B) Overstate liabilities in order to be conservative.

78. A $100 petty cash fund has cash of $18 and receipts of $86. The journal entry to replenish the account would include a

C) credit to Cash Over and Short for $4.

80. The journal entry to record a return of merchandise purchased on account under a perpetual inventory system would credit

D) Inventory.

81. Conway Company purchased merchandise inventory with an invoice price of $8,000 and credit terms of 2/10, n/30. What is the net cost of the goods if Conway Company pays within the discount period?

B) $7,840

82. Gross profit equals the difference between

B) net sales revenues and cost of goods sold.

83. The interest on a $8,000, 6%, 60-day note receivable is

B) $80.

85. The maturity value of a $30,000, 9%, 40-day note receivable dated July 3 is

D) $30,300.

86. A NSF check should appear in which section of the bank reconciliation?

D) Deduction from the balance per books.

Which of the following would be deducted from the balance per bank on a bank reconciliation?

A) Outstanding checks.

88. The specific identification method of costing inventories is used when the

D) company sells a limited quantity of high-unit cost items.

91. A bank reconciliation should be prepared

C) to explain any difference between the depositor’s balance per books with the balance per bank.

92. A sales invoice is prepared when goods

B) are sold on credit.

94. If a purchaser using a perpetual inventory system pays the transportation costs, then the

A) Inventory account is increased.

95. If a check correctly written and paid by the bank for $471 is incorrectly recorded on the company’s books for $417, the appropriate treatment on the bank reconciliation would be to

B) subtract $54 from the book’s balance.

Which of the following would be deducted from the balance per books on a bank reconciliation?

Service charges.

Schofield Retailers accepted $50,000 of Silver Bank MasterCard credit card charges for merchandise sold on August 1. Silver Bank charges 4% for its credit card use. The entry to record this transaction by Schofield Retailers will include a credit to Sales of $50,000 and a debit(s) to

Cash for $48,000 and Service Charge Expense for $2,000.

98. The amount of cost of good available for sale during the year depends on the amounts of

D) beginning merchandise inventory and net costs of purchases.

99. Carson Company on July 15 sells merchandise on account to Tayler Co. for $1,500, terms 2/10, n/30. On July 20 Tayler Co. returns merchandise worth $600 to Carson Company. On July 24 payment is received from Tayler Co. for the balance due. What is the amount of cash received?

B) $882

Materiality constraint

states that an amount can be ignored if its effect on the financial statements is unimportant to users’ business decisions.

Interest=

principle x annual interest x time

Ending inventory=

BI+NP-COGS

weighted average =

total cost/ total units

bank balance=

balance- outstanding checks+deposits

net sales=

revenue- sales discounts- sales returns and allowances

The journal entry to record a credit sale is

AR sales revenue

The adjusted cash balance per books=

beg. balance+NR- bank charge- NSF

Young Company lends Dobson industries $30,000 on August 1, 2012, accepting a 9-month, 12% interest note. If Young prepares it financial statements as of December 31, 2012, what adjusting entry must it make?

Accounts Receivable Notes Receivable Interest Revenue

Bank Statement Balance

Add: Deposits in transit. Deduct: Outstanding checks Add or Deduct: Bank errors

Book Balance

Add: Collections made by the bank. Add: Interest earned on checking account. Deduct: Non-sufficient funds check (NSF). Deduct: Bank service charge. Add or Deduct: ?Book errors

write off method entries

bad debt exp AR

allowance method

bad debt exp allowance for DA

Beg balance- disbursements+ receipts

GP

net sales- COGS

FIFO- If prices rise then EI for COGS is HIGHER

and LIFO COGS is HIGHEST
higher GP= lower COGS

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