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? |
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 |
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, |
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 |
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? |
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: |
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 |
... |