Accounting Exam 2

Data for the year ended December 31 are presented below: Sales (credit)$2,500,000 Sales returns and allowances50,000 Accounts Receivable (December 31)640,000 Allowance for Doubtful Accounts (Before adjustment at December 31)20,000 Estimated amount of uncollected accounts based on aging analysis45,000 Refer to AT&U Company. If the company estimates its bad debts at 1% of net credit sales, what amount will be reported as bad debt expense? A) $24,500 B) $4,500 C) $44,500 D) $25,000

A) $24,500 [$2,500,000 (Sales) − $50,000 (Sales Returns) = $2,450,000] × (1%) = $24,500

A company receiving payment of a $20,000 accounts receivable within 10 days with terms of 2/10, n/30, would record a sales discount of: A) 2% of $20,000 B) 10% of $20,000 C) (100% - 2%) x $20,000 D) (100% - 10%) x $20,000

A) 2% of $20,000

A customer's check for $25 that had been deposited into the company's checking account the previous month was returned stamped "NSF" by the bank. Which of the following journal entries is required? A) Accounts Receivable 25 Cash 25 B) Cash 25 Accounts Payable 25 C) Account Receivable 25 Petty Cash 25 D) Cash 25 Accounts Receivable 25

A) Accounts Receivable 25 Cash 25

Which of the following items would be added to the company's cash balance on a bank reconciliation? A) interest earned on the bank account B) deposits in transit C) outstanding checks D) bank service charges

A) interest earned on the bank account

Add or Subtract Deposit in Transition

Add ($15,00 (EB) + $2,000 (Deposit In Transition)

Carlock Systems received a 6-month, 12% note for $50,000 from a customer on November 1, 2019. The note is due on April 30, 2020. Assuming the company's accounting period ends on December 31, how much interest revenue should be recognized during 2019 and 2020? 2019. 2020 A) $2,000 $1,000 B) $1,000 $2,000 C) $1,000 $5,000 D) $0 $6,000

B) $1,000 and $2,000

Bank statement balance $10,700 Unadjusted cash balance from the company's records ? Deposit in transit 2,100 Outstanding checks 1,200 Bank service charges 300 Interest earned on the bank account 100 Customer's NSF check returned by the bank 400 Refer to Dreammaker Kitchens. As a result of the bank reconciliation process, what is the net increase or decrease in cash which must be recorded on the company's books? A) $300 decrease B) $600 decrease C) $100 decrease D) $400 decrease

B) $600 Decrease (Adjustment = ($300) service charges + ($400) NSF checks + $100 interest earned = ($600))

Under accrual accounting when is revenue recognized? A) When cash is received, and expenses when the costs are incurred. B) When earned, and expenses when incurred. C) When cash is received, and expenses when cash is paid. D) When earned, and expenses when cash is paid.

B) When earned, and expenses when incurred

Which of the following entries properly closes a temporary account? A) Income Summary 20,000 Service Revenue 20,000 B) Income Summary 400 Salaries Expense 400 C) Accumulated Depreciation 1,600 Income Summary 1,600 D) Dividends 200 Retained Earnings200

B.) Income Summary400 Salaries Expense 400

Cozy Corporation purchased supplies at a cost of $15,000 during the year. At January 1, supplies on hand were $5,000. At December 31, supplies on hand are $2,000. Calculate supplies expense for the year. A) $13,000 B) $2,000 C) $18,000 D) $15,000

C) $18,000 $5,000 (Amount on hand at Jan. 1) + $15,000 (Purchases) − $2,000 (Amount on hand at Dec. 31) = $18,000

If the end-of-year supplies on hand totaled $200, and purchases totaled $300, and supplies on hand at the beginning of the year amounted to $100, how much will be reported as supplies expense for the current year? A) $600 B) $300 C) $200 D) $400

C) $200 $100 (Beginning Balance) + $300 (Purchases) − $200 (Ending Balance) = $200

Sales (credit) $2,500,000 Sales returns and allowances 50,000 Accounts Receivable (December 31) 640,000 Allowance for Doubtful Accounts (Before adjustment at December 31) 20,000 Estimated amount of uncollected accounts based on aging analysis 45,000 If the company estimates its bad debt to be 2% of net credit sales, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts? A) $49,000 B) $19,000 C) $69,000 D) $20,000

C) $69,000 $20,000 (Allowance for Doubtful Accounts balance before adjustment) + $49,000 (Adjustment) = $69,000

A company needs to record 6 months of accrued interest on a 4-year, 12%, $12,000 promissory note payable. How much interest expense should be accrued? A) $1,080 B) $2,160 C) $720 D) $1,440

C) $720 $12,000 (Principal) × .12 (Interest Rate) × 6/12 (Time Period) = $1,440 x 6/12 = $720

The company received a promissory note from a customer on March 1, 2019. The principal amount of the note is $20,000; the terms are 3 months and 9% annual interest.Refer to the information for Accent Flooring. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Accent Flooring on the maturity date assuming that none of the interest had already been recognized? A) Increase Cash by $20,450, increase Notes Receivable by $20,000, and increase Interest Revenue by $450 B) Increase Cash and decrease Notes Receivable by $20,000 C) Increase Cash by $20,450, increase Interest Revenue by $450, and decrease Notes Receivable by $20,000 D) No entry is required; the customer pays the amount due to Accent Flooring.

C) Increase Cash by $20,450, increase Interest Revenue by $450, and decrease Notes Receivable by $20,000

The College Store accepts MasterCard for payments of purchases made by students. The credit card drafts are deposited directly in a bank account. MasterCard charges a 1.55% collection fee. Credit card drafts totaling $10,000 are deposited during August. Recording the sales and deposits will result in an increase in A) Sales for $ 9,854 B) Accounts Receivable for $9,854 C) Service Charge Expense for $155 D) Cash for $10,000

C) Service Charge Expense for $155

The asset account, Supplies, has a balance of $10,000 on January 1. During January, $22,000 of supplies were purchased on account and the liability was appropriately recorded. A count of supplies at the end of January indicates a balance of $2,000. What adjusting entry is necessary at January 31? A) Supplies 22,000 Accounts Payable 22,000 B) Supplies Expense 24,000 Supplies 24,000 C) Supplies Expense 30,000 Supplies. 30,000 D) Supplies Expense 22,000 Supplies 20,000 Accounts Payable 2,000

C) Supplies Expense $30,000 Supplies $30,000

While preparing the April 30th bank reconciliation, the accountant identified the following items: Company's balance according to the general ledger $15,000 Outstanding checks 2,500 Bank service charge 15 A customer's NSF check returned by the bank 100 What is the company's adjusted cash balance at April 30th? A) $12,500 B) $12,385 C) $17,385 D) $14,885

D) $14,885 ($15,000 book balance − 100 NSF check − 15 service charge = $14,885)

The company received a promissory note from a customer on March 1, 2019. The principal amount of the note is $20,000; the terms are 3 months and 9% annual interest.Refer to the information for Accent Flooring. What is the total amount of interest the company will receive when the note is collected? A) $150 B) $300 C) $1,800 D) $450

D) $450 20,000 (Principal) × .09 or 9% (Rate) × 3/12 (fraction of year) = $450

Failure to record the earned portion of unearned revenue would result in which of the following? A) No effect on total liabilities. B) Stockholders' equity being overstated. C) Total assets being understated. D) Net income being understated.

D) Net income being understated

Which of the following adjusting entries involves the cash account? A) Accrued Expenses B) Deferred Liabilities C) Deferred Revenues D) None of these choices are correct.

D) None of these choices are correct

Each of the following items is considered a cash equivalent except A) 60-day corporate commercial paper. B) a 75-day U.S. Treasury bill. C) a 30-day certificate of deposit. D) a 180-day note issued by a local government.

D) a 180-day note issued by a local government.

Do you add or Subtract NSF checks

Subtract

Add or Subtract Outstanding Checks

Subtract ($15,000 (EB) + $2,000 (Deposit In Transition) - $3,000 (Outstanding Checks)