test 2 practice

When the direct write-off method of recognizing bad debt expense is used, the entry to write off a specific customer account would

decrease the accounts receivable balance and decrease net income

17. In preparing its bank reconciliation for the month of February, James Company has available the following information: Balance per bank statement, February 28 ................. $18,025 Deposit in transit, February 28 ......................... 3,125 Outstanding checks, February 28 ......................... 2,875 Check erroneously deducted by bank from James' account, February 10 ........................................... 125 Bank service charges for February ....................... 25 What is the corrected cash balance at February 28?

$18,400

15. National Appliance Center sells washing machines that carry a three-year warranty against manufacturer's defects. Based on company experience, warranty costs are estimated at $60 per machine. During the year, National sold 48,000 washing machines and paid warranty costs of $340,000. In its income statement for the year ended December 31, National should report warranty expense of

$2,880,000

19. The following information is available for Thomas Company: Credit sales during 2011 $ 50,000 Allowance for Doubtful Accounts, Dec. 31, 2010 (Credit) 1,800 Accounts receivable written off during 2011 1,900 As a result of a review and aging of accounts receivable, it has been determined that the Allowance for Doubtful Accounts should show a balance of $2,100 at December 31, 2011. What amount should Thomas record as bad debt expense for the year ended December 31, 2011?

$2200

20. A firm factors $40,000 of accounts receivable without recourse. The factor agrees to provide financing based on these receivables, but imposes a 10% fee. In addition, the transferor and transferee agree that $3,000 of sales returns and allowances can be expected from these accounts. What is the loss or expense to recorded by the transferor?

$4000

12. An analysis and aging of the accounts receivable of Shriner Company at December 31 revealed the following data: Accounts Receivable ................................. $450,000 Allowance for Doubtful Accounts (before adjustment).. 25,000 (cr) Accounts estimated to be uncollectible .............. 32,000 The net realizable value of the accounts receivable at December 31 should be

$418,000.

16. Assume the following facts for Kurt Company: The month-end bank statement shows a balance of $40,000; outstanding checks total $2,000; a deposit of $8,000 is in transit at month-end; and a check for $400 was erroneously charged against the account by the bank. What is the correct cash balance at the end of the month?

$46,400

14. A new product introduced by Wilkenson Promotions carries a two-year warranty against defects. The estimated warranty costs related to dollar sales are as follows: Year of sale .............................. 3 percent Year after sale ........................... 5 percent Sales and actual warranty expenditures for the years ended December 31, 2010 and 2011, are as follows: Actual Warranty Sales Expenditures 2010 $ 800,000 $20,000 2011 1,000,000 70,000 What amount should Wilkenson report as its estimated liability as of December 31, 2011?

$54,000

11. See First Company information above. What was the total cash received from Second during July?

$791

13. Based on the aging of its accounts receivable at December 31, Pribob Company determined that the net realizable value of the receivables at that date is $760,000. Additional information is as follows: Accounts Receivable at December 31 ................ $880,000 Allowance for Doubtful Accounts at January 1 ...... 128,000 (cr) Accounts written off as uncollectible during the year ............................................ 88,000 Pribob's doubtful accounts expense for the year ended December 31 is

$80,000.

First Company sold merchandise on credit to Second Company for $1,000 on July 1, with terms of 2/10, net /30. On July 6, Second returned $200 worth of merchandise claiming the materials were defective. On July 8, First received a payment from Second and credited Accounts Receivable for $450. On July 24, Second Company paid the remaining balance on its account. 10. See First Company information above. How much was the total Sales Discounts given to Second during July?

$9

Which of the following is not a basic characteristic of a system of cash control? Use of a voucher system Combined responsibility for handling and recording cash Daily deposit of all cash received Internal audits at irregular intervals

Combined responsibility for handling and recording cash

If the cash balance shown in a company's accounting records is less than the correct cash balance, and neither the company nor the bank has made any errors, there must be

Deposits credited by the bank but not yet recorded by the company

In preparing a monthly bank reconciliation, which of the following items would be added to the balance reported on the bank statement to arrive at the correct cash balance?

Deposits in transit

Which of the following items would be added to the book balance on a bank reconciliation? a. Outstanding checks b. A check written for $63 entered as $36 in the accounting records c. Interest paid by the bank d. Deposits in transit

Interest paid by the bank

When comparing the allowance method of accounting for bad debts with the direct write-off method, which of the following is true?

The allowance method is less exact but it better illustrates the matching principle.

The FASB specified in Statement No. 140 three conditions that must be met if a transfer of receivables is to accounted for as a sale. Which of the following is not one of the three conditions specified?

The transferor's obligation under the recourse provisions can be reasonably estimated.

When the allowance method of recognizing bad debt expense is used, the entries at the time of collection of an account previously written off would

increase the allowance for doubtful accounts

18. A debit balance in the Allowance for Doubtful Accounts

may occur before the end-of-period adjustment for uncollectibles.

9. Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor's records and to identify bank errors. Adjustments should be recorded for

outstanding checks and deposits in transit.