Chapter 6 Accounting

Sales discounts with terms 2/10, n/30 mean: a. 10 percent discount for payment within 30 days. b. 2 percent discount for payment within 10 days, or the full amount (less returns) due within 30 days. c. Two-tenths of a percent discount for payment within 30 days. d. None of the above.

b. 2 percent discount for payment within 10 days, or the full amount (less returns) due within 30 days.

When using the allowance method, as bad debt expense is recorded, a. Total assets remain the same and stockholders' equity remains the same. b. Total assets decrease and stockholders' equity decreases. c. Total assets increase and stockholders' equity decreases. d. Total liabilities increase and stockholders' equity decreases.

b. Total assets decrease and stockholders' equity decreases.

A company has been successful in reducing the amount of sales returns and allowances. At the same time, a credit card company reduced the credit card discount from 3 percent to 2 percent. What effect will these changes have on the company's net sales, all other things equal? a.Net sales will not change. b.Net sales will increase. c.Net sales will decrease. d.Either (b) or (c).

b.Net sales will increase.

6. Upon review of the most recent bank statement, you discover that you recently received an "insufficient funds check" from a customer. Which of the following describes the actions to be taken when preparing your bank reconciliation? Balance per Books Balance per Bank Statement a. No change Decrease b. Decrease Increase c. Decrease No change d. Increase Decrease

c. Decrease No change

Which of the following is not a component of net sales? a. Sales returns and allowances b. Sales discounts c. Cost of goods sold d. Credit card discounts

c. Cost of goods sold

You have determined that Company X estimates bad debt expense with an aging of accounts receivable schedule. Company X's estimate of uncollectible receivables resulting from the aging analysis equals $250. The beginning balance in the allowance for doubtful accounts was $220. Write-offs of bad debts during the period were $180. What amount would be recorded as bad debt expense for the current period? a.$180 b.$250 c.$210 d.$220

c.$210

Gross sales total $300,000, one-half of which were credit sales. Sales returns and allowances of $15,000 apply to the credit sales, sales discounts of 2 percent were taken on all of the net credit sales, and credit card sales of $100,000 were subject to a credit card discount of 3 percent. What is the dollar amount of net sales? a.$227,000 b.$229,800 c.$279,300 d.$240,000

c.$279,300

When a company using the allowance method writes off a specific customer's $100,000 account receivable from the accounting system, which of the following statements are true? 1. Total stockholders' equity remains the same. 2. Total assets remain the same. 3. Total expenses remain the same. a. 2 b. 1 and 3 c. 1 and 2 d. 1, 2, and 3

d. 1, 2, and 3

Which of the following is not a step toward effective internal control over cash? a. Require signatures from a manager and one financial officer on all checks. b. Require that cash be deposited daily at the bank. c. Require that the person responsible for removing the cash from the register have no access to the accounting records. d. All of the above are steps toward effective internal control.

d. All of the above are steps toward effective internal control.

Which of the following best describes the proper presentation of accounts receivable in the financial statements? a. Gross accounts receivable plus the allowance for doubtful accounts in the asset section of the balance sheet. b. Gross accounts receivable in the asset section of the balance sheet and the allowance for doubtful accounts in the expense section of the income statement. c. Gross accounts receivable less bad debt expense in the asset section of the balance sheet. d. Gross accounts receivable less the allowance for doubtful accounts in the asset section of the balance sheet.

d. Gross accounts receivable less the allowance for doubtful accounts in the asset section of the balance sheet.