ACCT 2650 Chapter 5 Practice Questions

Quantity discounts are: a. a reduction in the selling price granted by the seller because per-unit costs are less when larger amounts are ordered. b. merchandise returned by the customer. c. an allowance made to induce the customer to keep the goods if the price is reduced. d. a contra-revenue account.

a. a reduction in the selling price granted by the seller because per-unit costs are less when larger amounts are ordered.

Significant changes in sales revenue and sales returns and allowances should be investigated by management. This statement is a. true for companies that sell products only. b. true for companies that sell either products or services. c. false for all companies. d. true for companies that sell services only.

a. true for companies that sell products only.

If Duke Corporation bills Liberty Advisors $15,000 for product sold during the week with terms of 2/10, n30 under the net method, how much and what account will be debited in the entry to record the sale? a.Debit Accounts Receivable for $14,700 b.Debit Sales Revenue for $14,700 c.Debit Sales Revenue for $15,000 d.Debit Accounts Receivable for $15,000

a.Debit Accounts Receivable for $14,700

When interest is accrued at the end of the year, which of the following entries is made? a.Debit Interest Receivable, credit Interest Income b.Debit Interest Receivable, credit Sales Revenue c.Debit Interest Receivable, credit Accounts Receivable d.Debit Interest Income, credit Interest Receivable

a.Debit Interest Receivable, credit Interest Income

Notes receivable are receivables that generally specify an interest rate and a maturity date at which time the interest and principal must be repaid. A 10%, $1,000 note is dated June 1. The principal and interest are due at the end of six months. On what date will the note be due, and how much will the interest be? a.November 30, $50 interest b.November 30, $1,050 c.December 1, $1050 d.December 31, $100 interest

a.November 30, $50 interest

To encourage prompt payment, businesses may offer a sales discount. The discount is a reduction of the normal selling price. Which of the following is NOT a reason that a seller would offer its customers a 5% cash discount? a. The company is able to reduce its revenue, which reduces its taxes. b. The sooner the customers pay their accounts receivable, cash is more quickly available. c. The seller's collection costs are reduced. d. Offering cash discounts helps a company avoid borrowing money.

a.The company is able to reduce its revenue, which reduces its taxes.

The interest on a note refers to a.the compensation paid to the lender for giving up the use of the resources for the period. b.the amount of money loaned or borrowed plus the fee for the duration of time of the borrowing. c.the amount of money loaned or borrowed. d.the amount of money that was factored.

a.the compensation paid to the lender for giving up the use of the resources for the period.

Sales returns and allowances are all of the following EXCEPT a. an allowance made to induce the customer to keep the goods if the price is reduced. b. a 2% cash discount allowed to encourage payment within 10 days. c. merchandise returned by the customer. d. a contra-revenue account.

b. a 2% cash discount allowed to encourage payment within 10 days.

A customer may return goods as unsatisfactory or agree to keep the goods if the seller is willing to make an allowance. The sales return and allowance is a reduction of the sale. This type of account is called a(n) a. asset account. b. contra-revenue account. c. account receivable account. d. liability account.

b. contra-revenue account.

A 5% note receivable dated January 31 and due on December 31 of the same year will have interest due for a.12 months. b.11 months. c.one month. d.10 months.

b.11 months.

The correct formula to calculate interest is a.Interest = Principal × Annual Interest Rate. b.Interest = Principal × Fraction of 1 Year × Annual Interest Rate. c.Interest = Principal × Number of Years × Annual Interest Rate. d.Interest = Principal × Fraction of 2 Years × Annual Interest Rate.

b.Interest = Principal × Fraction of 1 Year × Annual Interest Rate.

Securitization involves all of the following EXCEPT a.investor participating in the process. b.aging the receivables. c.packaging factored receivables. d.factoring receivables.

b.aging the receivables.

If the accounts receivable balance in the general ledger is $2,000,000 and the accounts receivable (net) reported on the balance sheet is $1,900,000 (the net realizable value), the allowance for doubtful accounts a.is the same as the net realizable value, or $1,900,000. b.is $100,000. c.is also $2,000,000. d.Cannot be determined from the information given.

b.is $100,000.

The principal of a note receivable refers to the amount a.loaned plus any interest that is due. b.of money that was loaned. c.of interest due at maturity. d.factored by Visa.

b.of money that was loaned.

In terms of a company's accounts receivable, the "net realizable value" is a.the reduction in sales revenue that results from the seller's actions, such as a sales return. b.the amount of cash the company expects to collect. c.the amount that has been billed to a customer for their purchase. d.the amount that has been billed to a customer less the "2% cash discount" allowed for prompt payment.

b.the amount of cash the company expects to collect.

The interest on a note refers to a.the amount of money loaned or borrowed plus the fee for the duration of time of the borrowing. b.the compensation paid to the lender for giving up the use of the resources for the period. c.the amount of money that was factored. d.the amount of money loaned or borrowed.

b.the compensation paid to the lender for giving up the use of the resources for the period.

A 10%, $5,000 note is dated July 1. The principal and interest are due at the end of six months. How much interest will be paid on the due date? a.$3,000 b.$5,000 c.$250 d.$500

c.$250

The entry to record the collection of a note at its maturity date will include which of the following? a.A credit to Cash b.A debit to Interest Income c.A debit to Cash d.A debit to Notes Receivable

c.A debit to Cash

All of the following are advantages of factoring EXCEPT a.factor accepts all risks of collectability. b.fewer employees are needed to manage these accounts. c.the fees for factoring can be expensive. d.immediate receipt of cash.

c.the fees for factoring can be expensive.

To be consistent with the matching principle, generally accepted accounting principles (GAAP) require that bad debt expense must be recorded in the period related to the sales. The allowance for doubtful accounts is a. the amount that has been billed to a customer less the "2% cash discount" allowed for prompt payment. b. the same as the bad debt expense account. c. the reduction in sales revenue that results from the seller's actions, such as disputes and allowances. d. an account that has been established to "store" the estimate of the accounts receivable that are not expected to be collected.

d. an account that has been established to "store" the estimate of the accounts receivable that are not expected to be collected.

The underlying difference between the percentage of credit sales method and the aging method is a. the percent of credit sales method is primarily concerned with the net realizable value reported on the balance sheet. b. the aging method is primarily concerned with appropriately estimating the bad debt expense on the income statement. c. the aging method is primarily concerned with the accounts under the direct write-off method. d. the percent of credit sales method is primarily concerned with appropriately estimating the bad debt expense on the income statement.

d. the percent of credit sales method is primarily concerned with appropriately estimating the bad debt expense on the income statement.

Occasionally, accounts receivable that are written off are later partially or entirely collected. a.This statement is true only for companies that manufacture a product for their customers. b.This statement is true only for companies that provide a service to their customers. c.This statement is false. d.This statement is true.

d.This statement is true.

All of the following are true about debit cards EXCEPT a.a purchase using a debit card causes an immediate reduction in the user's bank account. b.a debit card is used like a credit card but the bank electronically reduces the holder's bank account and increases the merchant's bank account. c.debit cards may be disadvantageous to the card holder because transactions cannot be rescinded by stopping payment. d.a debit card is not at all like a credit card.

d.a debit card is not at all like a credit card.

All of the following are advantages for the seller of accepting bank credit cards EXCEPT a.the seller avoids bad debts. b.the seller's recordkeeping costs decrease. c.the seller receives the money immediately. d.the credit card company charges a service charge to the seller.

d.the credit card company charges a service charge to the seller.

All of the following are true about nonbank credit cards EXCEPT a.they also result in a receivable for the seller because they do not immediately pay cash to the seller. b.they may charge a higher service charge to the seller. c.some businesses may not accept nonbank cards. d.they are usually less expensive than bank credit cards.

d.they are usually less expensive than bank credit cards.