Smartbook & Connect Ch.4 - 6

Accounts receivable has a $2,300 balance, and the Allowance for doubtful accounts has a $200 credit balance. An $80 account receivable is written off. The net book value of receivables on the balance sheet after the write-off equals ______.

$2,100

An analyst sees the line item Trade accounts receivable, net of allowances of $2,040,000, with a balance of $19,500,000. Which of the following statements is correct.

$21,540,000 is the gross receivables $19,500,000 is the expected amount to be collected from customers $2,040,000 is the amount estimated to be uncollectible

The income statement for ABC Company shows Gross profit of $144,000; Operating expenses of $130,000; and Cost of goods sold of $216,000. What is net sales revenue?

$360,000 Reason: Gross profit + Cost of goods sold = Net sales revenue (= $144,000 + 216,000 = $360,000).

XYZ Company sold merchandise for $5,000, with payment terms of 2/10,n/30. If the customer pays within the discount period and takes the discount, XYZ will receive ______.

$4,900

Select all of the following that are properly defined.

- Accounts Receivable (Net) is the net realizable value. - Accounts Receivable (Gross) includes both collectible and uncollectible receivables. - Accounts Receivable (Net) reports the amount of receivables expected to be collected. - Allowance for Doubtful Accounts is the amount of receivables estimated to be uncollectible.

Identify the impact on the accounting equation of a prepayment of an expense paid in cash.

- Cash decreases - Prepaid expenses, an asset account, increases

Which of the following would be classified as discontinued operations?

- Closing the largest of the company's three stores - Abandoning a product line

The adjusting entry to record revenues earned, but not yet billed (accrued revenues), affects which of the following financial statements? (Check all that apply.)

- Income statement - Statement of stockholders' equity - Balance sheet

Which type of adjusting entry may management manipulate and overstate the amount to report a higher net income?

- Overstating the amount of accrued revenues - Overstating the amount earned of deferred revenues

Identify which of the following are nonoperating items on the income statement.

- Provision for income taxes - Income tax expense - Gains on sale of fixed assets

accumulated amortization is __________

- a contra asset account similar to accumulated depreciation - similar to depreciation except it is netted against intangible assets instead of tangible assets

Which of the following adjusting entries will decrease assets and stockholders' equity?

- adjusting for depreciation on equipment - adjusting for amounts used that were paid in advance

Which of the following are typically netted against sales to arrive at net sales?

- credit card discounts - sales discounts - sales returns and allowances

The closing process requires ______.

- crediting the expense accounts - debiting the revenue accounts - debiting retained earnings when there is a net loss - crediting retained earnings when revenues are greater than expenses

Beckers, Inc. accepts major credit cards from its customers. The credit card companies charge 2%. The entry to record the collection of $1,000 in credit card sales includes a ______.

- debit to Cash of $980 - credit to Sales of $1,000 - debit to Credit card discount of $20

Which of the following events require adjusting entries?

- owing interest on notes payable - incurring wages expense that will be paid in the following period - the use of equipment during the period - the use of supplies during the period

A classified income statement is useful to financial statement users because it ______.

- separates cost of goods sold from other operating expenses, which allows the calculation of gross profit - presents income statement items in meaningful categories

Which of the following are contra-asset accounts?

-accumulated depreciation -allowance for doubtful accounts

The notes to the financial statements typically provide detail support of ______.

-business segments -makeup of property, plant and equipment -revenues by geographic region

The benefits of internal control procedures are that they ______.

-enhance the reliability of accounting information -improve the efficiency and effectiveness of operations -protect against theft of assets

Bad Debt Expense ______.

-is a cost of extending credit to customers -is an estimate

The notes to financial statements may include information about ______ that are not included in the financial statements.

-purchase commitments -possible legal obligations

The notes to financial statements may include ______.

-relevant information, not disclosed on the statements -segment information -accounting policies applied -revenues broken out by geographic region

The 3 variables needed to calculate interest are the ______.

1. time period covered in the interest calculation 2. annual interest rate 3. principal

adjusting entries are typically recorded _______

1. to ensure revenues and expenses are recorded in the period which they occur, even though the cash will be collected or paid in a future period 2. at the end of the accounting period

Brewed Awakenings, Inc., sold $100,000 of coffee to Java the Hut with sales terms of 1/7, n/30. Given Java paid within the discount period, the amount of the sales discount equals $The entry to record the collection of $9,600 from a customer whose account had previously been written off includes a ______.

1000

Using the aging approach, management estimates that $1,000 of accounts receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted debit balance. The Allowance for Doubtful Accounts on the balance sheet will equal ______.

1000

The annual depreciation taken on a vehicle totals $3,000. The vehicle has been in service for 3 full years and the adjusting entries have been completed for the year. At the end of the 3rd year, the annual financial statements will report Depreciation Expense equal to ________ and Accumulated Depreciation equal to _________

3000 9000

For the current year ended, Textable, Inc.'s multi-step income statement reports gross profit of $80,000, operating income of $60,000 and a pretax income of $10,000. Textable's income tax rate is 34%. Income Tax Expense for the year equals $

3400

Using the following information from Florist Gumps' financial statements, calculate the gross profit percentage. Net sales of $10,000; Cost of goods sold of $6,000; Operating expense of $2,000; Net income of $1,000

40% Reason: Gross profit percentage equals 40% (= ($10,000 - $6,000)/$10,000)

Accounts receivable, net on the balance sheet refers to ______.

Accounts Receivable minus the Allowance for Uncollectible Accounts

Which of the following adjusting entries will increase Net Income and hence may tempt management to misstate the estimated amount?

Adjusting accrued revenues Adjusting deferred revenues

Which of the following statements describes the effect that adjustments may have on liabilities?

Adjustments increase liabilities for the amount of any accrued and unpaid expenses at the end of the period.

Delectable, Inc.'s unadjusted trial balance includes Accounts receivable of $10,000; Allowance for doubtful accounts as a $50 credit balance; and Credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show ______.

Allowance for Doubtful Accounts of $1,000 Bad Debt Expense of $950

When are adjusting entries recorded?

At the end of the accounting period prior to preparing the financial statements

cash flows from operating activities

Cash flows associated with earning income

cash flows from investing activities

Cash flows associated with the purchase and sale of productive assets

cash flows from financing activities

Cash flows related to borrowings, stocks and dividend payments

Rank companies A-C based on how favorable their receivables turnover ratio is (from most favorable on the top to the least favorable).

Company B: 5.6 Times Company A: 3.4 Times Company C: 2.4 Times

_______ financial statements report financial statement values for the current period and one or more other prior periods

Comparative

The entry to record the collection of cash from major credit cards includes a debit to ______.

Credit card discount

What conclusion are managers likely to draw from a constant increase to sales returns and allowances?

Customers are unhappy with the quality of the merchandise.

Which of the following line items appear on a statement of stockholders' equity?

Dividends declared Common stock Net income Retained earnings from the prior period

Dividend payments would be found under Cash Flows from ______ Activities on the ______.

Financing; statement of cash flows

What does FOB shipping point mean?

Goods are owned by the buyer when they leave the seller's place of business.

The gross profit percentage equals ______.

Gross Profit divided by Net Sales

Which financial statement reports the amount of prepaid expenses used during the accounting period?

Income statement

Which of the following is not an accurate statement about internal control?

It guarantees the management will behave ethically.

Which line item on the statement of stockholders' equity is also found on the income statement?

Net Income

Miss Step, the bookkeeper, forgot to record the adjusting entry for some accrued expenses during the period. This will cause which of the following items on the statement of stockholders' equity to be in error?

Net income will be overstated. Ending retained earnings will be overstated.

Aging of receivables method

Requires directly computing the desired allowance for doubtful accounts on the balance sheet and then computing the amount of the adjusting entry necessary to obtain this desired balance

Percentage of credit sales method

Requires directly computing the desired amount of bad debt expense on the income statement

When a customer returns a product for a refund, in which of the seller's accounts is the entry recorded?

Sales Returns and Allowances

The days to collect ratio provides what kind of information?

That a higher number of days means a longer (worse) time for collection The average number of days from sale on account to collection

Which of the following statements most accurately describes the purposes of the closing entries?

To establish zero balances in the income statement accounts and to transfer net income into retained earnings

What are the effects on the accounting equation from the adjustment for revenue earned during the accounting period that had previously been recorded as a liability?

Total liabilities will decrease and total stockholders' equity will increase.

What are the effects on the accounting equation from the adjusting entry for interest expense accrued, but not paid, at the end of the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

At year-end, wages payable of $5,600 had not been recorded or paid.

accrued expense

__________ adjustments involve adjusting entries where the revenue has been earned or the expense has been incurred, and the cash will be collected or paid in the future.

accrued or accrual

Interest of $550 on a note receivable was earned at year-end, although collection of the interest is not due until the following year.

accrued revenue

On the balance sheet and reports the amount of asset cost used since the asset began to help generate revenue

accumulated depreciation

If a company debits Interest Receivable and credits Interest Revenue, it must be recording ______.

amounts earned from its investments but not yet collected

Adjustments ensure that ______ balances are reported at amounts representing the economic benefits that remain at the end of the period and will be used-up in future periods.

asset

Miss Hap, the company's accountant, forgot to make the adjusting entry to record the amount of prepaid expenses used during the period. As a result ______.

assets and stockholders equity are overstated

The challenge businesses face when estimating the allowance for doubtful accounts is that ______.

at the time of the sale, it is not known which particular customer will be a "bad" customer

The line item Trade accounts receivable, net of allowances will be found on the ______.

balance sheet

In practice, almost every account, except _____, could require an adjusting entry.

cash

Income before income tax expense is an important measure of financial performance as it allows investors ______.

compare companies' pretax levels of income

______ income is reported on an additional statement or combined with the income statement and is calculated as Net Income plus other gains/losses on items such as foreign currency translation and derivatives.

comprehensive

The entry to record the collection of $9,600 from a customer whose account had previously been written off includes a ______.

credit to Allowance for doubtful accounts of $9,600

A customer that was written off now pays. The journal entry recorded to reverse this previously written-off amount is recorded as a ______.

debit Accounts receivable and credit Allowance for doubtful accounts

Using the aging approach, management estimates that $1,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______.

debit to Bad Debt Expense of $900 credit to Allowance for Doubtful Accounts of $900

The adjusting entry to record the amount earned that previously had been collected in advance will ______.

decrease liabilities and increase revenue

The adjusting entry to record the supplies used during the period will result in a(n) ______.

decrease to Supplies and an increase to Supplies Expense

Office supplies were purchased during the year for $700, and $100 of them remained on hand (unused) at year-end.

deferred expense

At year-end, service revenue of $1,000 was collected in cash but was not yet earned.

deferred revenue

On the income statement and reports the amount of asset cost used during the current accounting period

depreciation expense

After the adjustments have been completed for the fiscal year, the adjusted balance in the Depreciation Expense account represents the ______.

depreciation for the current fiscal year

financial statement formats and disclosures ________

differ slightly among companies

Relevant financial information not disclosed on the financial statements must be ______.

disclosed in the notes

Initially a prepayment for items such as rent or insurance are recorded as assets and later are recorded as a(n) ________ in the period the benefit expires.

expense

True or false: Adjustments ensure that assets in the balance sheet are reported at amounts that have been used up or expired during the period.

false

True or false: The term "defer" means "in advance."

false

True or false: To calculate a company's income tax obligation, the income after tax is multiplied by the company's tax rate.

false

The _________ in the annual report should be reviewed to determine the significant accounting rules used.

footnote

When the allowance method is used, the write-off of an uncollectible account ______.

has no effect on net income

The adjustment for supplies used during the period will result in a(n) ______ to the Supplies Expense account.

increase

If a company reports Amortization Expense for the period, it must have ______.

intangible assets on its balance sheet

Given the unadjusted Allowance for Doubtful Accounts has a $50 credit balance, the amount of receivables written off was ______ than the amount estimated in the prior period. This will cause Bad Debt Expense to be ______ in the current period than had the unadjusted balance been a debit or $0 unadjusted balance.

less; less

deferred revenue is a(n) ________

liability resulting from the collection of revenue in advance

The format of financial statements and the volume of disclosures reported ______.

may vary from one company to another

which balance sheet account would most likely require an adjusting entry to avoid overstating?

notes payable

The best place to determine revenues by geographic region is the ______.

notes to the financial statements

Earnings per share (EPS) appear ______.

on the income statement

Adjustments made to expense accounts at the end of the accounting period adhere to the expense __________ principle.

recognition

When merchandise is returned for a refund or for credit to be applied to other purchases, the account called Sales _____________ and ___________ is debited

returns and allowances

Net income or loss is recorded in the retained earnings account when ______ and ______ accounts are closed and transferred into retained earnings

revenue , expense

Who normally pays for shipping when the shipping terms are FOB destination?

seller

Closing entries move the balances from the ______ accounts into the Retained Earnings account.

temporary

Temporary accounts are found on ______.

the income statement

Comprehensive income may be shown on ______.

the income statement by adding or subtracting special items, such as changes in foreign currency exchange rates and certain investments

FOB destination means that goods are owned by the buyer as soon as ______.

they arrive at the buyer's place of business

After the adjustments have been completed, the adjusted balance in the Accumulated Depreciation account represents the ______.

total depreciation taken on the long-lived assets since their purchase

After the adjustments have been completed, the adjusted balance in the Income Tax Expense account represents ______.

total income tax that has been paid or accrued during the period

On the income statement, Operating Income differs from Income before Income Taxes in that ______ are subtracted from Operating Income to arrive at Income before Income Taxes.

transactions that are non-operating or infrequently occurring

True or false: The statement of stockholders' equity indicates the changes in the various equity accounts.

true

true or false: Comparative financial statements include separate columns for more than one period's results.

true

One of the main purposes of the first note to the financial statements is to disclose ______.

which of the alternative accounting methods was used to measure the effects of transactions

Deferring a revenue or expense account in accounting means that the amount:

will be reported as a revenue or an expense in a later period

Miss Take, the accountant, forgot to record the interest owed at the end of the accounting period. As a result of this error, ______

- stockholders equity will be overstated - liabilities will be understates

Miss Step, the bookkeeper, forgot to record the adjusting entry for supplies used during the period. This will cause which of the following items on the statement of stockholders' equity to be overstated?

- total stockholders equity - net income - ending retained earnings

Libby Inc. sells $5,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 3% fee on the sale. Recording the sale would include a debit to Cash of

4850

What information is provided by the receivables turnover ratio?

That a higher ratio means faster (better) turnover The number of times the average receivables balance is collected during the period

What are the effects on the accounting equation from the adjustment for wages incurred, but not yet paid, during the accounting period?

Total liabilities will increase and total stockholders' equity will decrease.

Up Against The Wall, Inc. discontinued its wallpaper operations in the Southeast. Up Against The Wall will report the loss on the sale of operations and the related net operating loss from the beginning of the year through to the final sale ______.

below Gross Profit on the income statement

Nonoperating items are found _______ on a classified income statement

below operating income

Which account would never be affected by an adjusting entry recorded at the end of an accounting period?

cash

A contra-asset account, such as Allowance for Doubtful Accounts or Accumulated Depreciation, has a normal balance of a ______ and causes total assets to ______.

credit; decrease

Adjustments help to ensure that all revenues are recorded in the period in which they are

earned, accrued, generated, recognized, or realized

A high receivables turnover ratio is a sign of a company's ______.

effectiveness in granting and collecting credit

Income Tax Expense is a(n) ______.

expense on the income statement and reports the income tax incurred for the period, paid and/or unpaid

In the closing process, the closing entry zeroes out each ______ account by crediting it and zeros out each _______ account by debiting it, and records the difference in retained earnings.

expense, revenue

Earnings per share (EPS) equals ______ divided by the average shares of common stock outstanding. (Assume no preferred stock has been issued.)

net income

On the income statement, Sales revenue less Credit card discounts less Sales discounts less Sales returns and allowances equals the line item called

net sales

Deferred revenue that is not expected to be earned within the year is classified as a ______ on the balance sheet.

noncurrent liability

Adjustments ensure that liabilities are reported as all amounts ______ at the end of the accounting period.

owed

The ___________ of credit sales is the method that estimates bad debt expense using credit sales and the ___________ of accounts receivable method estimates the allowance for doubtful accounts based on the time each account receivable has been outstanding.

percentage; aging

After the adjustments have been completed, the adjusted balance in the Supplies Expense account represents the cost of supplies ______.

used during the accounting period

Libby Inc. sells $3,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 3% fee on the sale. The amount of the credit card discount (that is netted against Sales Revenue) equals $

90

Libby, Inc. sells $1,000 of goods to a customer. The customer pays with a VISA credit card. VISA charges a 4% fee on the sale. Calculate the net sales Libby would report from this sale.

960

During the month, Cellum, Inc. sold 100 cells at a price of $100 each. Each cell was sold at a 1% sales discount. Cellum had returns of $198 (net of discounts) and incurred bank service charges of $20. Net sales for the month ended equals $

9702

When recording closing entries, temporary accounts with debit balances are ______ and those with credit balances are ______.

credited; debited

The Allowance for Doubtful Accounts is a contra-asset account. Increases to the account (to record the period's estimated bad debt expense) are recorded with ______.

credits

True or false: GAAP permits only one accounting method to choose from in computing amounts on the financial statements requiring all companies to use the straight-line method of depreciation.

false Reason: GAAP sometimes permit different methods to choose from in computing values on the financial statements.

Given the unadjusted Allowance for Doubtful Accounts has a $50 debit balance, the amount of receivables written off was ______ than the amount estimated in the prior period. This will cause Bad Debt Expense to be ______ in the current period than had the unadjusted balance been a credit balance.

greater; greater