FA chapter 6 Accounting for Sales MC+T/F
White Enterprises sold $100,000 of sales in January, but customers returned $10,000 of goods to White Enterprises during the month. In addition, White Enterprises gave cash discounts of $1,000 to its customers. The beginning balance of the allowance for uncollectible accounts was $2,000 and the company uses the aging of accounts receivable to account for uncollectible accounts. What is the net sales figure for the month of January for White Enterprises? A) $89,000 B) $90,000 C) $92,000 D) $91,000 E) $100,000
A) $89,000
Emerz Corporation had sales of $850,000, of which 20% were cash sales. As of year-end, the balance in the Allowance for Uncollectible Accounts before adjusting for bad debts was a $400 debit. The company estimates bad debts as 10% of ending accounts receivable or 1.5% of credit sales. What is the balance in the Allowance for Uncollectible Accounts after Emerz Corporation estimates bad debts using a percentage of credit sales? A) $9,800 B) $10,200 C) $10,600 D) $12,350 E) $12,750
A) $9,800
The following represent common reconciling items within a bank reconciliation: 1. Bank service charges 2. Deposits in transit 3. Outstanding checks Which of the above items will be an adjustment to the balance per books? A) 1 only B) 2 only C) 3 only D) 1 and 2 E) 2 and 3
A) 1 only
Brandon Corporation generated $98,000 in credit sales during 20X2. In February 20X3, Brandon realized that $13,500 of the accounts receivable generated from the 20X2 credit sales were uncollectible. Brandon seldom experiences bad debts losses; therefore, it used the specific write-off method. Using the matching principle, what is the effect on 20X3 and 20X2 net income as a result of the write-off? A) 20X3 net income is understated by $13,500, while 20X2 net income is overstated by $13,500. B) 20X3 net income is overstated by $13,500, while 20X2 net income is understated by $13,500. C) 20X3 net income is neither overstated nor understated, but 20X2 net income is understated by $13,500. D) 20X3 net income is overstated by $13,500, but 20X2 net income is neither overstated nor understated. E) There is no effect on either year's net income as revenues and expenses are properly matched.
A) 20X3 net income is understated by $13,500, while 20X2 net income is overstated by $13,500.
Which of the following statements describes the Sarbanes-Oxley required attributes of a management report? A) A management report usually includes a statement on the adequacy of internal controls. B) A management report includes information with respect to management's compensation, including the salaries and bonuses received by the top executives of the company. C) A management report lists the executives of the company and states what changes have been made in management personnel since the prior period and why those changes were made. D) A management report states how well or poorly the company performed during the most recent period. E) A management report states the acquisitions and divestitures that a company has made during the current period.
A) A management report usually includes a statement on the adequacy of internal controls.
Neslund Ornamentals offered a 2% trade discount to Parsons Retail Outlet for all purchases over $200,000. Parsons Retail Outlet purchased $300,000 from Neslund Ornamentals on account. Neslund uses the periodic inventory system. Which of the following is the journal entry made by Neslund Ornamentals to recognize the sale and the 2% trade discount? A) Accounts Receivable $294,000 Sales $294,000 B) Accounts Receivable $300,000 Sales Returns and Allowances $6,000 Sales $294,000 C) Sales Returns and Allowances $294,000 Sales $294,000 D) Sales $294,000 Accounts Receivable $300,000 Trade Discounts $6,000 E) Sales $294,000 Accounts Receivable $294,000
A) Accounts Receivable $294,000 Sales $294,000
Selia Sewage Systems has sales of $900,000, of which 25% are cash sales and the remainder is on credit. As of year-end, but before the bad debts adjustment, the Allowance for Uncollectible Accounts has a credit balance of $300, and Accounts Receivable has a debit balance of $60,000. If it is determined that the company will not collect from Colltor and from Mortana for the amounts of $330 and $680, respectively, what journal entry would Selia prepare? A) Allowance for Uncollectible Accounts 1,010 Accounts Receivable, Colltor 330 Accounts Receivable, Mortana 680 B) Bad Debts Expense 1,010 Accounts Receivable, Colltor 330 Accounts Receivable,Mortana 680 C) Bad Debts Expense 1,010 Allowance for Uncollectible Accounts 1,010 D) Accounts Receivable,Colltor 330 Accounts Receivable,Mortana 680 Allowance for Uncollectible Accounts 1,010 E) Accounts Receivable,Colltor 330 Accounts Receivable,Mortana 680 Bad Debts Expense 1,010
A) Allowance for Uncollectible Accounts 1,010 Accounts Receivable, Colltor 330 Accounts Receivable, Mortana 680
Assume the periodic inventory system is used. Madison Manufacturing gave a 4% trade discount to Tristan Company when it sold inventory for cash that normally sells for $12,000. Which of the following is the journal entry to be made by Madison Manufacturing? A) Cash 11,520 Sales 11,520 B) Cash 11,520 Trade Discount 480 Sales 12,000 C) Cash 11,520 Trade Discount Payable 480 Sales 12,000 D) Cash 12,000 Trade Discount 480 Sales 11,520 E) Cash 12,000 Trade Discount Receivable 480 Sales 11,520
A) Cash 11,520 Sales 11,520
In contrast to the gross method, the net method of accounting for cash discounts uses an ________ account. A) Interest Revenue B) Interest Expense C) Cash Discounts on Sales D) Cash Discounts for Bank Card E) None of the above
A) Interest Revenue
A bad debts recovery has what effect on the balance sheet under the allowance method for bad debts? A) It has no effect on total assets or stockholders' equity. B) It decreases assets and decreases stockholders' equity. C) It increases assets and decreases stockholders' equity. D) It decreases assets and has no effect on stockholders' equity. E) It has no effect on assets and decreases owner's equity.
A) It has no effect on total assets or stockholders' equity.
The write-off of a specific account for bad debts has what effect on the balance sheet under the allowance method? A) It has no effect on total assets or stockholders' equity. B) It decreases assets and decreases stockholders' equity. C) It increases assets and decreases stockholders' equity. D) It decreases assets and has no effect on stockholders' equity. E) It has no effect on assets and decreases owner's equity
A) It has no effect on total assets or stockholders' equity.
Which of the following is NOT an attribute of the Allowance for Uncollectible Accounts? A) The balance in the account increases when an uncollectible account is written off B) It is on the asset side of the balance sheet. C) It is a contra account. D) It reduces Accounts Receivable. E) It normally has a credit balance.
A) The balance in the account increases when an uncollectible account is written off
Which of the following is not a procedure used to safeguard cash? A) The serial numbers on the money are recorded and maintained. B) The individuals who receive cash do not also disburse cash. C) The individuals who handle cash do not have access to the accounting records. D) Cash receipts are immediately recorded and deposited and are not used directly to make payments. E) Disbursements are made by serially numbered checks and only upon proper authorization by someone other than the person writing the check
A) The serial numbers on the money are recorded and maintained.
Which of the following statements associated with the allowance method for bad debts is false? A) The write-off of an uncollectible account does not affect the accounts receivable subsidiary ledger. B) The write-off of an uncollectible account does not affect the total amount of current assets. C) The write-off of an uncollectible account does not affect current liabilities. D) The write-off of an uncollectible account does not affect the income statement. E) The write-off of an uncollectible account does not affect stockholders' equity
A) The write-off of an uncollectible account does not affect the accounts receivable subsidiary ledger.
A policy that forces clerks to make change by pricing items at $1.99, $2.99, and $3.99 rather than at $2, $3, and $4 is an example of A) adequate documentation. B) general authorization. C) specific authorization. D) proper procedures. E) an independent check.
A) adequate documentation.
Sales returns and allowances A) are accounted for by deducting the total amount from gross sales. B) are accounted for by deducting the total amount from net sales. C) are accounted for using a contra account called Trade Discounts. D) are accounted for using a reduction account. E) are not accounted for on the financial statements
A) are accounted for by deducting the total amount from gross sales.
Joint discussions between the FASB and IASB regarding accounting for revenues A) are ongoing and may result in a new standard for revenue recognition. B) have resulted in a 4 step process for revenue recognition. C) have resulted in a 3 step process for revenue recognition. D) were undertaken for the benefit of stockholders so that stock prices retain stability during unstable economic times. E) have not been conducted and no discussions are in the foreseeable future.
A) are ongoing and may result in a new standard for revenue recognition.
Why is it difficult to compare accounts receivable turnover across companies? A) companies do not typically differentiate credit sales from total sales B) companies do not typically differentiate net sales from total sales C) companies do not typically differentiate beginning retained earnings from total retained earnings D) it violates SEC regulation to calculate accounts receivable turnover for public companies E) it is not difficult to compare accounts receivable turnover across companies
A) companies do not typically differentiate credit sales from total sales
A company reports revenue on its income statement using A) gross sales less sales returns and allowances. B) net sales less sales returns and allowances. C) gross sales plus trade discounts. D) net sales plus trade discounts. E) gross sales less trade discounts plus sales returns and allowances
A) gross sales less sales returns and allowances
A policy stating that the board of directors must approve all expenditures for capital assets in excess of $50,000 is an example of A) specific authorization. B) general authorization. C) adequate documentation. D) proper procedures. E) an independent check.
A) specific authorization.
When a company sells goods and receives non-cash items in return, A) the seller estimates the fair market value of the non-cash item or the cash equivalent of the noncash item. B) the seller receiving the non-cash item estimates its value as the original cost of the inventory sold. C) the seller uses the buyers' cost for the non-cash item. D) the seller uses one-half of the fair market value of the non-cash item. E) both parties must realize that they are conducting a transaction that is not in accordance with GAAP
A) the seller estimates the fair market value of the non-cash item or the cash equivalent of the noncash item.
If the criteria to use the percentage of completion method are not met, a company must A) use the completed contract method to recognize revenue. B) use the completion revenue principle to recognize revenue. C) confer with their client about cash collection expectations. D) refer to IFRS and choose between one of the five available revenue recognition principles. E) determine whether they are permitted to conduct business with a client
A) use the completed contract method to recognize revenue.
Emerz Corporation had sales of $850,000, of which 20% were cash sales. As of year-end, the balance in the Allowance for Uncollectible Accounts before adjusting for bad debts was a $400 debit. The company estimates bad debts as 10% of ending accounts receivable or 1.5% of credit sales. The ending balance in Accounts Receivable is $72,000. What is the balance in the Allowance for Uncollectible Accounts if Emerz Corporation estimates bad debts using a percentage of ending accounts receivable? A) $6,800 B) $7,200 C) $7,600 D) $85,000 E) $84,600
B) $7,200
Heintz Corporation wishes to borrow $83,000 at 11% interest from the local bank. However, the bank requires a compensating balance of 10%. The effective interest rate that Heintz Corporation will pay on the loan is which of the following? A) 10.1% B) 12.2% C) 13.2% D) 16.4% E) 14.1%
B) 12.2%
Axle Motors Inc. has a December 31 year-end. On November 28, 20X2, the company sold inventory for $600 on account with the terms 2/10, n/30. On February 28, 20X3, the company recognized the account as uncollectible. If Axle Motors Inc. uses the specific write-off method, what can be said with respect to the matching principle? A) The matching principle is not violated using the specific write-off method. B) 20X2 earnings are overstated by $600, and 20X3 earnings are understated by $600. C) 20X2 earnings are understated by $600, and 20X3 earnings are overstated by $600. D) 20X2 earnings are overstated by $600, and 20X3 earnings are overstated by $600. E) 20X2 earnings are understated by $600, and 20X3 earnings are understated by $600.
B) 20X2 earnings are overstated by $600, and 20X3 earnings are understated by $600
Which statement is FALSE? A) Administrative controls consider the organization plan. B) Accounting controls include procedures that facilitate management's planning and control of operations. C) Accounting controls include the methods and procedures for authorizing transactions and safeguarding assets. D) Accounting controls are present to ensure the accuracy of the financial records. E) Accounting controls minimize waste, errors, and fraud within an organization
B) Accounting controls include procedures that facilitate management's planning and control of operations.
Emerz Corporation had sales of $850,000, of which 20% were cash sales. As of year-end, the balance in the Allowance for Uncollectible Accounts before adjusting for bad debts was a $400 debit. The company estimates bad debts as 10% of ending accounts receivable or 1.5% of credit sales. What is the journal entry that Emerz Corporation will make if it estimates bad debts by using a percentage of credit sales? A) Bad Debts Expense 9,800 Allowance for Uncollectible Accounts 9,800 B) Bad Debts Expense 10,200 Allowance for Uncollectible Accounts 10,200 C) Bad Debts Expense 10,600 Allowance for Uncollectible Accounts 10,600 D) Bad Debts Expense 12,350 Allowance for Uncollectible Accounts 12,350 E) Bad Debts Expense 12,750 Allowance for Uncollectible Accounts 12,750
B) Bad Debts Expense 10,200 Allowance for Uncollectible Accounts 10,200
Casper Company sold inventory of $5,000 and accepted payment with a credit card. The credit card charges Casper Company a 2% fee on credit card sales. Casper uses the periodic inventory system. Which of the following journal entries reflects the sale made by Casper Company? A) Cash $5,000 Sales $5,000 B) Cash $4,900 Cash discounts for credit cards $100 Sales $5,000 C) Cash discounts for credit cards $4,900 Sales $4,900 D) Accounts receivable $5,000 Sales $5,000 E) Accounts receivable $4,900 Trade discounts for credit cards $100 Sales $5,000
B) Cash $4,900 Cash discounts for credit cards $100 Sales $5,000
Assume the periodic inventory system is used. Krinkle Company sold inventory on account for $500 on May 8, 20X3, with terms of 2/10, n/30. On May 16, 20X3 the appropriate payment was received from the customer. Which of the following is the journal entry to record the May 16 transaction on Krinkle's books? A) Cash 500 Accounts Receivable 500 B) Cash 490 Cash Discounts on Sales 10 Accounts Receivable 500 C) Cash 490 Sales 10 Accounts Receivable 500 D) Cash 500 Cash Discounts on Sales 10 Accounts Receivable 490 E) Cash 500 Sales 10 Accounts Receivable 490
B) Cash 490 Cash Discounts on Sales 10 Accounts Receivable 500
The estimation of bad debts expense, using the allowance method, has what effect on the balance sheet? A) It has no effect on assets and decreases stockholders' equity. B) It decreases assets and decreases stockholders' equity. C) It increases assets and increases stockholders' equity. D) It decreases assets and increases stockholders' equity. E) It increases assets and decreases stockholders' equity.
B) It decreases assets and decreases stockholders' equity.
Payne Industries can borrow money from the local bank at 14%. The company just acquired inventory costing $2,900, which has terms of 2/10, n/30. Assuming a 365-day year, which of the following statements is true? A) Do not pay within the discount period since the effective annual rate of the discount is 37.2%, while the cost to borrow money is 14%. B) Pay within the discount period since the effective annual rate of the discount is 37.2%, while the cost to borrow money is 14%. C) Do not pay within the discount period since the effective annual rate of the discount is 24%, while the cost to borrow money is 14%. D) Pay within the discount period since the effective annual rate of the discount is 24%, while the cost to borrow money is 14%. E) Do not pay within the discount period since the 2% discount is less than the 14% cost to borrow money.
B) Pay within the discount period since the effective annual rate of the discount is 37.2%, while the cost to borrow money is 14%.
Which of the following statements is true? A) Trade discounts and sales returns and allowances are listed on the income statement as deductions from gross sales. B) Reports to shareholders often omit the details of revenue and show only net revenue. C) Cash Discounts on Sales are listed on the income statement as an expense of doing business. D) "Turnover" is commonly used in the United States to refer to net sales revenue. E) Cash discounts must appear on cash flow statements.
B) Reports to shareholders often omit the details of revenue and show only net revenue
Which of the following is NOT a typical attribute of an audit committee? A) Audit committees are being used more and more throughout the world. B) The audit committee is employed by the external auditors. C) Audit committees are comprised solely of outside board members. D) Audit committees act as a liaison among the full board of directors, internal auditors, external auditors, and management. E) The audit committee oversees the internal accounting controls, financial statements and financial affairs of a corporation.
B) The audit committee is employed by the external auditors.
Good accounting controls A) include all methods and procedures that facilitate management's planning and control of operations. B) help maximize efficiency and minimize waste, unintentional errors, and fraud. C) are not concerned with the accuracy of the financial records. D) are not concerned with safeguarding assets. E) All of the above statements are true concerning accounting controls
B) help maximize efficiency and minimize waste, unintentional errors, and fraud
The accounts receivable subsidiary ledger A) is not effected by the write-off of individual accounts. B) provides the supporting detail (i.e., individual customer names and amounts owed) for the general ledger account "Accounts Receivable." C) is kept for both the "Accounts Receivable" and the "Allowance for Uncollectible Accounts" accounts. D) is only kept by companies that use the allowance method of estimating bad debts. E) All of the above are true statements
B) provides the supporting detail (i.e., individual customer names and amounts owed) for the general ledger account "Accounts Receivable."
The internal accounting control that provides reasonable assurance that all authorized transactions are recorded in the correct amounts, periods, and accounts is A) authorization. B) recording. C) safeguarding. D) reconciliation. E) valuation
B) recording.
Typically, the more credit sales a company has A) the lower the days to collect accounts receivable B) the higher the days to collect accounts receivable C) the lower the accounts receivable turnover rate D) the higher the accounts receivable yield E) none of the above
B) the higher the days to collect accounts receivable
The primary goal of the separation of duties is A) to provide greater training to employees by allowing them to work on different tasks. B) to make sure that one person, acting alone, cannot defraud the company. C) to ensure that no one in management accumulates too much organizational power and control. D) to provide clear promotion tracks within one's discipline. E) to provide a work environment where no one person is overloaded with work or does so many things that he or she becomes indispensable to the company.
B) to make sure that one person, acting alone, cannot defraud the company.
Companies that offer cash discounts for prompt payment and use the gross method to account for them journalize the discount by A) deducting the discount from the gross accounts receivable account. B) using a separate account called Cash Discounts on Sales. C) using a separate account called Trade Discounts on Sales. D) adding the discount to the gross accounts receivable account. E) deducting the discount from the revenue account
B) using a separate account called Cash Discounts on Sales.
Consider the following information: Cash sales $ 59,000 Credit sales 510,000 Beginning Cash 18,000 Ending Cash 11,500 Beginning Retained Earnings 32,300 Ending Retained Earnings 41,700 Beginning Accounts Receivable 40,000 Ending Accounts Receivable 50,000 Net Income 64,000 What is the accounts receivable turnover? A) 1.20 B) 2.92 C) 11.33 D) 12.64 E) 13.78
C) 11.33
Assume the periodic inventory system is used. Karton Company sold inventory to Rabell Company for $3,400 with agreement from Rabell that payment will be made at the end of the month. Which of the following is the journal entry to be made by Karton Company? A) Cost of Goods Sold 3,400 Sales 3,400 B) Cash 3,400 Inventory 3,400 C) Accounts Receivable 3,400 Sales 3,400 D) Cash 3,400 Sales 3,400 E) Cash 3,400 Accounts Payable 3,400
C) Accounts Receivable 3,400 Sales 3,400
Assume Credit Categories uses the allowance method for bad debts. Credit Categories wrote off the $400 account of P. Miller on February 19, 20X3. On October 8, 20X3 Credit Categories received a check for $400 from P. Miller. Which of the following is(are) the journal entry(ies) that Credit Categories will make on October 8, 20X3? A) Bad Debts Expense 400 Accounts Receivable 400 B) Cash 400 Bad Debts Expense 400 C) Accounts Receivable 400 Allowance for Uncollectible Accounts 400 Cash 400 Accounts Receivable 400 D) Cash 400 Accounts Receivable 400 E) No journal entry is required on October 8, 20X3.
C) Accounts Receivable 400 Allowance for Uncollectible Accounts 400 Cash 400 Accounts Receivable 400
Thompson Manufacturing sold inventory to a customer for $400. The customer used a VISA bank card, which charges Thompson a 3% fee. The company uses the periodic inventory system. What asset results from this sale? A) Accounts Receivable of $388 B) Cash of $400 C) Cash of $388 D) Sales of $388 E) Accounts Receivable of $400
C) Cash of $388
Which of the following items from the checklist of internal control is most important? A) Proper authorization B) Separation of duties C) Honest, reliable personnel D) Adequate documents E) Physical safeguards
C) Honest, reliable personnel
What is one possible reason why the account Sales Returns and Allowances needs to be established as a contra account? A) So that managers can keep a running balance of returned goods in order to be able to sell the damaged goods to the employees of the organization as an incentive B) So that managers can produce more goods when goods get returned in order to hit monthly bonus levels C) So that managers can make adjustments to the manufacturing process when goods are returned for defective reasons D) So that factory foremen can manage when invoices are paid E) So that factory foremen can control the amount of credit they grant customers
C) So that managers can make adjustments to the manufacturing process when goods are returned for defective reasons
Internal controls are often implemented to guard against theft of cash. To conceal the theft of $1,500 cash, which journal entry might an accountant perform to best conceal the theft? A) Cash $1,500 Inventory $1,500 B) Petty Cash $1,500 Cash $1,500 C) Wage and Salary Expense $1,500 Cash $1,500 D) Cash $1,500 Wage and Salary Expense $1,500 E) Accounts Receivable $1,500 Cash $1,500
C) Wage and Salary Expense $1,500 Cash $1,500
Cash Discounts on Sales are A) a contra account to Accounts Receivable. B) a contra account to Accounts Payable. C) a contra account to gross sales. D) an adjunct account to gross sales. E) neither an addition nor a deduction to gross sales
C) a contra account to gross sales
Trade discounts are journalized by A) decreasing returns and allowances. B) increasing returns and allowances. C) decreasing gross sales. D) increasing gross sales. E) decreasing net sales
C) decreasing gross sales
In order for revenue to be recognized, A) goods or services must be delivered to the customer only. B) cash or an asset virtually assured of being converted into cash must be received from the customer only. C) goods or services must be delivered to the customer and cash or an asset virtually assured of being converted into cash must be received. D) cash must be received from the customer only. E) goods or services must be delivered to the customer and cash must be received from the customer.
C) goods or services must be delivered to the customer and cash or an asset virtually assured of being converted into cash must be received.
Quizno Contracting would like to utilize the percentage of completion method to recognize a building under construction for Balto Veterinary. However, the accountant is not sure whether Quizno Contracting is meeting GAAP expectations. It is appropriate for Quizno Contracting to apply the percentage of completion method EXCEPT when A) progress measures are dependable. B) contract obligations are precise and clear. C) the buyer has agreed to use the completed contract method of revenue recognition. D) both buyer and seller are expected to meet their obligations. E) little or no uncertainty exists regarding payment by the buyer.
C) the buyer has agreed to use the completed contract method of revenue recognition.
Martin Optical has found that 2% of credit sales turn into bad debts and it costs the company $2,000 in administration expenses per year to manage the bad debts. Martin Optical obtains $30,000 of credit sales each year that it would not otherwise obtain if it did not offer credit. In addition, the $30,000 of credit sales earns Martin Optical $12,000 per year. What is the net gain (loss) of continuing to offer credit to its customers? A) $10,000 B) $12,000 C) $2,000 D) $9,400 E) $2,600
D) $9,400
A company offers a 2% discount on payments received within 10 days of the invoice date. Otherwise full payment must be received within 30 days of the invoice date. If the invoice date is January 5, the payment date is January 13, and the company received the invoice on January 7, what is the amount that should be remitted assuming a gross sale of $1,000? A) $200 B) $1,000 C) $1,020 D) $980 E) $196
D) $980
Which of the following internal accounting control objectives relate to establishing the system of accountability and are aimed at the prevention of errors and irregularities? 1. Authorization 2. Promoting operating efficiency 3. Reconciliation 4. Recording 5. Safeguarding 6. Valuation A) 3 and 4 B) 4 and 5 C) 1, 3, and 4 D) 1, 4, and 5 E) 2, 3, and 5
D) 1, 4, and 5
Consider the following information: Cash sales $ 59,000 Credit sales 510,000 Beginning Cash 18,000 Ending Cash 11,500 Beginning Retained Earnings 32,300 Ending Retained Earnings 41,700 Beginning Accounts Receivable 40,000 Ending Accounts Receivable 50,000 Net Income 64,000 Assuming a 365-day year, determine the days to collect accounts receivable. A) 304.2 days B) 125.0 days C) 31.9 days D) 32.22 days E) 28.4 days
D) 32.22 days
Selia Sewage Systems has sales of $900,000, of which 25% are cash sales and the remainder is on credit. As of year-end, but before the bad debts adjustment, the Allowance for Uncollectible Accounts has a credit balance of $300, and Accounts Receivable has a debit balance of $60,000. If bad debts are estimated to be 1.5% of credit sales, what journal entry will Selia Sewage Systems need to prepare in order to estimate bad debts? A) Allowance for Uncollectible Accounts 10,125 Accounts Receivable 10,125 B) Bad Debts Expense 9,525 Allowance for Uncollectible Accounts 9,525 C) Bad Debts Expense 10,425 Allowance for Uncollectible Accounts 10,425 D) Bad Debts Expense 10,125 Allowance for Uncollectible Accounts 10,125 E) Bad Debts Expense 13,500 Accounts Receivable 13,500
D) Bad Debts Expense 10,125 Allowance for Uncollectible Accounts 10,125
Lazareth Machine Metals sold inventory to Talla Manufacturing for $5,000 cash. Which of the following is the journal entry made by Lazareth Machine Metals? Assume the periodic inventory system is used. A) Cost of Goods Sold 5,000 Sales 5,000 B) Cash 5,000 Inventory 5,000 C) Accounts Receivable 5,000 Sales 5,000 D) Cash 5,000 Sales 5,000 E) Cash 5,000 Accounts Payable 5,000
D) Cash 5,000 Sales 5,000
Higgins Company accepts bank cards, which charge a fee of 4% on sales. The company had gross sales of $60,000, of which 25% were cash sales and the remainder was credit sales that are solely attributable to bank cards. The company uses the periodic inventory system. Which of the following is the journal entry for Higgins Company? A) Cash 58,200 Sales 58,200 B) Cash 15,000 Accounts Receivable 43,200 Sales 58,200 C) Cash 57,600 Cash discounts for Bank Cards 2,400 Sales 60,000 D) Cash 58,200 Cash Discounts for Bank Cards 1,800 Sales 60,000 E) Cash 15,000 Accounts Receivable 43,200 Cash Discounts on Bank Cards 1,800 Sales 60,000
D) Cash 58,200 Cash Discounts for Bank Cards 1,800 Sales 60,000
Which of the following tasks is not commonly performed by an external auditor? A) External auditors examine transactions, but the number examined is dependent on the strength or weakness of the internal control system. B) External auditors evaluate the system of internal controls. C) External auditors test whether the internal control system is being followed. D) External auditors assume responsibility for the total accuracy of the financial statements. E) External auditors inspect a sample of the transactions that are entered into the records of a company
D) External auditors assume responsibility for the total accuracy of the financial statements.
A long term contract to provide services for New York City was awarded to Mason Technology on December 30, 20X1. The 4-year contract is set for $160 million and payment is certain. Services are to be provided evenly over 20X2 through 20X5. Progress measures are dependable, the contract obligations are explicit and the buyer and seller are expected to meet their obligations. A) In 20X2, Mason should recognize no revenue. B) In 20X2, Mason should recognize $160 million in revenue. C) In 20X3, Mason should recognize no revenue. D) In 20X3, Mason should recognize $40 million in revenue. E) In 20X3, Mason should recognize $160 million in revenue.
D) In 20X3, Mason should recognize $40 million in revenue
Office Supply Space has several assets on its balance sheet. The accountant is trying to decipher which assets belong in the Cash account. From the list of assets below, which asset should NOT be included in the Cash account? A) Checks made payable to Office Supply Space B) Money orders made payable to Office Supply Space C) The company's savings account D) U.S. Treasury bond with a 5 year maturity E) The company's checking account
D) U.S. Treasury bond with a 5 year maturity
The bank reconciliation is A) only required when a company suspects fraud. B) supplied as a bank courtesy. C) needed because the IRS requires it for cash-basis companies. D) an important part of internal control. E) usually reported in a company footnote.
D) an important part of internal control.
In a bank reconciliation, company errors are adjustments to ________. Bank errors are adjustments to ________. A) balance per bank; balance per bank B) balance per company; balance per company C) balance per bank; balance per company D) balance per company; balance per bank E) balance per company; balance per IRS
D) balance per company; balance per bank
The difference between gross sales and net sales may include A) Cash Discounts on Sales. B) Sales Returns and Allowances. C) Trade Discounts. D) both A and B E) both A and C
D) both A and B
A policy that requires organizations to use procedures manuals to specify the flow of documents and provide information and instructions to facilitate adequate record-keeping is an example of A) adequate documentation. B) general authorization. C) specific authorization. D) proper procedures. E) an independent check.
D) proper procedures.
Nolan Company had total credit sales for past year of $800,000. As of year-end, but before estimating bad debts, company had $70,000 debit balance in accounts receivable and $600 debit balance in Allowance for Uncollectible Accounts. Upon examination of accounts receivable,it was found that 55% of balance was 1-30 days old,30% was 31-60 days old,9% were 61-90 days old,6% were over 90 days old. Company estimates the following bad debts percentages: 1-30 days 10% 31-60 days 25% 61-90 days 40% Over 90 days 80% Which of the following is the journal entry necessary to estimate bad debts using the aging method? A)Bad Debts Expense 14,380 Accounts Receivable 14,380 B)Bad Debts Expense 14,380 Allowance for Uncollectible Acc 14,380 C)Bad Debts Expense 14,980 Allowance for Uncollectible Acc 14,980 D)Bad Debts Expense 15,580 Allowance for Uncollectible Acc 15,580 E)Bad Debts Expense 16,180 Allowance for Uncollectible Acc 16,180
D)Bad Debts Expense 15,580 Allowance for Uncollectible Accounts 15,580
Wayne Company just purchased merchandise costing $700, which has payment terms of 2/10, n/45. Wayne Company is uncertain whether to take advantage of the discount. What is the annual interest rate implicit in the cash discount, assuming a 365-day year? A) 2.0% B) 3.0% C) 16.2% D) 20.9% E) 21.3%
E) 21.3%
Flores Materials gave inventory to Jared Industries to settle short-term credit for $4,000. Which of the following is the journal entry to be made by Flores Materials? A) Accounts Payable 4,000 Sales 4,000 B) Cash 4,000 Sales 4,000 C) Accounts Receivable 4,000 Sales 4,000 D) Sales 4,000 Accounts Payable 4,000 E) Accounts Payable 4,000 Inventory 4,000
E) Accounts Payable 4,000 Inventory 4,000
Novak Industries had a check returned to it labeled "NSF." What journal entry should Novak Industries make to recognize the $200 NSF check? A) Accounts receivable 200 Service charges 200 B) Bad debt expense 200 Accounts receivable 200 C) Accounts receivable 200 Bad debt expense 200 D) Allowance for uncollectible accounts 200 Accounts receivable 200 E) Accounts receivable 200 Cash 200
E) Accounts receivable 200 Cash 200
Reporting Standards, Inc. recovered a bad debt from Plodding, Inc. in October 20X3 in the amount of $350 that was previously written off by Reporting Standards, Inc. in November 20X2. Reporting Standards, Inc. utilizes the percentage of sales method to estimate bad debts. What journal entry is required in October 20X3? A) Bad debt expense 350 Allowance for uncollectible accounts 350 B) Allowance for uncollectible accounts 350 Bad debt expense 350 C) Bad debt expense 350 Accounts receivable 350 D) Accounts receivable 350 Allowance for uncollectible accounts 350 E) Accounts receivable 350 Allowance for uncollectible accounts 350 Cash 350 Accounts receivable 350
E) Accounts receivable 350 Allowance for uncollectible accounts 350 Cash 350 Accounts receivable 350
Trade discounts A) apply one or more reductions to the gross selling price for a particular class of customers in accordance with a company's policies. B) are offered in order to be competitive. C) are offered to encourage certain customer behavior (to encourage early orders). D) are not reported on the income statement E) All of the above statements are true regarding trade discounts
E) All of the above statements are true regarding trade discounts
Axle Motors Inc. has a December 31 year-end. On November 28, 20X2, the company sold inventory for $600 on account with the terms 2/10, n/30. On February 28, 20X3, the company recognized the account as uncollectible. What is the journal entry for Axle Motors, Inc. on February 28, 20X3, if the company uses the specific write-off method? A) Accounts Receivable 600 Bad Debts Expense 600 B) Allowance for Uncollectible Accounts 600 Accounts Receivable 600 C) Bad Debts Expense 600 Allowance for Uncollectible Accounts 600 D) Accounts Receivable 600 Allowance for Uncollectible Accounts 600 E) Bad Debts Expense 600 Accounts Receivable 600
E) Bad Debts Expense 600 Accounts Receivable 600
Assume the periodic inventory system is used. Sammy Company sold inventory on account for $300. A week later, the inventory was returned and a full credit was given to the customer. Which of the following would be Sammy's journal entry to record the return of the inventory? A) Cash 300 Accounts Receivable 300 B) Sales 300 Accounts Receivable 300 C) Sales Discounts 300 Accounts Receivable 300 D) Sales Returns & Allowances 300 Sales 300 E) Sales Returns & Allowances 300 Accounts Receivable 300
E) Sales Returns & Allowances 300 Accounts Receivable 300
Assume the periodic inventory system is used. Nicolla Company sold inventory for cash of $6,000. A week later, the inventory was returned and a cash refund was given to the customer. Nicolla's journal entry to record the return of the inventory would be which of the following? A) Cash 6,000 Accounts Receivable 6,000 B) Sales 6,000 Accounts Receivable 6,000 C) Sales Discounts 6,000 Cash 6,000 D) Sales Returns & Allowances 6,000 Sales 6,000 E) Sales Returns & Allowances 6,000 Cash 6,000
E) Sales Returns & Allowances 6,000 Cash 6,000
Ganes Computing sold $70,000 of inventory on account to Markel Company on April 1, 20X3. The company uses a periodic inventory system. Markel Company returned $2,000 of the inventory on April 20, 20X3 because it did not fit the company's needs. Which of the following is the journal entry to be made by Ganes Computing for the return of inventory? A) Cash $2,000 Accounts Receivable $2,000 B) Accounts Receivable $2,000 Revenue $2,000 C) Revenue $2,000 Accounts Receivable $2,000 D) Revenue $2,000 Sales Returns and Allowances $2,000 E) Sales Returns and Allowances $2,000 Accounts Receivable $2,000
E) Sales Returns and Allowances $2,000 Accounts Receivable $2,000
Why is the timing of revenue recognition important? A) Revenues increase net income. B) Revenues reduce net income by triggering the recognition of certain expenses. C) Revenues increase the declaration of dividends. D) Increases in revenues result in higher retained earnings. E) both A and B
E) both A and B
All else equal, the lower the accounts receivable turnover ratio and the higher the days to collect accounts receivable, the better. TRUE or FALSE
FALSE
Audit committees perform the internal audits of a company TRUE or FALSE
FALSE
Bank service charges not recorded on the books should be added to the balance per books when preparing a bank reconciliation TRUE or FALSE
FALSE
Cash equivalents are highly liquid long-term investments that can easily be converted into cash. TRUE or FALSE
FALSE
Companies should always take advantage of cash discounts even if they have to borrow money from the bank to do so. TRUE or FALSE
FALSE
Deposits in transit are added to the balance per books when preparing a bank reconciliation. TRUE or FALSE
FALSE
For a magazine company, subscription revenues are recognized when cash is received from the customer before delivery of the magazine. TRUE or FALSE
FALSE
For a newspaper subscription, subscription revenue is always credited when cash is received from the customer TRUE or FALSE
FALSE
Internal accounting controls include administrative, financial statement, and accounting controls. TRUE or FALSE
FALSE
Morland Company has determined that 2% of $50,000 credit sales are uncollectible. The Allowance for Uncollectible Accounts currently has a debit balance of $250. The adjusting entry for bad debts should be prepared for $1,250. TRUE or FALSE
FALSE
Net sales is always equal to total sales revenue less sales returns and allowances TRUE or FALSE
FALSE
Net sales is equal to total sales revenue plus sales returns and allowances and sales discounts TRUE or FALSE
FALSE
Outstanding checks should be added to the balance per bank when preparing a bank reconciliation TRUE or FALSE
FALSE
Revenue is generally recognized at the point of sale with a debit TRUE or FALSE
FALSE
Since auditors provide an opinion as to the fairness of the financial statements, auditors have the primary responsibility for the preparation of the company's financial statements. TRUE or FALSE
FALSE
The credit terms 2/4, n/30 means that the customers may take a 4% cash discount if they pay within 30 days. TRUE or FALSE
FALSE
The days to collect accounts receivable is calculated by dividing credit sales by the average accounts receivable TRUE or FALSE
FALSE
The revenue recognition principle relies only on the principle of receiving cash or an asset virtually assured of being converted into cash. TRUE or FALSE
FALSE
There are no contra accounts on the income statement TRUE or FALSE
FALSE
When an organization sells on credit, it is essentially reducing the risk that a portion of the accounts receivable balance will never be collected. TRUE or FALSE
FALSE
A compensating balance is the required minimum cash balance on deposit when money is borrowed from the bank TRUE or FALSE
TRUE
A contra asset account is created under the allowance method because of the inability to write down a specific customer's account at the time bad debts expense is recognized. TRUE or FALSE
TRUE
A main goal of the separation of duties is to make sure that one person, acting alone, cannot defraud the company TRUE or FALSE
TRUE
A retailer accepting a bank card such as VISA or Master Card does not have the responsibility of collecting cash on account. TRUE or FALSE
TRUE
A sales return occurs when a buyer returns merchandise to the seller, and a sales allowance is when the seller allows a lower price to be charged to the customer TRUE or FALSE
TRUE
Accountants generally do not use the specific write-off method because it violates the matching principle. TRUE or FALSE
TRUE
Accounting controls include the methods and procedures for authorizing transactions, safeguarding assets, and ensuring the accuracy of the financial records. TRUE or FALSE
TRUE
An aging schedule reveals $6,500 of uncollectible accounts. The Allowance for Uncollectible Accounts account currently has a debit balance of $250. The adjusting entry amount should be $6,750. TRUE or FALSE
TRUE
An aging schedule reveals $6,500 of uncollectible accounts. The Allowance for Uncollectible Accounts currently has a credit balance of $250. The adjusting entry amount should be $6,250 TRUE or FALSE
TRUE
Deposits in the bank are assets to the depositor but they are liabilities to the bank TRUE or FALSE
TRUE
If a company normally sells merchandise for $5,000, but allows a $200 trade discount, then the company would state that its revenue on this transaction was $4,800 TRUE or FALSE
TRUE
In the aging of accounts receivable method, one would expect the bad debts percentages to increase as the age of the accounts receivable increases. TRUE or FALSE
TRUE
Oxhaven Company has determined that 2% of $50,000 credit sales are uncollectible. The Allowance for Uncollectible Accounts currently has a credit balance of $250. The adjusting entry amount for bad debts should be $1,000 TRUE or FALSE
TRUE
Retailers accept bank cards such as VISA and Master Card in order to get cash immediately rather than waiting for the customers to pay in due course. TRUE or FALSE
TRUE
Revenue is generally recognized at the point of sale TRUE or FALSE
TRUE
The Allowance for Uncollectible Accounts may have a debit balance before the adjusting entry is prepared TRUE or FALSE
TRUE
The accounts receivable turnover ratio indicates how rapidly customers pay their bills. TRUE or FALSE
TRUE
The accounts used in the journal entry for the estimation of bad debts is the same whether a firm uses the percentage of sales, percentage of accounts receivable, or the aging method to estimate bad debts expense TRUE or FALSE
TRUE
The allowance method has two basic elements: (1) an estimate of the amount of accounts receivable that will ultimately be uncollectible and (2) a contra account that contains the estimate and is deducted from the accounts receivable TRUE or FALSE
TRUE
The credit terms 2/10, n/30 means that the customers may take a 2% cash discount if they pay within 10 days TRUE or FALSE
TRUE
The goal of the internal control that calls for adequate documentation is the immediate, complete, and tamper-proof recording of all transactions TRUE or FALSE
TRUE
The most important element of internal control is reliable personnel with clear responsibilities. TRUE or FALSE
TRUE
The specific write-off method assumes all sales are fully collectible until proved otherwise. TRUE or FALSE
TRUE
When bad debts recoveries occur, the write-off should be reversed and the collection handled as a normal receipt on account. TRUE or FALSE
TRUE