Credit sales are recorded as
A. Debit Cash, credit Deferred Revenue
B. Debit Service Revenue, credit Accounts Receivable
C. Debit Cash, credit Service
... [Show More] Revenue
D. Debit Accounts Receivable, credit Service Revenue - ANSWER-D
Identify the condition(s) that must exist for a sale and the related receivable to be recognized.
A. Collection of cash is probable
B. The company must have collected cash from at least one previous sale to the customer
C. Goods or services have been provided to the customer
D. Two of the other answers are conditions that must exist - ANSWER-D
Which of the following items are classified as receivables?
A. Tax refund claims
B. Amounts owed by customers
C. Amounts loaned and expected to be collected
D. All of the other answers are classified as receivables - ANSWER-D
Identify the likely disadvantage(s) of extending credit to customers
A. Delay or failure to collect cash
B. Lower profitability
C. Lower revenues
D. All of the other answers are disadvantages of extending credit to customers - ANSWER-A
The Sales Returns account is an expense account
A. True
B. False - ANSWER-B
Which of the following computations would be used to compute Net Revenue?
A. Total Revenue + Accounts Receivable - Sales Discounts - Sales Allowances
B. Net Revenue + Sales Allowances - Sales Discounts
C. Total Revenue - Sales Discounts - Sales Allowances
D. Net Income - Change in Accounts Receivable - ANSWER-C
When customers purchase products on account, Knomark, Inc. offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a:
A. Bad debt
B. Sales discount
C. Sales return
D. Sales allowances - ANSWER-B
When a company sells a $100 service with a 20% trade discount, $80 of revenue is recognized.
A. True
B. False - ANSWER-A
The Sales Discounts account is an example of a contra revenue account.
A. True
B. False - ANSWER-A
A sales allowance is recorded as a debit to Accounts Receivable and a credit to Sales Allowances.
A. True
B. False - ANSWER-B
If a company has total revenues of $100,000, sales discounts of $3,000, sales returns of $4,000, and sales allowances of $2,000, the income statement will report net revenues of $91,000.
A. True
B. False - ANSWER-A
LePage's Inc. shipped the wrong color of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. The price reduction is an example of a:
A. Trade discount
B. Sales discount
C. Sales allowance
D. Sales return - ANSWER-C
The net realizable value of accounts receivable is the full amount owed by customers
A. True
B. False - ANSWER-B
The purpose of recording an allowance for uncollectible accounts is to:
A. Record the sales returns and allowances
B. Report net sales conservatively
C. Report accounts receivable at net realizable value
D. Report accounts receivable for the total amount of sales in the period - ANSWER-C
At December 31, Gill Co. reported accounts receivable of $238,000 and an allowance for uncollectible accounts of $600 (credit) before any adjustments. An analysis of accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. The amount of the adjustment for uncollectible accounts would be
A. $6,540
B. $7,800
C. $7,140
D. $7,740 - ANSWER-A
At December 31, Tremble Music had account balances in Accounts Receivable of $300,000 and in Allowance for Uncollectible Accounts of $1,000 (debit) before any adjustments. An analysis of Tremble's December 31 accounts receivable suggests that 5% of the account balances are not expected to be collected. The balance of Allowance for Uncollectible Accounts after adjustment will be:
A. $1,000
B. $16,000
C. $14,000
D. $15,000 - ANSWER-D
At the end of the year, Mark Inc. estimates future bad debts to be $6,500. The Allowance for Uncollectible Accounts has a credit balance of $2,500 before any year‐end adjustment. What adjustment should Mark Inc. record for the estimated bad debts at the end of the year?
A. Debit Bad Debt Expense, $6,500; credit Allowance for Uncollectible Accounts, $6,500
B. Debit Bad Debt Expense, $4,000; credit Allowance for Uncollectible Accounts $4,000
C. Debit Allowance for Uncollectible Accounts, $9,000; credit Bad Debt Expense, $9,000
D. Debit Bad Debt Expense, $9,000; credit Allowance for Uncollectible Accounts, $9,000 - ANSWER-B
A company expects 5% of its newer accounts receivable to be uncollectible and 20% of its older accounts to be uncollectible. If the company has $40,000 of newer accounts and $5,000 of older accounts, the total estimate of uncollectible accounts is $2,000.
A. True
B. False - ANSWER-B
Crimson Inc. recorded credit sales of $750,000, of which $600,000 is not yet due, $100,000 is past due for up to 180 days, and $50,000 is past due for more than 180 days. Under the aging of receivables approach, Crimson Inc. expects it will not collect 1% of the amount not yet due, 10% of the amount past due for up to 180 days, and 20% of the amount past due for more than 180 days. The allowance account had a debit balance of $1,000 before adjustment. After adjusting for bad debt expense, what is the ending balance of the allowance account?
A. $29,000
B. $28,000
C. $27,000
D. $26,000 - ANSWER-D
Under the allowance method, when a company writes off an account receivable as an actual bad debt, it records an expense
A. True
B. False - ANSWER-B
Cochrane, Inc. accounts for bad debts using the allowance method. On June 1, Cochrane wrote off $2,500 customer account. Based on Cochrane's estimation, the customer will never pay any portion of the balance in his account. What effect will this write‐off have on Cochrane's balance sheet at the time of the write‐off?
A. An increase to stockholders' equity and a decrease to liabilities
B. No effect
C. An increase to assets and an increase to stockholders' equity
D. A decrease to assets and a decrease to stockholders' equity - ANSWER-B
The direct write‐off method is not normally an acceptable method for GAAP because it fails to report:
A. Revenue from the sale of goods or services to customers
B. Cash collected from customers
C. Accounts receivable for their net realizable value
D. The amounts receivable from customers - ANSWER-C
A note receivable is reported in the balance sheet
A. Always as a current asset
B. Always as a long‐term asset
C. As either a current asset or long‐term asset depending on the expected collection date
D. As a contra asset - ANSWER-C
On September 1, 2018, Middleton Corp. lends cash and accepts a $1,000 note receivable that offers 12% interest and is due in six months. How much interest revenue will Middleton Corp. report during 2018?
A. $20
B. $40
C. $30
D. $60 - ANSWER-B
A company's ratio of net sales (cash and credit sales) to average accounts receivable can be interpreted as management's ability to:
A. Collect cash from all sales to customers
B. Effectively market its products and services
C. Generate profits for investors
D. Reduce costs of selling products and services to customers - ANSWER-A
Sandburg Veterinarian reports the following information for the year:
What is Sandburg's receivables turnover ratio?
Net credit sales
$120,000
Average accounts receivable
20,000
Cash collections on credit sales
100,000
A. 6.0
B. 5.0
C. 1.2
D. 0.2 - ANSWER-A
An increase in a company's receivables turnover ratio typically means the company is
A. Having trouble paying debts as they become due.
B. Less profitable.
C. More effectively granting and collecting credit to customers.
D. Losing customers to its competitors. - ANSWER-C
Even though the percentage‐of‐receivables method and the percentage‐of‐credit‐sales method use different accounts to estimate future uncollectible accounts, the amount of bad debt expense reported in the income statement will always be the same under the two methods.
A. True
B. False - ANSWER-B
Which of the following statements is true with respect to the percentage‐of‐credit‐sales method for estimating uncollectible accounts?
A. The amount recorded for bad debt expense does not depend on the balance of the allowance for uncollectible accounts
B. This method is referred to as the balance sheet approach
C. This method does not allow for future uncollectible accounts
D. Under this method, bad debt expense is recorded at the time of an actual bad debt - ANSWER-A
Costs that are expensed when incurred are called?
A. Product costs
B. Direct costs
C. Inventoriable costs
D. Period costs
E. Indirect costs - ANSWER-D
Which of the following statements is true?
A. Product costs affect only the balance sheet
B. Product costs affect only the income statement
inventory
C. Period costs affect only the balance sheet
D. Neither product costs nor period costs affect the Statement of Retained Earnings. This can also be a true statement if the period costs were prepaid (i.e., prepaid advertising, depreciation)
E. Product costs eventually affect both the balance sheet and the income statement - ANSWER-E
The cost of unsold inventory at the end of the year is classified as a(n) ______ in the ______.
A. Asset; Balance sheet
B. Expense; Income statement
C. Liability; Balance sheet
D. Revenue; Income statement - ANSWER-A
One of the major differences between service companies and retail or manufacturing companies is that retailers and manufacturers must account for:
A. Current assets
B. Inventory
C. Selling expenses
D. Deferred revenue - ANSWER-B
Inventory does not include
A. Materials used in the production of goods to be sold.
B. Assets intended to be sold in the normal course of business.
C. Equipment used in the manufacturing of assets for sale.
D. Assets currently in production for normal sales. - ANSWER-C
Cost of goods sold is:
A. Reported in the income statement
B. Reported in the balance sheet
C. A current asset
D. The cost of inventory on hand at the end of the period - ANSWER-A
If a company has ending inventory of $25,000, purchases during the year of $95,000, and beginning inventory of $30,000, cost of goods sold equals $90,000.
A. True
B. False - ANSWER-B
Beginning inventory is $30,000. Purchases of inventory during the year are $50,000. Cost of goods sold is $60,000. What is ending inventory?
A. $20,000
B. $30,000
C. $10,000
D. $50,000 - ANSWER-A
Which level of profitability is considered profit from normal operations?
A. Gross profit
B. Operating income
C. Income before taxes
D. Net income - ANSWER-B
Sales revenue less cost of goods sold is referred to as operating income
A. True
B. False - ANSWER-B
The primary distinction between operating activities and nonoperating activities in a multiple‐step income statement is whether the activity is:
A. A large or small dollar amount
B. Part of primary business operations
C. Related to current versus long‐term assets
D. Reported as a revenue or an expense - ANSWER-B
Gross profit is calculated as net sales minus
A. Nonoperating expenses and income tax expense.
B. Operating expenses.
C. Cost of goods sold.
D. All of the other answers are subtracted from net sales. - ANSWER-C
Which of the following is not a period cost?
A. Legal costs
B. Public relations costs
C. Sales commissions
D. Wages of assembly‐line workers
E. The salary of a company's chief financial officer (CFO). - ANSWER-D
Companies are not allowed to report inventory costs by assuming which units of inventory are sold and which units still remain on hand.
A. True
B. False - ANSWER-B
Using the weighted‐average cost method, the average cost of inventory is calculated as the average unit cost of inventory purchased during the year.
A. True
B. False - ANSWER-B
In accounting for inventory, the assumed cost flow must match the physical goods flow.
A. True
B. False - ANSWER-B
The inventory cost flow assumption that is least likely to match the physical flow of inventory for most companies is:
A. FIFO
B. LIFO
C. Weighted‐average
D. Specific identification - ANSWER-B
Inventory methods such as LIFO and FIFO deal more with goods flow than with cost flow.
A. True
B. False - ANSWER-B
A company has the following inventory transactions:
Jan. 1 Beginning inventory 100 units @ $4 each
Jan. 15 Purchase 100 units @ $5 each
Jan. 31 Purchase 100 units @ $6 each
What would be the cost of goods sold under the FIFO method if 120 units were sold in January?
A. $600
B. $500
C. $620
D. $720 - ANSWER-B
A company has the following inventory transactions:
Jan. 1 Beginning inventory 100 units @ $4 each
Jan. 15 Purchase 100 units @ $5 each
Jan. 31 Purchase 100 units @ $6 each
What would be the cost of goods sold under the LIFO method if 120 units were sold in January?
A. $600
B. $500
C. $700
D. $720 - ANSWER-C
LIFO is considered an income statement approach for reporting inventory because it:
A. Always results in a higher amount of net income [Show Less]