31. Which
of the following is not considered
cash for financial reporting purposes?
a. Petty cash funds
and change funds
b. Money orders,
certified checks, and personal checks
c. Coin, currency, and
available funds
d. Postdated checks
and I.O.U.'s
32. Which
of the following is considered cash?
a. Certificates of
deposit (CDs)
b. Money orders
c. Money market
savings certificates
d. Postdated checks
33. Travel
advances should be reported as
a. supplies.
b. cash because they
represent the equivalent of money.
c. investments.
d. none of these.
P34. Which of the following items should not be
included in the Cash caption on the statement of financial position
a. Coins and currency
in the cash register
b. Checks from other
parties presently in the cash register
c. Amounts on deposit in
checking account at the bank
d. Postage stamps on
hand
35. All of the following may be included under
the heading of "cash" except
a. currency.
b. money
market funds.
c. checking
account balance.
d. savings
account balance.
36. In which account are post-dated checks
received classified?
a. Receivables.
b. Prepaid
expenses.
c. Cash.
d. Payables.
37. In which account are postage stamps
classified?
a. Cash.
b. Office
supplies.
c. Receivables.
d. Inventory.
38. What is a compensating balance?
a. Savings
account balances.
b. Margin
accounts held with brokers.
c. Temporary
investments serving as collateral for outstanding loans.
d. Minimum
deposits required to be maintained in connection with a borrowing arrangement.
39. Under which section of the statement of
financial position is "cash restricted for plant expansion" reported?
a. Current assets.
b. Non-current assets.
c. Current liabilities.
d. Equity.
S40. A cash equivalent is a short-term, highly
liquid investment that is readily convertible into known amounts of cash and
a. is acceptable as a
means to pay current liabilities.
b. has a current
market value that is greater than its original cost
c. bears an interest
rate that is at least equal to the prime rate of interest at the date of
liquidation.
d. is so near its
maturity that it presents insignificant risk of changes in interest rates.
41. Bank
overdrafts generally should be
a. reported as a
deduction from the current asset section.
b. reported as a
deduction from cash.
c. netted against cash
and a net cash amount reported.
d. reported as a
current liability.
42. Deposits
held as compensating balances
a. usually do not earn
interest.
b. if legally
restricted and held against short-term credit may be included as cash.
c. if legally
restricted and held against long-term credit may be included among current
assets.
d. none of these.
43. The
category "trade receivables" includes
a. advances to
officers and employees.
b. income tax refunds
receivable.
c. claims against
insurance companies for casualties sustained.
d. none of these.
44. Which
of the following should be recorded in Accounts Receivable?
a. Receivables from
officers
b. Receivables from
subsidiaries
c. Dividends
receivable
d. None of these
S45. What is the preferable presentation of
accounts receivable from officers, employees, or affiliated companies on a statement
of financial position
a. As offsets to equity.
b. By means of
footnotes only.
c. As assets but
separately from other receivables.
d. As trade notes and
accounts receivable if they otherwise qualify as current assets.
46. Which
of the following statement is incorrect regarding receivables on the statement
of financial position?
a. Receivables are a
financial asset
b. Receivables are
financial instruments.
c. Non-trade receivables
are generally reported as separate items in the statement of financial
position.
d. accounts receivable
are written promises of the purchaser to pay for goods or services.
S47. When a customer purchases merchandise
inventory from a business organization, she may be given a discount which is
designed to induce prompt payment. Such a discount is called a(n)
a. trade discount.
b. nominal discount.
c. enhancement
discount.
d. cash discount.
P48. Trade discounts are
a. not recorded in the
accounts; rather they are a means of computing a price.
b. used to avoid
frequent changes in catalogues.
c. used to quote
different prices for different quantities purchased.
d. all of the above.
49. If
a company employs the gross method of recording accounts receivable from
customers, then sales discounts taken should be reported as
a. a deduction from
sales in the income statement.
b. an item of
"other income and expense" in the income statement.
c. a deduction from
accounts receivable in determining the net realizable value of accounts
receivable.
d. sales discounts
forfeited in the cost of goods sold section of the income statement.
50. Why
do companies provide trade discounts?
a. To avoid frequent changes in
catalogs.
b. To induce prompt payment.
c. To easily alter prices for
different customers.
d. Both a. and c.
51. Of
the approaches to record cash discounts related to accounts receivable, which
is more theoretically correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are
theoretically correct.
52. All
of the following are problems associated with the valuation of accounts
receivable except for
a. uncollectible accounts.
b. returns.
c. cash discounts under the net
method.
d. allowances granted.
53. Why
is the allowance method preferred over the direct write-off method of
accounting for bad debts?
a. Allowance method is used for
tax purposes.
b. Estimates are used.
c. Determining worthless accounts
under direct write-off method is difficult to do.
d. Improved matching of bad debt
expense with revenue.
54. Which
of the following concepts relates to using the allowance method in accounting
for accounts receivable?
a. Bad debt expense is an estimate
that is based on historical and prospective information.
b. Bad debt expense is based on
the actual amounts determined to be uncollectible.
c. Bad debt expense is an estimate
that is based only on an analysis of the receivables aging.
d. Bad debt expense is
management's determination of which accounts will be sent to the attorney for
collection.
55. How
can accounting for bad debts be used for earnings management?
a. Determining which accounts to
write-off.
b. Changing the percentage of
sales recorded as bad debt expense.
c. Using an aging of the accounts
receivable balance to determine bad debt expense.
d. Reversing previous write-offs.
56. What
is the normal journal entry for recording bad debt expense under the allowance
method?
a. Debit Allowance for Doubtful
Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful
Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit
Allowance for Doubtful Accounts.
d. Debit Accounts Receivable,
credit Allowance for Doubtful Accounts.
57. What
is the normal journal entry when writing-off an account as uncollectible under
the allowance method?
a. Debit Allowance for Doubtful
Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful
Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit
Allowance for Doubtful Accounts.
d. Debit Accounts Receivable,
credit Allowance for Doubtful Accounts.
58. Which
of the following is included in the normal journal entry to record the
collection of accounts receivable previously written off when using the
allowance method?
a. Debit Allowance for Doubtful
Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful
Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit
Allowance for Doubtful Accounts.
d. Debit Accounts Receivable,
credit Allowance for Doubtful Accounts.
59. Assuming
that the ideal measure of short-term receivables in the statement of financial
position is the discounted value of the cash to be received in the future,
failure to follow this practice usually does not make the statement of
financial position misleading because
a. most short-term
receivables are not interest-bearing.
b. the allowance for
uncollectible accounts includes a discount element.
c. the amount of the
discount is not material.
d. most receivables
can be sold to a bank or factor.
60. Which
of the following methods of determining bad debt expense does not properly
match expense and revenue?
a. Charging bad debts
with a percentage of sales under the allowance method.
b. Charging bad debts
with an amount derived from a percentage of accounts receivable under the
allowance method.
c. Charging bad debts
with an amount derived from aging accounts receivable under the allowance
method.
d. Charging bad debts
as accounts are written off as uncollectible.
61. Which
of the following methods of determining annual bad debt expense best achieves
the matching concept?
a. Percentage of sales
b. Percentage of
ending accounts receivable
c. Percentage of
average accounts receivable
d. Direct write-off
62. Which
of the following is a generally accepted method of determining the amount of
the adjustment to bad debt expense?
a. A percentage of
sales adjusted for the balance in the allowance
b. A percentage of
sales not adjusted for the balance in the allowance
c. A percentage of
accounts receivable not adjusted for the balance in the allowance
d. An amount derived
from aging accounts receivable and not adjusted for the balance in the
allowance
63. The
advantage of relating a company's bad debt expense to its outstanding accounts
receivable is that this approach
a. gives a reasonably
correct statement of receivables in the statement of financial position.
b. best relates bad
debt expense to the period of sale.
c. is the only
generally accepted method for valuing accounts receivable.
d. makes estimates of
uncollectible accounts unnecessary.
64. Under
IFRS , which of the following is
not permitted for accounting for material amounts of uncollectable accounts
receivable?
a. Percentage of
receivables, allowance method.
b. Percentage of
sales, allowance method.
c. Direct write-off
method.
d. All of the choices
are acceptable under IFRS .
65. Which
of the following statement is incorrect regarding how the IASB requires that
the impairment assessment be performed?
a. Receivables that
are individually significant should be considered for impairment separately, if
impaired, the company recognizes it.
b. Receivables that
are not individually significant are assessed individually. If impaired, the
company recognizes it.
c. Any receivable
individually assessed that is not considered impaired should be included with a
group of assets with similar credit-risk characteristics and collectively
assessed for impairment.
d. Any receivables not
individually assessed should be collectively assessed for impairment.
66. At
the beginning of 2010, Gannon Company received a three-year
zero-interest-bearing $1,000 trade note. The market rate for equivalent notes
was 8% at that time. Gannon reported this note as a $1,000 trade note
receivable on its 2010 year-end statement of financial position and $1,000 as
sales revenue for 2010. What effect did this accounting for the note have on
Gannon's net earnings for 2010, 2011, 2012, and its retained earnings at the
end of 2012, respectively?
a. Overstate,
overstate, understate, zero
b. Overstate,
understate, understate, understate
c. Overstate,
overstate, overstate, overstate
d. None of these
67. What
is imputed interest?
a. Interest based on the stated
interest rate.
b. Interest based on the implicit
interest rate.
c. Interest based on the average
interest rate.
d. Interest based on the coupon
rate.
68. Why
would a company sell receivables to another company?
a. To improve the quality of its
credit granting process.
b. To limit its legal liability.
c. To accelerate access to amounts
collected.
d. To comply with customer
agreements.
69. Which
of the following is true when accounts receivable are factored without
recourse?
a. The transaction may
be accounted for either as a secured borrowing or as a sale, depending upon the
substance of the transaction.
b. The receivables are
used as collateral for a promissory note issued to the factor by the owner of
the receivables.
c. The factor assumes
the risk of collectibility and absorbs any credit losses in collecting the
receivables.
d. The financing cost
(interest expense) should be recognized ratably over the collection period of
the receivables.
S70. Which of the following statements is
incorrect regarding the classification of accounts and notes receivable?
a. Segregation of the
different types of receivables is required if they are material.
b. Disclose any loss
contingencies that exist on the receivables.
c. Any discount or
premium resulting from the determination of present value in notes receivable
transactions is an asset or liability respectively.
d. Valuation accounts
should be appropriately offset against the proper receivable accounts.
71. Which
of the following statement is incorrect when a company chooses the fair value
option for its receivables?
a. Receivables are recorded at
fair value in the statement of financial position.
b. Unrealized holding gains and
losses from fair value adjustments are reported as a component of comprehensive
income.
c. The International Accounting
Standards Board believes that fair value measurement for financial instruments
provides more relevant and understandable information than historical cost.
d. An unrealized holding gain or
loss is the net change in the fair value of the receivable from one period to
another, exclusive of interest revenue recognized but not recorded.
72. Morley
Manufacturing has notes receivable that have a fair value of $810,000 and a
carrying amount of $620,000. Morley decides on December 31, 2011 , to use the fair
value option for these recently-acquired receivables. Which of the following
statements is correct regarding the election of the fair value option by Morley?
a. Morley can elect to use the
fair value option or amortized cost at each statement of financial position
date.
b. Morley reports the receivables
at fair value, with any unrealized holding gains and losses reported as a
separate component of comprehensive income.
c. The unrealized holding gain is
the difference between the fair value and the carrying amount.
d. All of the choices are correct
regarding the fair value option.
73. Under
IFRS Morley Manufacturing will
derecognize its receivables in all of the following cases except
a. When Morley elects to use the
fair value option for a receivable.
b. When the contractual rights to
the cash flows of the receivable no longer exist; for example when one of
Morley's customers declares bankruptcy.
c. When Morley collects a
receivable when due.
d. All of the choices require
Morley Manufacturing to derecognize its receivables.
74. On
December 31,
2011 , Hunter Corporation has elected to use the fair value option
for one of its notes receivable. The note was accepted in late September, 2011
from a customer who was unable to pay its accounts receivable. The transaction
with the customer had been delivery of accounting services valued at €25,000. The customer made a partial payment,
resulting in a carrying value for the note of €22,000. At year-end, Hunter Corporation estimates
the fair value of the note to be €17,500. Which of the following is incorrect
regarding this note?
a. Hunter will report the note on
its statement of financial position at €17,500.
b. Hunter will report an
unrealized loss of €7,500 in its income statement for the year ended December 31, 2011 .
c. Hunter will be required to use
the fair value option for this note for the duration of its existence.
d. In 2012, Hunter will calculate
the unrealized holding gain or loss as the net change in the fair value of the
receivable from 2011 to 2012, exclusive of interest revenue recognized but not
recorded.
75. IFRS requires all of the following when classifying
receivables except
a. Indicate the receivables
classified as current and non-current in the statement of financial position.
b. Disclose any receivables
pledged as collateral.
c. Disclose all significant
concentrations of credit risk arising from receivables.
d. All of the choices are required
by IFRS when classifying
receivables.
76. Which
of the following is correct regarding differences between IFRS and U.S.GAAP with regard to receivables?
a. Under IFRS
de-recognition of a receivable is determined by using lack of control as the
primary criterion.
b. U.S.GAAP permits the reversal
of impairment losses, with the reversal limited to the asset's amortized cost
before the impairment.
c. Under IFRS
the fair value option is subject to certain qualifying criteria not in U.S.GAAP.
d. All of the choices are
differences between IFRS and
U.S.GAAP for receivables.
P77. The accounts receivable turnover ratio
measures the
a. number of times the
average balance of accounts receivable is collected during the period.
b. percentage of
accounts receivable turned over to a collection agency during the period.
c. percentage of
accounts receivable arising during certain seasons.
d. number of times the
average balance of inventory is sold during the period.
78. The
accounts receivable turnover ratio is computed by dividing
a. gross sales by
ending net receivables.
b. gross sales by
average net receivables.
c. net sales by ending
net receivables.
d. net sales by
average net receivables.
79. Which
of the following items should be included in accounts receivable reported on
the statement of financial position?
a. Notes receivable.
b. Interest receivable.
c. Allowance for doubtful
accounts.
d. Advances to related parties and
officers.
80. How
is days to collect accounts receivable determined?
a. 365 days divided by accounts
receivable turnover.
b. Net sales divided by 365.
c. Net sales divided by average
net trade receivables.
d. Accounts receivable turnover
divided by 365 days.
81. What
is a possible reason for accounts receivable turnover to increase from one year
to the next year
a. Decreased credit sales during a
recession.
b. Write-off uncollectible
receivables.
c. Granting credit to customers
with lower credit quality.
d. Improved collection process.
*82. Which
of the following is an appropriate reconciling item to the balance per bank in
a
bank reconciliation?
bank reconciliation?
a. Bank service charge.
b. Deposit in transit.
c. Bank interest.
d. Chargeback for NSF check.
*83. Which
of the following is not true?
a. The imprest petty
cash system in effect adheres to the rule of disbursement by check.
b. Entries are made to
the Petty Cash account only to increase or decrease the size of the fund or to
adjust the balance if not replenished at year-end.
c. The Petty Cash
account is debited when the fund is replenished.
d. All of these are
not true.
*84. A
Cash Over and Short account
a. is not generally
accepted.
b. is debited when the
petty cash fund proves out over.
c. is debited when the
petty cash fund proves out short.
d. is a contra account
to Cash.
*85. The
journal entries for a bank reconciliation
a. are taken from the
"balance per bank" section only.
b. may include a debit
to Office Expense for bank service charges.
c. may include a
credit to Accounts Receivable for an NSF check.
d. may include a debit
to Accounts Payable for an NSF check.
*86. When
preparing a bank reconciliation, bank credits are
a. added to the bank
statement balance.
b. deducted from the
bank statement balance.
c. added to the
balance per books.
d. deducted from the
balance per books.
Multiple
Choice Answers—Conceptual
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
31.
|
d
|
S40.
|
d
|
49.
|
a
|
58.
|
d
|
67.
|
b
|
76.
|
c
|
*85.
|
b
|
32.
|
b
|
41.
|
d
|
50.
|
d
|
59.
|
c
|
68.
|
c
|
P77.
|
a
|
*86.
|
c
|
33.
|
d
|
42.
|
d
|
51.
|
a
|
60.
|
d
|
69.
|
c
|
78.
|
d
|
||
P34.
|
d
|
43.
|
d
|
52.
|
c
|
61.
|
a
|
70.
|
c
|
79.
|
c
|
||
35.
|
b
|
44.
|
d
|
53.
|
d
|
62.
|
b
|
71.
|
b
|
80.
|
a
|
||
36.
|
a
|
S45.
|
c
|
54.
|
a
|
63.
|
a
|
72.
|
c
|
81.
|
d
|
||
37.
|
b
|
S46.
|
d
|
55.
|
b
|
64.
|
c
|
73.
|
a
|
*82.
|
b
|
||
38.
|
d
|
P47.
|
d
|
56.
|
c
|
65.
|
b
|
74.
|
b
|
*83.
|
c
|
||
39.
|
b
|
48.
|
d
|
57.
|
a
|
66.
|
d
|
75.
|
d
|
*84.
|
c
|
Solutions
to those Multiple Choice questions for which the answer is “none of these.”
33. As receivables.
42. Many
answers are possible.
43. Open
accounts resulting from short-term extensions of credit to customers.
44. Open
accounts resulting from short-term extensions of credit to customers.
66. Overstate,
understate, understate, zero.
Multiple
Choice—Computational
87. Consider the
following: Cash in Bank – checking account of $13,500, Cash on hand of $500,
Post-dated checks received totaling $3,500, and Certificates of deposit
totaling $124,000. How much should be reported as cash in the statement of
financial position?
a. $ 13,500.
b. $ 14,000.
c. $ 17,500.
d. $131,500.
88. On
January 1, 2010 ,
Lynn Company borrows $2,000,000 from National Bank at 11% annual interest. In
addition, Lynn
is required to keep a compensatory balance of $200,000 on deposit at National
Bank which will earn interest at 5%. The effective interest that Lynn pays on its
$2,000,000 loan is
a. 10.0%.
b. 11.0%.
c. 11.5%.
d. 11.6%.
89. Kennison Company has cash in bank of
$10,000, restricted cash in a separate account of $3,000, and a bank overdraft
in an account at another bank of $1,000. Kennison should report cash of
a. $9,000.
b. $10,000.
c. $12,000.
d. $13,000.
90. Kaniper Company has the following items at
year-end:
Cash
in bank $20,000
Petty
cash 300
Commercial
paper with maturity of 2 months 5,500
Postdated
checks 1,400
Kaniper
should report cash and cash equivalents of
a. $20,000.
b. $20,300.
c. $25,800.
d. $27,200.
91. Lawrence Company has cash in bank of
$15,000, restricted cash in a separate account of $4,000, and a bank overdraft
in an account at another bank of $2,000. Lawrence
should report cash of
a. $13,000.
b. $15,000.
c. $18,000.
d. $19,000.
92. Steinert Company has the following items at
year-end:
Cash
in bank $30,000
Petty
cash 500
Commercial
paper with maturity of 2 months 8,200
Postdated
checks
2,100
Steinert
should report cash and cash equivalents of
a. $30,000.
b. $30,500.
c. $38,700.
d. $40,800.
93. If
a company purchases merchandise on terms of 1/10, n/30, the cash discount
available is equivalent to what effective annual rate of interest (assuming a
360-day year)?
a. 1%
b. 12%
c. 18%
d. 30%
94. AG
Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If
the company uses the net method to record sales made on credit, how much should
be recorded as sales revenue?
a. $ 9,800.
b. $ 9,900.
c. $10,000.
d. $10,100.
95. AG
Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If
the company uses the gross method to record sales made on credit, what is/are
the debit(s) in the journal entry to record the sale?
a. Debit Accounts Receivable for
$9,900.
b. Debit Accounts Receivable for
$9,900 and Sales Discounts for $100.
c. Debit Accounts Receivable for
$10,000.
d. Debit Accounts Receivable for
$10,000 and Sales Discounts for $100.
96. AG
Inc. made a $10,000 sale on account with the following terms: 2/10, n/30. If
the company uses the net method to record sales made on credit, what is/are the
debit(s) in the journal entry to record the sale?
a. Debit Accounts Receivable for
$9,800.
b. Debit Accounts Receivable for
$9,800 and Sales Discounts for $200.
c. Debit Accounts Receivable for $10,000.
d. Debit Accounts Receivable for
$10,000 and Sales Discounts for $200.
97. Rosalie
Co. uses the gross method to record sales made on credit. On June 10, 2011 ,
it made sales of $100,000 with terms 2/10, n/30 to Finley Farms, Inc. On June 19, 2011 ,
Rosalie received payment for 1/2 the amount due from Finley Farms. Rosalie's
fiscal year end is on June 30, 2011 . What amount will be reported in the
statement of financial position for the accounts receivable due from Finley
Farms, Inc.?
a. $49,000
b. $50,000
c. $48,000
d. $51,000
98. Vivian,
Inc had net sales in 2011 of €700,000. At December 31, 2010 ,
before adjusting entries, the balances in selected accounts were: accounts
receivable €125,000 debit, and allowance for doubtful accounts €1,200 credit. Vivian
estimates that 2% of its net sales will prove to be uncollectable. What is the
cash realizable value of the receivables reported on the statement of financial
position at December
31, 2011 ?
a. €112,200
b. €122,500
c. €111,000
d. €109,800
99. Vivian,
Inc had net sales in 2011 of €700,000. At December 31, 2010 , before adjusting entries,
the balances in selected accounts were: accounts receivable €125,000 debit, and
allowance for doubtful accounts €1,200 debit. Vivian estimates that 2% of its
net accounts receivable will prove to be uncollectable. What is the cash
realizable value of the receivables reported on the statement of financial
position at December
31, 2011 ?
a. €112,200
b. €122,500
c. €111,000
d. €109,800
100. Rosalie
Corporation is located in Los Angeles but does
business throughout Europe . The company builds
and sells equipment used in manufacturing pharmaceuticals. On December 31, 2011 ,
Rosalie's accounts receivable are as follows:
Individually significant receivables
Finley Company $ 80,000
Rios, Inc. 200,000
Rafael Co. 120,000
Hunter, Inc. 100,000
All other receivables 500,000
Total $1,000,000
Rosalie Corporation determines that Finley
Company's receivable is impaired by $40,000 and Hunter, Inc.'s receivable is
totally impaired. The other receivables from Rafael and Rios are not considered
impaired. Rosalie determines that a composite rate of 2% is appropriate to
measure impairment on all other receivables. What is the total impairment of
receivables for Rosalie Corporation for 2011?
a. $156,400
b. $140,000
c. $150,000
d. $123,600
101. Wave
Crest Hotels is located in Canada ,
but manages an extensive network of boutique hotels in the United States .
Wave Crest has significant receivables from 3 customers, $480,000 due from Stephanie Inn
Wave Crest determines that the Warren House
receivable is impaired by $160,000 and the Hallmark Hotels receivable is
impaired by $200,000. The receivable from the Stephanie Inn
a. $382,000
b. $314,000
c. $406,000
d. $360,000
102. Wellington
Corp. has outstanding accounts receivable totaling $2.54 million as of December
31 and sales on credit during the year of $12.8 million. There is also a debit
balance of $6,000 in the allowance for doubtful accounts. If the company
estimates that 1% of its net credit sales will be uncollectible, what will be
the balance in the allowance for doubtful accounts after the year-end
adjustment to record bad debt expense?
a. $ 25,400.
b. $ 31,400.
c. $122,000.
d. $134,000.
103. Wellington
Corp. has outstanding accounts receivable totaling $6.5 million as of December
31 and sales on credit during the year of $24 million. There is also a credit
balance of $12,000 in the allowance for doubtful accounts. If the company
estimates that 8% of its outstanding receivables will be uncollectible, what
will be the amount of bad debt expense recognized for the year?
a. $ 532,000.
b. $ 520,000.
c. $1,920,000.
d. $ 508,000.
104. Wellington
Corp. has outstanding accounts receivable totaling $3 million as of
December 31 and sales on credit during the year of $15 million. There is also a debit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?
December 31 and sales on credit during the year of $15 million. There is also a debit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?
a. $1,200,000.
b. $ 228,000.
c. $ 240,000.
d. $ 252,000.
105. At
the close of its first year of operations, December 31, 2010 , Ming Company had
accounts receivable of $540,000, after deducting the related allowance for
doubtful accounts. During 2010, the company had charges to bad debt expense of
$90,000 and wrote off, as uncollectible, accounts receivable of $40,000. What
should the company report on its statement of financial position at December 31, 2010 ,
as accounts receivable before the allowance for doubtful accounts?
a. $670,000
b. $590,000
c. $490,000
d. $440,000
106. Before year-end adjusting entries, Dunn
Company's account balances at December 31, 2010 , for accounts receivable and
the related allowance for uncollectible accounts were $600,000 and $45,000,
respectively. An aging of accounts receivable indicated that $62,500 of the
December 31 receivables are expected to be uncollectible. The cash realizable
value of accounts receivable after adjustment is
a. $582,500.
b. $537,500.
c. $492,500.
d. $555,000.
107. During
the year, Kiner Company made an entry to write off a $4,000 uncollectible
account. Before this entry was made, the
balance in accounts receivable was $50,000 and the balance in the allowance
account was $4,500. The cash realizable value of accounts receivable after the
write-off entry was
a. $50,000.
b. $49,500.
c. $41,500.
d. $45,500.
108. The
following information is available for Murphy Company:
Allowance for doubtful accounts at December 31, 2009 $ 8,000
Credit sales during 2010 400,000
Accounts receivable deemed worthless and written
off during 2010 9,000
As
a result of a review and aging of accounts receivable in early January 2011,
however, it has been determined that an allowance for doubtful accounts of
$5,500 is needed at December
31, 2010 . What amount should Murphy record as "bad debt
expense" for the year ended December 31, 2010 ?
a. $4,500
b. $5,500
c. $6,500
d. $13,500
Use
the following information for questions 109 and 110.
A
trial balance before adjustments included the following:
Debit
Credit
Sales $425,000
Sales returns and allowance $14,000
Accounts receivable 43,000
Allowance for doubtful accounts 760
109. If
the estimate of uncollectibles is made by taking 2% of net sales, the amount of
the adjustment is
a. $6,700.
b. $8,220.
c. $8,500.
d. $9,740.
110. If the estimate of uncollectibles is made
by taking 10% of gross account receivables, the amount of the adjustment is
a. $3,540.
b. $4,300.
c. $4,224.
d. $5,060.
111. Lankton Company has the following account
balances at year-end:
Accounts
receivable $60,000
Allowance
for doubtful accounts 3,600
Sales
discounts 2,400
Lankton should
report accounts receivable at a net amount of
a. $54,000.
b. $56,400.
c. $57,600.
d. $60,000.
112. Smithson Corporation had a 1/1/10 balance in
the Allowance for Doubtful Accounts of $10,000. During 2010, it wrote off
$7,200 of accounts and collected $2,100 on accounts previously written off. The
balance in Accounts Receivable was $200,000 at 1/1 and $240,000 at 12/31. At 12/31/10 ,
Smithson estimates that 5% of accounts receivable will prove to be
uncollectible. What is Bad Debt Expense for 2010?
a. $2,000.
b. $7,100.
c. $9,200.
d. $12,000.
113. Black Corporation had a 1/1/10 balance in the
Allowance for Doubtful Accounts of $12,000. During 2010, it wrote off $8,640 of
accounts and collected $2,520 on accounts previously written off. The balance
in Accounts Receivable was $240,000 at 1/1 and $288,000 at 12/31. At 12/31/10 , Black
estimates that 5% of accounts receivable will prove to be uncollectible. What
should Black report as its Allowance for Doubtful Accounts at 12/31/10 ?
a. $5,760.
b. $5,880.
c. $8,280.
d. $14,400.
114. Shelton Company has the following account
balances at year-end:
Accounts
receivable $80,000
Allowance
for doubtful accounts 4,800
Sales
discounts
3,200
a. $72,000.
b. $75,200.
c. $76,800.
d. $80,000.
115. Vasguez
Corporation had a 1/1/10
balance in the Allowance for Doubtful Accounts of $20,000. During 2010, it
wrote off $14,400 of accounts and collected $4,200 on accounts previously
written off. The balance in Accounts Receivable was $400,000 at 1/1 and
$480,000 at 12/31. At 12/31/10 ,
Vasguez estimates that 5% of accounts receivable will prove to be
uncollectible. What is Bad Debt Expense for 2010?
a. $4,000.
b. $14,200.
c. $18,400.
d. $24,000.
116. McGlone Corporation had a 1/1/10 balance in
the Allowance for Doubtful Accounts of $15,000. During 2010, it wrote off
$10,800 of accounts and collected $3,150 on accounts previously written off. The
balance in Accounts Receivable was $300,000 at 1/1 and $360,000 at 12/31. At 12/31/10 , McGlone
estimates that 5% of accounts receivable will prove to be uncollectible. What
should McGlone report as its Allowance for Doubtful Accounts at 12/31/10 ?
a. $7,200.
b. $7,350.
c. $10,350.
d. $18,000.
117. Lester Company received a seven-year
zero-interest-bearing note on February 22, 2010 , in exchange for property it
sold to Porter Company. There was no established exchange price for this
property and the note has no ready market. The prevailing rate of interest for
a note of this type was 7% on February 22, 2010 , 7.5% on December 31, 2010 , 7.7% on February 22, 2011 ,
and 8% on December
31, 2011 . What interest rate
should be used to calculate the interest revenue from this transaction for the
years ended December
31, 2010 and 2011, respectively?
a. 0% and 0%
b. 7% and 7%
c. 7% and 7.7%
d. 7.5% and 8%
118. On
December 31,
2010 , Flint Corporation sold for $75,000 an old machine having an
original cost of $135,000 and a book value of $60,000. The terms of the sale
were as follows:
$15,000 down payment
$30,000 payable on December 31 each of the next
two years
The agreement of sale made no mention of
interest; however, 9% would be a fair rate for this type of transaction. What
should be the amount of the notes receivable net of the unamortized discount on
December 31,
2010 rounded to the nearest dollar?
(The present value of an ordinary annuity of 1 at 9% for 2 years is
1.75911.)
a. $52,773.
b. $67,773.
c. $60,000.
d. $105,546.
119. Assume Royal Palm Corp., an equipment
distributor, sells a piece of machinery with a list price of $800,000 to Arch
Inc. Arch Inc. will pay $850,000 in one year. Royal Palm Corp. normally sells
this type of equipment for 90% of list price. How much should be recorded as
revenue?
a. $720,000.
b. $765,000.
c. $800,000.
d. $850,000.
120. Equestrain
Roads sold $50,000 of goods and accepted the customer's $50,000 10%
1-year note receivable in exchange. Assuming 10% approximates the market rate of return, what would be the debit in this journal entry to record the sale?
1-year note receivable in exchange. Assuming 10% approximates the market rate of return, what would be the debit in this journal entry to record the sale?
a. No journal entry until cash is
collected.
b. Debit Notes Receivable for
$50,000.
c. Debit Accounts Receivable for
$50,000.
d. Debit Notes Receivable for
$45,000.
121. Equestrain
Roads sold $50,000 of goods and accepted the customer's $50,000 10%
1-year note in exchange. Assuming 10% approximates the market rate of return, how much interest would be recorded for the year ending December 31 if the sale was made on June 30?
1-year note in exchange. Assuming 10% approximates the market rate of return, how much interest would be recorded for the year ending December 31 if the sale was made on June 30?
a. $0.
b. $1,250.
c. $2,500.
d. $5,000.
122. Equestrain
Roads accepted a customer's $50,000 zero-interest-bearing six-month note in a
sales transaction. The product sold normally sells for $46,000. If the sale was
made on June 30, how much interest revenue from this transaction would be
recorded for the year ending December 31?
a. $0.
b. $2,000.
c. $4,000.
d. $5,000.
123. Assuming
the market interest rate is 10% per annum, how much would Green Co. record as a
note payable if the terms of the loan with a bank are that it would have to
make one $60,000 payment in two years?
a. $60,000.
b. $54,422.
c. $54,545.
d. $49,587.
124. Sun
Inc. factors $2,000,000 of its accounts receivables without guarantee (recourse)
for a finance charge of 5%. The finance company retains an amount equal to 10%
of the accounts receivable for possible adjustments. What would be recorded as
a gain (loss) on the transfer of receivables?
a. Loss of $100,000.
b. Gain of $100,000.
c. Loss of $300,000.
d. Loss of $200,000.
125. Sun
Inc. factors $2,000,000 of its accounts receivables with guarantee (recourse)
for a finance charge of 3%. The finance company retains an amount equal to 10%
of the accounts receivable for possible adjustments. What would be recorded as
a gain (loss) on the transfer of receivables?
a. Gain of $60,000.
b. Loss of $60,000.
c. Loss of $260,000.
d. $0.
126. Sun
Inc assigns $2,000,000 of its accounts receivables as collateral for a $1
million 8% loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction
upfront. What would be recorded as a gain (loss) on the transfer of
receivables?
a. Loss of $20,000.
b. Loss of $160,000.
c. Loss of $180,000.
d. $0.
127. Moon
Inc. factors $1,000,000 of its accounts receivables with guarantee (recourse)
for a finance charge of 4%. The finance company retains an amount equal to 8%
of the accounts receivable for possible adjustments. What would be the debit to
Cash in the journal entry to record this transaction?
a. $1,000,000.
b. $960,000.
c. $880,000.
d. $780,000.
128. Moon Inc assigns $1,500,000 of its accounts
receivables as collateral for a $1 million loan with a bank. The bank assesses
a 3% finance fee and charges interest on the note at 6%. What would be the
journal entry to record this transaction?
a. Debit Cash for $970,000, debit
Finance Charge for $30,000, and credit Notes payable for $1,000,000.
b. Debit Cash for $970,000, debit
Finance Charge for $30,000, and credit Accounts Receivable for $1,000,000.
c. Debit Cash for $970,000, debit
Finance Charge for $30,000, debit Due from Bank for $500,000, and credit Accounts
Receivable for $1,500,000.
d. Debit Cash for $910,000, debit
Finance Charge for $90,000, and credit Notes Payable for $1,000,000.
Use
the following information for questions 129 and 130.
Geary Co. assigned $400,000 of accounts
receivable to Kwik Finance Co. as security for a loan of $335,000. Kwik charged
a 2% commission on the amount of the loan; the interest rate on the note was
10%. During the first month, Geary collected $110,000 on assigned accounts
after deducting $380 of discounts. Geary accepted returns worth $1,350 and
wrote off assigned accounts totaling $2,980.
129. The
amount of cash Geary received from Kwik at the time of the transfer was
a. $301,500.
b. $327,000.
c. $328,300.
d. $335,000.
130. Entries during the first month would
include a
a. debit to Cash of
$110,380.
b. debit to Bad Debt
Expense of $2,980.
c. debit to Allowance
for Doubtful Accounts of $2,980.
d. debit to Accounts
Receivable of $114,710.
Use
the following information for questions 131 and 132.
On February 1, 2010 , Henson Company factored
receivables with a carrying amount of $300,000 to Agee Company. Agee Company
assesses a finance charge of 3% of the receivables and retains 5% of the
receivables. Relative to this transaction, you are to determine the amount of
loss on sale to be reported in the income statement of Henson Company for
February.
131. Assume
that Henson factors the receivables on a without guarantee (recourse) basis.
The loss to be reported is
a. $0.
b. $9,000.
c. $15,000.
d. $24,000.
132. Assume
that Henson factors the receivables on a with guarantee (recourse) basis. The amount
of cash received is
a. $285,000.
b. $276,000.
c. $291,000.
d. $300,000.
133. Maxwell Corporation factored, with guarantee
(recourse), $100,000 of accounts receivable with Huskie Financing. The finance
charge is 3%, and 5% was retained to cover sales discounts, sales returns, and
sales allowances. What amount of cash would Maxwell receive on the sale of
receivables?
a. $97,000.
b. $95,000.
c. $92,000.
d. $100,000.
134. Wilkinson Corporation factored, with guarantee
(recourse), $400,000 of accounts receivable with Huskie Financing. The finance
charge is 3%, and 5% was retained to cover sales discounts, sales returns, and
sales allowances. What amount of cash would Wilkinson receive on the sale of
receivables?
a. $388,000.
b. $380,000.
c. $368,000.
d. $400,000.
135. Remington Corporation had accounts
receivable of $100,000 at 1/1. The only transactions affecting accounts
receivable were sales of $600,000 and cash collections of $550,000. The
accounts receivable turnover is
a. 4.0.
b. 4.4.
c. 4.8.
d. 6.0.
136. Laventhol Corporation had accounts
receivable of $100,000 at 1/1. The only transactions affecting accounts
receivable were sales of $900,000 and cash collections of $850,000. The
accounts receivable turnover is
a. 6.0.
b. 6.6.
c. 7.2.
d. 9.0.
*137. If
a petty cash fund is established in the amount of $250, and contains $150 in
cash and $95 in receipts for disbursements when it is replenished, the journal
entry to record replenishment should include credits to the following accounts
a. Petty Cash, $75.
b. Petty Cash, $100.
c. Cash, $95; Cash
Over and Short, $5.
d. Cash, $100.
*138. If
the month-end bank statement shows a balance of $36,000, outstanding checks are
$12,000, a deposit of $4,000 was in transit at month end, and a check for $500
was erroneously charged by the bank against the account, the correct balance in
the bank account at month end is
a. $27,500.
b. $28,500.
c. $20,500.
d. $43,500.
*139. In
preparing its bank reconciliation for the month of April 2010, Henke, Inc. has
available the following information.
Balance per bank statement, 4/30/10 $39,140
NSF check returned with 4/30/10 bank statement 450
Deposits in transit, 4/30/10 5,000
Outstanding checks, 4/30/10 5,200
Bank service charges for April 20
What should be the correct balance of
cash at April 30,
2010 ?
a. $39,370
b. $38,940
c. $38,490
d. $38,470
*140. Finley,
Inc.’s checkbook balance on December 31, 2010 was $21,200. In addition, Finley held
the following items in its safe on December 31.
(1) A check for $450 from Peters, Inc. received December 30, 2010 ,
which was not included in the checkbook balance.
(2) An NSF check from Garner Company in the
amount of $900 that had been deposited at the bank, but was returned for lack
of sufficient funds on December 29. The check was to be redeposited on January 3, 2011 .
The original deposit has been included in the December 31 checkbook balance.
(3) Coin and currency on hand amounted to $1,450.
The
proper amount to be reported on Finley's
statement of financial position for cash at December 31, 2010 is
a. $21,300.
b. $20,400.
c. $22,200.
d. $21,750.
*141. The cash account shows a balance of $45,000
before reconciliation. The bank statement does not include a deposit of $2,300
made on the last day of the month. The bank statement shows a collection by the
bank of $940 and a customer's check for $320 was returned because it was NSF. A
customer's check for $450 was recorded on the books as $540, and a check
written for $79 was recorded as $97. The correct balance in the cash account
was
a. $45,512.
b. $45,548.
c. $45,728.
d. $47,848.
*142. In preparing its May 31, 2010 bank
reconciliation, Catt Co. has the following information available:
Balance per bank statement, 5/31/10 $30,000
Deposit in transit, 5/31/10 5,400
Outstanding checks, 5/31/10 4,900
Note collected by bank in May 1,250
The correct balance of cash at May 31, 2010 is
a. $35,400.
b. $29,250.
c. $30,500.
d. $31,750.
Multiple Choice Answers—Computational
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
Item
|
Ans.
|
87.
|
b
|
97.
|
b
|
107.
|
d
|
117.
|
b
|
127.
|
c
|
*137.
|
d
|
||
88.
|
d
|
98.
|
d
|
108.
|
c
|
118.
|
a
|
128.
|
a
|
*138.
|
b
|
||
89.
|
b
|
99.
|
b
|
109.
|
b
|
119.
|
a
|
129.
|
c
|
*139.
|
b
|
||
90.
|
c
|
100.
|
a
|
110.
|
a
|
120.
|
b
|
130.
|
c
|
*140.
|
c
|
||
91.
|
b
|
101.
|
c
|
111.
|
b
|
121.
|
c
|
131.
|
b
|
*141.
|
b
|
||
92.
|
c
|
102.
|
c
|
112.
|
b
|
122.
|
c
|
132.
|
b
|
*142.
|
c
|
||
93.
|
c
|
103.
|
d
|
113.
|
d
|
123.
|
d
|
133.
|
c
|
||||
94.
|
b
|
104.
|
c
|
114.
|
b
|
124.
|
a
|
134.
|
c
|
||||
95.
|
c
|
105.
|
b
|
115.
|
b
|
125.
|
135.
|
c
|
|||||
96.
|
a
|
106.
|
b
|
116.
|
d
|
126.
|
d
|
136.
|
c
|
No. Answer Derivation
87 b $13,500
+ $500 = $14,000.
88. d $2,000,000
× .11 = $220,000
$200,000
× (.11 – .05) = 12,000
Interest $232,000
$232,000
÷ $2,000,000 = .116 = 11.6%.
89. b
90. c $20,000
+ $300 + $5,500 = $25,800.
91. b
92. c $30,000
+ $500 + $8,200 = $38,700.
93. c .01
× 360 ÷ 20 = 18%.
94. b $10,000
× (1 – .01) = $9,900.
95. c $10,000
× 100% = $10,000.
96. a $10,000
× (1 – .02) = $9,800.
97. b $100,000
× 1/2 = $50,000.
98. d €125,000 – [(€700,000 ×
.02) + €1,200] = €109,800.
99. b €125,000 – (€125,000 ×
.02) = €122,500.
100. a [($1,000,000 – $80,000 – $100,000) × .02] + $40,000
+ $100,000 =
$156,400.
101. c [($480,000 + $440,000) × .05] + $160,000 + $200,000 = $406,000.
102. c ($12,800,000
× .01) – $6,000 = $122,000.
103. d ($6,500,000
× .08) – $12,000 = $508,000.
104. c $3,000,000
× .08 = $240,000.
105. b $540,000
+ ($90,000 – $40,000) = $590,000.
106. b $600,000
– $62,500 = $537,500.
107. d ($50,000
– $4,000) – ($4,500 – $4,000) = $45,500.
108. c $8,000
– $9,000 + X = $5,500; X = $6,500.
109. b ($425,000
– $14,000) × .02 = $8,220.
110. a ($43,000
× .10) – $760 = $3,540.
111. b $60,000
– $3,600 = $56,400.
112. b ($240,000
× .05) – [$10,000 – ($7,200 – $2,100)] = $7,100.
113. d $288,000
× .05 = $14,400.
114. b $80,000
– $4,800 = $75,200.
115. b $480,000
× .05 – [$20,000 – ($14,400 – $4,200)] = $14,200.
116. d $360,000
× .05 = $18,000.
117. b 7%
and 7%.
118. a $30,000
× 1.75911 = $52,773.
119. a ($800,000
× .90) = $720,000.
120. b
121. c $50,000
× .10 × 6/12 = $2,500.
122. c $50,000
– $46,000 = $4,000.
123. d $60,000
× .82645 = $49,587.
124. a $2,000,000
× .05 = $100,000.
125. d
126. d
127. c $1,000,000
– [$1,000,000 × (.04 + .08)] = $880,000.
128. a $1,000,000
× .03 = $30,000; $1,000,000 – $30,000 = $970,000.
129. c $335,000
– $6,700 = $328,300.
130. c
131. b $300,000
× .03 = $9,000.
132. b $300,000
– ($300,000 × .08) = $276,000.
133. c $100,000
– ($100,000 × .08) = $92,000.
134. c $400,000
– ($400,000 × .08) = $368,000.
135. c $600,000
÷ [($100,000 + $150,000) ÷ 2] = 4.8.
136. c $900,000
÷ [($100,000 + $150,000) ÷ 2] = 7.2.
*137. d $250
– $150 = $100.
*138. b $36,000
– $12,000 + $4,000 + $500 = $28,500.
*139. b $39,140 + $5,000 – $5,200 =
$38,940.
*140. c $21,200
+ $450 – $900 + $1,450 = $22,200.
*141. b $45,000
+ $940 – $320 – $90 + $18 = $45,548.
*142. c $30,000
+ $5,400 – $4,900 = $30,500.
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