(Chapter 5)

Question 1

How do you calculate the flow of costs for a merchandising company?

Answer 1

Beginning inventory + cost of goods purchased = cost of goods available for sale

Question 2

Name the two systems to account for inventory

Answer 2

1. Perpetual inventory system

2. Periodic inventory system

Question 3

131.Accounts Receivable has a debit balance of $2,400, and the Allowance for Uncollectible Accounts has a credit balance of $400. A $90 account receivable is written off. What is the amount of net receivables (net realizable value) after the write-off? 
A.$1,910
B.$2,000
C.$2,090
D.$2,310

Answer 3

Answer: B
Chapter: 5 Explanation: Accounts Receivable –Allowance for Uncollectible Accounts= NRV ($2,400 -$90) –($400 -$90) = $2,000

Question 4

132.Aurora Company received a four-month, 6% per annum, $2,800 note receivable on December 1. The adjusting entry on December 31 will
A.Debit Interest Receivable $14
B.Credit Interest Revenue $14
C.Both A and B
D.Credit Interest Revenue $168

Answer 4

Answer: C
Chapter: 5
Explanation: ($2,800x 0.06 x 4/12 x ¼) = $14

Question 5

133.If the adjusting entry to accrue interest on a note receivable is omitted, then
A.Assets, net income, and shareholders’ equity are overstated
B.Assets, net income, and shareholders’ equity are understated
C.Assets are overstated, net income is understated, and shareholders’ equity is understated
D.Liabilities are understated, net income is overstated, and shareholders’ equity is overstated

Answer 5

B

Question 6

135.The journal entry to record the receivable from performing a service on account is:
A.Debit notes receivable, credit service revenue
B.Debit notes receivable, credit cash
C.Debit service revenue, credit accounts receivable
D.Debit accounts receivable, credit service revenue

Answer 6

D

Question 7

136.Under the direct write-off method, the entry to write off an uncollectible account of $3,400 includes a:
A.Debit to Accounts Receivable for $3,400
B.Credit to Uncollectible-Account Expense for $3,400
C.Debit to Uncollectible-Account Expense for $3,400
D.Debit to Allowance for Uncollectible Accounts for $3,400

Answer 7

C

Question 8

137.To record recovery of previously written-off receivables, we:
A.Debit Receivables; credit Allowance for doubtful receivables
B.Debit Allowance for doubtful receivables; credit Uncollectible account expense
C.Debit Receivables; credit Uncollectible account expense
D.Both A and C

Answer 8

C

Question 9

138.The use of the allowance method of accounting for bad debts is preferred over the direct write-off method because of the:
A.Matching principle
B.Historical cost principle
C.Revenue recognition principle
D.Materiality principle

Answer 9

A

Question 10

139.If the adjusting entry to accrue interest on a note receivable is omitted, then:

A.Assets, net income, and shareholders’ equity are understated
B.Assets are overstated, net income and shareholders’ equity are understated
C.Assets are understated, net income and shareholders’ equity are overstated
D.Assets, net income, and shareholders’ equity are overstated

Answer 10

A

Question 11

141.The entry to write off an uncollectible account under the allowance method for estimating uncollectible accounts:
A.Reduces total assets
B.Reduces net income
C.Has no effect on total assets or net income
D.Increases net income

Answer 11

C

Question 12

145.The biggest risk of selling on credit is:
A.The risk of posting a payment to the wrong account
B.The risk of not collecting some of the receivables
C.The risk of losing a sale
D.None of the above

Answer 12

Answer: B

Question 13

146.To record estimateduncollectible accounts under the direct write-off method, you:
A.Need to debit Allowance for Uncollectible Accounts and credit Accounts Receivable
B.Need to debit Accounts Receivable and credit Allowance for Uncollectible Accounts
C.Need to debit Uncollectible Accounts Expense and credit Allowance for Uncollectible Accounts
D.Do not need to recognize a journal entry

Answer 13

D

Question 14

147.The following account balances were extracted from the accounting records of ABC Company:

Accounts receivable: 110k
Allowance for Uncollectibles: 35k
Uncollectible Acc expense: 15k

What is the net realizable value of the accounts receivable?
A.$145,000
B.$110,000
C.$75,000
D.$95,000

Answer 14

Answer: C
Chapter: 5
Explanation: $110,000 -$35,000 = $75,000

Question 15

148.The balance in Accounts Receivable was $650,000 at the beginning of the year and $350,000 at the end of the year. Sales on account during the year totaled $770,000. During the year, $80,000 in customer accounts were written off. How much cash was collected from customers during the period?A.$570,000
B.$990,000
C.$300,000
D.$220,000

Answer 15

Answer: B
Chapter: 5
Explanation:Beginning account receivable + Sales –Customer accounts –Cash collected from customers = Ending account receivable
$650,000 + $770,000 -$80,000 –Cash collected from customers = $350,000 Cash collected from customers = $990,000

Question 16

150.A high accounts receivable turnover would most likely indicate that:
A.Policies for extending credit to customers are too tight
B.Net credit sales for the year have been understated
C.The company is unsuccessful in its efforts to collect cash from customers
D.Accounts receivable balances have been overstated

Answer 16

A

Question 17

151.The net realizable value of accounts receivables is:
A.The amount of accounts receivables after the company has recorded all the write-offs
B.The difference between the Accounts Receivable account and the Uncollectible-Account Expense
C.The difference between the Accounts Receivable account and itscontra-asset account
D.The amount of accounts receivables that the company recognized initially

Answer 17

C

Question 18

152.Under the allowance method for estimating uncollectible accounts, the entry to write off an account:
A.Decreases the Accounts Receivable, thus decreasing the net realizable value of the accounts receivables
B.Decreases both the Accounts Receivable and the Allowance for Uncollectible Accounts, thus decreasing the net realizable value of the accounts receivables
C.Has no effect on the net realizablevalue of the accounts receivables
D.Increases the Allowance for Uncollectible Accounts, thus decreasing the net realizable value of the accounts receivables.

Answer 18

C

Question 19

155.What effect does the recording of an accrued revenue have on a company’s net income?
A.The adjustment increases net income for the period
B.The effect of the adjustment cannot be determined with the information given
C.The adjustment decreases net income for the period
D.The adjustment has no effect on net income

Answer 19

A

Question 20

156.An adjusting entry recorded salary expenses for the month April. These salary expenses will only be paid to the employees in May. Which statement best describes the effect of this adjusting entry on the company’s accounting equation in April? A.Assets decrease liabilities are net affected, and shareholders’ equity decreases
B.Assets are not affected, liabilities increase, and shareholders’ equity increases
C.Assets are not affected, liabilities increase, and shareholders’ equity decreases
D.Assets decrease, liabilities increase, and shareholders’ equity decreases

Answer 20

C

Question 21

157.An aging-of-accounts-receivable table indicates that the amount of uncollectible accounts is $7,200. The Allowance for Uncollectible Accounts, prior to any adjustment, has a credit balance of $2,000. The amount of the adjusting entry should be:
A.$2,000
B.$9,200
C.$5,200
D.$7,200

Answer 21

C

$7,200 -$2,000 = $5,200

Question 22

158.An aging-of-accounts-receivable table indicates that the amount of uncollectible accounts is $7,200. The Allowance for Uncollectible Accounts, prior to any adjustment, has a credit balance of $2,000. The adjusting entry includes a:
A.Credit to Allowance for Uncollectible Accounts
B.Credit to Accounts Receivable
C.Credit to Uncollectible-Accounts Expense
D.Debit to Allowance for Uncollectible Accounts

Answer 22

A

Question 23

159.Under the allowance method, the entry to write off a $2,600 uncollectible account includes a:
A.Debit to Accounts Receivable for $2,600
B.Credit to Uncollectible-Account-Expense for $2,600
C.Credit to Allowance for Uncollectible Accounts for $2,600
D.Debit to Allowance for Uncollectible Accounts for $2,600

Answer 23

D

Question 24

160.The following item appeared on a balance sheet:Receivables, less allowance of $1,150 ........ $8,100Uncollectible-account expense for the period was $1,250. The gross balance in Accounts Receivable before the allowance was deducted is:
A.$9,250
B.$8,100
C.$9,350
D.$6,950

Answer 24

Answer: A
Chapter: 5
Explanation:$8,100 + $1,150 = $9,250

Question 25

161.To record estimated bad debts under the direct write-off method, you:
A.Need to debit Uncollectible Accounts Expense and credit Allowance for Uncollectible Accounts
B.Need to debit Allowance for Uncollectible Accounts and credit Accounts Receivable
C.Need to debit Accounts Receivable and credit Allowance for Uncollectible Accounts
D.Do not need to make a journal entry as bad debts are not estimated under this method

Answer 25

D