Final Review Part 2

Question 1

ACME Company on June 15 sells merchandise on account to Beta Co. for $5,000, terms 3/15, n/45. On June 30, Beta Co. returns merchandise worth $1,500 to ACME Company. and paid the balance due. What is the amount of cash ACME received?

Answer 1

(5000 - 1500) *.03 = 105
(5000- 1500) - 105

$3,395

Question 2

A company returned goods for credit to the supplier. What is a portion of the journal entry required if a perpetual inventory system is used?

Answer 2

Credit Inventory

Question 3

A company sells item on account with credit terms of 2/10, n/20. What is the meaning of these terms?

Answer 3

A 2 percent cash discount may be taken if payment is made within 10 days of the invoice date; otherwise the full amount is due within 20 days.

Question 4

A company uses LIFO to cost its inventory. Which statement is true?
A. The company must sell its newer inventory items before its older items.
B. The company will pay less income taxes in periods of rising prices compared to using FIFO.
C. The cost of the company’s older inventory items are transferred to cost of goods sold prior to the cost of the newly acquired items.
D. One way to think about the ending inventory under LIFO is the LISH assumption.

Answer 4

B. The company will pay less income taxes in periods of rising prices compared to using FIFO.

Question 5

A debit balance in the Allowance for Doubtful Accounts:

Answer 5

indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.

Question 6

The trial balance of Priority Paints at December 31, 2014, includes the following:
Debits
Accounts Receivable: Debits $94,000
Allowance for Doubtful Accounts: Debit $500
Sales (all on credit) Credit $550,000

If Priority Paints estimates uncollectibles at 2.2% of accounts receivable and the allowance account has a $500 credit balance. The adjusting journal entry would include:

Answer 6

94000 * 0.022 = 2068
2068 - 500 = 1568
A credit to the Allowance for Doubtful Accounts of $1,568.

Question 7

Advantage Company’s ending inventory is overstated by $2,000. What is the effect of this error on the current year’s cost of goods sold and net income, respectively?

Answer 7

Understated and overstated

Question 8

A high accounts receivable turnover ratio indicates

Answer 8

customers are making payments very quickly.

Question 9

The trial balance of Priority Paints at December 31, 2014, includes the following:
Debits
Accounts Receivable: Debits $94,000
Allowance for Doubtful Accounts: Debit $500
Sales (all on credit) Credit $550,000

If Priority Paints uses the aging method and estimates that $2,200 of receivables will be uncollectible, the adjusting entry will include:

Answer 9

2200 + 500 = 2700

A debit to Bad Debts Expense of $2,700.

Question 10

Days of Slumber sells mattress for cash and on credit. At the end of 2014, the following appeared in the company’s balance sheet:
Accounts receivable, net of $2,460 allowance……………………$166,200

Answer 10

Customers owe $168,660 to Days of Slumber

Question 11

DynaTrue Industries reported net sales totaling $3,200,000 during the year. The company’s gross profit rate was determined to be 41%. What can be stated?

Answer 11

The company generated 41 cents out of every sales dollar that is available to cover its operating expenses and contribute to profit.

Question 12

If an account is collected after having been previously written off

Answer 12

there will be both a debit and a credit to accounts receivable.

Question 13

In periods of rising prices, what will LIFO produce?

Answer 13

Lower income taxes than FIFO

Question 14

The Allowance for Doubtful Accounts is necessary because

Answer 14

when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.

Question 15

The interest on a $10,000, 9%, 90-day note receivable is

Answer 15

$10,000 × .09 × 90/360 = $225

Question 16

The interest on a $15,000, 6%, 60-day note receivable is

Answer 16

$15,000 × .06 × 60/360 = $150

Face val. × 6% × 60/360

Question 17

The percentage of receivables basis for estimating uncollectible accounts emphasizes

Answer 17

net realizable value.

Question 18

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a

Answer 18

debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

Question 19

Under the allowance method, Bad Debt Expense is recorded

Answer 19

for an amount that the company estimates it will not collect.

Question 20

What does the inventory turnover measure?

Answer 20

How quickly a company sells its goods

Question 21

What do freight terms of FOB shipping point indicate?

Answer 21

The seller places the goods free on board the carrier, and the buyer pays for the freight costs.

Question 22

Which of the following is one reason that companies estimate uncollectible accounts?

Answer 22

To match the expense associated with receivables against the related revenues

Question 23

Which of the following items are reported on a multiple-step income statement and on a single-step income statement?

Answer 23

Cost of goods sold and sales

Question 24

Which of the following relationships is true concerning the Sales Returns and Allowances account?

Answer 24

It can flag problems of inferior merchandise, inefficiencies in filling orders, and other mistakes.

Question 25

Which of the following represent the three classifications of receivables?

Answer 25

Accounts receivable, notes receivable, and other receivables

Question 26

Which statement can be said concerning a perpetual inventory system?

Answer 26

It allows for the determination of cost of goods sold after each sale.

Question 27

Which statement is true regarding the lower-of-cost-or-net realizable value (LCNRV) method of inventory?

Answer 27

LCNRV is departure from the cost basis of accounting.

Question 28

With regard to accounting for a merchandising company versus a service company, what can be said?

Answer 28

The operating cycle of a merchandising company is longer than that of a service company.

Question 29

You have just received notice that a customer of yours with an account receivable balance of $100 has gone bankrupt and will not make any future payments. Assuming you use the allowance method, the entry you make is to

Answer 29

debit Allowance for Doubtful Accounts and credit Accounts Receivable.