Final Review Part 2 Flashcards
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?
(5000 - 1500) *.03 = 105
(5000- 1500) - 105
$3,395
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?
Credit Inventory
A company sells item on account with credit terms of 2/10, n/20. What is the meaning of these terms?
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.
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.
B. The company will pay less income taxes in periods of rising prices compared to using FIFO.
A debit balance in the Allowance for Doubtful Accounts:
indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
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:
94000 * 0.022 = 2068
2068 - 500 = 1568
A credit to the Allowance for Doubtful Accounts of $1,568.
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?
Understated and overstated
A high accounts receivable turnover ratio indicates
customers are making payments very quickly.
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:
2200 + 500 = 2700
A debit to Bad Debts Expense of $2,700.
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
Customers owe $168,660 to Days of Slumber
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?
The company generated 41 cents out of every sales dollar that is available to cover its operating expenses and contribute to profit.
If an account is collected after having been previously written off
there will be both a debit and a credit to accounts receivable.
In periods of rising prices, what will LIFO produce?
Lower income taxes than FIFO
The Allowance for Doubtful Accounts is necessary because
when recording uncollectible accounts expense, it is not possible to know which specific accounts will not pay.
The interest on a $10,000, 9%, 90-day note receivable is
$10,000 × .09 × 90/360 = $225
The interest on a $15,000, 6%, 60-day note receivable is
$15,000 × .06 × 60/360 = $150
Face val. × 6% × 60/360
The percentage of receivables basis for estimating uncollectible accounts emphasizes
net realizable value.
To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a
debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.
Under the allowance method, Bad Debt Expense is recorded
for an amount that the company estimates it will not collect.
What does the inventory turnover measure?
How quickly a company sells its goods
What do freight terms of FOB shipping point indicate?
The seller places the goods free on board the carrier, and the buyer pays for the freight costs.
Which of the following is one reason that companies estimate uncollectible accounts?
To match the expense associated with receivables against the related revenues
Which of the following items are reported on a multiple-step income statement and on a single-step income statement?
Cost of goods sold and sales
Which of the following relationships is true concerning the Sales Returns and Allowances account?
It can flag problems of inferior merchandise, inefficiencies in filling orders, and other mistakes.
Which of the following represent the three classifications of receivables?
Accounts receivable, notes receivable, and other receivables
Which statement can be said concerning a perpetual inventory system?
It allows for the determination of cost of goods sold after each sale.
Which statement is true regarding the lower-of-cost-or-net realizable value (LCNRV) method of inventory?
LCNRV is departure from the cost basis of accounting.
With regard to accounting for a merchandising company versus a service company, what can be said?
The operating cycle of a merchandising company is longer than that of a service company.
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
debit Allowance for Doubtful Accounts and credit Accounts Receivable.
