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1 | |
What are the normal balances for Accounts Receivable and the Allowance for Doubtful Accounts? (LO 2) |
| | A) | Both Accounts Receivable and the Allowance for Doubtful Accounts have debit balances. |
| | B) | Both Accounts Receivable and the Allowance for Doubtful Accounts have credit balances. |
| | C) | Accounts Receivable has a debit balance; the Allowance for Doubtful Accounts has a credit balance. |
| | D) | Accounts Receivable has a credit balance; the Allowance for Doubtful Accounts has a debit balance. |
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2 | |
Use the following information to answer questions 2, 3, and 4: | Smithtown Plumbing Company began operations on January 1, 2005 and experienced the following events during the year: | | Earned $150,000 of revenue on account. | | Collected $125,000 cash from accounts receivable. | | Paid $55,000 cash for salaries expense. | | Adjusted the accounting records to reflect management's belief that $3,000 of the accounts receivable would be uncollectible. Smithtown uses the allowance method of accounting for bad debts. |
What is the Smithtown Plumbing Company's net income for 2005? (LO 2) |
| | A) | $ 92,000 |
| | B) | $ 95,000 |
| | C) | $125,000 |
| | D) | $150,000 |
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3 | |
What is Smithtown Plumbing Company's cash flow from operating activities for 2005? (LO 2) |
| | A) | $ 67,000 |
| | B) | $ 70,000 |
| | C) | $ 95,000 |
| | D) | $125,000 |
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4 | |
What is Smithtown Plumbing Company's net realizable value of the accounts receivable at the end of 2005? (LO 2) |
| | A) | $ 22,000 |
| | B) | $ 25,000 |
| | C) | $ 95,000 |
| | D) | $150,000 |
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5 | |
During 2005, Butler Company earned $95,000 of service revenue on account. Butler estimated 2005 uncollectible accounts expense to be 2% of 2005 credit sales. Which of the following is the correct journal entry to record this adjustment assuming Butler uses the allowance method to account for bad debts? (LO 2)
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0072846003/310573/chap7_5.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (3.0K)</a>]]> |
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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6 | |
Chandler Company wrote-off an uncollectible receivable with a $1,200 balance. Which of the following is the correct journal entry to record this event assuming Chandler uses the allowance method to account for bad debts? (LO 2)
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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7 | |
Jennings Company wrote-off an uncollectible receivable with a $1,200 balance. Which of the following is the correct journal entry to record this event assuming Jennings uses the direct write-off method to account for bad debts? (LO 3)
<![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0072846003/310573/chap7_6.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (3.0K)</a>]]> |
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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8 | |
Taylor Company received a payment from a customer whose account was previously written off. Taylor Company uses the allowance method for accounting for bad debts. Which of the following choices accurately reflects how this event would affect the company's financial statements? (LO 2)
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0072846003/310573/chap7_8.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (3.0K)</a>]]> |
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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9 | |
On March 1, Cook Corporation invested in a $12,000 note receivable with a one-year term and a 5 percent annual interest rate. Which of the following is the correct journal entry to record the recognition of interest revenue on the note receivable at December 31, 2005? (LO 4)
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0072846003/310573/chap7_9.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (2.0K)</a>]]> |
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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10 | |
Davis Company accepted credit-card payments of $5,000 for services rendered to its customers. The credit card company charges Davis Company a 3 percent fee for handling the transactions. Which of the following is the correct journal entry to record these credit-card transactions? (LO 5)
 <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0072846003/310573/chap7_10.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (3.0K)</a>]]> |
| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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11 | |
Madison Company accepted credit card payments of $10,000 for services rendered during the year. The credit card company charges a 2 percent fee for handling the transactions. Which of the following choices accurately reflects how the collection of the receivable due from the credit card company would affect the company's financial statements? (LO 5)
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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12 | |
The industry average number of days to collect accounts receivable is 43 days. Marshall Company has sales of $2,400,000 and an ending accounts receivable balance of $250,000. What conclusions, if any, can be reached regarding Marshall's handling of its receivables based on this information? (LO 6) |
| | A) | Marshall is collecting its receivables slower than the industry average. |
| | B) | Marshall is collecting its receivables quicker than the industry average. |
| | C) | Marshall is collecting its receivables at the same rate as the industry average. |
| | D) | The answer cannot be determined by the given information. |
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13 | |
Which of the following defines the operating cycle? (LO 6) |
| | A) | The number of operating days (days worked) in the year |
| | B) | The average number of days it takes to sell inventory |
| | C) | The average number of days it takes to collect receivables |
| | D) | The average number of days it takes to convert inventory to accounts receivable and to convert accounts receivable to cash |
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14 | |
Use the following information to answer questions 14, 15, and 16: On November 1, 2005, Marigold Corporation loaned $12,000 to Daisy Company. The 6-month note carried a 5% annual interest rate. (LO 4) How will this transaction be shown on Marigold Corporation's statement of cash flows? |
| | A) | Cash outflow from operating activities |
| | B) | Cash outflow from investing activities |
| | C) | Cash outflow from financing activities |
| | D) | The amount will not appear on the statement of cash flows. |
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15 | |
Which of the following transaction types best describes loaning money to another company? (LO 4) |
| | A) | Asset use transaction |
| | B) | Asset source transaction |
| | C) | Asset exchange transaction |
| | D) | Claims exchange transaction |
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16 | |
What amount of interest income will Marigold Corporation show on its 2005 and 2006 income statements assuming Marigold Corporation collects the loan and all the interest at the end of the 6-month period? (LO 4)
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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17 | |
On December 31, 2005 Atwell Company adjusted the books to recognize interest earned to date on a 1-year note receivable. The note was issued on June 1, 2005 and has a 4 percent annual rate of interest. Interest will be received at maturity. Which of the following choices accurately reflects how this event would affect the company's financial statements? (LO 4)
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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18 | |
Which of the following statements is FALSE? (LO 1) |
| | A) | The right to collect cash in the future is called a receivable. |
| | B) | Most accounts receivable are collected within 30 days. |
| | C) | A note receivable is a formal agreement between two parties and normally specifies the maturity date and interest rate. |
| | D) | The primary reason why companies offer credit to their customers is to reduce the amount of cash on hand. |
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19 | |
Use the following information to answer questions 19, 20 and 21. Quick Deals Company uses the percent of receivables method to estimate uncollectible accounts expense and historically does not collect 2% of its accounts receivable balance. Prior to recording the year-end adjustment for uncollectible accounts, Quick Deals provided the following information at December 31, 2006. (LO 2)  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0072846003/310573/chap7_19.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (2.0K)</a>]]>What should be the balance in the account Allowance for Uncollectible Accounts after Quick Deals records the year-end adjustment? |
| | A) | $900 |
| | B) | $1,400 |
| | C) | $2,300 |
| | D) | $16,900 |
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20 | |
Which of the following is the year-end journal entry that Quick Deals should record to adjust for uncollectible accounts? (LO 2)
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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21 | |
What is the net realizable value of Accounts Receivable after Quick Deals records the year-end adjustment for uncollectible accounts? (LO 2) |
| | A) | $69,100 |
| | B) | $68,600 |
| | C) | $67,700 |
| | D) | $70,000 |
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22 | |
If uncollectible accounts are material, which of the following methods is NOT allowed under generally accepted accounting principles (GAAP)? (LO 2, 3) |
| | A) | The allowance method |
| | B) | The direct write-off method |
| | C) | The percent of revenue method |
| | D) | The percent of receivables method |
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23 | |
Use the following information for questions 23 and 24. The Full Moon Company, a calendar year corporation, loaned $48,000 to Radiant Sun Corporation on May 1, 2005. The loan has an 8% annual rate of interest and will mature in one year. Full Moon will receive interest and principal at maturity. What amount of interest income should Full Moon reflect on its income statement for the year ended December 31, 2005? (LO 4) |
| | A) | $0 |
| | B) | $2,240 |
| | C) | $2,560 |
| | D) | $3,840 |
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24 | |
What will be the amount of cash flows from operating activities that Full Moon will show on its statement of cash flows for years 2005 and 2006? (LO 4)
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| | A) | A |
| | B) | B |
| | C) | C |
| | D) | D |
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25 | |
The following information is provided for four companies.  <![CDATA[<a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif::::/sites/dl/free/0072846003/310573/chap7_25.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (2.0K)</a>]]>Based on this information, which company has the shortest operating cycle? (LO 6) |
| | A) | Northern Company |
| | B) | Southern Company |
| | C) | Eastern Company |
| | D) | Western Company |
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