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1 | |
Which statement best describes the appropriate valuation of accounts receivable and accounts payable on the balance sheet? (LO 1) |
| | A) | Accounts receivable and accounts payable are reported at face value. |
| | B) | Accounts receivable and accounts payable are reported at net realizable value. |
| | C) | Accounts receivable are reported at face value and accounts payable are reported at net realizable value. |
| | D) | Accounts receivable are reported at net realizable value and accounts payable are reported at face value. |
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2 | |
What are the normal balances for Accounts Receivable and Allowance for Doubtful Accounts? (LO 2) |
| | A) | Both Accounts Receivable and Allowance for Doubtful Accounts have debit balances. |
| | B) | Both Accounts Receivable and Allowance for Doubtful Accounts have credit balances. |
| | C) | Accounts Receivable has a debit balance; Allowance for Doubtful Accounts has a credit balance. |
| | D) | Accounts Receivable has a credit balance; Allowance for Doubtful Accounts has a debit balance. |
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3 | |
Use the following information to answer questions 3, 4, and 5: Smithtown Plumbing Company began operations on January 1, 2005 and experienced the following events during the year: | 1. | Earned $150,000 of revenue on account | 2. | Collected $125,000 cash from accounts receivable | 3. | Paid $55,000 cash for salaries expense | 4. | Adjusted the accounting records to reflect management's belief that $3,000 of the accounts receivable balance 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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4 | |
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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5 | |
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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6 | |
During 2005, Butler Company earned $95,000 of service revenue on account. Butler estimated 2005 bad debt 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 for accounting for bad debt? (LO 2) |
| | A) | | | Debit | Credit | | Bad Debts Expense | $1,900 | | Accounts Receivable
| | $1,900 |
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| | B) | | | Debit | Credit | | Accounts Receivable | $1,900 | | Bad Debts Expense
| | $1,900 |
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| | C) | | | Debit | Credit | | Bad Debts Expense | $1,900 | | Allowance for Doubtful Accounts
| | $1,900 |
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| | D) | | | Debit | Credit | | Allowance for Doubtful Accounts | $1,900 | | Bad Debts Expense
| | $1,900 |
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7 | |
Chandler Company wrote-off an uncollectible receivable with a $1,200 balance. Which of the following is the correct journal entry to record this adjustment assuming Chandler uses the allowance method for accounting for bad debt? (LO 2) |
| | A) | | | Debit | Credit | | Bad Debts Expense | $1,200 | | Accounts Receivable
| | $1,200 |
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| | B) | | | Debit | Credit | | Accounts Receivable | $1,200 | | Bad Debts Expense
| | $1,200 |
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| | C) | | | Debit | Credit | | Accounts Receivable | $1,200 | | Allowance for Doubtful Accounts
| | $1,200 |
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| | D) | | | Debit | Credit | | Allowance for Doubtful Accounts | $1,200 | | Accounts Receivable
| | $1,200 |
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8 | |
Jennings Company wrote-off an uncollectible receivable with a $1,200 balance. Which of the following is the correct journal entry to record this adjustment assuming Jennings uses the direct write-off method for accounting for bad debt? (LO 3) |
| | A) | | | Debit | Credit | | Bad Debts Expense | $1,200 | | Accounts Receivable
| | $1,200 |
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| | B) | | | Debit | Credit | | Accounts Receivable | $1,200 | | Bad Debts Expense
| | $1,200 |
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| | C) | | | Debit | Credit | | Accounts Receivable | $1,200 | | Allowance for Doubtful Accounts
| | $1,200 |
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| | D) | | | Debit | Credit | | Allowance for Doubtful Accounts | $1,200 | | Accounts Receivable
| | $1,200 |
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9 | |
Taylor Company received a payment from a customer whose account was previously written off. Taylor Company uses the allowance method for accounting for bad debt. Which of the following choices accurately reflects how this event would affect the company's financial statements? (LO 2) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | – | Allow | | | | | | | | | | | | | | a. | | + | | n/a | | + | | n/a | | n/a | | n/a | | n/a | | n/a | | + OA | | b. | | + | | n/a | | n/a | | n/a | | + | | + | | n/a | | + | | + OA | | c. | | + | | + – | | n/a | | n/a | | + | | + | | n/a | | + | | + OA | | d. | | + | | + – | | + | | n/a | | n/a | | n/a | | n/a | | n/a | | + OA | |
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| | A) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | – | Allow | | | | | | | | | | | | | | a. | | + | | n/a | | + | | n/a | | n/a | | n/a | | n/a | | n/a | | + OA | |
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| | B) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | – | Allow | | | | | | | | | | | | | | b. | | + | | n/a | | n/a | | n/a | | + | | + | | n/a | | + | | + OA | |
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| | C) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | – | Allow | | | | | | | | | | | | | | c. | | + | | + – | | n/a | | n/a | | + | | + | | n/a | | + | | + OA | |
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| | D) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | – | Allow | | | | | | | | | | | | | | d. | | + | | + – | | + | | n/a | | n/a | | n/a | | n/a | | n/a | | + OA | |
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10 | |
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 2) |
| | A) | | | Debit | Credit | | Note Receivable | $500 | | Interest Revenue | | $500 |
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| | B) | | | Debit | Credit | | Interest Receivable | $500 | | Interest Revenue | | $500 |
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| | C) | | | Debit | Credit | | Cash | $500 | | Interest Revenue | | $500 |
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| | D) | | | Debit | Credit | | Interest Revenue | $500 | | Interest Receivable
| | $500 |
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11 | |
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 4) |
| | A) | | | Debit | Credit | | Cash | $5,000 | | Service Revenue
| | $5,000 |
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| | B) | | | Debit | Credit | | Accounts Receivable – Credit Card Co. | $5,000 | | Service Revenue
| | $5,000 |
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| | C) | | | Debit | Credit | | Accounts Receivable – Credit Card Co. | $
4,850 | | Service Revenue
| | $
4,850 |
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| | D) | | | Debit | Credit | | Accounts Receivable – Credit Card Co. | $
4,850 | | | Credit Card Expense | $150 | | Service Revenue | | $
5,000 |
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12 | |
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 effect the company’s financial statements? (LO 4) | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | | | | | | | | | | | | | | a. | | + | | – | | n/a | | n/a | | n/a | | n/a | | n/a | | + OA | | b. | | + | | – | | n/a | | – | | n/a | | + | | – | | + OA | | c. | | + | | – | | n/a | | n/a | | n/a | | + | | – | | + OA | | d. | | + | | – | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | |
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| | A) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | | | | | | | | | | | | | | a. | | + | | – | | n/a | | n/a | | n/a | | n/a | | n/a | | + OA | |
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| | B) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | | | | | | | | | | | | | | b. | | + | | – | | n/a | | – | | n/a | | + | | – | | + OA | |
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| | C) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | | | | | | | | | | | | | | c. | | + | | – | | n/a | | n/a | | n/a | | + | | – | | + OA | |
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| | D) | | | Assets | = | Liab. | + | Equity | | Rev. | – | Exp. | = | Net Inc. | | Cash Flow | | | | Cash | + | A/R | | | | | | | | | | | | | | d. | | + | | – | | n/a | | n/a | | n/a | | n/a | | n/a | | n/a | |
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13 | |
Use the following information to answer questions 13, 14, and 15 Davis Company began operations on May 1, 2005 and experienced the following events during the year: | 1. | Purchased $80,000 of merchandise inventory for cash | 2. | Sold all the merchandise for $120,000 cash and guaranteed the merchandise sold to be free from defects for one year following the date of sale. | 3. | Paid $25,000 cash for salaries expense | 4. | Estimated future warranty liability of $1,200 (1 percent of sales). | 5. | Paid $400 cash to repair defective merchandise returned by a customer. |
After Davis Company makes the necessary adjusting and closing entries, what is the ending balance in the Warranty Payable account? (LO 5) |
| | A) | $ 800 debit |
| | B) | $ 800 credit |
| | C) | $1,200 debit |
| | D) | $1,200 credit |
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14 | |
What is Davis Company’s net income for 2005? (LO 5) |
| | A) | $ 13,400 |
| | B) | $ 13,800 |
| | C) | $ 14,600 |
| | D) | $ 93,800 |
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15 | |
What is Davis Company’s cash flow from operating activities for 2005? (LO 5) |
| | A) | $ 13,400 |
| | B) | $ 13,800 |
| | C) | $ 14,600 |
| | D) | $ 93,800 |
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16 | |
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? |
| | 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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17 | |
The operating cycle is defined as: |
| | 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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18 | |
Bailey Company issued a $30,000 face value discount note to Second Bank on October 1, 2005. The note had an 8 percent discount rate and a one-year term to maturity. Which of the following is the correct journal entry to record the issuance of the note? (Chapter Appendix) (LO 7) |
| | A) | | | Debit | Credit | | Cash | $30,000 | | Notes Payable
| | $30,000 |
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| | B) | | | Debit | Credit | | Cash | $27,600 | | Notes Payable
| | $27,600 |
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| | C) | | | Debit | Credit | | Cash | $30,000 | | Discount on Notes Payable
| | $2,400 | Notes Payable
| | $27,600 |
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| | D) | | | Debit | Credit | | Cash | $27,600 | | Discount on Notes Payable
| $2,400 | | Notes Payable
| | $30,000 |
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19 | |
Bronson Company issued a $50,000 face value discount note to Second Bank on October 1, 2005. The note had a 10 percent discount rate and a one-year term to maturity. Which of the following is the correct journal entry to recognize the interest expense on December 31, 2005? (Chapter Appendix) (LO 7) |
| | A) | | | Debit | Credit | | Interest Expense | $5,000 | | Notes Payable
| | $5,000 |
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| | B) | | | Debit | Credit | | Interest Expense | $5,000 | | Discount on Notes Payable
| | $5,000 |
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| | C) | | | Debit | Credit | | Interest Expense | $1,250 | | Notes Payable
| | $1,250 |
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| | D) | | | Debit | Credit | | Interest Expense | $1,250 | | Discount on Notes Payable
| | $1,250 |
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20 | |
Use the following information to answer questions 20 and 21:
Windsor Company issued a $20,000 face value discount note to City Bank on August 1, 2005. The note had a 9 percent discount rate and a one-year term to maturity. What is the carrying value of the discount note liability on Windsor Company’s balance sheet at December 31, 2005? (Chapter Appendix) (LO 7) |
| | A) | $18,200 |
| | B) | $18,950 |
| | C) | $20,000 |
| | D) | $20,750 |
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21 | |
Windsor Company repays the discount note on July 31, 2006. Which of the following reflects the effect of the note repayment on the statement of cash flows? (Chapter Appendix) (LO 7) |
| | A) | Financing activities ($20,000) |
| | B) | Financing activities ($21,800) |
| | C) | Financing activities ($18,200); operating activities ($1,800) |
| | D) | Financing activities ($20,000); operating activities ($1,800) |
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