Question 1

Which of the following statements pertaining to bank reconciliations is false?

Accepted Answer

A) Outstanding checks are deducted from the bank cash balance. 
B) Deposits in transit are added to the bank cash balance. 
C) Bank service charges are deducted from the bank cash balance. 
D) Non-sufficient funds checks identified in the bank statement are deducted from the book cash balance, not the bank cash balance. 
A) Outstanding checks are deducted from the bank cash balance. 
B) Deposits in transit are added to the bank cash balance. 
C) Bank service charges are deducted from the bank cash balance. 
D) Non-sufficient funds checks identified in the bank statement are deducted from the book cash balance, not the bank cash balance.

Question 2

The gross profit percentage is calculated by dividing net sales by gross profit.

Accepted Answer

A) True 
 B)False

Question 3

The gross profit percentage decreases when operating expenses increase.

Accepted Answer

A) True 
 B)False

Question 4

Redwing Company sold inventory costing $500 to a customer on account for $700.Which of the following correctly describes the collection of $686 cash when the customer takes advantage of a discount?

Accepted Answer

A) Operating expenses increase $14. 
B) Accounts receivable decreases $686. 
C) Current assets decrease $14. 
D) Gross profit is not affected. 
A) Operating expenses increase $14. 
B) Accounts receivable decreases $686. 
C) Current assets decrease $14. 
D) Gross profit is not affected.

Question 5

Oakwood Company had accounts receivable of $750,000 and an allowance for doubtful accounts of the $21,500 just prior to writing off as worthless an account receivable for Hyland Company of $5,000.The net realizable value of accounts receivable as shown by the accounting records before and after the write-off was as follows: $$\begin{array} { l l c } 
& \underline { \text { Before } } & \underline { \text { After } } \
\text { A. } & \$ 750,000 & \$ 750,000 \
\text { B. } & \$ 721,500 & \$ 733,500 \
\text { C. } & \$ 728,500 & \$ 723,500 \
\text { D. } & \$ 728,500 & \$ 728,500
\end{array}$$

Accepted Answer

A) Option A 
B) Option B 
C) Option C 
D) Option D 
A) Option A 
B) Option B 
C) Option C 
D) Option D

Question 6

You are the new manager of West Coast Company.The company distributes goods throughout the Rocky Mountain area.Customers are billed after the shipments are sent.Most customers pay within two weeks.You notice that one employee is responsible for opening all incoming payments,recording them in the accounting records,and depositing all receipts in the bank daily.When asked why this one person performed all of these duties,you were told that it was more efficient for one person to handle cash and to keep track of things.If any cash was missing,responsibility could be easily determined.Do you agree with this arrangement? What changes would you make,and why?

Accepted Answer

The answer of You are the new manager of West...

Question 7

The cash records and the bank statement of Frankel Company showed the following at the end of February 2010:
Outstanding checks as of the beginning of February 2010,$8,000; checks written by Frankel Company according to their books during February 2010,$50,000; and checks cleared by the bank during February 2010,$54,000.How much were the outstanding checks at the end of February 2010?

Accepted Answer

A) $2,000 
B) $4,000 
C) $6,000 
D) $8,000 
A) $2,000 
B) $4,000 
C) $6,000 
D) $8,000

Question 8

Which of the following does not correctly describe the effect of recording a credit sale of inventory for a profit?

Accepted Answer

A) The receivables turnover ratio decreases. 
B) Current assets increase. 
C) Gross profit increases. 
D) Operating expenses increase. 
A) The receivables turnover ratio decreases. 
B) Current assets increase. 
C) Gross profit increases. 
D) Operating expenses increase.

Question 9

On January 1,American Company's allowance for doubtful accounts had a credit balance of $3,000.The balance in the Accounts Receivable account on that date was $75,000.On January 2,prior to any credit sales,a $500 account from National Company was deemed to be uncollectible and written off.
Required:
A.Compute the net realizable value of American's receivables on January 1.
B.Present the journal entry American would record on January 2 related to the write-off of National's account.
C.Compute the net realizable value of American's receivables on January 2, immediately following the write-off of National's account

Accepted Answer

The answer of On January 1,American Company's allowance for doubtful...

Question 10

Which of the following transactions does not affect gross profit?

Accepted Answer

A) A customer returning merchandise that was sold for a profit. 
B) The collection of cash on an account receivable which was paid for by the customer within the discount period. 
C) The journal entry to record bad debt expense. 
D) Selling inventory for less than its cost. 
A) A customer returning merchandise that was sold for a profit. 
B) The collection of cash on an account receivable which was paid for by the customer within the discount period. 
C) The journal entry to record bad debt expense. 
D) Selling inventory for less than its cost.

Question 11

When preparing a bank reconciliation,which of the following would be deducted from the company's cash balance?

Accepted Answer

A) Interest income paid by the bank. 
B) The dollar amount of deposits in transit. 
C) The dollar amount of outstanding checks. 
D) The bank service charges included on the bank statement. 
A) Interest income paid by the bank. 
B) The dollar amount of deposits in transit. 
C) The dollar amount of outstanding checks. 
D) The bank service charges included on the bank statement.

Question 12

Merchandise was sold on credit for $30,000,terms 3/15,n/30.Which of the following journal entry descriptions correctly describes the cash collection?

Accepted Answer

A) Cash is debited for $29,100 and accounts receivable is credited for $29,100 if the collection is within the discount period. 
B) Cash is debited for $29,100, sales discounts is debited for $900, and accounts receivable is credited for $30,000 if the collection is within the discount period. 
C) Cash is debited for $30,000, accounts receivable is credited for $29,100, and sales discounts is credited for $900 if the collection is within the discount period. 
D) Cash is debited for $29,100 and accounts receivable is credited for $29,100 if the collection is after the discount period. 
A) Cash is debited for $29,100 and accounts receivable is credited for $29,100 if the collection is within the discount period. 
B) Cash is debited for $29,100, sales discounts is debited for $900, and accounts receivable is credited for $30,000 if the collection is within the discount period. 
C) Cash is debited for $30,000, accounts receivable is credited for $29,100, and sales discounts is credited for $900 if the collection is within the discount period. 
D) Cash is debited for $29,100 and accounts receivable is credited for $29,100 if the collection is after the discount period.

Question 13

The Tanner Company's April 1,2010 pre-reconciliation cash balance on their books was $35,000.While preparing the April 1 bank reconciliation,Tanner determined that outstanding checks total $11,000,deposits in transit total $7,000,and bank service charges are $50.How much was Tanner's April 1,2010 cash balance per the bank statement?

Accepted Answer

A) $31,000 
B) $30,950 
C) $38,950 
D) $39,000 
A) $31,000 
B) $30,950 
C) $38,950 
D) $39,000

Question 14

Which of the following is not a component of the gross profit calculation?

Accepted Answer

A) Cost of goods sold 
B) Sales returns and allowances 
C) Allowance for doubtful accounts 
D) Credit card discounts 
A) Cost of goods sold 
B) Sales returns and allowances 
C) Allowance for doubtful accounts 
D) Credit card discounts

Question 15

One of Hawk Company's customers returned products that cost Hawk $300,which was sold on account for $450.Which of the following does not correctly describe the affect of the return on the financial statements?

Accepted Answer

A) Gross profit decreases $150. 
B) Total current assets decrease $150. 
C) Sales returns and allowances increase $150. 
D) Operating expenses increase $150. 
A) Gross profit decreases $150. 
B) Total current assets decrease $150. 
C) Sales returns and allowances increase $150. 
D) Operating expenses increase $150.

Question 16

Credit card discounts are reported as operating expenses on an income statement.

Accepted Answer

A) True 
 B)False

Question 17

The allowance for doubtful accounts is reported as a contra-asset on the balance sheet.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following correctly describes credit terms of 2/10,n/30?

Accepted Answer

A) A two percent discount for early payment is available if the invoice is paid before the tenth day of the month following the month the sale. 
B) A two percent discount for early payment is available within ten days of the date of sale. 
C) A ten percent discount for early payment is available if the invoice is paid within two days of the date of the invoice. 
D) A two percent discount for early payment is available if the invoice is paid after the tenth day, but before the thirtieth day of the invoice date. 
A) A two percent discount for early payment is available if the invoice is paid before the tenth day of the month following the month the sale. 
B) A two percent discount for early payment is available within ten days of the date of sale. 
C) A ten percent discount for early payment is available if the invoice is paid within two days of the date of the invoice. 
D) A two percent discount for early payment is available if the invoice is paid after the tenth day, but before the thirtieth day of the invoice date.

Question 19

Cyclone Inc.reported the following figures from their financial statements for the years 2009 through 2011:
 $$\begin{array} { l r r r } 
& \underline { 2011 } & \underline { 2010 } & \underline { 2009 } \
\text { Net revenues } & \$ 717,422 & \$ 1,110,178 & \$ 591,786 \
\text { Gross profit } & 560,421 & 960,434 & 498,605 \
\text { Net income (net loss) } & ( 92,788 ) & 70,776 & 47,811 \
\text { Cash flow from operations } & 106,850 & 509,707 & 204,496 \
\text { Accounts receivable } & 68,648 & 90,561 & 56,454
\end{array}$$ Describe how the change in accounts receivable will affect the calculation of cash flow from operations for 2011 and 2010.

Accepted Answer

The answer of Cyclone Inc.reported the following figures from their...

Question 20

Newark Company has provided the following information:
 Cash sales,$450,000
 Credit sales,$1,350,000
 Selling and administrative expenses,$330,000
 Sales returns and allowances,$90,000
 Depreciation expense,$101,000
Gross profit,$1,360,000
Increase in accounts receivable,$55,000
 Bad debt expense,$33,000
 Sales discounts,$43,000
How much is Newark's cost of goods sold?

Accepted Answer

A) $307,000 
B) $252,000 
C) $440,000 
D) $340,000 
A) $307,000 
B) $252,000 
C) $440,000 
D) $340,000

Which of the following statements pertaining to bank reconciliations is false?

The gross profit percentage is calculated by dividing net sales by gross profit.

The gross profit percentage decreases when operating expenses increase.

Redwing Company sold inventory costing $500 to a customer on account for $700.Which of the following correctly describes the collection of $686 cash when the customer takes advantage of a discount?

Which of the following does not correctly describe the effect of recording a credit sale of inventory for a profit?

Which of the following transactions does not affect gross profit?

When preparing a bank reconciliation,which of the following would be deducted from the company's cash balance?

Merchandise was sold on credit for $30,000,terms 3/15,n/30.Which of the following journal entry descriptions correctly describes the cash collection?

Which of the following is not a component of the gross profit calculation?

One of Hawk Company's customers returned products that cost Hawk $300,which was sold on account for $450.Which of the following does not correctly describe the affect of the return on the financial statements?

Credit card discounts are reported as operating expenses on an income statement.

The allowance for doubtful accounts is reported as a contra-asset on the balance sheet.

Which of the following correctly describes credit terms of 2/10,n/30?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Balance Sheet

Operating Decisions and the Income Statement

Adjustments,Financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Reporting and Interpreting Investments in Other Corporations

Statement of Cash Flows

Analyzing Financial Statements

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Exam 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash

Which of the following statements pertaining to bank reconciliations is false?

The gross profit percentage is calculated by dividing net sales by gross profit.

The gross profit percentage decreases when operating expenses increase.

Redwing Company sold inventory costing $500 to a customer on account for $700.Which of the following correctly describes the collection of $686 cash when the customer takes advantage of a discount?

Which of the following does not correctly describe the effect of recording a credit sale of inventory for a profit?

Which of the following transactions does not affect gross profit?

When preparing a bank reconciliation,which of the following would be deducted from the company's cash balance?

Merchandise was sold on credit for $30,000,terms 3/15,n/30.Which of the following journal entry descriptions correctly describes the cash collection?

Which of the following is not a component of the gross profit calculation?

One of Hawk Company's customers returned products that cost Hawk $300,which was sold on account for $450.Which of the following does not correctly describe the affect of the return on the financial statements?

Credit card discounts are reported as operating expenses on an income statement.

The allowance for doubtful accounts is reported as a contra-asset on the balance sheet.

Which of the following correctly describes credit terms of 2/10,n/30?

Financial Statements and Business Decisions

Investing and Financing Decisions and the Balance Sheet

Operating Decisions and the Income Statement

Adjustments,Financial Statements,and the Quality of Earnings

Communicating and Interpreting Accounting Information

Reporting and Interpreting Cost of Goods Sold and Inventory

Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles

Reporting and Interpreting Liabilities

Reporting and Interpreting Bonds

Reporting and Interpreting Owners Equity

Reporting and Interpreting Investments in Other Corporations

Statement of Cash Flows

Analyzing Financial Statements

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