accounting ch 7 practice quiz

  1. Which of the following is considered a sale of receivables?

    C) factoring receivables without recourse
  2. Cash that is restricted and not available for current operations is reported in the balance sheet as:

    C) investments
  3. Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. Gershwin would record this reduction by crediting accounts receivable and debiting:

    A) Sales returns
  4. The purpose of assigning accounts receivable is to:

    C) provide collateral for a loan
  5. Memorex Disks sells computer disk drives with right-of-return privileges. Returns are material and reasonably predictable. Memorex should:

    D) Record an allowance for sales returns in the year of the sale.
  6. At December 31, 2007, Hanks electronics reported accounts receivable of $216,000 and allowance for uncollectible accounts of $8,400. During 2008, accounts receivable increased by $22,000 and $6,3000 in bad debts were written off. An analysis of Hanks December 31, 2008, accounts receivable suggests that the allowance for uncollectible accounts should be 3% of accounts receivable. Bad debt expense for 2008 would be:

    B) $5,040
  7. Hazelton Manufacturing prepares a bank reconciliation at the end of every month. At the end of May, the general ledger checking account showed a balance of $1,360 and the bank statement showed a bank balance of $1,445. Outstanding checked totaled $350 and deposits in transit were $150. The bank statement listed service charges of $30 and NSF checks totalling $85. The corrected cash balance is:

    C) $1,245
  8. Ireland Corporation obtained a $40,000 none receivable from a customer on June 30, 2009. The note, along with interest at 6% is due on June 30, 2010. On September 30, 2009, Ireland discounted the note at Cloverdale bank. The bank's discount rate is 10%. What amount of cash did Ireland receive from Cloverdale Bank?

    A) $39,220
  9. Derbin Security Systems sold merchandise to a customer in exchange for a $50,000, 5-year, non-interest bearing note when an equivalent loan would carry 10% interest. Drebin would record sales revenue on the date o sale equal to:

    D) the present value of $50,000 using a 10% interest rate.
  10. On april 1 of the current year, Troubled Company factored receivables with a carrying value of $85,000 for $60,000 in cash from Scrooge Lenders. The transfer was made without recourse. On april 1, Troubled would:

    A) Debit loss on sale of receivables for $25,000
  11. Which of the following might be classified as a cash equivalend?

    D) 30-day treasury bill
  12. An internal control system is designed to do all but which of the following:

    B) assure the promotion of the most qualified employees
  13. A company uses the gross method to account for cash discounts offered to its customers. If payment is made before the discount period expires, which of the following is correct?

    D) Sales discounts is debited for the amount of discounts taken by customers

    * Sales discounts is a contra-revenue account used to reduce recorded revenues for the amount of the discounts taken
  14. Allister Company does not use the allowance method to account for bad debts and instead any bad debts that do arise are written off as bad debt expense. what problem might this create if bad debts are material?

    C) Receivables likely will be overstated
  15. Jasper Company uses the allowance method to account for bad debts. During 2009, the company recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totalling $5,000. These transactions caused a decrease in working capital (current assets minus current liabilities) of:

    A) $9,000

    *The bad debt expense (and associated credit to the allowance account) reduces net receivables. the write-off of the uncollectible accounts debits the allowance account and credit the accounts receivable for the same amount, resulting in no change to net receivables
  16. The Reingold Hat Company uses the allowance method to account for bad debts. During 2009, the comapny recorded $800,000 in credit sales. At the end of 2009, account balances were: Accounts receivables, $120,000; allowance for uncollectible accounts, $2,000 (credit). If bad debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a debit to bad debt expense of:

    C) $ 24,000

    *3% x $800,000
  17. Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a desired amount based on an aging of accounts receivable. At the beginning of 2009, the allowance account had a credit balance of $18,000. During 2009, credit sales totalled $480,000 and receivables of $14,000 were written off. The year end aging indicated that a $21,000 allowance for uncollectible accounts was required. Enchill's bad debt expense for 2009 would be:

    C) $17,000

    *Bad debt expense = $21,000 (desired ending balance) + $14,000 (receivables written off) - $18,000 (beginning balance)
  18. Harmon sporting goods received a $60,000, 6-month, 10% note from a customer. Four months after receiving the note, it was discounted at a local bank at 12% discount rate. the cash proceeds received by Harmon were:

    B) $61,740

    * Cash to be received from note: $63,000 [$60,000 + ($60,000 x 10% 6/12)]. Bank's desired interest = $1,260 ($63,000 x 12% x 2/12). Proceeds = $63,000 - $1,260
  19. At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of the factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June?

    D) $6,000

    * $200,000 x 3%
  20. In question 9, if the transfer were made with recourse but is still accounted for as a sale, what amount of loss on sale of receivables would the company record in June assuming the estimated recourse liability is $2,000

    C) $8,000

    *($200,000 x 3% ) + $2,000
  21. The following data are available for the hunting Balloon Company:

    Sales for the current year$1,500,000
    Cost of goods sold for the current year 1,200,000
    Accounts receivable, beginning of year 140,000
    Accounts receivable, end of year 160,000

    The accounts receivable turnover ration for the current year is:

    C) 10.00

    *$1,500,000 / $150,000 [($140,000 + 160,000) / 2]
  22. The replenishment of a petty cash fund might include which of the following?

    B) a debit to office supplies expense
  23. In a bank reconciliation, deposits outstanding are:

    • C) added to the bank balance
    • *these are assets recorded on the books, but not reflected in the bank statement
  24. In a bank reconciliation, NSF checks are:

    D) subtracted from the book balance

    *these are recorded on the books as assets, but will not ultimately increase the cash balance
  25. Alvin Electronics is in the process of reconciling its bank account for the month of November. The following information is available:

    Balance per bank statement$8,325
    Outstanding checks 2,400
    Deposits outstanding 1,215
    Bank service charges for November 35
    Checks written by Alvin for $300 but recorded
    incorrectly by Alvin as a $30 disbursement

    What should be the corrected cash balance at the end of November?

    A) $7,140

    * $8,325 + $1,215 (deposits outstanding) - $2,400 (outstanding checks). [The bank service charge is reflected in the bank balance, and the $300 check is recored correctly by the bank.]
Card Set
accounting ch 7 practice quiz
intermediate accounting, 5th edition, spiceland chap 7Wh