Financial Accounting Exam II, Chapters 5 & 6

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Financial Accounting Exam II, Chapters 5 and 6

  
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  • 1. 
    On April 1, 2012, Nelson Inc. accepts a $100,000, 8% note. The note receivable and interest are receivable on March 31, 2013.  On March 2013, Nelson Inc. will record interest revenue of
    • A. 

      $8000

    • B. 

      $0

    • C. 

      $6000

    • D. 

      $2000


  • 2. 
    A sales discount is recorded by the seller as
    • A. 

      A liability

    • B. 

      A contra revenue

    • C. 

      A contra asset

    • D. 

      An expense


  • 3. 
    Th entry to record the estimate for uncollectible accounts includes:
    • A. 

      A debit to Allowance for Uncollectible accounts.

    • B. 

      A debit to Bad Debt Expense

    • C. 

      A credit to Accounts Receivable

    • D. 

      A debit to Sales Revenue


  • 4. 
    Which of the following is true for a company who uses the allowance method of accounting for uncollectible accounts?
    • A. 

      Bad debt expense is recorded when a specific account is known to be uncollectible.

    • B. 

      Bad debt expense is recorded after all of the current year's credit sales are collected.

    • C. 

      Bad debt expense is recorded during the year of the credit sale

    • D. 

      Bad debt expense is only recorded if they exceed 10% of credit sales.


  • 5. 
    The allowance method is required under G.A.A.P., because it is consistent with:
    • A. 

      Cash-basis accounting.

    • B. 

      The revenue recognition principle.

    • C. 

      Properly recognizing the net realizable value of assets.

    • D. 

      Good business practice


  • 6. 
    Schmidt company's accounts receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4000, and its bad debt expense is $3800.  The net realizable value of accounts receivable is:
    • A. 

      $96000

    • B. 

      $96200

    • C. 

      $104000

    • D. 

      $100000


  • 7. 
    If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account,
    • A. 

      The effect on net account receivables depends on the relationship between the allowance account balance and the amount of the write off.

    • B. 

      Net accounts receivable decrease

    • C. 

      Net accounts receivable do not change.

    • D. 

      Net accounts receivable increase.


  • 8. 
    Weiner Company's net credit sales were $500,000 during 2010.  On december 21, the accounts receivable ending balance is $80,000.  Assume the unadjusted balance of allowance for uncollectible accounts is a debit of $500 and that Weiner estimates that 7% of the accounts receivable will not be collected.  The amount of bad debt expense recorded on Decmeber 31 will be:
    • A. 

      $5000

    • B. 

      $6100

    • C. 

      $5100

    • D. 

      $5600


  • 9. 
    Weiner Company's net credit sales were $500,000 during 2010.  On december 21, the accounts receivable ending balance is $80,000.  Assume the unadjusted balance of allowance for uncollectible accounts is a credit of $500 and that Weiner estimates that 7% of the accounts receivable will not be collected.  The amount of bad debt expense recorded on Decmeber 31 will be:
    • A. 

      $6100

    • B. 

      $5100

    • C. 

      $5600

    • D. 

      $5000


  • 10. 
    When a company collects a previously written off account:
    • A. 

      The balance of Accounts Receivable will increase.

    • B. 

      The balance of Bad Debt Expense will decrease.

    • C. 

      The balance of Allowance for Uncollectible Accounts will increase

    • D. 

      The balance of Service Revenue will increase.


  • 11. 
    On April 1, 2012, Nelson Inc. accepts a $100,000, 8% note. The note receivable and interest are receivable on March 31, 2013.  On December 31, 2012, Nelson Inc. will record interest revenue of
    • A. 

      $2000

    • B. 

      $6000

    • C. 

      $0

    • D. 

      $8000


  • 12. 
    In times of rising inventory costs, which inventory method generally results in the highest ending inventory?
    • A. 

      LIFO

    • B. 

      FIFO

    • C. 

      Weighted-Average

    • D. 

      Lower-of-cost-or-market


  • 13. 
    Fan company purchases inventory on account for $2500. The entry to record this purchase using a perpetual inventory system would include a:
    • A. 

      Debit to inventory

    • B. 

      Credit to accounts receivable.

    • C. 

      Debit to Accounts Payable.

    • D. 

      Debit to Purchases


  • 14. 
    Weiss Company's beginning inventory was $10000. During the year, Weichtel purchases inventory costing $100000. Based on a physical count at the end of the year, Weichtel determines that the ending inventory is $8000. How much is cost of goods available for sale?
    • A. 

      $110,000

    • B. 

      $100,000

    • C. 

      $102,000

    • D. 

      $98,000


  • 15. 
    Which of the following is generally found in the balance sheet of a manufacturing company?
    • A. 

      Finished goods.

    • B. 

      Work in process.

    • C. 

      Raw materials

    • D. 

      All three accounts are found in a manufacturer's balance sheet


  • 16. 
    Schnell Company purchases inventory for $100,000 on account.  Shipping terms are FOB destination; Schnell pays shipping cost of $5000.  Prior to paying for the purchase, Schnell discovers that some of the inventory was damaged and receives an allowance of $7000.  Net purchases are:
    • A. 

      $100,000

    • B. 

      $107,000

    • C. 

      $98,000

    • D. 

      $105,000


  • 17. 
    At the end of the year, Marline Corporation determines that its ending inventory ahs a cost of $2000 and a market value of $1900.  What would the effect(s) of the adjustment to write-down inventory to market value?
    • A. 

      Increase to net income.

    • B. 

      No effect on net income and ending inventory

    • C. 

      Increase in cost of ending inventory

    • D. 

      Decrease in net income


  • 18. 
    Weichtel Company's beginning inventory was $20,000.  During the year, Weichtel purchases inventory costing $100,000.  Based on a physical count at the end of the year, Weichtel determines that the ending inventory is $28,000.  How much was cost of goods sold for the year?
    • A. 

      $148,000

    • B. 

      $108,000

    • C. 

      $92,000

    • D. 

      $100,000


  • 19. 
    Snow company's net sales revenue is $200,000, its cost of goods sold is $110,000 and its operating income is $20,000.  How much are Snow Company's operating expenses?
    • A. 

      $90,000

    • B. 

      $70,000

    • C. 

      $20,000

    • D. 

      $50,000


  • 20. 
    Winner Company purchases 100 units of inventory from Neue Company for $1000 on account.  To encourage early payment, Neue Company offers the terms 2/10, n/30, If Winner pays nine days after the purchase, the cost of its purchase will be:
    • A. 

      $1020

    • B. 

      $1000

    • C. 

      $980

    • D. 

      $1080


  • 21. 
    For a manufacturing company, the cost of items not yet complete at the end of the period are shown in the
    • A. 

      Work in process account

    • B. 

      Cost of goods sold account

    • C. 

      Finished goods account

    • D. 

      Raw materials account


  • 22. 
    Suppose that Witchel Company's ending inventory is understated by $500 at the end of the year.  If the error is not discovered, the company's gross profit for the year will be
    • A. 

      Overstated

    • B. 

      The effect of the error will depend on the sales price of the inventory

    • C. 

      Stated correctly

    • D. 

      Understated


  • 23. 
    Which cost flow assumption generally results in the lowest reported amount of net income in periods of rising inventory costs?
    • A. 

      Weighted-Average

    • B. 

      Income will be the same under each assumption

    • C. 

      LIFO

    • D. 

      FIFO


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