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ACC 557 Week 6 Quiz – Strayer NEW Click On The Link Below To Purchase A+ Graded Material Instant Download http://budapp.net/ACC-557-Week-6-Quiz-Strayer-NEW-ACC557W6Q.htm Chapter 7 and 8 All possible questions with answers TRUE-FALSE STATEMENTS Internal control is mainly concerned with the amount of authority a supervisor exercises over a subordinate. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

A highly automated computerized system of accounting eliminates the need for internal control. Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: Technology, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The safeguarding of assets is an objective of a company's system of internal control. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Management is responsible for establishing a system of internal control. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Internal control is most effective when several people are responsible for a given task.


Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The responsibility for keeping the records for an asset should be separate from the physical custody of that asset. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Requiring employees to take vacations is a weakness in the system of internal controls because it does not promote operational efficiency. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The extent of internal control features adopted by a company must be evaluated in terms of cost-benefit. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

An effective system of internal control requires that at least two individuals be assigned to one cash drawer so that each can serve as check on the other. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Only large companies need to be concerned with a system of internal control. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls


The responsibility for ordering, receiving, and paying for merchandise should be assigned to different individuals. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

In order to prevent a transaction from being recorded more than once, a company should maintain only one book of original entry. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Firms use physical controls primarily to safeguard their assets. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

A segregation of duties among employees eliminates the possibility of collusion. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

For efficiency of operations and better control over cash, a company should maintain only one bank account. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Cash registers are an important internal control device used in controlling over-thecounter receipts. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls


Checks received in the mail should be immediately stamped "NSF" to prevent unauthorized cashing of the check. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Control over cash disbursements is improved if major expenditures are paid by check. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

In a voucher system, vouchers are prepared in the accounts receivable department. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Electronic funds transfer (EFT) is a disbursement system that uses telephone or computer to transfer cash from one location to another. Ans: LO: 4, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Technology, AICPA BB: Resource Management, AICPA FN: None, AICPA PC: Project Management, IMA: Business Economics

A voucher system is used by many large companies as a means of controlling cash receipts. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The petty cash fund eliminates the need for a bank checking account.


Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

Cash register overages are deposited in the petty cash fund and cash shortages are made-up from the petty cash fund. Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

A deposit ticket is a negotiable instrument that can be transferred to another party by endorsement. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: None, AICPA PC: None, IMA: Business Economics If a company deposits all its receipts in the bank and pays all its bills by check, then the monthly bank statement balance will always agree with the company's record of its checking account balance. Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Checks from customers who pay their accounts promptly are called outstanding checks. Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: Communications, IMA: Business Economics

All reconciling items in determining the adjusted cash balance per books require the depositor to make adjusting journal entries to the Cash account.


Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

A bank reconciliation is generally prepared by the bank and sent to the depositor along with cancelled checks. Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Cash equivalents are highly liquid investments that can be converted into a specific amount of cash. Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Cash which is restricted for a specific use should be separately reported. Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A company always reports restricted cash as a noncurrent asset. Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A company with a net negative balance in its bank account should report this balance among current liabilities.


Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Companies report cash in both the balance sheet and the statement of cash flows. Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Internal control consists of the plan of organization and all of the related methods and measures adopted within a business to (a) safeguard its assets, and (b) enhance the accuracy and reliability of its accounting records. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

In general, documents should be prenumbered and all documents should be accounted for. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: Project Management, IMA: Internal Controls

Collusion may result when one individual circumvents prescribed controls and may significantly impair the effectiveness of a system. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Personnel who handle cash receipts should have the option of taking a vacation or not.


Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The duties of approving an item for payment and paying the item should be done by different departments or individuals. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The custodian of the petty cash fund has the responsibility of recording a journal entry every time cash is used from the fund. Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Internal Controls

A debit memorandum could show the collection of a note receivable by the bank. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

To obtain maximum benefit from a bank reconciliation, the reconciliation should be prepared by an employee who has no other responsibilities pertaining to cash. Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

MULTIPLE CHOICE QUESTIONS


Which one of the following is not an objective of a system of internal controls? Safeguard company assets Overstate liabilities in order to be conservative Enhance the accuracy and reliability of accounting records Reduce the risks of errors Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Internal controls are concerned with only manual systems of accounting. the extent of government regulations. safeguarding assets. preparing income tax returns. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

All of the following requirements about internal controls were enacted under the Sarbanes- Oxley Act except; independent outside auditors must attest to the level of internal control. companies must develop sound internal controls over financial reporting. companies must continually assess the functionality of internal controls. independent outside auditors must eliminate redundant internal controls. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Internal Controls LO: 1

Internal control is defined, in part, as a plan that safeguards all balance sheet accounts. assets. liabilities. capital stock. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls


Which of the following is not one of the main factors that contribute to fraudulent activity? Opportunity Incompatible duties Financial pressure Rationalization Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Global Business

The most important element of the fraud triangle is financial pressure. incompatible duties. opportunity. rationalization. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Global Business

LO: 1 48. Internal controls are not designed to safeguard assets from natural disasters. employee theft. robbery. unauthorized use. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of inadequate internal control. duplication of effort. external verification. segregation of duties.


Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Having one person responsible for the related activities of ordering merchandise, receiving goods, and paying for them increases the potential for errors and fraud. decreases the potential for errors and fraud. is an example of good internal control. is a good example of safeguarding the company's assets. Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The custodian of a company asset should have access to the accounting records for that asset. be someone outside the company. not have access to the accounting records for that asset. be an accountant. Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Internal auditors are hired by CPA firms to audit business firms. are employees of the IRS who evaluate the internal controls of companies filing tax returns. evaluate the system of internal controls for the companies that employ them. cannot evaluate the system of internal controls of the company that employs them because they are not independent. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

When two or more people get together for the purpose of circumventing prescribed controls, it is called a fraud committee. collusion.


a division of duties. bonding of employees. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

From an internal control standpoint, the asset most susceptible to improper diversion and use is prepaid insurance. cash. buildings. land. Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The principle of establishing responsibility does not include one person being responsible for one task. authorization of transactions. independent internal verification. approval of transactions. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The control principle related to not having the same person authorize and pay for goods is known as establishment of responsibility. independent internal verification. segregation of duties. rotation of duties. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Two individuals at a retail store work the same cash register. You evaluate this situation as


a violation of establishment of responsibility. a violation of segregation of duties. supporting the establishment of responsibility. supporting internal independent verification. Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

An accounts payable clerk also has access to the approved supplier master file for purchases. The control principle of establishment of responsibility is violated. independent internal verification is violated. documentation procedures is violated. segregation of duties is violated. Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Controls that enhance the accuracy and reliability of the accounting records are automated controls. external controls. physical controls. mechanical and electronic controls. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Related selling activities do not include ordering the merchandise. making a sale. shipping the goods. billing the customer. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The independent internal verification principle involves each of the following except the ______________ of data prepared by other employees.


comparison reconciliation review segregation Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Related buying activities include ordering, receiving, paying. ordering, selling, paying. ordering, shipping, billing. selling, shipping, paying. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Jolene is warehouse custodian and also maintains the accounting record of the inventory held at the warehouse. An assessment of this situation indicates documentation procedures are violated. independent internal verification is violated. segregation of duties is violated. establishment of responsibility is violated. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Physical controls to safeguard assets do not include cashier department supervisors. vaults. employee identification badges. security guards. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls


In large companies, the independent internal verification procedure is often assigned to computer operators. management. internal auditors. outside CPAs. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Maximum benefit from independent internal verification is obtained when it is made on a pre-announced basis. it is done by the employee possessing custody of the asset. discrepancies are reported to management. it is done at the time of the audit. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

If employees are bonded it means that they are not allowed to handle cash. they have worked for the company for at least 10 years. they have been insured against misappropriation of assets. it is impossible for them to steal from the company. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

Rebekah Grace has worked for Specoly Inc., for 20 years without taking a vacation. An internal control feature that would address this situation would be other controls. establishment of responsibility. physical controls. documentation procedures.


Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

A system of internal control is infallible. can be rendered ineffective by employee collusion. invariably will have costs exceeding benefits. is premised on the concept of absolute assurance. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

For accounting purposes, postdated checks (checks payable in the future) are considered to be money orders. cash. petty cash. accounts receivable. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Postage stamps on hand are considered to be cash. petty cash. cash equivalents. a prepaid expense. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which one of the following items would not be considered cash? Coins Money orders Currency Postdated checks


Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Checks received through the mail should immediately be endorsed "For Deposit Only." be sent to the accounts receivable subsidiary ledger clerk for immediate posting to the customer's account. be cashed at the bank as soon as possible. be "rung up" on a cash register immediately. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

Proper control for over-the-counter cash receipts includes a cash register with totals visible to the customer. using electronic cash registers with no tapes. cash count sheets requiring only the supervisor's signature. cash count sheets requiring only the cashier's signature. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

A company stamps checks received in the mail with the words "For Deposit Only". This endorsement is called a(n) blank endorsement. rubber stamp. restrictive endorsement. operational endorsement. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The daily cash count of cash register receipts made by department supervisors is an example of


other controls. independent internal verification. establishment of responsibility. segregation of duties. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The use of remittance advices for mail receipts is an example of documentation procedures. other controls. physical controls. independent internal verification. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics

Allowing only designated personnel to handle cash receipts is an example of establishment of responsibility. segregation of duties. documentation procedures. independent internal verification. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Control over cash disbursements is generally more effective when all bills are paid in cash. disbursements are made by the accounts payable subsidiary clerk. payments are made by check. all purchases are made on credit. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls


Reconciling the bank statement monthly is an example of segregation of duties. independent internal verification. establishment of responsibility. documentation procedures. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

An exception to disbursements being made by check is acceptable when cash is paid to an owner. to employees as wages. from petty cash. to employees as loans. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Allowing only the treasurer to sign checks is an example of documentation procedures. segregation of duties. other controls. establishment of responsibility. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Blank checks should be safeguarded. should be pre-signed. do not need to be safeguarded since they must be signed to be valid. should not be prenumbered. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

An employee authorized to sign checks should not record owner cash contributions.


mail receipts. cash disbursement transactions. sales transactions. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

A voucher system is a series of prescribed control procedures to check the credit worthiness of customers. designed to assure that disbursements by check are proper. which eliminates the need for a sales journal. specifically designed for small firms who may not have checking accounts. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Under a voucher system, a prenumbered voucher is prepared for every cash receipt, regardless of source. transaction entered into by the business. expenditure except those made from petty cash. journal entry. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls A credit balance in Cash Over and Short is reported as a(n) asset. liability. miscellaneous expense. miscellaneous revenue. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The entry to replenish a petty cash fund includes a credit to Petty Cash. Cash. Freight-In. Postage Expense.


Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

A debit balance in Cash Over and Short is reported as a contra asset. miscellaneous asset. miscellaneous expense. miscellaneous revenue. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A petty cash fund of $100 is replenished when the fund contains $4 in cash and receipts for $94. The entry to replenish the fund would credit Cash Over and Short for $2. credit Miscellaneous Revenue for $2. debit Cash Over and Short for $2. debit Miscellaneous Expense for $2. Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

A petty cash fund is generally established in order to pay for all merchandise purchased on account. pay employees’ wages. make loans internally to employees. pay relatively small expenditures. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

A petty cash fund should be replenished every day. at the end of every accounting period.


once a year. as soon as an expense is paid from the fund. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

A petty cash fund should not be used for postage due. loans to the petty cash custodian. taxi fares. customer lunches. Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

The size of the petty cash fund is dependent on the wishes of the custodian of the fund. anticipated disbursements for the year. anticipated disbursements for a three- to four-week period. the size of the regular cash account. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Replenishing the petty cash fund requires a debit to Cash. a credit to Petty Cash. a debit to various expense accounts. no accounting entry. Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Entries are made to the Petty Cash account when establishing the fund.


making payments out of the fund. recording shortages in the fund. replenishing the fund. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

A $100 petty cash fund has cash of $13 and receipts of $84. The journal entry to replenish the account would include a credit to Cash for $87. Petty Cash for $87. Cash Over and Short for $3. Cash for $84. Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

A $100 petty cash fund has cash of $16 and receipts of $81. The journal entry to replenish the account would include a debit to Cash for $81. credit to Petty Cash for $84. debit to Cash Over and Short for $3. credit to Cash for $81. Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

A $100 petty cash fund has cash of $17 and receipts of $87. The journal entry to replenish the account would include a debit to Cash for $87. credit to Petty Cash for $87. credit to Cash Over and Short for $4. credit to Cash for $87.


Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

If a petty cash fund is established in the amount of $200, and contains $121 in cash and $84 in receipts for disbursements when it is replenished, the journal entry to record replenishment should include credits to the following accounts Petty Cash, $84. Petty Cash, $79. Cash, $79; Cash Over and Short, $5. Cash, $79. Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

If a petty cash fund is established in the amount of $250, and contains $151 in cash and $94 in receipts for disbursements when it is replenished, the journal entry to record replenishment should include credits to the following accounts Petty Cash, $94. Petty Cash, $99. Cash, $94; Cash Over and Short, $5. Cash, $99. Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

On March 1, Hsu Imports established a petty cash fund of $325. The journal entry to record the replenishment of the fund for $290 at the end of March includes: A debit to Petty Cash of $290. A credit to Cash of $290. A debit to various expense of $35. No journal entry is required; journal entries are only needed when the petty cash fund is created or discontinued. Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA


Keillor, Inc. established a $450 petty cash fund last year and replenishes it at the end of each month. During the first two weeks of May, $195 was disbursed from the petty cash box for various items. If a surprise count of the fund is made on May 15, the petty cash box should contain: $450 cash and no receipts. $255 cash. $255 cash left for May plus $450 cash for each month since creation of the petty cash fund. $255 cash and receipts for $195 in expenses. Ans: LO: 5, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

All of the following are parties to a check except the bank. Federal Reserve. maker. payee. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics

When opening a bank checking account, a signature card indicates to whom money is to be paid. indicates each person authorized to sign checks on the account. is attached to all pre-printed checks. is required only when dealing with an out-of-state bank. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

Which one of the following is not necessarily a party to a check? Maker Buyer Payee


Payer Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics

A bank statement lets a depositor know the financial position of the bank as of a certain date. is a credit reference letter written by the depositor's bank. is a bill from the bank for services rendered. shows the activity which increased or decreased the depositor's account balance. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Which one of the following would not cause a bank to debit a depositor's account? Bank service charge Collection of a note receivable Wiring of funds to other locations Checks marked NSF Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A company maintains the asset account, Cash in Bank, on its books, while the bank maintains a reciprocal account which is a contra-asset account. a liability account. also an asset account. an owner's equity account. Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A remittance advice attached to a company check provides


details about the running cash balance in the checking account. the magnetic bank routing numbers. the explanation of the purpose of the check. the signature space for the maker. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Internal Controls

A deposit made by a company will appear on the bank statement as a debit. credit. debit memorandum. credit memorandum. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

A check returned by the bank marked "NSF" means no service fee. no signature found. not satisfactorily filled-out. not sufficient funds. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A debit memorandum would not be issued by the bank for a bank service charge. the issuance of traveler's checks. the wiring of funds. the collection of a notes receivable. Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics


If the month-end bank statement shows a balance of $36,000, outstanding checks are $10,000, a deposit of $4,000 was in transit at month end, and a check for $600 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is $29,400. $30,000. $30,600. $41,400. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In preparing its bank reconciliation for the month of April 2013, Delano, Inc. has available the following information. Balance per bank statement, 4/30/13 $39,300 NSF check returned with 4/30/13 bank statement 470 Deposits in transit, 4/30/13 5,000 Outstanding checks, 4/30/13 5,200 Bank service charges for April 30 What should be the adjusted cash balance at April 30, 2013? $38,630. $38,800. $39,010. $39,100. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The cash account shows a balance of $45,000 before reconciliation. The bank statement does not include a deposit of $2,500 made on the last day of the month. The bank statement shows a collection by the bank of $1,200 and a customer’s check for $320 was returned because it was NSF. A customer’s check for $450 was recorded on


the books as $540, and a check written for $69 was recorded as $96. The correct balance in the cash account was $45,790. $45,817. $46,200. $48,317. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The cash account shows a balance of $20,000 before reconciliation. The bank statement does not include a deposit of $4,600 made on the last day of the month. The bank statement shows a collection by the bank of $1,980 and a customer’s check for $650 was returned because it was NSF. A customer’s check for $690 was recorded on the books as $960, and a check written for $159 was recorded as $195. The correct balance in the cash account was $21,024. $21,096. $21,564. $25,696. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 4, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

If the month-end bank statement shows a balance of $24,000, outstanding checks are $18,000, a deposit of $5,000 was in transit at month end, and a check for $1,000 was erroneously charged by the bank against the account, the correct balance in the bank account at month end is $11,000. $12,000. $24,000. $38,000. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In preparing its bank reconciliation for the month of April 2013, Haskins, Inc. has available the following information.


Balance per bank statement, 4/30/13 $27,280 NSF check returned with 4/30/13 bank statement 900 Deposits in transit, 4/30/13 7,000 Outstanding checks, 4/30/13 10,400 Bank service charges for April 40 What should be the adjusted cash balance at April 30, 2013? $22,940. $22,980. $23,840. $23,880. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In preparing its August 31, 2013 bank reconciliation, Annie Corp. has available the following information: Balance per bank statement, 8/31/13 $21,650 Deposit in transit, 8/31/13 3,900 Return of customer’s check not sufficient funds, 8/30/13 600 Outstanding checks, 8/31/13 2,750 Bank service charges for August 100 At August 31, 2013, Annie’s adjusted cash balance is $18,900. $18,800. $22,800. $20,500. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


Trudy, Inc. had the following bank reconciliation at March 31, 2013: Balance per bank statement, 3/31/13 $37,200 Add: Deposit in transit 6,300 43,500 Less: Outstanding checks 8,600 Balance per books, 3/31/13 $34,900 Data per bank for the month of April 2013 follow: Deposits $46,700 Disbursements 49,700 All reconciling items at March 31, 2013 cleared the bank in April. Outstanding checks at April 30, 2013 totaled $6,000. There were no deposits in transit at April 30, 2013. What is the cash balance per books at April 30, 2013? $25,900 $31,900 $34,200 $38,500 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

On a bank reconciliation, deposits in transit are added to the bank balance. deducted from the bank balance. added to the book balance. deducted from the book balance. Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A bank reconciliation should be prepared whenever the bank refuses to lend the company money.


when an employee is suspected of fraud. to explain any difference between the depositor's balance per books and the balance per bank. by the person who is authorized to sign checks. Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

Deposits in transit have been recorded on the company's books but not yet by the bank. have been recorded by the bank but not yet by the company. have not been recorded by the bank or the company. are checks from customers which have not yet been received by the company. Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

In preparing a bank reconciliation, outstanding checks are added to the balance per bank. deducted from the balance per books. added to the balance per books. deducted from the balance per bank. Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

If a check correctly written and paid by the bank for $418 is incorrectly recorded on the company's books for $481, the appropriate treatment on the bank reconciliation would be to add $63 to the bank's balance. add $63 to the book's balance. deduct $63 from the bank's balance. deduct $418 from the book's balance. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA


Notification by the bank that a deposited customer check was returned NSF requires that the company make the following adjusting entry: Accounts Receivable Cash Cash Accounts Receivable Miscellaneous Expense Accounts Receivable No adjusting entry is necessary. Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Jukebox Company had checks outstanding totaling $5,400 on its June bank reconciliation. In July, Jukebox Company issued checks totaling $38,900. The July bank statement shows that $38,300 in checks cleared the bank in July. A check from one of Jukebox Company's customers in the amount of $500 was also returned marked "NSF." The amount of outstanding checks on Jukebox Company's July bank reconciliation should be $600. $5,500. $6,000. $6,500. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

Each of the following items affect the cash balance per books except bank service charges. notes collected by the bank. NSF checks. outstanding checks.


Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Electric Sunset Company gathered the following reconciling information in preparing its July bank reconciliation: Cash balance per books, 7/31 $5,500 Deposits in transit 300 Notes receivable and interest collected by bank 1,100 Bank charge for check printing 20 Outstanding checks 2,000 NSF check 170 The adjusted cash balance per books on July 31 is $4,410. $4,710. $6,410. $6,710. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Unicycle Company developed the following reconciling information in preparing its September bank reconciliation: Cash balance per bank, 9/30 $12,000 Note receivable collected by bank 6,000 Outstanding checks 7,000 Deposits in transit 3,500 Bank service charge 75 NSF check 1,200 Determine the cash balance per books (before adjustments) for Unicycle Company.


$1,225. $3,775. $4,775. $8,500. Ans: LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Bank errors occur because of time lags. must be corrected by debits. are infrequent in occurrence. are corrected by making an adjusting entry on the depositor's books. Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

An adjusting entry is not required for outstanding checks. collection of a note by the bank. NSF checks. bank service charges. Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Winter Gloves Company had checks outstanding totaling $6,400 on its May bank reconciliation. In June, Winter Gloves Company issued checks totaling $39,900. The July bank statement shows that $35,700 in checks cleared the bank in July. A check from one of Winter Gloves Company's customers in the amount of $1,000 was also returned marked "NSF." The amount of outstanding checks on Winter Gloves Company's July bank reconciliation should be $4,200. $9,600. $10,600. $11,600.


Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Candy Claws Company gathered the following reconciling information in preparing its August bank reconciliation: Cash balance per books, 8/31 $6,500 Deposits in transit 300 Notes receivable and interest collected by bank 1,600 Bank charge for check printing 40 Outstanding checks 4,000 NSF check 340 The adjusted cash balance per books on August 31 is $3,720. $4,020. $7,720. $8,020. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Shane Company gathered the following reconciling information in preparing its April bank reconciliation: Cash balance per books, 4/30 $6,600 Deposits in transit 900 Notes receivable and interest collected by bank 2,200 Bank charge for check printing 50 Outstanding checks 4,500 NSF check 420


The adjusted cash balance per books on April 30 is $4,310. $4,730. $7,910. $8,330. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Bacher Company developed the following reconciling information in preparing its September bank reconciliation: Cash balance per bank, 9/30 $15,400 Note receivable collected by bank 8,400 Outstanding checks 8,000 Deposits in transit 6,300 Bank service charge 105 NSF check 1,680 Using the above information, determine the cash balance per books (before adjustments) for the Bacher Company. $7,085 $13,700 $20,370 $22,070 Ans: LO: 7, Bloom: AP, Difficulty: Hard, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In the month of November, Kinsey Company Inc. wrote checks in the amount of $9,250. In December, checks in the amount of $12,658 were written. In November, $8,468 of these checks were presented to the bank for payment, and $10,883 were presented in December. What is the amount of outstanding checks at the end of November? $782 $2,415


$2,557 $3,408 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

In the month of November, Kinsey Company Inc. wrote checks in the amount of $9,250. In December, checks in the amount of $12,658 were written. In November, $8,468 of these checks were presented to the bank for payment, and $10,883 were presented in December. What is the amount of outstanding checks at the end of December? $782 $2,415 $2,557 $3,408 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

At April 30, Yaddof Company has the following bank information: cash balance per bank $4,600; outstanding checks $780; deposits in transit $550; credit memo for interest $100; bank service charge $20. What is Yaddof’s adjusted cash balance on April 30? $4,370 $4,490 $4,600 $4,680 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

At June 30, Yaddof Company has the following bank information: cash balance per bank $3,600; outstanding checks $680; deposits in transit $550; credit memo for interest $150; bank service charge $20. What is Yaddof adjusted cash balance on June 30? $3,470


$3,600 $3,620 $3,730 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Hoppmann Company wrote checks totaling $8,540 during October and $9,325 during November. $8,120 of these checks cleared the bank in October, and $9,110 cleared the bank in November. What was the amount of outstanding checks on November 30? $215 $420 $635 $785 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

Fitzgerald Company wrote checks totaling $17,080 during October and $18,650 during November. $16,240 of these checks cleared the bank in October, and $18,220 cleared the bank in November. What was the amount of outstanding checks on November 30? $1,430 $840 $1,270 $1,570 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Business Economics

Carothers Company assembled the following information in completing its March bank reconciliation: balance per bank $3,820; outstanding checks $775; deposits in transit $1,250; NSF check $80; bank service charge $25; cash balance per books $4,400. As a result of this reconciliation, Carothers will reduce its cash account by $25. reduce its cash account by $105. reduce its cash account by $475. increase its cash account by $55.


Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Macrinez Company assembled the following information in completing its July bank reconciliation: balance per bank $11,460; outstanding checks $2,325; deposits in transit $3,750; NSF check $240; bank service charge $75; cash balance per books $13,200. As a result of this reconciliation, Macrinez will reduce its cash account by $75. reduce its cash account by $315. reduce its cash account by $1,425. increase its cash account by $165. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

If a check correctly written and paid by the bank for $591 is incorrectly recorded on the company’s books for $519, the appropriate treatment on the bank reconciliation would be to deduct $72 from the book’s balance. add $72 to the book’s balance. deduct $72 from the bank’s balance. deduct $591 from the book’s balance. Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In the month of May, Kijak Company Inc. wrote checks in the amount of $28,000. In June, checks in the amount of $38,000 were written. In May, $25,000 of these checks were presented to the bank for payment, and $33,000 in June. What is the amount of outstanding checks at the end of May? $3,000 $5,000 $8,000 $10,000


Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

In the month of May, Kijak Company Inc. wrote checks in the amount of $28,000. In June, checks in the amount of $38,000 were written. In May, $25,000 of these checks were presented to the bank for payment, and $33,000 in June. What is the amount of outstanding checks at the end of June? $3,000 $5,000 $8,000 $10,000 Ans: LO: 7, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

Which of the following items would cause cash per the bank statement to be smaller then the balance of cash shown in the accounting records? Outstanding checks. Interest earned on the average balance of the checking account. Check no. 777, in the amount of $730.10, is recorded by the bank as $701.30. Deposits in transit. Ans: LO: 7, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, , IMA: Reporting

After preparing a bank reconciliation, which one of the these situations would require a journal entry? A check for $63 given to a supplier but not yet recorded by the company's bank. Interest earned on the company's checking account. A deposit made by another company with a similar name and credited to your account. A deposit in transit. Ans: LO: 7, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, , IMA: Reporting


The accounting records of Wyeth Company showed cash of $14,250 at December 31. The balance per the bank statement at December 31 was $14,125. The only reconciling items were deposits in transit of $2,800, outstanding checks totaling $3,900, an NSF check for $1,100 returned by the bank which Wyeth had yet charged back to the customer, and a bank service charge of $125. The preparation of a bank reconciliation should indicate cash by Wyeth at December 31 in the amount of: $14,125. $13,025. $12,900. $11,925. Ans: LO: 7, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, , IMA: Reporting

As of December 31, 2013, Crenshaw Oasis has $16,500 cash in its checking account, as well as several other items listed below: Money market fund balance $12,000 Investment in Apple 8% bonds, maturing June 2014 50,000 Bank credit card slips signed by customers 1,500 Investment in U.S. Treasury Bonds 20,000 Checks received from customers but not yet deposited 2,000

What amount should be shown in Crenshaw's December 31, 2013, balance sheet as "cash and cash equivalents"? $32,000 $20,000 $102,000 $52,000 Ans: LO: 8, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, , IMA: Reporting


Which of the following would not be considered cash equivalent? U.S. Treasury bills. Money market funds. Notes receivable. Coins. Ans: LO: 8, Bloom: AP, Difficulty: Easy, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, , IMA: Reporting

Cash equivalents include each of the following except bank certificates of deposit. money market funds. petty cash. U.S. Treasury bills. Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Which of the following would not be reported on the balance sheet as a cash equivalent? Money market fund Sixty-day certificate of deposit Six-month Treasury bill Money market savings certificate Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Compensating balances are a restriction on the use of a company's cash and should be reported as a current asset. reported as a noncurrent asset. disclosed in the financial statements. reported as a reduction of cash.


Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The principles of internal control include all of the following except establishment of responsibility. combining of duties. physical, mechanical, and electronic controls. independent internal verification. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

An example of poor internal control is the accountant should not have physical custody of the asset nor access to it. the custodian of an asset should not maintain or have access to the accounting records. one person should be responsible for handling related transactions. a salesperson makes the sale, and a different person ships the goods. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Having different individuals receive cash, record cash receipts, and hold the cash is an example of establishment of responsibility. segregation of duties. documentation procedures. independent internal verification. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Storing cash in a company safe is an application of which internal control principle? Segregation of duties Documentation procedures Physical controls Establishment of responsibility


Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

Using prenumbered checks and having an approved invoice for each check is an example of establishment of responsibility. segregation of duties. documentation procedures. independent internal verification. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

An application of good internal control over cash disbursements is following payment, the approved invoice should be stamped PAID. blank checks should be stored in the treasurer's desk. each check should be compared with the approved invoice after the check is issued. check signers should record the cash disbursements. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Resource Management, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Internal Controls

When making a payment from the petty cash fund for postage stamps, the following journal entry is made. Office Supplies......................... XXXX Petty Cash......................... XXXX Postage Expense...................... XXXX Petty Cash......................... XXXX Miscellaneous Expense............ XXXX Petty Cash......................... XXXX No entry is made.


Ans: LO: 5, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

All of the following would involve a debit memorandum except a bank service charge. an NSF check. the cost of printing checks. interest earned. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

A bank may issue a credit memorandum for a bank service charge. an NSF (not sufficient funds) check from a customer. the collection of a note receivable for the depositor by the bank. the cost of printing checks. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Journal entries are required by the depositor for all of the following except collection of a note receivable. bank errors. bank service charges. an NSF check. Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Cash equivalents are highly liquid investments that can be converted into a specific amount of cash with maturities of 1 month or less when purchased. 3 months or less when purchased. 6 months or less when purchased.


1 year or less when purchased. Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

TRUE-FALSE STATEMENTS Trade receivables occur when two companies trade or exchange notes receivables. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Other receivables include nontrade receivables such as loans to company officers. Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Both accounts receivable and notes receivable represent claims that are expected to be collected in cash. Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Receivables are valued and reported in the balance sheet at their gross amount less any sales returns and allowances and less any cash discounts. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


The three primary accounting problems with accounts receivable are: (1) recognizing, (2) depreciating, and (3) disposing. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Accounts receivable are the result of cash and credit sales. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

If a retailer assesses a finance charge on the amount owed by a customer, Accounts Receivable is debited for the amount of the interest. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

If a company uses the allowance method to account for uncollectible accounts, the entry to write off an uncollectible account only involves balance sheet accounts. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The percentage of receivables basis of estimating expected uncollectible accounts emphasizes income statement relationships. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


Under the direct write-off method, no attempt is made to match bad debts expense to sales revenues in the same accounting period. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Allowance for Doubtful Accounts is debited under the direct write-off method when an account is determined to be uncollectible. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Allowance for Doubtful Accounts is a contra asset account. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Cash realizable value is determined by subtracting Allowance for Doubtful Accounts from net sales. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Generally accepted accounting principles require that the direct write-off method be used for financial reporting purposes if it is also used for tax purposes. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


Under the allowance method, Bad Debts Expense is debited when an account is deemed uncollectible and must be written off. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Under the allowance method, the cash realizable value of receivables is the same both before and after an account has been written off. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The percentage of sales basis for estimating uncollectible accounts always results in more Bad Debts Expense being recognized than the percentage of receivables basis. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

An aging schedule is prepared only for old accounts receivables that have been past due for more than one year. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

An aging of accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics


Sales resulting from the use of Visa and MasterCard are considered credit sales by the retailer. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A factor purchases receivables from businesses for a fee and collects the remittances directly from customers. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A major advantage of national credit cards to retailers is that there is no charge to the retailer by the credit card companies for their services. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Receivables may be sold because they may be the only reasonable source of cash. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

If a retailer accepts a national credit card such as Visa, the retailer must maintain detailed records of customer accounts. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics


A note receivable is a written promise by the maker to the payee to pay a specified amount of money at a definite time. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The maturity date of a 1-month note receivable dated June 30 is July 30. Ans: LO: 5, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The two key parties to a note are the maker and the payee. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

When the due date of a note is stated in months, the time factor in computing interest is the number of months divided by 360 days. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A company records a note receivable at its maturity value when the note is accepted. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Companies report short-term notes receivable at their cash (net) realizable value.


Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A note is honored when its maker pays in full at its maturity date. Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The accounts receivable turnover ratio is computed by dividing total sales by the average net receivables during the year. Ans: LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Both the gross amount of receivables and the allowance for doubtful accounts should be reported in the financial statements. Ans: LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Notes receivable represent claims for which formal instruments of credit are issued as evidence of debt. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

The two methods of accounting for uncollectible accounts are (a) percentage of sales and (b) percentage of receivables.


Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

The account Allowance for Doubtful Accounts is closed out at the end of the year. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting In order to accelerate the receipt of cash from receivables, owners may sell the receivables to another company for cash. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

When counting the exact number of days to determine the maturity date of a note, the date of issue is included but the due date is omitted. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A note is dishonored when it is not fully paid at maturity. Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Short-term receivables are reported in the current assets section before temporary investments. Ans: LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


MULTIPLE CHOICE QUESTIONS Claims for which formal instruments of credit are issued as proof of the debt are accounts receivable. interest receivable. notes receivable. other receivables. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Interest is usually associated with accounts receivable. notes receivable. doubtful accounts. bad debts. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

The receivable that is usually evidenced by a formal instrument of credit is a(n) trade receivable. note receivable. accounts receivable. income tax receivable. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics Which of the following receivables would not be classified as an "other receivable"? Advance to an employee Refundable income tax Notes receivable Interest receivable


Ans: LO: 1, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Notes or accounts receivables that result from sales transactions are often called sales receivables. non-trade receivables. trade receivables. merchandise receivables. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The term "receivables" refers to amounts due from individuals or companies. merchandise to be collected from individuals or companies. cash to be paid to creditors. cash to be paid to debtors. Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A cash discount is usually granted to all of the following except retail customers. retailers. wholesalers. All of these are granted discounts. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Which one of the following is not a primary problem associated with accounts receivable? Depreciating accounts receivable Recognizing accounts receivable


Valuing accounts receivable Disposing of accounts receivable Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Trade accounts receivable are valued and reported on the balance sheet in the investment section. at gross amounts less sales returns and allowances. at net realizable value. only if they are not past due. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Three accounting issues associated with accounts receivable are depreciating, returns, and valuing. depreciating, valuing, and collecting. recognizing, valuing, and disposing. accrual, bad debts, and disposing. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics Which of the following would require a compound journal entry? To record merchandise returned that was previously purchased on account. To record sales on account. To record purchases of inventory when a discount is offered for prompt payment. To record collection of accounts receivable when a cash discount is taken. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Which of the following would be considered as an unlikely occurrence? Manufacturer offers a cash discount to a wholesaler. Wholesaler offers a cash discount to a retailer.


Retailer offers a cash discount to a customer. All of these are standard practices. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A customer charges a treadmill at Annie's Sport Shop. The price is $4,000 and the financing charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. What is the amount of the finance charge? $12 $30 $120 $360 Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

A customer charges a treadmill at Annie's Sport Shop. The price is $4,000 and the financing charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account. The accounts affected by the journal entry made by Annie's Sport Shop to record the finance charge are Accounts Receivable Cash Cash Finance Receivable Accounts Receivable Interest Payable Accounts Receivable Interest Revenue


Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Which of the following practices by a credit card company results in lower interest charges to the cardholder? The card company states interest as a monthly percentage rather than an annual percentage. The card company allows a grace period before interest is accrued. The card company allows cardholders to skip payments on their cards. The card company calculates finance charges from the date of purchase to the date the amount is paid. Ans: LO: 2, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

If a department store fails to make the entry to accrue the finance charges due from customers, accounts receivable will be overstated. interest revenue will be understated. interest expense will be overstated. interest expense will be understated. Ans: LO: 2, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The net amount expected to be received in cash from receivables is termed the cash realizable value. cash-good value. gross cash value. cash-equivalent value. Ans: LO: 2, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


Lifetime sells softball equipment. On November 14, they shipped $2,000 worth of softball uniforms to Palos Middle School, terms 2/10, n/30. On November 21, they received an order from Tinley High School for $1,200 worth of custom printed bats to be produced in December. On November 30, Palos Middle School returned $200 of defective merchandise. Lifetime has received no payments from either school as of month end. What amount will be recognized as net accounts receivable on the balance sheet as of November 30? $1,800 $2,000 $3,000 $3,200 Ans: LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Syfy Company on July 15 sells merchandise on account to Eureka Co. for $3,000, terms 2/10, n/30. On July 20 Eureka Co. returns merchandise worth $1,200 to Syfy Company. On July 24 payment is received from Eureka Co. for the balance due. What is the amount of cash received? $1,740 $1,764 $1,800 $3,000 Ans: LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Under the allowance method, writing off an uncollectible account affects only balance sheet accounts. affects both balance sheet and income statement accounts. affects only income statement accounts. is not acceptable practice. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If a company fails to record estimated bad debts expense, cash realizable value is understated.


expenses are understated. revenues are understated. receivables are understated. Ans: LO: 3, Bloom: AN, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the direct write-off method. percentage of receivables basis. percentage of sales basis. percentage of receivables and percentage of sales basis. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when a sale is made. an account becomes bad and is written off. management estimates the amount of uncollectibles. a customer's account becomes past-due. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

When an account becomes uncollectible and must be written off, Allowance for Doubtful Accounts should be credited. Accounts Receivable should be credited. Bad Debts Expense should be credited. Sales should be debited. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics


The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles will increase income in the period it is collected. will decrease income in the period it is collected. requires a correcting entry for the period in which the account was written off. does not affect income in the period it is collected. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The percentage of sales basis of estimating expected uncollectibles emphasizes the matching of expenses with revenues. emphasizes balance sheet relationships. emphasizes cash realizable value. is not generally accepted as a basis for estimating bad debts. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

An aging of a company's accounts receivable indicates that $10,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a debit to Bad Debts Expense for $10,000. debit to Allowance for Doubtful Accounts for $8,900. debit to Bad Debts Expense for $8,900. credit to Allowance for Doubtful Accounts for $10,000. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

A debit balance in the Allowance for Doubtful Accounts is the normal balance for that account. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.


indicates that actual bad debt write-offs have been less than what was estimated. cannot occur if the percentage of sales method of estimating bad debts is used. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited when a credit sale is past due. at the end of each accounting period. whenever a pre-determined amount of credit sales have been made. when an account is determined to be uncollectible. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

An alternative name for Bad Debts Expense is Deadbeat Expense. Uncollectible Accounts Expense. Collection Expense. Credit Loss Expense. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A reasonable amount of uncollectible accounts is evidence that the credit policy is too strict. that the credit policy is too lenient. of a sound credit policy. of poor judgments on the part of the credit manager. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics


Bad Debts Expense is considered an avoidable cost in doing business on a credit basis. an internal control weakness. a necessary risk of doing business on a credit basis. avoidable unless there is a recession. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

The best managed companies will have no uncollectible accounts. a very strict credit policy. a very lenient credit policy. some accounts that will prove to be uncollectible. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

Two methods of accounting for uncollectible accounts are the allowance method and the accrual method. allowance method and the net realizable method. direct write-off method and the accrual method. direct write-off method and the allowance method. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics The allowance method of accounting for uncollectible accounts is required if the company makes any credit sales. bad debts are significant in amount. the company is a retailer. the company charges interest on accounts receivable. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


Bad Debts Expense is reported on the income statement as part of cost of goods sold. reducing gross profit. an operating expense. a contra-revenue account. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

When the allowance method of accounting for uncollectible accounts is used, Bad Debts Expense is recorded in the year after the credit sale is made. in the same year as the credit sale. as each credit sale is made. when an account is written off as uncollectible. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

The method of accounting for uncollectible accounts that results in a better matching of expenses with revenues is the aging accounts receivable method. direct write-off method. percentage of receivables method. percentage of sales method. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. debit to Loss on Credit Sales and a credit to Accounts Receivable.


Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Under the allowance method of accounting for uncollectible accounts, the cash realizable value of accounts receivable is greater before an account is written off than after it is written off. Bad Debts Expense is debited when a specific account is written off as uncollectible. the cash realizable value of accounts receivable in the balance sheet is the same before and after an account is written off. Allowance for Doubtful Accounts is closed each year to Income Summary. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Allowance for Doubtful Accounts on the balance sheet is offset against total current assets. increases the cash realizable value of accounts receivable. appears under the heading "Other Assets." is offset against accounts receivable. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

When an account is written off using the allowance method, the cash realizable value of total accounts receivable will increase. cash realizable value of total accounts receivable will decrease. allowance account will increase. cash realizable value of total accounts receivable will stay the same. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

If an account is collected after having been previously written off,


the allowance account should be debited. only the control account needs to be credited. both income statement and balance sheet accounts will be affected. there will be both a debit and a credit to accounts receivable. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

When an account is written off using the allowance method, accounts receivable is unchanged and the allowance account increases. increases and the allowance account increases. decreases and the allowance account decreases. decreases and the allowance account increases. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Two bases for estimating uncollectible accounts are: percentage of assets and percentage of sales. percentage of receivables and percentage of total revenue. percentage of current assets and percentage of sales. percentage of receivables and percentage of sales. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

The percentage of receivables basis for estimating uncollectible accounts emphasizes cash realizable value. the relationship between accounts receivable and bad debts expense. income statement relationships. the relationship between sales and accounts receivable. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


Haven Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $600,000 and credit sales are $2,200,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Haven Company make to record the bad debts expense? Bad Debts Expense ........................................................ 28,000 Allowance for Doubtful Accounts ......................... 28,000 Bad Debts Expense ........................................................ 22,000 Allowance for Doubtful Accounts ......................... 22,000 Multiple Choice 87. (Cont.) Bad Debts Expense ........................................................ 22,000 Accounts Receivable ............................................. 22,000 Bad Debts Expense ........................................................ 28,000 Accounts Receivable ............................................. 28,000

Ans: LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The balance of Allowance for Doubtful Accounts prior to making the adjusting entry to record estimated uncollectible accounts is relevant when using the percentage of receivables basis. is relevant when using the percentage of sales basis. is relevant to both bases of adjusting for uncollectible accounts. will never show a debit balance at this stage in the accounting cycle. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The direct write-off method of accounting for bad debts uses an allowance account. uses a contra-asset account. does not require estimates of bad debt losses. is the preferred method under generally accepted accounting principles.


Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Under the direct write-off method of accounting for uncollectible accounts the allowance account is increased for the actual amount of bad debt at the time of write-off. a specific account receivable is decreased for the actual amount of bad debt at the time of write-off. balance sheet relationships are emphasized. bad debts expense is always recorded in the period in which the revenue was recorded. Ans: LO: 3, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $900 credit balance, the adjustment to record bad debts for the period will require a debit to Bad Debts Expense for $4,000. debit to Allowance for Doubtful Accounts for $3,100. debit to Bad Debts Expense for $3,100. credit to Allowance for Doubtful Accounts for $4,000. Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

An aging of a company's accounts receivable indicates that $3,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $700 debit balance, the adjustment to record bad debts for the period will require a debit to Bad Debts Expense for $2,300. debit to Bad Debts Expense for $3,000. debit to Bad Debts Expense for $3,700. credit to Allowance for Doubtful Accounts for $700. Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $27,000. If the balance of the Allowance for Doubtful Accounts is $8,000 debit before adjustment, what is the amount of bad debts expense for that period? $8,000 $19,000 $27,000 $35,000 Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $11,000. If the balance of the Allowance for Doubtful Accounts is $2,000 credit before adjustment, what is the amount of bad debts expense for that period? $2,000 $9,000 $11,000 $13,000 Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Using the percentage of receivables method for recording bad debts expense, estimated uncollectible accounts are $11,000. If the balance of the Allowance for Doubtful Accounts is $2,000 debit before adjustment, what is the balance after adjustment? $2,000 $9,000 $11,000 $13,000 Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Using the percentage-of-receivables basis, the uncollectible accounts for the year is estimated to be $31,000. If the balance for the Allowance for Doubtful Accounts is a


$7,000 credit before adjustment, what is the amount of bad debts expense for the period? $7,000 $24,000 $31,000 $38,000 Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Using the percentage-of-receivables basis, the uncollectible accounts for the year is estimated to be $31,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 debit before adjustment, what is the amount of bad debts expense for the period? $7,000 $24,000 $31,000 $38,000 Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In reviewing the accounts receivable, the cash realizable value is $14,000 before the write-off of a $1,500 account. What is the cash realizable value after the write-off? $1,500 $12,500 $14,000 $15,500 Ans: LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In 2013, Warehouse 13 had net credit sales of $750,000. On January 1, 2013, Allowance for Doubtful Accounts had a credit balance of $16,000. During 2013, $29,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage


of receivable basis). If the accounts receivable balance at December 31 was $200,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2013? $20,000 $29,000 $33,000 $36,000 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

A company has net credit sales of $950,000 for the year and it estimates that uncollectible accounts will be 2% of sales. If Allowance for Doubtful Accounts has a credit balance of $2,000 prior to adjustment, its balance after adjustment will be a credit of $17,000. $19,000. $19,040. $21,000. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In 2013, Chandler Company had net credit sales of $1,125,000. On January 1, 2013, Allowance for Doubtful Accounts had a credit balance of $27,000. During 2013, $42,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivables basis). If the accounts receivable balance at December 31 was $330,000, what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2013? $18,000 $33,000 $48,000 $97,500 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA


Using the following information: 12/31/12 Accounts receivable $525,000 Allowance (35,000) Cash realizable value $490,000

During 2013, sales on account were $145,000 and collections on account were $100,000. Also during 2013, the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $40,000.

The change in the cash realizable value from the balance at 12/31/12 to 12/31/13 was a $32,000 increase. $37,000 increase. $40,000 increase. $45,000 increase. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Using the following information: 12/31/12 Accounts receivable $525,000 Allowance (35,000) Cash realizable value $490,000

During 2013, sales on account were $145,000 and collections on account were $100,000. Also during 2013, the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that uncollectible accounts should be estimated at $40,000.


Bad debts expense for 2013 is $5,000. $8,000. $13,000 $40,000. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

During 2013, Alfred Inc. had sales on account of $132,000, cash sales of $54,000, and collections on account of $84,000. In addition, they collected $1,450 which had been written off as uncollectible in 2012. As a result of these transactions, the change in the accounts receivable balance indicates a $46,550 increase. $48,000 increase. $100,550 increase. $102,000 increase. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Kill Corporation’s unadjusted trial balance includes the following balances (assume normal balances): Accounts Receivable $750,000 Allowance for Doubtful Accounts 15,000 Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debts expense will the company record? $15,000 $30,000 $44,100 $45,000 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting


Jack Company provides for bad debts expense at the rate of 2% of credit sales. The following data are available for 2013: Allowance for doubtful accounts, 1/1/13 (Cr.)............................... $ 12,000 Accounts written off as uncollectible during 2013.................. 9,000 Credit sales in 2013.................................................................. 1,500,000

The Allowance for Doubtful Accounts balance at December 31, 2013, should be $3,000. $27,000. $30,000. $33,000. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

In 2013, Boyle Company had credit sales of $900,000 and granted sales discounts of $20,000. On January 1, 2013, Allowance for Doubtful Accounts had a credit balance of $22,000. During 2012, $37,500 of uncollectible accounts receivable were written off. Past experience indicates that 3% of net credit sales become uncollectible. What should be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2013? $10,900 $11,500 $26,400 $33,100 Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

An analysis and aging of the accounts receivable of Hugh Company at December 31 revealed the following data: Accounts Receivable...................................................................... $800,000


Allowance for Doubtful Accounts per books before adjustment (Cr.)......................................................... 50,000 Amounts expected to become uncollectible............................. 56,000

The cash realizable value of the accounts receivable at December 31, after adjustment, is: $694,000. $744,000. $750,000. $794,000. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Herman Company has a debit balance of $5,000 in its Allowance for Doubtful Accounts before any adjustments are made at the end of the year. Based on review and aging of its accounts receivable at the end of the year, Herman estimates that $60,000 of its receivables are uncollectible. The amount of bad debts expense which should be reported for the year is: $5,000. $55,000. $60,000. $65,000. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting At the end of May, the unadjusted trial balance of Barker Industries included the following accounts: Debit Credit Sales (75% represent credit sales) Accounts Receivable $240,000 Allowance For Doubtful Accounts

$400,000 1,800


Barker Industries uses the percentage of sales approach in estimating uncollectible accounts. The uncollectible accounts expense is estimated to be 3% of credit sales The net realizable value of Barker's accounts receivable in the May 31 balance sheet is $250,800 $229,200 $236,400 $226,200 Ans: b LO: 3 Bloom: K, Difficulty: Easy, Min: 2 AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

At the end of May, the unadjusted trial balance of Barker Industries included the following accounts: Debit Credit Sales (75% represent credit sales) Accounts Receivable $240,000 Allowance For Doubtful Accounts

$400,000 1,800

Barker uses the percentage of sales approach in estimating uncollectible accounts expense. The uncollectible accounts expense is estimated to be 3% of credit sales. What is the amount of uncollectible accounts expense recognized in Barker's income statement for May? $7,200. $9,000. $4,800. $10,800. Ans: b LO: 3 Bloom: K, Difficulty: Easy, Min: 1 AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

On October 1, 2013, Milago Company sells (factors) $500,000 of receivables to Beanfield Factors, Inc. Beanfield assesses a service charge of 3% of the amount of receivables sold. The journal entry to record the sale by Milago will include a debit of $500,000 to Accounts Receivable. a credit of $515,000 to Cash. a debit of $515,000 to Cash. a debit of $15,000 to Service Charge Expense.


Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

On March 1, 2013, Dick Miles purchased a suit at Kenny's Fine Apparel Store. The suit cost $500 and Dick used his Kenny credit card. Kenny charges 2% per month interest if payment on credit charges is not made within 30 days. On April 30, 2013, Dick had not yet made his payment. What entry should Kenny make on April 30th? Uncollectible Account...................................................... 500 Accounts Receivable.............................................. 500 Bad Debts Expense......................................................... 490 Interest Expense.............................................................. 10 Accounts Receivable.............................................. 500 Accounts Receivable....................................................... 510 Interest Revenue..................................................... 10 Sales Revenue........................................................ 500 Accounts Receivable....................................................... 10 Interest Revenue..................................................... 10

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Jeff Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Jeff Retailers will include a credit to Sales of $75,000 and a debit(s) to Cash $72,000 and Service Charge Expense $3,000. Accounts Receivable $72,000 and Service Charge Expense $3,000. Cash $72,000 and Interest Expense $3,000. Accounts Receivable $75,000. Ans: LO: 4, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA


XYZ Company accepted a national credit card for a $3,000 purchase. The cost of the goods sold is $1,800. The credit card company charges a 3% fee. What is the impact of this transaction on net operating income? Increase by $1,110 Increase by $1,164 Increase by $1,200 Increase by $2,910 Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Major advantages of credit cards to the retailer include all of the following except the issuer does the credit investigation of customers. issuer undertakes the collection process. retailer receives more cash from the credit card issuer. All of these are advantages. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

The sale of receivables by a business indicates that the business is in financial difficulty. is generally the major revenue item on its income statement. is an indication that the business is owned by a factor. can be a quick way to generate cash for operating needs. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

If a retailer regularly sells its receivables to a factor, the service charge of the factor should be classified as a(n) selling expense. interest expense. other expense. contra asset.


Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

If a company sells its accounts receivables to a factor, the seller pays a commission to the factor. the factor pays a commission to the seller. there is a gain on the sale of the receivables. the seller defers recognition of sales revenue until the account is collected. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Retailers generally consider sales from the use of national credit card sales as a credit sale. collection of an accounts receivable. cash sale. collection of a note receivable. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Receivables might be sold to lengthen the cash-to-cash operating cycle. take advantage of deep discounts on the cash realizable value of receivables. generate cash quickly. finance companies at an amount greater than cash realizable value. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

A company regularly sells its receivables to a factor who assesses a 2% service charge on the amount of receivables purchased. Which of the following statements is true for the seller of the receivables? The loss section of the income statement will increase each time receivables are sold.


The credit to Accounts Receivable is less than the debit to Cash when the accounts are sold. Selling expenses will increase each time accounts are sold. The other expense section of the income statement will increase each time accounts are sold. Ans: LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

T’Pol Furniture factors $700,000 of receivables to Trip Factors, Inc. Trip Factors assesses a 2% service charge on the amount of receivables sold. T’Pol Furniture factors its receivables regularly with Trip Factors. What journal entry does T’Pol make when factoring these receivables? Cash................................................................................. 686,000 Loss on Sale of Receivables........................................... 14,000 Accounts Receivable.............................................. 700,000 Cash................................................................................. 686,000 Accounts Receivable.............................................. 686,000 Cash................................................................................. 700,000 Accounts Receivable.............................................. 686,000 Gain on Sale of Receivables................................... 14,000 Cash................................................................................. 686,000 Service Charge Expense................................................. 14,000 Accounts Receivable.............................................. 700,000

Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

When customers make purchases with a national credit card, the retailer is responsible for maintaining customer accounts. is not involved in the collection process. absorbs any losses from uncollectible accounts. receives cash equal to the full price of the merchandise sold from the credit card company.


Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

The retailer considers Visa and MasterCard sales as cash sales. promissory sales. credit sales. contingent sales. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

The basic issues in accounting for notes receivable include each of the following except analyzing notes receivable. disposing of notes receivable. recognizing notes receivable. valuing notes receivable. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A 60-day note receivable dated June 13 has a maturity date of August 13. August 12. August 11. August 10. Ans: LO: 5, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

The maturity value of a $60,000, 10%, 60-day note receivable dated July 3 is $60,000. $61,000.


$66,000. $70,000. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

A 90-day note dated June 14 has a maturity date of September 14. September 12. September 13. September 15. Ans: LO: 5, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

A 30-day note dated May 18 has a maturity date of June 18. June 17. June 19. June 16. Ans: LO: 5, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

A promissory note is not a formal credit instrument. may be used to settle an accounts receivable. has the party to whom the money is due as the maker. cannot be factored to another party. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

Which of the following is not true regarding a promissory note?


Promissory notes may not be transferred to another party by endorsement. Promissory notes may be sold to another party. Promissory notes give a stronger legal claim to the holder than accounts receivable. Promissory notes may be bearer notes and not specifically identify the payee by name. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics

The two key parties to a promissory note are the maker and a bank. debtor and the payee. maker and the payee. sender and the receiver. Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: None, AICPA PC: None, IMA: Business Economics

When calculating interest on a promissory note with the maturity date stated in terms of days, the maker pays more interest if 365 days are used instead of 360. maker pays the same interest regardless if 365 or 360 days are used. payee receives more interest if 360 days are used instead of 365. payee receives less interest if 360 days are used instead of 365. Ans: LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics The maturity value of a $4,000, 9%, 60-day note receivable dated February 10th is $4,000. $4,030. $4,060. $4,360. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics


The interest on a $10,000, 10%, 1-year note receivable is $1,000. $10,000. $10,100. $11,000. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

The maturity value of a $60,000, 8%, 3-month note receivable is $60,400. $60,480. $61,200. $64,800. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

The interest on a $5,000, 6%, 60-day note receivable is $50. $100. $150. $300. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

The interest on a $6,000, 6%, 90-day note receivable is $90. $180. $270. $360. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics


On November 1, Gentle Company received a $3,000, 10%, three-month note receivable. The cash to be received by Gentle Company when the note becomes due is: $3,000. $3,050. $3,075. $3,300. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

Silver Inc. received a 60-day, 6% note for $24,000 on April 5. Which of the following statement is true? Silver will receive $24,000 plus interest of $1,440 at maturity. Silver should record a total receivable due of $25,440 on April 5. The principal of the note plus interest is due on June 4. The maturity value of this note is $24,000. Ans: c LO: 5, Bloom: K, Difficulty: Easy, Min: 1 AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting A 5%, 120-day note receivable is received from a customer to settle an existing account receivable of $75,000. Assuming a 360 day year, the accounting entry for acquisition of the note will include a debit to Notes Receivable for $75,000 and no entry for interest. debit to Notes Receivable for $76,250. debit to Notes Receivable for $78,720. credit to Interest Revenue for $1,250. Ans: a LO: 6, Bloom: K, Difficulty: Easy, Min: 1 AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

On January 15, 2013, Craig Company received a two-month, 9%, $7,000 note from William Pentel for the settlement of his open account. The entry by Craig Company on January 15, 2013 would include a: debit of $7,105 to Notes Receivable. debit of $7,000 to Notes Receivable. credit of $7,105 to Accounts Receivable.


credit of $7,000 to Notes Receivable. Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

On January 15, 2013, Craig Company received a two-month, 9%, $7,000 note from William Pentel for the settlement of his open account. The entry by Craig Company on March 15, 2013 if Pentel dishonors the note and collection is expected is: Accounts Receivable—W. Pentel.................................... 7,000 Notes Receivable.................................................... 7,000 Accounts Receivable—W. Pentel.................................... 7,105 Notes Receivable.................................................... 7,000 Interest Revenue..................................................... 105 Accounts Receivable—W. Pentel.................................... 6,895 Interest Lost..................................................................... 105 Notes Receivable.................................................... 7,000 Bad Debts Expense......................................................... 7,105 Notes Receivable.................................................... 7,105

Ans: LO: 8, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Notes receivable are recorded in the accounts at cash (net) realizable value. face value. gross realizable value. maturity value. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

A note receivable is a negotiable instrument which


eliminates the need for a bad debts allowance. can be transferred to another party by endorsement. takes the place of checks in a business firm. can only be collected by a bank. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

A company that receives an interest bearing note receivable will debit Notes Receivable for the maturity value of the note. credit Notes Receivable for the maturity value of the note. debit Notes Receivable for the face value of the note. credit Notes Receivable for the face value of the note. Ans: LO: 6, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The face value of a note refers to the amount that can be received if sold to a factor. borrowed plus interest received at maturity from the maker. that is identified on the formal instrument of credit. remaining after a service charge has been deducted. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Reck Company receives a $10,000, 3-month, 8% promissory note from Fey Company in settlement of an open accounts receivable. What entry will Reck Company make upon receiving the note? Notes Receivable............................................................. 10,200 Accounts Receivable—Fey Company.................... 10,200 Notes Receivable............................................................. 10,200 Accounts Receivable—Fey Company.................... 10,000 Interest Revenue..................................................... 200


Notes Receivable............................................................. 10,000 Interest Receivable................................................. 200 Accounts Receivable—Fey Company.................... 10,000 Interest Revenue..................................................... 200 Notes Receivable............................................................. 10,000 Accounts Receivable—Fey Company.................... 10,000

Ans: LO: 6, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

When a note is accepted to settle an open account, Notes Receivable is debited for the note's net realizable value. maturity value. face value. face value plus interest. Ans: LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Short-term notes receivable are reported at cash (net) realizable value. face value. gross realizable value. maturity value. Ans: LO: 7, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Short-term notes receivables have a related allowance account called Allowance for Doubtful Notes Receivable.


are reported at their gross realizable value. use the same estimations and computations as accounts receivable to determine cash realizable value. present the same valuation problems as long-term notes receivables. Ans: LO: 7, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

When a note receivable is dishonored, interest revenue is never recorded. bad debts expense is recorded. the maturity value of the note is written off. Accounts Receivable is debited if eventual collection is expected. Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Randie Company lends Luann Company $10,000 on April 1, accepting a four-month, 9% interest note. Randie Company prepares financial statements on April 30. What adjusting entry should be made before the financial statements can be prepared? Note Receivable .............................................................. 10,000 Cash ....................................................................... 10,000 Interest Receivable ......................................................... 75 Interest Revenue .................................................... 75 Cash ................................................................................ 75 Interest Revenue .................................................... 75 Interest Receivable ......................................................... 300 Interest Revenue .................................................... 300

Ans: LO: 8, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

When a note receivable is honored, Cash is debited for the note's net realizable value.


maturity value. gross realizable value. face value. Ans: LO: 8, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

On October 1, 2012, Vero Beach Financial lent Morgan Corporation $600,000, receiving in exchange a nine-month, 12% note receivable. Vero Beach Financial ends its fiscal year on December 31 and makes adjusting entries to accrue interest earned on all notes receivable. The interest earned on the note receivable from Morgan Corporation during 2013 will amount to $13,500 $18,000 $44,500 $36,000

Ans: b LO: 8, Bloom: K, Difficulty: Easy, Min: 1 AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Flores Machinery has an accounts receivable turnover rate of 9. Which of the following statements is not true? (Assume 365 days in a year.) Flores waits approximately 41 days to make collections of its credit sales. Flores writes off accounts receivable as uncollectible if they are over 41 days old. Flores' net credit sales are about nine times the amount of its average net accounts receivable. Flores' accounts receivable are more liquid then a business whose accounts receivable turnover ratio is 5. Ans: b LO: 9, Bloom: K, Difficulty: Easy, Min: 1 AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Joplin Industry's 2013 income statement reported net sales of $8,000,000, uncollectible accounts expense of $185,000 and net income of $740,000. Joplin's average net accounts receivable during 2013 amounted to $1,600,000. Using 365 days to a year, Joplin's accounts receivable turnover rate is approximately 2.2 times. average number of days to collect an account receivable is 73 days.


average number of days to collect account receivable is 3.4 days. accounts receivable turnover ratio is approximately 4.4 times. Ans: b LO: 9, Bloom: K, Difficulty: Easy, Min: 1 AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Assuming a 365 day year, Mobile Industries calculated an average of 65 days to collect its accounts receivable in 2013. Which of the following statement is true? During 2013, Mobile's accounts receivable turnover ratio was equal to 65 times its average net accounts receivable. During 2013, Mobile's accounts receivable turnover ratio was approximately 0.18. c There is not enough information to calculate a turnover ratio. During 2013, Mobile's accounts receivable turnover ratio was approximately 5.62. Ans: d LO: 9, Bloom: K, Difficulty: Easy, Min: 1 AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

Magneto Company had net credit sales during the year of $1,200,000 and cost of goods sold of $720,000. The balance in accounts receivable at the beginning of the year was $180,000, and the end of the year it was $120,000. What was the accounts receivable turnover ratio? 5.0 6.7 8.0 10.0 Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting The average collection period for receivables is computed by dividing 365 days by net credit sales. average accounts receivable. ending accounts receivable. accounts receivable turnover ratio. Ans: LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


The average collection period is computed by dividing net credit sales by average gross accounts receivable. net credit sales by ending gross accounts receivable. the accounts receivable turnover ratio by 365 days. 365 days by the accounts receivable turnover ratio. Ans: LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting

The financial statements of Danielle Manufacturing Company report net sales of $600,000 and accounts receivable of $60,000 and $90,000 at the beginning and end of the year, respectively. What is the receivables turnover ratio for Danielle? 4 times 6.67 times 8 times 10 times Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The financial statements of Danielle Manufacturing Company report net sales of $600,000 and accounts receivable of $60,000 and $90,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days? 36.5 45.6 54.7 91.3 Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The financial statements of Gervais Manufacturing Company report net sales of $400,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of the year, respectively. What is the receivables turnover ratio for Gervais?


5 times 6.7 times 8 times 10 times Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

The financial statements of Gervais Manufacturing Company report net sales of $400,000 and accounts receivable of $80,000 and $40,000 at the beginning and end of the year, respectively. What is the average collection period for accounts receivable in days? 40 times 50 times 54.7 times 80 times Ans: LO: 9, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Which of the following are also called trade receivables? Accounts receivable Other receivables Advances to employees Income taxes refundable Ans: LO: 1, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Business Economics On February 1, 2013, Fugit Company sells merchandise on account to Armen Company for $6,500. The entry to record this transaction by Fugit Company is Sales Revenue....................................................................... 6,500 Accounts Payable.......................................................... 6,500 Cash....................................................................................... 6,500 Sales Revenue............................................................... 6,500 Accounts Receivable............................................................. 6,500 Sales Revenue............................................................... 6,500


Notes Receivable................................................................... 6,500 Accounts Receivable..................................................... 6,500

Ans: LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

Writing off an uncollectible account under the allowance method requires a debit to Accounts Receivable. Allowance for Doubtful Accounts. Bad Debts Expense. Uncollectible Accounts Expense. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

When the allowance method of recognizing bad debts expense is used, the entry to recognize that expense increases net income. decreases current assets. has no effect on current assets. has no effect on net income. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

The direct write-off method is acceptable for financial reporting purposes. debits Allowance for Doubtful Accounts to record write-offs of accounts. shows only actual losses from uncollectible accounts receivable. estimates bad debt losses. Ans: LO: 3, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


Deborah Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $2,100,000 and $35,000 (Cr.), respectively. An aging of accounts receivable indicated that $126,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at December 31 is $91,000. $126,000. $161,000. $210,000. Ans: LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA In recording the sale of accounts receivable, the commission charged by a factor is recorded as Bad Debts Expense. Commission Expense. Loss on Sale of Receivables. Service Charge Expense. Ans: LO: 4, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Industry/Sector Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: Business Economics

Schwartzman Co., makes a credit card sale to a customer for $600. The credit card sale has a grace period of 30 days and then an interest charge of 1.5% per month is added to the balance. If the unpaid balance on the above sale is $480 at the end of the grace period, the interest charge is $4.80. $7.20. $8.00. $12.00. Ans: LO: 4, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA

The interest rate specified on any note is for a day. month. week. year.


Ans: LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Risk Analysis, AICPA PC: None, IMA: Business Economics

On February 1, Ville Company received a $6,000, 10%, four-month note receivable. The cash to be received by Ville Company when the note becomes due is $200. $6,000. $6,200. $6,600. Ans: LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: Business Economics

The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to Notes Receivable. Cash. Allowance for Doubtful Accounts. Accounts Receivable. Ans: LO: 8, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Measurement, AICPA PC: None, IMA: FSA

Which of the following statements concerning receivables is incorrect? Notes receivable are often listed last under receivables. The contingent liability from selling notes receivable should be disclosed. Both the gross amount of receivables and the allowance for doubtful accounts should be reported. Interest revenue and gain on sale of notes receivable are shown under other revenues and gains. Ans: LO: 9, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting The accounts receivable turnover ratio is computed by dividing


total sales by average net accounts receivable. net credit sales by average net accounts receivable. total sales by ending net accounts receivable. net credit sales by ending net accounts receivable. Ans: LO: 9, Bloom: K, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting


Acc 557 week 6 quiz – strayer new