Bad debt expense is estimated and recorded in the period corresponding to the sale in which it was incurred because of which one of the following principles?

Select one:

a. economic entity principle

b. going concern principle

c. historical cost principle

d. full disclosure principle

e. matching principle

Austin Outfitters purchased inventory in the amount of $200. When Austin paid its bill, it took advantage of a 2 percent discount. Which journal entry would Austin make if it uses a periodic system?

Select one:

a. Accounts Payable: 4. Inventory: 4.

b. Accounts Payable: 200. Purchases: 196. Purchases Discount: 4.

c. Accounts Payable: 200. Cash: 200.

d. Accounts Payable: 200. Cash: 196. Purchases Discount: 4.

e. Accounts Payable: 200. Cash: 196. Inventory: 4.

Tim-Tom Corporation receives an invoice stating that the company will receive 1 percent discount if it pays within ten days. If the company is unable to pay within ten days, Tim-Tom has to pay the full amount within 35 days from invoice date. Which of the following clearly indicates the above terms on the invoice received by Tim-Tom?

Select one:

a. 2/10 n/45

b. 1/10 n/35

c. 10/1 n/35

d. 10/2 n/35

e. 35/10 n/1

On May 2, 2012, Salience Group Inc. purchased inventory of $1,500 on terms 1/15, n/35. However, company paid cash on May 20, 2012. The company uses perpetual inventory system and net method of reporting discounts. Which of the following is true of Salience Group?

Select one:

a. The company will record additional purchases of $15.

b. The company will record expense of $15 as it did not avail discount.

c. The company will record profit of $15 as it availed discount.

d. The company will ignore $15 as it is using net method of reporting discounts.

e. The company will debit inventory account for $15.

Which of the following will be reported on the balance sheet of a company?

Select one:

a. Difference between the allowance for doubtful accounts and bad debt expense

b. Bad debt expense

c. Difference between the total accounts receivable and bad debt expense

d. Difference between the total accounts receivable and allowance for doubtful accounts

e. Sum of bad debt expense and allowance for doubtful accounts

Which of the following titles reports the amount of revenue generated by credit sales that are owed to an organization by its customers?

Select one:

a. Accounts payable

b. Accounts receivable

c. Prepaid expense

d. Bad debt expense

e. Common stock

Under periodic inventory system, purchase of inventory is recorded with a debit to:

Select one:

a. inventory.

b. purchases.

c. purchase payable.

d. accounts payable.

e. cash.

Which of the following is the journal entry made by a company using perpetual inventory system to record the purchase of inventory?

Select one:

a. Accounts Payable, Inventory

b. Purchases, Inventory

c. Purchases, Accounts Payable

d. Inventory, Purchases

e. Inventory, Accounts Payable

Companies maintain two separate accounts for recording accounts receivables:

Select one:

a. Due to the uncertainties involved.

b. Due to the amount of cash sales that are made.

c. Due to the decrease in value of receivables.

d. Due to the decrease in accounting costs.

e. Due to the increase in credit sales.

Which of the following is true of a contra account?

Select one:

a. A contra account increases the value of another related account.

b. A contra account is used only for definite amounts.

c. A contra account eliminates uncertainties.

d. A contra account is netted with another account to calculate the reported value.

e. A contra account is shown on the income statement.

Winner Company purchased inventory and incurred cost of transporting goods to its warehouse. The company uses a perpetual inventory system. Which of the following is the journal entry that the company would make to record transportation cost?

Select one:

a. Inventory. Cash.

b. Purchases. Cash.

c. Cash. Inventory.

d. Transportation-in. Cash.

e. Transportation-in. Purchases.

Which of the following accounts is reported in the income statement?

Select one:

a. Allowance for doubtful accounts

b. Prepaid expense

c. Salary payable

d. Prepaid rent

e. Bad debt expense

The net realizable value of accounts receivable reduces with a(n):

Select one:

a. increase in cash sales.

b. decrease in cash sales.

c. increase in credit sales.

d. decrease in allowance for doubtful accounts.

e. collection of an account receivable.

Which of the following is true of cash discount?

Select one:

a. It is mandatory for sellers to offer cash discount.

b. Sellers incur loss by offering cash discount.

c. It simplifies the accounting for inventory.

d. It is different from sales discount.

e. Offering cash discount encourages speedy payment.

Coffee-cup Corporation received an invoice on May 2, 2012, stating the discount terms as 2/10, n/30. The company settled the invoice amount by paying $1,470 on May 10, 2012. What is the amount of discount received by Coffee-cup Corporation?

Select one:

a. $29.4

b. $147

c. $30

d. $150

e. $50

The process of adding cost to an asset account is termed as:

Select one:

a. conservatism.

b. matching.

c. capitalization.

d. revenue recognition.

e. consistency.

Which of the following is a factor to be considered in determining the net realizable value of accounts receivable?

Select one:

a. The current financial position of a company

b. The amount of profit earned by a company

c. The cumulative balance of bad debts

d. The amount of cash sales made during the period

e. The amount of sales made by a competing company

Under a periodic inventory system, cost incurred to bring the inventory from manufacturer to buyers warehouse should be recorded with a debit to:

Select one:

a. inventory.

b. accounts payable.

c. transportation-in.

d. purchase discounts.

e. assembly of inventory.

Which of the following is a goal of financial accounting?

Select one:

a. To fairly present a portrait of an organization

b. To portray profits of an organization in such a way so as to reduce taxes

c. To help an organization earn profits

d. To cover-up losses incurred by the organization

e. To signify the importance of nonmonetary transactions

Walton Books purchased inventory for $4,500. Walton pays $230 to have the inventory shipped to its place of business and pays another $120 to set up the inventory. Walton purchased the inventory knowing that some of the books needed to be rebound. This cost an additional $45. After Walton sold the inventory, it spent $110 to ship it to customers. What is the total amount capitalized to the inventory account by Walton Books?

Select one:

a. $4,500

b. $4,730

c. $4,850

d. $5,005

e. $4,895

Kingdom Company uses a periodic inventory system. Kingdom purchased $129,000 inventory from Cross Corporation. Kingdoms accountant accidentally debited accounts payable and credited purchases. Which of the following statements is true?

Select one:

a. Kingdoms assets are overstated.

b. Kingdoms net income is correctly stated.

c. Kingdoms liabilities are understated.

d. Kingdoms retained earnings are understated.

e. Kingdoms net income is understated.

Which of the following is the difference between the ending accounts receivable balance and its reported net value?

Select one:

a. bad debt expense

b. loss on sale

c. allowance for doubtful accounts

d. depreciation on accounts receivable

e. gain on sale

When a perpetual inventory system is in use, all additions and reductions are monitored in the _____ T-account.

Select one:

a. inventory

b. purchases

c. accounts payable

d. perpetual purchases

e. assembly of inventory

Which of the following is an appropriate adjusting entry for recording bad debt expense?

Select one:

a. Bad Debt Expense. Accounts Receivable.

b. Accounts Receivable. Allowance for Doubtful Accounts.

c. Allowance for Doubtful Accounts. Bad Debt Expense.

d. Allowance for Doubtful Accounts. Accounts Receivable.

e. Bad Debt Expense. Allowance for Doubtful Accounts.

Which of the following transactions increases the balance of accounts receivable?

Select one:

a. Paying rent in advance

b. Selling goods for cash

c. Paying salaries to employees

d. Purchasing inventory on account

e. Selling goods on account

Which of the following is a reason for the complication in accounting for inventory?

Select one:

a. Reporting is less standardized when compared to accounts receivable.

b. It involves recording a huge number of transactions.

c. Market price of inventory fluctuates very rapidly.

d. Inventory can be stolen by staff of a company.

e. It involves preparation of number of T-accounts.

Drive-in Inc. is a dealer in automobiles. The company bought 10 cars for $10,000 each. It spent $1,000 for transporting cars from the place of manufacturer to the place of sale. The company spent $260 for repairing two of the cars that were damaged due to the negligence of employees. Determine the amount to be capitalized by Drive-in Inc.

Select one:

a. $101,600

b. $100,400

c. $100,000

d. $101,400

e. $101,000

Zenith Inc. received an invoice of $4,600 with terms 2/15, n/45. What is the interest rate per year?

Select one:

a. 24.83%

b. 2.41%

c. 24.33%

d. 61.22%

e. 30.61%

Which of the following accounts reported on a balance sheet is merely an estimate?

Select one:

a. Buildings

b. Equipment

c. Accounts payable

d. Allowance for doubtful accounts

e. Common stock

An accounts receivable T-account monitors the:

Select one:

a. credit sales of a company.

b. cash sales of a company.

c. cash purchases of a company.

d. credit purchases of a company.

e. bad debt expense of a company.

Oliver Company purchases inventory costing $34 on September 14. The company spends $5 to transfer the inventory to its store and an additional $8 to set it up. One of Olivers employees accidentally dented an item that had to be fixed at a cost of $3. What would be the amount of inventory purchase?

Select one:

a. $34

b. $39

c. $42

d. $47

e. $50

The allowance for doubtful accounts is an example of what type of an account?

Select one:

a. contra-equity

b. contra-liability

c. contra-asset

d. liability

e. asset

Which of the following is true of a periodic inventory system?

Select one:

a. It keeps an ongoing record of a companys inventory.

b. Inventory balance found in the general ledger account at any point in time is identical to the merchandise physically on hand.

c. It relies on bar coding and computer scanning.

d. It requires maintaining subsidiary ledgers showing data about specific items on hand.

e. Inventory amounts are unknown both in total and individually.

Which are the two accounts netted to derive at the net realizable value of accounts receivable?

Select one:

a. Accounts receivable and bad debt expense

b. Accounts receivable and allowance for doubtful accounts

c. Allowance for doubtful accounts and accounts payable

d. Allowance for doubtful accounts and bad debt expense

e. Bad debt expense and accounts payable

Where is the cost of an individual item of inventory found in a perpetual inventory system?

Select one:

a. General journal

b. General ledger

c. Subsidiary ledger

d. Trial balance

e. Adjusted trial balance

Phillips Company purchased five tables for $200 each on May 5. The terms listed on the invoice Phillips received were 3/10 n/30. Phillips paid the invoice on May 14. How much did Phillips pay on that date?

Select one:

a. $1,000

b. $970

c. $900

d. $850

e. $1,030

Which of the following is a contra account?

Select one:

a. Accounts receivable

b. Bad debt expense

c. Allowance for doubtful accounts

d. Accounts payable

e. Sales

The net realizable value of accounts receivable is the:

Select one:

a. difference between the ending accounts receivable balance and the allowance for doubtful accounts.

b. difference between the total sales made and the bad debt expense.

c. total of credit sales made during the period.

d. sum of the beginning accounts receivables balance and the bad debt expense.

e. sum of the beginning accounts receivable balance and the allowance for doubtful accounts.

Which of the following is true of the accounts receivable account?

Select one:

a. Accounts receivable is a contra asset account.

b. Accounts receivable is ignored in calculating working capital.

c. Accounts receivable is reported at its net realizable value.

d. Accounts receivable is shown on the income statement.

e. Accounts receivable is a long-term asset.

Which of the following is a possible reason for the presence of estimated values in a set of financial statement?

Select one:

a. To create statements that are based on historical cost

b. Because of the biases involved

c. To evade taxes

d. Because of the lack of appropriate records

e. Because of the uncertainties involved