Mellon Corporation

The data presented below are for Mellon Corporation for the year ended December 31, 2017:

Sales (100% on credit) $1,500,000

Sales returns $60,000

Accounts receivable (December 31, 2017) $250,000

Allowance for doubtful accounts (credit balance) $3,000

(before adjustment at December 31, 2017)

Estimated amount of uncollectible accounts based on an aging analysis $31,000

Refer to the data for Mellon Corporation.

If Mellon uses 2% of net credit sales to estimate its bad debts, what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?

a.$31,800

b.$33,000

c.$25,800

d.$27,000

2.Which one of the following statements is true if a company's collection period for accounts receivable isunacceptablylong?

a.The company may offer trade discounts to lengthen the collection period.

b.The company should expand operations with its excess cash.

c.Cash flows from operations may be higher than expected for the company's sales.

d.The company may need to borrow to acquire operating cash.

3.Utah Co. sold merchandise to Big Sky Corp. on December 1, 2017, for $9,000 and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31.

What is the actual maturity date of the note?

a.March 1, 2018

b.January 29, 2018

c.February 28, 2018

d.December 31, 2017

4.When are consolidated financial statements prepared?

a.Only if one company owns 100% of another company

b.If one company owns more than 50% of another company

c.At the option of an investee company

d.At the option of an investor company

5.On February 1, 2017, Vermont Corp. pays $50,000 for shares of Stream, Inc. common stock and another $1,000 in commissions.

Assume that Vermont sells the Stream stock on May 20, 2017, for $53,000. In this case, Vermont recognizes a(n)

a.decrease in assets and an increase in stockholders' equity for $2,000.

b.increase and a decrease in assets by the same amount.

c.increase in assets and stockholders' equity for $2,000.

d.increase in assets and stockholders' equity for $3,000.

6.When a company discounts an interest-bearing note at a bank with recourse

a.the company is assured payment at maturity.

b.the company has a contingent liability from the time the note is discounted until its maturity date.

c.the bank assumes the credit risk on non-payment at the maturity date.

d.the company will receive the full amount of the note plus interest.

7.On November 2, 2017, Quaint General Store concluded that a customer's $400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on Quaint's 2017 net income and balance sheet totals assuming the allowance method is used to account for bad debts?

a.No effect on net income; no effect on total assets

b.Increase in net income; no effect on total assets

c.No effect on net income; decrease in total assets

d.Decrease in net income; decrease in total assets

8.Music Corporation

The data below are for Music Corporation for 2017:

Accounts receivableJanuary 1, 2017 $236,000

Credit sales during 2017 $820,000

Collections from credit customers during 2017 $590,000

Customer accounts written off as uncollectible during 2017 $8,000

Allowance for doubtful accountsJanuary 1, 2017 $8,700

Estimated uncollectible accounts based on an aging analysis $9,600

Refer to the data for Music Corporation.

What is the balance of Accounts Receivable at December 31, 2017?

a.$466,000

b.$458,000

c.$336,000

d.$448,400

9.When one company purchases less than 50% of equity securities in a second company, which of the following statements is true?

a.The purchaser is referred to as the subsidiary.

b.The company whose securities are purchased is the investee.

c.The purchaser is referred to as the parent.

d.The company whose securities are purchased is the subsidiary.

10.Comfort Shoes received a promissory note from a customer on April 1, 2017. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2017?

a.$40

b.$107

c.$160

d.$120

11.Which one of the following statements is true?

a.When a company uses a subsidiary ledger, the balance in the control account, Accounts Receivable, shows only the amount the company expects to collect from the accounts receivable, net of any expected uncollectible accounts.

b.The balance in the control account, Accounts Receivable, should be equal to the sum of the balances in the subsidiary ledger for accounts receivable.

c.A subsidiary ledger takes the place of the control account for some companies.

d.An accounts receivable subsidiary ledger represents amounts due to vendors and suppliers.

12.Where can the amounts needed to compute the accounts receivable turnover ratio be found?

a.The balance sheet

b.The statement of cash flows

c.The income statement

d.Both the income statement and balance sheet

13.On July 1, 2017, Overlin Corp. purchased $100,000 of 8% bonds at face value. Interest is paid annually on June 30. If the accounting year for Overlin ends at December 31, 2017, what will be reported with respect to the bonds on that date?

a.Interest income in the amount of $4,000 will be accrued.

b.A loss on the bonds will be reported in the Other Income and Expense section of the 2017 income statement until the entire amount of interest is paid on June 30, 2018.

c.The cash received in interest will be $8,000.

d.The carrying value of the bonds will be $108,000.

14.If Rope Inc. receives $23,825 from credit card collections and has an average rate of 4.7% charged by the credit card company, its credit card sales during the period were

a.$22,705.

b.$111,978.

c.$25,000.

d.$50,691.

15.Which of the following statements is true regarding dividend income?

a.Dividend income is recognized by companies that own debt securities.

b.Dividend income is reported on the income statement.

c.Dividend income is accrued at year-end.

d.Dividend income appears in the Stockholders' Equity section of the balance sheet.

16.Lynx Corp.

The data presented below for Lynx Corp. are for the year ended December 31, 2017:

Sales (100% on credit) $1,000,000

Sales returns $30,000

Accounts receivable (December 31, 2017) $170,000

Allowance for doubtful accounts (credit balance) $1,300

(before adjustment at December 31, 2017)

Estimated amount of uncollectible accounts based on aging analysis $14,000

See the data for Lynx Corp.

If Lynx Corp. uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debts expense?

a.$184,000

b.$167,000

c.$140,000

d.$156,000

17.If a company uses the direct write-off method of accounting for bad debts,

a.it will report accounts receivable on the balance sheet at their net realizable value.

b.it is applying the matching principle.

c.it will reduce the Accounts Receivable account at the end of the accounting period for estimated uncollectible accounts.

d.it will record bad debts expense only when an account is determined to be uncollectible.

18.On January 15, 2017, the accounts receivable balance was $7,000 and the balance in Allowance for Doubtful Accounts was $700. On January 16, 2017, a $200 uncollectible account was written off. The net realizable value of accounts receivable on January 16 immediately after the write-off is

a.$6,500.

b.$6,300.

c.$6,800.

d.$7,900.

19.Which one of the following isnotan accurate statement regarding the direct write-off method of accounting for bad debts?

a.Under the direct write-off method, an expense is increased.

b.The allowance method for bad debts violates the matching principle, but the direct write-off method does not.

c.The direct write-off method ignores the possibility that partial collection of a company's outstanding accounts receivable may occur.

d.The direct write-off method has some deficiencies when accounting for bad debts.

20.Mellon Corporation

The data presented below are for Mellon Corporation for the year ended December 31, 2017:

Sales (100% on credit) $1,500,000

Sales returns $60,000

Accounts receivable (December 31, 2017) $250,000

Allowance for doubtful accounts (credit balance) $3,000

(before adjustment at December 31, 2017)

Estimated amount of uncollectible accounts based on an aging analysis $31,000

Refer to the data for Mellon Corporation.

If Mellon estimates its bad debts at 2% of net credit sales, what amount will be reported as bad debts expense for 2017?

a.$30,000

b.$27,000

c.$25,800

d.$28,800

21.A check drawn by a company for $360 in payment of a liability was recorded in the journal as $630. This item would be included on the bank reconciliation as a(n)

a.addition to the balance per the bank statement.

b.deduction from the balance per the bank statement.

c.addition to the balance per the company's records.

d.deduction from the balance per the company's records.

22.The following set of items describes activities completed by a company in purchasing and paying for merchandise. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

Although the department supervisor can indicate a preferred supplier or vendor on purchase requisitions, the purchasing department has the responsibility for making the final decision on a vendor.

a.Violates sound internal control procedures

b.Adheres to sound internal control procedures

c.Neither strengthens nor violates internal control

23.The following set of items describes activities completed by a company in purchasing and paying for merchandise. For each activity, identify whether or not the activity adheres to or violates sound internal control procedures.

Checks are issued by designated officers in the finance department.

a.Adheres to sound internal control procedures

b.Violates sound internal control procedures

c.Neither strengthens nor violates internal control

24.Effective cash management and control includes all of the followingexcept

a.the use of a petty cash fund.

b.short-term investments of excess cash.

c.bank reconciliations.

d.purchase of stocks and bonds.

25.Which internal control procedure is followed when a physical count of inventory is performed in a perpetual inventory system?

a.Proper authorizations

b.Segregation of duties

c.Safeguarding assets and records

d.Independent verification

26.Which of the following items would be added to the balance per bank statement on a bank reconciliation?

a.Interest collected by the bank on a customer note

b.Deposit in transit

c.Outstanding checks

d.Service charge assessed by the bank

27.Taylor Corp. identified the following data in preparing a bank reconciliation on October 31, 2017:

Bank statement balance $29,600

Taylor's book balance (before adjustments) ?

Outstanding checks $3,100

NSF check $300

Service charge $200

Deposits in transit $2,200

Interest earned on checking account $100

What is the net amount of the adjustments to Taylor's cash balance as a result of the bank reconciliation?

a.No amounts need to be recorded.

b.$400 decrease

c.$900 decrease

d.$400 increase

28.Which of the following is a sound internal control procedure for cash disbursements?

a.Making copies of purchase orders for the receiving department so they know how many items to be expected upon delivery.

b.Using presigned checks to facilitate payment within the cash discount period.

c.Comparing purchase requisitions, purchase orders, receiving reports, and invoices.

d.Requiring the signature of the purchasing department supervisor on checks.

29.Taylor Corp. identified the following data in preparing a bank reconciliation on October 31, 2017:

Bank statement balance $29,600

Taylor's book balance (before adjustments) ?

Outstanding checks $3,100

NSF check $300

Service charge $200

Deposits in transit $2,200

Interest earned on checking account $100

How much is Taylor's adjusted cash balance on October 31, 2017?

a.$29,100

b.$28,300

c.$28,700

d.$29,600

30.Which of the following statements is true?

a.Sound internal control practice dictates that all cash payments should be made by check.

b.Petty cash can be substituted for a checking account to expedite the payment of all disbursements.

c.The person handling the cash should also prepare the bank reconciliation.

d.Good cash management practices dictate that a company should maintain as large a balance as possible in its Good Cash account.

31.When preparing a bank reconciliation, bank service charges are

a.added to the bank statement balance.

b.added to the company's book balance.

c.deducted from the bank statement balance.

d.deducted from the company's book balance.

32.When preparing a bank reconciliation, deposits in transit are

a.added to the company's bank balance.

b.deducted from the company's book balance.

c.deducted from the bank statement balance.

d.added to the bank statement balance.

33.The notification accompanying a check that indicates the specific invoice being paid is called a

a.voucher.

b.debit memorandum.

c.credit memorandum.

d.remittance advice.

34.Which of the following is an example of a credit memorandum?

a.Company error in recording a $600 deposit as $500

b.Collection of a note receivable by the bank

c.Outstanding check

d.Service charge

35.Deposits made by a company, butnotyet reflected on a bank statement are called

a.debit memoranda.

b.credit memoranda.

c.deposits in transit.

d.None of these choices are correct.

36.Which of the following isnota requirement of a company's external auditors under the Sarbanes-Oxley Act?

a.They cannot perform any brokerage services for the company.

b.They must design and implement an effective information system design.

c.They must give an opinion that the company maintained an effective internal control system over financial reporting.

d.All of these choices are requirements of a company's external auditors under the Sarbanes-Oxley Act.

37.Each of the following documents is used in the control of cash receiptsexcept

a.canceled checks from customers.

b.cash register tapes.

c.prenumbered customer receipts.

d.bank deposit slips.

38.A credit memorandum appeared on Central Company's bank statement. How will Central treat this amount on its bank reconciliation?

a.Deduct it from the book balance

b.Deduct it from the bank balance

c.Add it to the book balance

d.Add it to the bank balance

39.The treasurer for Rahm Corp. was preparing a bank reconciliation as of September 30, 2017. The following items were identified:

Rahm's book balance $32,800

Deposits in transit $4,300

Outstanding checks $2,200

Interest earned on checking account $100

Customer's NSF check returned by the bank $400

Rahm Corp.'s adjusted cash balance at September 30, 2017 is

a.$34,900.

b.$34,600.

c.$32,500.

d.$32,800.

40.Dinho Corporation identified the following data when preparing its April bank reconciliation:

Bank statement balance $45,000

Dinho's book balance (before adjustments) ?

Outstanding checks $4,500

NSF checks $1,400

Service charge $300

Deposits in transit $5,000

Interest earned on checking account $25

In addition, Dinho incorrectly recorded a deposit in its books in the amount of $1,000. The correct amount was recorded by the bank as $1,200.

What is the adjusted cash balance at the end of April?

a.$45,700

b.$44,300

c.$45,000

d.$45,500