Principles of accounting 1 ex 7

1.Immediately after receiving a note from a customer, Ross discounted it at the bank and received the proceeds. Rosss entry on his books would be to __________.

A. debit Cash and credit Notes Payable

B. debit Cash, credit Interest Income, and credit Notes Receivable

C. debit Cash, debit Interest Expense, and credit Notes Receivable

D. debit Notes Receivable, credit Cash, and credit Interest Income

2.A promissory note __________.

A. is a written promise to pay

B. is an oral promise to pay

C. is due in 30 days

D. entitles the maker to a discount

3.On November 10, Twister Rides issued a 14%, 90-day, $15,000 promissory note. Twister should record the payment of the note on the maturity day by __________.

A. debiting Notes Payable $15,525; crediting Cash $15,525

B. debiting Notes Payable $15,000; debiting Interest Payable $525; crediting Cash $15,525

C. debiting Notes Payable $15,000; debiting Interest Expense $525; crediting Cash $15,525

D. debiting Notes Payable $15,000; crediting Cash $15,000

4.An acid test (quick. ratio of 0.75 to 1 would indicate __________.

A. a ratio that would not allow a company to pay off all current liabilities with quick assets

B. that for every $1 of short-term debt there are $0.75 of quick assets to meet short-term obligations

C. that for every $1 of current assets there are $0.75 of short-term debt

D. both A and B

5.Straight Company sold merchandise to Cross Company and received a promissory note from Cross. Straight should record the transaction by __________.

A. debiting Notes Receivable and crediting Sales for the principal amount of the note

B. debiting Notes Receivable and crediting Sales for the maturity value of the note

C. debiting Accounts Receivable and crediting Sales for the maturity amount of the note

D. debiting Accounts Receivable and crediting Sales for the principal amount of the note

6.Tricias Decor purchased merchandise from House Beautiful and issued a promissory note. Tricia should record the transaction by __________.

A. debiting Purchases and crediting Notes Payable for the principal amount of the note

B. debiting Purchases and crediting Notes Payable for the maturity value of the note

C. debiting Purchases and crediting Accounts Payable for the face amount of the note

D. debiting Purchases and crediting Accounts Payable for the maturity value of the note

7.Morris Law Firm is borrowing $10,000 at 6% interest for one year. The $10,000 is the __________.

A. proceeds

B. principal

C. amount of interest

D. net amount

8.James borrowed $550 from Tracy. James promised in writing that he would repay the money to Tracy on May 13, 2013. At the time of the loan, Tracy recorded the transaction as a(n. __________.

A. Accounts Receivable

B. Accounts Payable

C. Promissory Note Receivable

D. Promissory Note Payable

9.Cory issued a note to his creditor in exchange for an account. Cory records the transaction by __________.

A. debiting Notes Payable; crediting Accounts Payable

B. debiting Notes Receivable; crediting Accounts Receivable

C. debiting Accounts Payable; crediting Notes Payable

D. debiting Accounts Receivable; crediting Notes Payable

10.When Major endorsed customer Minors note to Story County Bank, Major agreed to pay the note at maturity if Minor failed to pay. Majors liability is a(n. __________.

A. contra-liability

B. absolute liability

C. contingent liability

D. regular liability

11.Martin Company needs additional time to pay its accounts payable to Boster Company. Martin makes a written promise to pay Boster the amount on a certain date. Boster records this transaction by __________.

A. debiting Notes Receivable; crediting Accounts Receivable

B. debiting Cash; crediting Accounts Receivable

C. debiting Accounts Receivable; crediting Notes Receivable

D. debiting Notes Receivable; crediting Cash

12.Jane borrowed $1,000 from West Bank and signed a promissory note. Jane is the __________.

A. payee

B. drawee

C. creditor

D. maker

13.The person or company that borrows money and signs a promissory note payable is the __________.

A. drawee

B. drawer

C. payee

D. maker

14.Carlas Fashions has an average collection period of 30 days. You could infer that Carlas Fashions __________.

A. bills its customers monthly

B. bills its customers quarterly

C. has an Accounts Receivable turnover of approximately 12

D. both A and C

15.Brooke Company grants James Decorating additional time to pay its past due account. James makes a written promise to pay Brooke the amount on a certain date. James records this transaction by __________.

A. debiting Notes Receivable; crediting Accounts Receivable

B. debiting Cash; crediting Accounts Receivable

C. debiting Accounts Receivable; crediting Notes Receivable

D. debiting Accounts Payable; crediting Notes Payable

16.Which situation would not result in a separation of duties?

A. The person who approves purchases does not make the payments.

B. The person who processes customer payments is the same as the person who makes journal entries.

C. The person who makes purchases is different from the one who approves the purchase.

D. The person who distributes paychecks does not make journal entries.

17.With a beginning Accounts Receivable balance of $20,000, an ending balance of $26,000, and net credit sales of $408,000, what is the Accounts Receivable turnover ratio?

A. 0.05

B. 20.4

C. 17.7

D. 68

18.Brooke Company grants James Decorating additional time to pay its past due account. James makes a written promise to pay Brooke the amount on a certain date. James records this transaction by __________.

A. debiting Notes Receivable; crediting Accounts Receivable

B. debiting Cash; crediting Accounts Receivable

C. debiting Accounts Receivable; crediting Notes Receivable

D. debiting Accounts Payable; crediting Notes Payable

19.With a beginning Accounts Receivable balance of $70,000, an ending balance of $140,000, and net credit sales of $800,000, what is the Accounts Receivable turnover ratio (rounded to the nearest tenth.?

A. 7.6

B. 11.4

C. 5.7

D. 3

20.If your customer does not pay the note at maturity, the journal entry on your books would __________.

A. debit Notes Payable and credit Accounts Payable

B. debit Accounts Payable, credit Interest Income, and credit Notes Payable

C. debit Accounts Receivable, credit Interest Income, and credit Notes Receivable

D. debit Notes Receivable, credit Interest Income, and credit Accounts Receivable

21.Bills Bikes discounts a 90-day, 8%, $4,000 note at a bank at 12%. The discount period is 50 days. It records the proceeds by __________.

A. debiting Cash $4,012; crediting Notes Receivable $4,000; crediting Interest Income $12

B. debiting Cash $4,160; crediting Notes Receivable $4,080; crediting Interest Income $80

C. debiting Cash $4,068, crediting Notes Receivable $4,000; crediting Interest Income $68

D. debiting Cash $4,012; crediting Notes Receivable $4,000, crediting Interest Expense $12

22.Which inventory method produces the lowest income tax during a period of inflation?

A. LIFO

B. FIFO

C. weighted-average

D. All of the above would have the same tax effect.

23.Shaylas Design uses a periodic inventory system. The business sold 33 artist kits during January. Other data for January includes:

Jan. 1

Balance

12 kits @ $30

11

Purchased

20 kits @ $33

25

Purchased

26 kits @ $35

Ending inventory under the FIFO method is __________.

A. $1,141

B. $1,055

C. $875

D. $789

24. Last years ending inventory was overstated. This error would cause __________.

A. this periods net income to be overstated

B. this periods net income to be understated

C. this periods end assets to be overstated

D. None of the above

25. An overstatement of ending inventory in one period results in __________.

A. an overstatement of net income for the next period

B. no effect on net income for the next period

C. an overstatement of the ending inventory for the next period

D. an understatement of net income for the next period

26. Office supplies bought on account were returned for credit and recorded with a debit to Accounts Payable and a credit to Merchandise Inventory. This error would cause __________.

A. the periods end Cost of Goods Sold to be understated

B. the periods end Cost of Goods Sold to be overstated

C. the periods net income to be understated

D. none of the above

27. The freight paid on goods purchased F.O.B. shipping point was debited to the Freight Expense account. This error would cause __________.

A. the periods end assets to be understated

B. the periods end liabilities to be understated

C. the periods net income to be overstated

D. none of the above

28. The company returned $200 worth of damaged merchandise. The entry to record this under the periodic inventory method is __________.

A. debit Merchandise Inventory $200; credit Accounts Payable $200

B. debit Cost of Goods Sold $200; credit Accounts Payable $200

C. debit Accounts Payable $200; credit Purchases Returns and Allowances $200

D. debit Accounts Payable $200; credit Merchandise Inventory $200

29.The advantage of the weighted-average method is that __________.

A. an equal cost is assigned to each unit, so net income does not fluctuate as much as with other methods

B. the flow of goods and flow of costs are the same

C. it matches current selling prices and current costs

D. old costs are matched against current income

30. Under the periodic inventory system, in addition to making the entry to record a sale, a company would __________.

A. debit Merchandise Inventory and credit Cost of Goods Sold

B. debit Cost of Goods Sold and credit Merchandise Inventory

C. debit Cost of Goods Sold and credit Purchases

D. make no additional entry

31.An entry to record the payment to a vendor was correctly recorded and posted to the general ledger but was not posted to the subsidiary ledger. This error would cause __________.

A. the periods end assets to be understated

B. the periods end liabilities to be understated

C. the Accounts Payable to be larger than the subsidiary ledger

D. the Accounts Payable to be less than the subsidiary ledger

32.Which method assumes that the most recently acquired goods are sold first?

A. LIFO

B. FIFO

C. specific invoice method

D. weighted-average method

33. A credit customer purchased $450 worth of items. Two days later, she returned $300 worth of those items. The entry to record this under the perpetual inventory method would include a __________.

A. debit to Sales Returns and Allowances of $300 and a credit to Accounts Receivable of $300

B. debit to Merchandise Inventory for our cost

C. credit to Cost of Goods Sold for our cost

D. all of the above

34. If the ending inventory is overstated in Period 1, __________.

A. beginning inventory in Period 2 is overstated

B. goods available for sale in Period 2 are overstated

C. Cost of Goods Sold in Period 2 is overstated

D. All of the above

35. The journal entry to record a sale of inventory under the perpetual system includes a __________.

A. debit to Cost of Goods Sold and a credit to Merchandise Inventory

B. debit to Cost of Goods Sold and a debit to Merchandise Inventory

C. debit to Accounts Receivable or Cash and a credit to Sales

D. both A and C

36. Which of the following accounts is used with a periodic inventory system?

A. Purchases

B. Purchases Discounts

C. Purchases Returns and Allowances

D. all of the above

37. Sterling Supply uses a periodic inventory system. The business sold 25 globes during March. Other data for March includes:

Mar. 1

Balance

20 @ $12

11

Purchased

10 @ 11

25

Purchased

10 @ 10

Ending inventory under the weighted-average method is:

A. $281.25

B. $155.00

C. $180.00

D. $168.75

38. Under the perpetual system, the purchase of merchandise is recorded by a __________.

A. debit to Merchandise Inventory; credit to Accounts Payable or Cash

B. debit to Cost of Goods Sold; credit to Accounts Payable

C. debit to Purchases; credit to Accounts Payable

D. debit to Accounts Payable; credit to Purchases

39. In a perpetual inventory system __________.

A. Merchandise Inventory is debited every time inventory is purchased

B. Cost of Goods Sold is debited every time inventory is sold

C. a physical inventory is taken at least annually

D. all of the above

40. The freight paid on goods purchased F.O.B. shipping point was debited to the Purchases account. This error would cause __________.

A. the periods end expenses to be understated

B. the periods end expenses to be overstated

C. the periods net income to be understated

D. none of the above