Receivables & Sales
When customers purchase goods on account, Spitz Manufacturing offers them a 2% reduction in the amount owed if they pay within 10 days. This is an example of a:
A) Bad debt.
B) Sales discount.
C) Sales return.
D) Sales allowance.
B) Sales discount.
What type of company purchases raw materials and makes goods to sell?
A) Wholesaler.
B) Retailer.
C) Merchandiser.
D) Manufacturer.
D) Manufacturer.
Which of the following amortization methods is most commonly used?
A) Straight-line.
B) Double-declining-balance.
C) Activity-based.
D) A combination of methods.
A) Straight-line.
A company's liquidity refers to its:
A) Ability to collect accounts receivable.
B) Ability to sell inventory efficiently.
C) Ability to generate profits from operations.
D) Ability to pay currently maturing debts.
D) Ability to pay currently maturing debts.
The effect of a sales allowance will result in which of the following:
A)An increase to net income
B)A decrease to net income
C)An increase to accounts receivable
D)An increase to sales revenue
B)A decrease to net income
The balance of the Cost of Goods Sold account at the end of the year represents:
A) The cost of inventory not sold in the current year.
B) The total sales revenue to customers.
C) The cost of inventory sold in the current year.
D) Total purchases of inventory for the year.
C) The cost of inventory sold in the current year.
Which of the following costs would be expensed?
A)Adding a refrigeration unit to a delivery truck
B)Adding a new suspension system to a delivery truck that will allow for heavier loads
C)Adding a new transmission to a delivery truck, which will increase its life and future benefits
D)Performing a tune-up on a delivery truck
D)Performing a tune-up on a delivery truck
The current ratio is
A) Current assets divided by current liabilities.
B) Cash and short-term investments divided by current liabilities.
C) Cash, short-term investments, and accounts receivable divided by current liabilities.
D) Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.
A) Current assets divided by current liabilities.
When writing off an uncollectible account:
A)Bad debt expense is debited.
B)Net income is decreased.
C)Total assets are unchanged.
D)The allowance account is credited.
C)Total assets are unchanged.
Operating income is calculated as net sales minus:
A) Utilities expense.
B) Salaries expense.
C) Cost of goods sold.
D) All of the other answers are subtracted from net sales to calculate operating income.
D) All of the other answers are subtracted from net sales to calculate operating income.
Which one of the following regarding the book value of an asset is correct?
A) It is the fair value of the asset if the asset is sold.
B) It reflects the original cost of the asset less accumulated depreciation.
C) It is the original cost of the asset minus the depreciation expense for that asset during the year.
D) It is the original cost at which the asset was purchased.
B) It reflects the original cost of the asset less accumulated depreciation.
At times, businesses require advance payments from customers that will be applied to the purchase price when goods are delivered or services provided. These customer advances represent:
A) Liabilities until the product or service is provided.
B) A component of stockholders' equity.
C) Long-term assets until the product or service is provided.
D) Revenue upon receipt of the advance payment.
A) Liabilities until the product or service is provided.
A company accepts a note receivable of $5,000 on September 1, 2024, that matures in 10 months and has stated interest of 6%. What amount of interest revenue will the company record in 2024 and 2025? Suppose the fiscal year end is December 31, 2024.
A)2024 = $100; 2025 = $150
B)2024 = $125; 2025 = $125
C)2024 = $150; 2025 = $100
D)2024 = $0; 2025 = $250
A)2024 = $100; 2025 = $150
During a period of rising prices, which inventory cost flow assumption would result in the highest cost of goods sold, and thereby the lowest net income?
A)FIFO
B)LIFO
C)Weighted-average
D)FILO
B)LIFO
Jacobi Landscaping sold lawn equipment for $7,000. The equipment was originally purchased for $20,000, and depreciation through the date of sale totaled $15,000. What is the amount of the gain (or loss) on the sale?
A)$13,000
B)$8,000
C)$(2,000)
D)$2,000
D)$2,000
Gain = proceeds - net book value
= 7,000 - (20,000 - 15,000) = 2,000
On October 1, a company signs a $10,000, 5%, 6-month note payable. How much interest would be recorded by December 31 of the same year?
A)$250
B)$125
C)$500
D)$0
B)$125
Interest = $10,000 x 5% x 3/12 = 125
On December 31 before adjusting entries, a company reports the following balances:
• Accounts Receivable $100,000
• Allowance for Uncollectible Accounts $2,000 (debit)
The company estimates bad debts to be 20% of accounts receivable. The adjusting entry would include:
A)A debit to Bad Debt Expense for $22,000
B)A credit to Allow. for Uncollectible Accts for $18,000
C)A credit to Allow. for Uncollectible Accts. for $20,000
D)A debit to Bad Debt Expense for $20,000
A)A debit to Bad Debt Expense for $22,000
The following information relates to inventory for Shoeless Joe Incorporated.
March 1 Beginning Inventory-20@$2
March 7 Purchase-15@$3
March 11 Sale-25@$7
March 12 Purchase-20@4
At what amount would Shoeless report ending inventory using FIFO cost flow assumptions?
A. $55
B. $170
C. $70
D. $110
D. $110 (Ending inventory = ($3 × 10) + ($4 × 20) = $110.)
How much depreciation should be recorded in the first year for a delivery truck purchased on April 1 with a cost of $30,000, an expected service life of five years, and an estimated residual value of $5,000? Assume the straight-line method is used?
A)$ 5,000
B)$ 3,750
C)$ 4,500
D)$ 6,000
B)$ 3,750
Depr exp = (30,000-5,000)/5 = 5,000/year
9-month depr. exp = 5,000*9/12 = 3,750
During its first year of business, Oceanic, Inc. has sales of $300,000 and pays warranty claims of $10,400. Oceanic offers a one-year warranty and anticipates that warranty costs will total 5% of sales. What is the balance in Oceanic’s Warranty Liability account at the end of the first year?
A)$15,000
B)$4,600
C)$25,400
D)$20,800
B)$4,600
EB = 300,000 x 5% - 10,400 = 4,600