Financial Accounting, 10e (Libby)

Chapter 6 Reporting and Interpreting Sales Revenue, Receivables, and Cash

29) Which of the following statements is correct?
C) A seller records revenue when title and risks of ownership transfer to the buyer.

30) Which of the following would be included in Latimer Company's sales in 2019?
C) Goods shipped to customers in 2018 with terms of FOB destination. The customer
received the goods in 2019.

31) if A company sells a product FOB destination.

B) The sale will be recorded when the shipment is received by the customer.

32) Which of the following is not a reason for the Jones Hardware Store to accept credit cards from
customers?
B) The credit card company offers a discount to Jones so that Jones will have more money
available for operations.

33) Newark Company has provided the following information:

• Cash sales, $450,000

• Credit sales, $1,350,000
• Sales returns and allowances, $90,000
• Increase in accounts receivable, $55,000
• Sales discounts, $43,000

How much are Newark's net sales?

C) $1,667,000.

34) Newark Company has provided the following information:

• Cash sales, $450,000

• Credit sales, $1,350,000
• Selling and administrative expenses, $330,000
• Sales returns and allowances, $90,000
• Gross profit, $1,360,000
• Increase in accounts receivable, $55,000
• Bad debt expense, $33,000
• Sales discounts, $43,000
• Net income, $1,030,000
How much is Newark's cost of sales?
A) $307,000.

35) Newark Company has provided the following information:

• Cash sales, $450,000
• Credit sales, $1,350,000
• Increase in accounts receivable, $55,000
• Sales discounts, $43,000
How much cash was collected from customers?
Answer
Total Credit Sales = Credit Sales - Increase in Accounts Receivable
Total Credit Sales = $1,350,000 - $55,000= $1,295,000

Now, find the cash collected from customers:

Cash Collected = Cash Sales + Portion of Credit Sales Collected - Sales Discounts
Cash Collected = $450,000 + ($1,295,000) - $43,000
A) $1,659,000

36) Flyer Company has provided the following information prior to any year-end bad debt adjustment:
• Accounts receivable, $110,000
• Allowance for doubtful accounts credit balance, $1,200
Flyer prepares an aging of accounts receivable and the result shows that 5% of accounts
receivable is estimated to be uncollectible. How much is bad debt expense?
Answer
Total Allowance for Doubtful Accounts = $110,000 * 5%= $5,500
 Adjustment for Bad Debt Expense = Required Allowance - Existing Allowance (Credit
Balance)
Adjustment for Bad Debt Expense = $5,500 - $1,200
Adjustment for Bad Debt Expense = $4,300
D) $4,300.

37) Flyer Company has provided the following information prior to any year-end bad debt adjustment:
• Accounts receivable, $110,000
• Allowance for doubtful accounts credit balance, $1,200
Flyer prepares an aging of accounts receivable and the result shows that 5% of
accounts receivable is estimated to be uncollectible. What is the balance in the allowance for
doubtful accounts after bad debt expense is recorded?
ANSWER
Total Allowance for Doubtful Accounts = $110,000 * 5%= $5,500
Adjustment for Allowance = Required Allowance - Existing Allowance (Credit Balance)
Adjustment for Allowance = $5,500 - $1,200 = $4,300
New Allowance for Doubtful Accounts = Existing Allowance + Adjustment for Allowance = $1,200 +
$4,300 = $5,500
ANS: A) $5,500.

38) Flyer Company has provided the following information prior to any year-end bad debt adjustment:
• Credit sales, $450,000
• Allowance for doubtful accounts credit balance, $1,200
Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been
uncollectible. How much is Flyer's bad debt expense?
Bad Debt Expense = Credit Sales * Estimated Uncollectible Percentage
Bad Debt Expense = $450,000 * 0.015 = $6,750
ANS: $6,750.

39) Flyer Company has provided the following information prior to any year-end bad debt adjustment:

• Cash sales, $150,000

• Credit sales, $450,000
• Selling and administrative expenses, $110,000
• Sales returns and allowances, $30,000
• Gross profit, $490,000
• Accounts receivable, $110,000
• Sales discounts, $14,000
• Allowance for doubtful accounts credit balance, $1,200

Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been
uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense
is recorded?
A) $7,950.
B) $6,750.
C) $5,550.
D) $7,800.

40) Which of the following is correct when bad debt expense is recorded at year-end?
C) Income from operations will decrease.

41) Which of the following statements is false?

C) The journal entry to write off an uncollectible account receivable decreases operating
income.
42) Which of the following journal entries correctly records bad debt expense?

D)

43) Bad debt expense xxx

Allowance for doubtful accounts xxx
Which of the following journal entries correctly records the write off of an uncollectible account receivable
when using the allowance method?
B)

Allowance for doubtful accounts xxx

44) Accounts receivable xxx
The
CHS Company has provided the following information:
• Accounts receivable written-off as uncollectible during the year amounted to $11,500.
• The accounts receivable balance at the beginning of the year was $150,000.
• The accounts receivable balance at the end of the year was $210,000.
• The allowance for doubtful accounts balance at the beginning of the year was $14,000.
• The allowance for doubtful accounts balance at the end of the year after the recording of bad
debt expense was $12,900.
• Credit sales during the year totaled $900,000.
How much was CHS Company's bad debt expense?
C) $10,400.

45) The CHS Company has provided the following information:

 Accounts receivable written-off as uncollectible during the year amounted to $11,500.
 The accounts receivable balance at the beginning of the year was $150,000.
 The accounts receivable balance at the end of the year was $210,000.
 The allowance for doubtful accounts balance at the beginning of the year was $14,000.
 The allowance for doubtful accounts balance at the end of the year after the recording of bad
debt expense was $12,900.
 Credit sales during the year totaled $900,000.
How much cash was received from collections of accounts receivable?
B) $828,500.
Answer: B

46) Superior Company has provided you with the following information before any year-end adjustments:
Net credit sales are $120,000.
Historical percentage of credit losses is 2%.
Allowance for doubtful accounts has a credit balance of $300.
Accounts receivables ending balance is $47,000.
What is the estimated bad debt expense using the percentage of credit sales method?
B) $2,400.
Answer: B

47) Which of the following statements is correct?

B. The journal entry to record bad debt expense requires a debit to bad debt expense and a credit to
allowance for doubtful accounts.
Answer: B

48) Clark Company estimated the net realizable value of its accounts receivable as of December 31, 2019, to
be $165,000, based on an aging schedule of accounts receivable. Clark has also provided the following
information:
 The accounts receivable balance on December 31, 2019 was $175,000.
 Uncollectible accounts receivable written off during 2019 totaled $12,000.
 The allowance for doubtful accounts balance on January 1, 2019 was $15,000.
How much is Clark's 2019 bad debt expense?
B) $7,000.
Answer: B

49) What would be incorrect about reporting accounts receivable in the balance sheet?
C) Presenting accounts receivable less bad debt expense and write-offs.
Answer: C
50) Which of the following statements correctly describes the effect of recording the collection of a $10,000
account receivable for which a 2% sales discount was recorded at the time of collection?
B) Gross profit will decrease $200.
Answer: B

51) Which of the following journal entries correctly records the collection of an account receivable for
which a 1% sales discount was recorded at the time of collection?
A)
Cash xxx
Sales discounts xxx
Accounts receivable xxx

52) Which of the following correctly describes the effect of a journal entry involving the recording of a sales
return?
A) Gross profit decreases.

53) Which of the following correctly describes the effect of a sales discount?
D) Net income decreases.

54) Which of the following does not correctly describe the effect of a credit card discount?
D) Neither operating expenses nor net income is affected

55) Which of the following does not correctly describe the effect of a journal entry involving the recording
of a credit card discount?
B) Net sales decrease, operating expenses increase, and net income remains the same.

56) Which of the following correctly describes credit terms of 2/10, n/30?
B) A two percent discount for early payment is available if the invoice is paid within ten days of the
date of sale.

57) A customer purchased and received $5,000 of goods on credit from Discount Paper Supply on
September 1. The customer received the bill on September 13 and mailed a $5,000 check on September 30.
Discount Paper Supply received the check on October 4. On which of the following dates should Discount
Paper Supply record sales revenue?
A) September 1

58) When a credit sale is made with terms of 2/10, n/30 on May 10 and the customer's check is received on
May 19, which of the following is true about the May 19 journal entry?
C) The debit to cash will be less than the credit to accounts receivable on May 19.

59) A company had the following partial list of account balances at year-end:

Sales Returns and Allowances $ 1,000

Accounts Receivable 38,000
Sales Discounts 2,100
Sales Revenue 95,000
Allowance for Doubtful Accounts 1,200

How much is net sales revenue?

A) $91,900.

60) A company purchased goods on credit with credit terms of 3/15, n/45. Although the company does not
have cash available to pay within the discount period, the manager of the company is considering borrowing
money to take advantage of the discount. In order to make the appropriate decision, the manager computed
the annual interest rate associated with the sales discount. Which of the following is the annual interest rate
(rounded)? (Use 365 days a year)
B) 38%.

61) When credit terms for a sale are 2/15, n/40, the customer saves by paying early. What percent (rounded)
would this savings amount to on an annual basis?
C) 29.2%.

62) Which of the following accounts is not a contra-revenue account?

D) Allowance for doubtful accounts
63) Dillon Company uses the allowance method to account for bad debts. The entry to write off a bad
account (one that will never be collected) should be:

D)

Debit Credit
Allowance for doubtful accounts Accounts receivable

64) When using the allowance method for accounting for bad debts, accounts receivable is reported on the
balance sheet at the expected net realizable value. When a particular receivable from a customer ultimately
is determined to be uncollectible and is written off, the recording of this event will:
D) Have no effect on the net realizable value of the accounts receivable.

65) Oakwood Company had accounts receivable of $750,000 and an allowance for doubtful accounts of
$21,500 just prior to writing off as worthless a customer's $5,000 account receivable. The net realizable
value of Oakwood's accounts receivable as shown by the accounting records before and after the write off
was as follows:
D)
Before After
$728,500 $728,500

66) Woodland Company uses the allowance method to account for bad debts. During the current year, a
customer declared bankruptcy and a receivable of $10,000 was deemed uncollectible. Which of the following
journal entries records Woodland's uncollectible account write-off?
A)

Allowance for doubtful accounts 10,000

Accounts receivable 10,000

67) At year-end, Chief Company has a balance of $10,000 in accounts receivable of which $1,000 is more
than 30 days overdue. Chief has a credit balance of $100 in the allowance for doubtful accounts before any
year-end adjustments. Using the aging of accounts receivable method, Chief estimates that 1% of current
accounts and 10% of accounts over thirty days are uncollectible. What is the amount of bad debt expense?
A) $90.

68) Upon completing an aging analysis of accounts receivable, the accountant for Rosco Works prepared an
aging of accounts receivable and estimated that $5,000 of the $98,000 accounts receivable balance would be
uncollectible. The allowance for doubtful accounts had a $400 debit balance at year-end prior to
adjustment. What is the amount of bad debt expense?
B) $5,400.

69) Which of the following statements does not correctly describe the allowance for doubtful accounts
balance?
C) It is reported on the balance sheet as a component of stockholders' equity.

70) The Roscoe Company's March 31 bank statement balance was $70,000. As of March 31, outstanding
checks total $22,000 and deposits in transit total $15,000. Assuming there are no other reconciling items,
what was the March 31 cash balance on Roscoe's books?
A) $63,000.

71) The Tanner Company's April 30 pre-reconciliation cash balance on its books was $35,000. While
preparing the April 30 bank reconciliation, Tanner determined that outstanding checks total $11,000,
deposits in transit total $7,000, and bank service charges are $50. Assuming there are no other reconciling
items, what was Tanner's April 30 cash balance per the bank statement?
C) $38,950.

72) The Conner Company's August 31 pre-reconciliation cash balance on its books was $90,000. As of
August 31, outstanding checks total $44,000 and deposits in transit total $30,000. Assuming there are no
other reconciling items, what was the August 31 cash balance on Conner's bank statement?
D) $104,000.

73) Which of the following statements pertaining to bank reconciliations is false?

 C) Bank service charges are deducted from the bank cash balance.

74) When a depositor receives a bank statement indicating that there was a "NSF check," the depositor
should do which of the following?
A) Reduce the cash account per the books for the amount of the "NSF check."

75) A deposit in transit in a bank reconciliation should be:

C) Added to the bank statement balance.

76) CHS Company has just finished preparing its bank reconciliation. If CHS did everything correctly,
which items would have been included as an addition to the company's cash account?
B) Interest received.

77) Dally Company has just finished preparing its bank reconciliation. If everything was done correctly,
which of the following items would be reported as a deduction from the company's ending balance per the
bank?
C) Outstanding checks.

78) Linetech Company's bank statement showed an ending balance of $8,000. Items appearing in the bank
reconciliation included: outstanding checks, $500; deposits in transit, $1,000; bank service charges, $50; and
Driver Company's $250 check erroneously deducted from Linetech's bank account by the bank. What is the
correct cash balance at the end of the month?
B) $8,750.

79) Which of the following demonstrates a poor internal control procedure?

A) The bookkeeper makes cash deposits and records journal entries related to cash, while the treasurer
prepares the bank reconciliation.

80) The cash records and the bank statement of Frankel Company showed the following at the end of
February: Outstanding checks as of the beginning of February, $8,000; checks written by Frankel Company
according to its books during February, $50,000; and checks cleared by the bank during February, $54,000.
What was the amount of the outstanding checks at the end of February?
B) $4,000.

81) The cash account and the December bank statement of Gomez Company showed the following: deposits
made by Gomez Company during December, $90,000; deposits reflected on the December bank statement,
$88,000; and deposits in transit on November 30, $5,000. What was the amount of deposits in transit at the
end of December?
B) $7,000.

82) When preparing the monthly bank reconciliation, the accountant for Farris Corporation discovered
that a check correctly written to one of Farris' suppliers for $159 had been incorrectly recorded in the
books as $195. Which of the following statements is correct with respect to the bank reconciliation process?
D) The cash balance per the books will be increased.
83) When preparing a bank reconciliation, which of the following would be deducted from the company's
cash balance?
D) The bank service charges included on the bank statement.

84) Merchandise was sold on credit for $10,000, terms 2/10, n/30. Which of the following journal entry
descriptions correctly describes the cash collection?
D) Cash is debited for $10,000 and accounts receivable is credited for $10,000 if the collection is after
the discount period.

85) Merchandise was sold on credit for $30,000, terms 3/15, n/30. Which of the following journal entry
descriptions correctly describes the cash collection?
B) Cash is debited for $29,100, sales discounts is debited for $900, and accounts receivable is credited for $30,000
if the collection is within the discount period.

86) Which of the following does not correctly describe the following journal entry?

Cash xxx
Credit card discount xxx
Accounts receivable xxx

D) Net income is not affected.

87) Which of the following correctly describes the following journal entry?

Cash xxx
Sales discounts xxx
Accounts receivable xxx

B) Net income decreases.

88) Which of the following does not correctly describe the following journal entry?

Sales returns and allowances xxx

Accounts receivable xxx

D) Operating expenses increase.

89) The Ward Company has provided the following information:

• Net sales totaled $750,000.
• Beginning net accounts receivable was $65,000.
• Ending net accounts receivable was $85,000.
What was Ward's receivables turnover ratio?
A) 10.0

90) The Ward Company has provided the following information:

• Net sales totaled $750,000.
• Beginning net accounts receivable was $65,000.
• Ending net accounts receivable was $85,000.
What was Ward's average collection period? (Use 365 days a year)
D) 36.5 days.