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Financial Accounting 3rd Edition Kemp Waybright Test Bank

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Financial Accounting 3rd Edition Kemp Waybright Test Bank

ISBN-13: 978-0133427882

ISBN-10: 0133427889

 

Description

Financial Accounting 3rd Edition Kemp Waybright Test Bank

ISBN-13: 978-0133427882

ISBN-10: 0133427889

 

 

 

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Free Nursing Test Questions:

 

Financial Accounting, 3e (Kemp/Waybright)

Chapter 7   Cash and Receivables

 

7.1   Questions

 

1) Credit sales are the most desirable form of sales.

Answer:  FALSE

Diff: 1

LO:  7-1

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

2) The most common credit cards issued by financial institutions are Discover and American Express.

Answer:  FALSE

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

3) The most common types of financial institution credit cards are MasterCard and Visa.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

4) MasterCard and Visa sales are treated like cash sales.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

5) Most financial institutions charge the retailer a service fee that enables the retailer to accept the credit cards as payment on merchandise.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

6) From the retailer’s perspective, debit cards are nearly identical to credit cards and have the same benefits and drawbacks.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

7) Cash is one of the least vulnerable assets that a business has.

Answer:  FALSE

Diff: 1

LO:  7-1

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

8) The cash register provides control over the cash receipts for a retail business.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

9) Cash receipts should never be deposited more than once a business day.

Answer:  FALSE

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

10) Separation of duties is essential for internal control over cash receipts and cash payments.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

11) Streamlined payment procedures now involve the use of electronic data interchange and electronic funds transfer between and among suppliers and merchandisers.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

12) Bank reconciliations are an important part of internal control that should be performed daily.

Answer:  FALSE

Diff: 1

LO:  7-1

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

13) In a bank reconciliation, the bank balance and the book balance must be adjusted to be reconciled.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  S7-3

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

14) Differences between when a company records a transaction and when the bank records the same transaction are called “timing” differences.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

15) If possible, the bank reconciler should have no other duties relating to cash transactions in the business.

Answer:  TRUE

Diff: 1

LO:  7-1

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

16) Online banking should NOT be used to reconcile the bank account.

Answer:  FALSE

Diff: 1

LO:  7-1

EOC Ref:  S7-1

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

17) The processing of credit card and debit card transactions is generally done:

  1. A) at the retail site.
  2. B) at the financial institution of the retailer.
  3. C) by third parties hired to do the processing.
  4. D) over the Internet.

Answer:  C

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

18) Proceeds from credit card and debit card transactions are generally deposited into a business’s bank account within:

  1. A) one to three days.
  2. B) three to five days.
  3. C) a week.
  4. D) a month.

Answer:  A

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

19) A retailer has 4% credit/debit card service fees deducted from the proceeds from each sale. The retailer has $1,200 in credit/debit card sales for the day. The journal entry to record these sales would be to:

  1. A) debit Cash for $1,200 and credit Sales for $1,200.
  2. B) debit Sales for $1,200 and credit Cash for $1,200.
  3. C) debit Cash for $1,152, debit Service Fee Expense for $48; and credit Sales for $1,200.
  4. D) debit Cash for $1,152 and credit Sales for $1,152.

Answer:  C

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

20) A retailer has 3% credit/debit card service fees deducted from the proceeds from each sale. The retailer has $1,700 in credit/debit card sales for the day. The journal entry to record these sales would be to:

  1. A) debit sales for $1,700 and credit Cash for $1,700.
  2. B) debit Cash for $1,700 and credit Sales for $1,700.
  3. C) debit Cash for $1,649, debit Service Fee Expense for $51; and credit Sales for $1,200.
  4. D) debit Cash for $1,700, credit Sales for $1,649, and credit Service Fee Expense for $51.

Answer:  C

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

21) A retailer has 5% credit/debit card service fees deducted from the business’s bank account on a monthly basis. The retailer has $43,500 in sales for the month. The journal entry to record these sales would be to:

  1. A) debit Sales for $43,500 and credit Cash for $43,500.
  2. B) debit Cash for $43,500 and credit Sales for $43,500.
  3. C) debit Cash for $41,325, debit Service Fee Expense for $2,175 and credit Sales for $43,500.
  4. D) debit Cash for $43,500, credit Sales for $41,325 and credit Service Fee Expense for $2,175.

Answer:  B

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

22) Toy Company has 4% credit/debit card service fees deducted monthly by the bank from Toy Company’s bank account. Toy Company has $75,000 in sales for the month. At what amount will Toy Company record this month’s sales?

  1. A) $78,000
  2. B) $75,000
  3. C) $72,000
  4. D) $3,000

Answer:  B

Diff: 1

LO:  7-1

EOC Ref:  Introduction

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

23) When companies extend credit to customers:

  1. A) sales generally decrease.
  2. B) the likelihood of not collecting money from customers decreases.
  3. C) the likelihood of not collecting money from customers increases.
  4. D) the business stays the same.

Answer:  C

Diff: 2

LO:  7-1

EOC Ref:  Introduction

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

24) Which of the following situations would cause Acme Company to have an NSF check amount on its bank reconciliation?

  1. A) Acme writes a check to a supplier that bounces.
  2. B) A customer writes a check to pay Acme and that check bounces.
  3. C) Both situations A and B will cause Acme to have an NSF check on its’ bank reconciliation.
  4. D) Neither situation A nor B will cause Acme to have an NSF check on its’ bank reconciliation.

Answer:  B

Diff: 1

LO:  7-1

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

25) As part of the procedure to properly control cash payments received in the mail, after the mailroom employee opens the cash receipts, the checks then go to the:

  1. A) bank.
  2. B) Controller.
  3. C) Treasurer.
  4. D) accounting department.

Answer:  C

Diff: 1

LO:  7-1

EOC Ref:  Exhibit 7-1

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

26) As part of the procedure to properly control cash payments received in the mail, after the mailroom employee opens the cash receipts, the remittance advices go to the:

  1. A) Controller.
  2. B) accounting department.
  3. C) Treasurer.
  4. D) bank.

Answer:  B

Diff: 1

LO:  7-1

EOC Ref:  Exhibit 7-1

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

27) In the last step of the procedure to properly control cash payments received in the mail, the ________ verifies the amount of the deposit and the total amount posted to the cash account.

  1. A) bank
  2. B) accounting department
  3. C) Treasurer
  4. D) Controller

Answer:  D

Diff: 2

LO:  7-1

EOC Ref:  Exhibit 7-1

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

28) The process of acquiring merchandise from a supplier begins with the:

  1. A) check for payment.
  2. B) receiving report.
  3. C) purchase order.
  4. D) invoice.

Answer:  C

Diff: 2

LO:  7-1

EOC Ref:  Exhibit 7-2

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

29) Once the merchandise is received from the supplier, the company:

  1. A) issues an invoice.
  2. B) issues a check.
  3. C) issues a purchase order.
  4. D) completes a receiving report.

Answer:  D

Diff: 2

LO:  7-1

EOC Ref:  Exhibit 7-2

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

30) Before signing a check to pay for a purchase, the ________ should examine the documents supporting the purchase.

  1. A) Controller
  2. B) purchasing agent
  3. C) Treasurer
  4. D) manager

Answer:  C

Diff: 2

LO:  7-1

EOC Ref:  Exhibit 7-2

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

31) To prevent a second payment for an invoice, the check signer should ________ the documents relating to the transaction.

  1. A) deface
  2. B) sign
  3. C) file
  4. D) throw away

Answer:  A

Diff: 2

LO:  7-1

EOC Ref:  Exhibit 7-2

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

32) A bank statement shows the:

  1. A) ending book balance as of a specific date.
  2. B) ending bank balance as of a specific date.
  3. C) reconciled balance as of a specific date.
  4. D) book errors as of a specific date.

Answer:  B

Diff: 1

LO:  7-1

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

33) Deposits in transit are:

  1. A) subtracted from the book balance.
  2. B) added to the book balance.
  3. C) subtracted from the bank balance.
  4. D) added to the bank balance.

Answer:  D

Diff: 1

LO:  7-1

EOC Ref:  S7-2

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

34) The bank recorded a $56 deposit as $65. On a bank reconciliation this error would be corrected by:

  1. A) subtracting $9 from the bank balance.
  2. B) adding $9 to the bank balance.
  3. C) adding $9 to the book balance.
  4. D) subtracting $9 from the book balance.

Answer:  A

Diff: 1

LO:  7-1

EOC Ref:  S7-2

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

35) On a bank reconciliation, outstanding checks are:

  1. A) added to the book balance.
  2. B) added to the bank balance.
  3. C) subtracted from the book balance.
  4. D) subtracted from the bank balance.

Answer:  D

Diff: 1

LO:  7-1

EOC Ref:  S7-2

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

36) A $525 collection on a note from a customer was reflected on Ronaldo Co’s bank statement. When doing the bank reconciliation, Ronaldo Co. should:

  1. A) add $525 to the bank balance.
  2. B) subtract $525 from the bank balance.
  3. C) add $525 to their book balance.
  4. D) subtract $525 from their book balance.

Answer:  C

Diff: 2

LO:  7-1

EOC Ref:  S7-2

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

37) Cypress Inc. deposited $2,000 into its bank account at the end of the month, but the bank statement does not show the deposit. This $2,000 is an example of a(n):

  1. A) outstanding check.
  2. B) bank error.
  3. C) bank collection.
  4. D) deposit in transit.

Answer:  D

Diff: 1

LO:  7-1

EOC Ref:  S7-2

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

38) Rex’s Auto has a checking account that earns interest. The current bank statement shows interest earned of $11.27. This amount should be:

  1. A) added to Rex’s book balance.
  2. B) subtracted from Rex’s book balance.
  3. C) ignored, as the bank has added it to Rex’s book balance.
  4. D) subtracted from the bank balance.

Answer:  A

Diff: 1

LO:  7-1

EOC Ref:  S7-2

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

39) Pirates Party Supply deposited a check for $675, but it was recorded on their books as a check for $576. This error of $99 would be:

  1. A) added to the bank balance.
  2. B) added to Pirate’s book balance.
  3. C) subtracted from the bank balance.
  4. D) subtracted from Pirate’s book balance.

Answer:  B

Diff: 2

LO:  7-1

EOC Ref:  S7-2

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

40) Northwest Plumbing’s bank statement shows a bank balance of $43,267. The statement shows a bank service charge of $50. Northwest Plumbing’s book balance shows outstanding checks of $5,288 and deposits in transit of $9,325. The adjusted balance on the bank side of the reconciliation would be:

  1. A) $43,267.
  2. B) $43,217.
  3. C) $39,230.
  4. D) $47,304.

Answer:  D

Diff: 2

LO:  7-1

EOC Ref:  S7-3

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

41) Cesario Auto’s bank statement shows a bank balance of $43,267. The statement shows a bank service charge of $50 and a note collection of $760 on Cesario Auto’s behalf. Cesario Auto’s book balance should be adjusted by a total of:

  1. A) +$810.
  2. B) +$760.
  3. C) +$710.
  4. D) -$710.

Answer:  C

Diff: 2

LO:  7-1

EOC Ref:  S7-3

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

42) Which of the following is NOT true concerning NSF checks:

  1. A) NSF checks represent customer checks that the business previously deposited but have turned out to be worthless.
  2. B) The amount of the NSF check will need to be subtracted from the book balance.
  3. C) The amount of the NSF check will need to be added to the book balance.
  4. D) NSF stands for nonsufficient funds.

Answer:  C

Diff: 2

LO:  7-1

EOC Ref:  S7-4

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

 

43) During a bank reconciliation, S & C Inc. discovered a NSF check from their customer, Marla Hicks for $35. The journal entry required to update the cash balance would be:

  1. A) Debit cash, credit Accounts Receivable
  2. B) Debit Accounts Receivable, credit Cash
  3. C) Debit Accounts Receivable — M. Hicks, credit Cash
  4. D) No journal entry is required.

Answer:  C

Diff: 2

LO:  7-1

EOC Ref:  S7-4

AACSB:  Analytical Thinking

 

7.2   Questions

 

1) Cash is listed first on the Balance Sheet because it is the least liquid asset.

Answer:  FALSE

Diff: 1

LO:  7-2

EOC Ref:  S7-5

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

2) Each cash account is listed separately on the Balance Sheet.

Answer:  FALSE

Diff: 1

LO:  7-2

EOC Ref:  S7-5

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

3) Cash equivalents may include money orders and traveler’s checks.

Answer:  FALSE

Diff: 1

LO:  7-2

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

4) Ninety-day U.S. Treasury notes are considered cash equivalents.

Answer:  TRUE

Diff: 1

LO:  7-2

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

5) Cash consists of anything that a bank will take as a deposit.

Answer:  TRUE

Diff: 1

LO:  7-2

EOC Ref:  S7-5

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

6) Which of the following would NOT be considered cash?

  1. A) Currency
  2. B) Money market funds
  3. C) Money orders
  4. D) Checking accounts

Answer:  B

Diff: 1

LO:  7-2

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

7) Which of the following would NOT be considered a 90-day cash equivalent?

  1. A) Time deposits
  2. B) Coin
  3. C) Treasury notes
  4. D) Certificates of deposits

Answer:  B

Diff: 1

LO:  7-2

EOC Ref:  S7-5

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

8) Cash equivalents are:

  1. A) very liquid and carry high risk.
  2. B) not liquid and carry little risk.
  3. C) very liquid and carry little risk.
  4. D) not liquid and carry high risk.

Answer:  C

Diff: 2

LO:  7-2

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

9) U.S. Treasury notes must mature within ________ days of the Balance Sheet date in order to be considered cash equivalents.

  1. A) 60
  2. B) 90
  3. C) 120
  4. D) 180

Answer:  B

Diff: 1

LO:  7-2

EOC Ref:  Vocabulary

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

10) Which of the following would be considered a cash equivalent?

  1. A) Currency
  2. B) Time deposits
  3. C) Checks
  4. D) Money orders

Answer:  B

Diff: 1

LO:  7-2

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

11) Cash on the Balance Sheet includes:

  1. A) checks on hand.
  2. B) traveler’s checks.
  3. C) Petty Cash.
  4. D) all of the above.

Answer:  D

Diff: 1

LO:  7-2

EOC Ref:  S7-5

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

12) A fund that contains a small amount of cash and is used to pay for minor expenditures is known as:

  1. A) the emergency fund.
  2. B) the checking account.
  3. C) the petty cash fund.
  4. D) the cash account.

Answer:  C

Diff: 1

LO:  7-2

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

7.3   Questions

 

1) Accounts Receivable are more formal and usually longer in terms than notes receivable.

Answer:  FALSE

Diff: 1

LO:  7-3

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

2) Notes receivable generally include a charge for interest.

Answer:  TRUE

Diff: 1

LO:  7-3

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

3) A company may have receivables such as loans to employees and interest receivable.

Answer:  TRUE

Diff: 1

LO:  7-3

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

4) Accounts Receivable are classified as Current Assets.

Answer:  TRUE

Diff: 1

LO:  7-3

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

5) Which of the following would indicate poor internal control over Accounts Receivable?

  1. A) The person handling cash receipts passes the receipts to someone who enters them into Accounts Receivable.
  2. B) The same person handling cash receipts also records the Accounts Receivable transactions.
  3. C) The mailroom employees open the mail and give the cash receipts to another employee.
  4. D) The person who handles Accounts Receivable would not write off accounts as uncollectible.

Answer:  B

Diff: 2

LO:  7-3

EOC Ref:  S7-6

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

6) Companies who sell on account expect:

  1. A) the benefit to outweigh the cost.
  2. B) to incur bad debt expense.
  3. C) to reach a wider range of customers.
  4. D) all of the above.

Answer:  D

Diff: 2

LO:  7-3

EOC Ref:  Discussion question 3

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

 

7) An example of good internal control over Accounts Receivable is:

  1. A) the employee who handles the daily cash receipts also records Accounts Receivable transactions.
  2. B) the employee who opens the mail is also in charge of recording Accounts Receivable.
  3. C) there are separate employees for cash-handling and cash-accounting duties.
  4. D) All of the above are examples of good internal controls.

Answer:  C

Diff: 2

LO:  7-3

EOC Ref:  Discussion Question 1

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

8) Which is NOT a benefit to extending credit to customers?

  1. A) Bad debt expenses
  2. B) Increased revenues
  3. C) Increased profits
  4. D) Wider range of customers

Answer:  A

Diff: 1

LO:  7-3

EOC Ref:  S7-6

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

7.4   Questions

 

1) The simplest way to account for an uncollectible account is to use the allowance method.

Answer:  FALSE

Diff: 1

LO:  7-4

EOC Ref:  S7-7

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

2) When writing off an account using the direct write-off method, the journal entry would include a debit to Bad Debt Expense.

Answer:  TRUE

Diff: 1

LO:  7-4

EOC Ref:  S7-7

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

3) GAAP generally allows the direct write-off method for accounting for bad debts.

Answer:  FALSE

Diff: 1

LO:  7-4

EOC Ref:  S7-7

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

4) The direct write-off method always adheres to the matching principle.

Answer:  FALSE

Diff: 1

LO:  7-4

EOC Ref:  S7-7

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

5) The materiality principle allows companies with low amounts of uncollectible accounts to use the direct write-off method.

Answer:  TRUE

Diff: 1

LO:  7-4

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

6) The allowance method of accounting for bad debts is required by GAAP because of the materiality principle.

Answer:  FALSE

Diff: 1

LO:  7-4

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

7) The contra-account, Allowance for Doubtful Accounts, is credited when journal entries are made for estimates of bad debts.

Answer:  TRUE

Diff: 2

LO:  7-4

EOC Ref:  S7-8

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

8) The percent of sales method is the only method allowed by GAAP to estimate the amount of uncollectible accounts.

Answer:  FALSE

Diff: 1

LO:  7-4

EOC Ref:  S7-10

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

9) The net realizable value of Accounts Receivable is computed by subtracting the allowance for doubtful accounts from the amount in the Accounts Receivable control account.

Answer:  TRUE

Diff: 1

LO:  7-4

EOC Ref:  S7-8

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

10) When using the aging method, the amount calculated to be the uncollectible accounts is always the amount used for the adjusting entry at the end of the period.

Answer:  FALSE

Diff: 2

LO:  7-4

EOC Ref:  S7-10

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

11) There are two methods for accounting for uncollectible receivables.

Answer:  TRUE

Diff: 1

LO:  7-4

EOC Ref:  S7-6

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

12) Receivables of a company CANNOT be long-term assets.

Answer:  FALSE

Diff: 1

LO:  7-4

EOC Ref:  S7-6

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

13) When a customer fails to pay on their account, it creates a(n):

  1. A) note receivable.
  2. B) uncollectible account.
  3. C) account receivable.
  4. D) decrease in revenue.

Answer:  B

Diff: 1

LO:  7-4

EOC Ref:  S7-6

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

14) What type of account is Allowance for Doubtful Accounts?

  1. A) A contra-asset account
  2. B) An expense account
  3. C) A contra-liability account
  4. D) A revenue account

Answer:  A

Diff: 1

LO:  7-4

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

15) Which of the following is TRUE?

  1. A) The allowance method requires a business to estimate bad debt expense.
  2. B) The allowance method requires a business to record only actual bad debt expense.
  3. C) The allowance method allows a business to choose between recording actual or estimated bad debt expense.
  4. D) The allowance method does not relate to bad debts expense. It is a method used to prepare a bank reconciliation.

Answer:  A

Diff: 1

LO:  7-4

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

16) Once an Account Receivable is written off, can a business ever collect that money?

  1. A) No, GAAP does not allow a company to collect any amounts from a customer who has had an account written off.
  2. B) Only when using the direct write-off method can a company collect from a customer who has had an account written off.
  3. C) Only when using the allowance method can a company collect from a customer who has had an account written off.
  4. D) Both the allowance and direct write-off methods permit a company to collect from a customer who has had an account written off.

Answer:  D

Diff: 1

LO:  7-4

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

17) The period end adjusting entry for bad debt expense under the direct write-off method is:

  1. A) Bad Debt Expense, debit; Allowance for Uncollectible Accounts, credit.
  2. B) not required.
  3. C) Cash, debit; Accounts Receivable/customer name, credit.
  4. D) Bad Debt Expense, debit; Accounts Receivable/customer name, credit.

Answer:  B

Diff: 1

LO:  7-4

EOC Ref:  S7-7

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

18) The journal entry to write off a customer’s account under the direct write-off method is:

  1. A) Bad Debt Expense, debit; Allowance for Uncollectible Accounts, credit.
  2. B) not required.
  3. C) Cash, debit; Accounts Receivable/customer name, credit.
  4. D) Bad Debt Expense, debit; Accounts Receivable/customer name, credit.

Answer:  D

Diff: 1

LO:  7-4

EOC Ref:  S7-7

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

19) Under the direct write-off method, to record the receipt of cash after an account has previously being written off, you would first:

  1. A) debit Cash and credit the customer’s account.
  2. B) reinstate the customer’s account.
  3. C) debit Allowance for Doubtful Accounts.
  4. D) debit Bad Debt Expense.

Answer:  B

Diff: 2

LO:  7-4

EOC Ref:  Vocabulary

AACSB:  Written and Oral Communication

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Research

20) The period end adjusting entry for bad debt expense under the allowance method is:

  1. A) Bad Debt Expense, debit; Allowance for Uncollectible Accounts, credit.
  2. B) not required.
  3. C) Cash, debit; Accounts Receivable/customer name, credit.
  4. D) Bad Debt Expense, debit; Accounts Receivable/customer name, credit.

Answer:  A

Diff: 1

LO:  7-4

EOC Ref:  S7-8

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

21) The journal entry to write off a customer’s account under the allowance method is:

  1. A) Bad Debt Expense, debit; Allowance for Uncollectible Accounts, credit.
  2. B) not required.
  3. C) Allowance for Uncollectible Accounts, debit; Accounts Receivable/customer name, credit.
  4. D) Bad Debt Expense, debit; Accounts Receivable/customer name, credit.

Answer:  C

Diff: 1

LO:  7-4

EOC Ref:  S7-9

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

22) Under the allowance method, to record the receipt of cash after an account has previously being written off, you would first:

  1. A) debit Cash and credit the customer’s account.
  2. B) reinstate the customer’s account.
  3. C) debit Allowance for Doubtful Accounts.
  4. D) debit Bad Debt Expense.

Answer:  B

Diff: 2

LO:  7-4

EOC Ref:  P7-45A

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

23) A company has $235,000 in credit sales. The company uses the allowance method to account for uncollectible accounts. The Allowance for Doubtful Accounts now has a $7,250 credit balance. If the company estimates 7% of credit sales will be uncollectible, what will be the amount of the journal entry to record estimated uncollectible accounts?

  1. A) $16,450
  2. B) $23,700
  3. C) $7,250
  4. D) $9,200

Answer:  A

Diff: 2

LO:  7-4

EOC Ref:  S7-8

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

24) A company has $317,000 in credit sales. The company uses the allowance method to account for uncollectible accounts. The Allowance for Doubtful Accounts now has an $8,150 debit balance. If the company estimates 6% of credit sales will be uncollectible, what will be the amount of the journal entry to record estimated uncollectible accounts?

  1. A) $8,150
  2. B) $27,170
  3. C) $10,870
  4. D) $19,020

Answer:  D

Diff: 2

LO:  7-4

EOC Ref:  S7-8

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

25) A company has $286,000 in credit sales. The company uses the allowance method to account for uncollectible accounts. The Allowance for Doubtful Accounts now has a $2,280 credit balance. If the company estimates that $7,640 of accounts will be uncollectible based on an aging of Accounts Receivable, what will be the amount of the journal entry to record estimated uncollectible accounts?

  1. A) $7,640
  2. B) $9,920
  3. C) $4,560
  4. D) $5,360

Answer:  D

Diff: 2

LO:  7-4

EOC Ref:  S7-10

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

26) A company has $314,000 in credit sales. The company uses the allowance method to account for uncollectible accounts. The Allowance for Doubtful Accounts now has a $1,890 debit balance. If the company estimates that $8,160 of accounts will be uncollectible based on an aging of Accounts Receivable, what will be the amount of the journal entry to record estimated uncollectible accounts?

  1. A) $8,160
  2. B) $6,270
  3. C) $10,050
  4. D) $3,780

Answer:  C

Diff: 2

LO:  7-4

EOC Ref:  S7-10

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

27) Joe is a customer of Hopts, Inc. His current balance due is $1,560. It has been determined that he defaulted on his account. If the company uses the direct write-off method, what entry is necessary to write off the $1,560?

  1. A) No entry will be necessary.
  2. B) Debit Accounts Receivable/Joe; credit Bad Debt Expense.
  3. C) Debit Bad Debt Expense; credit Accounts Receivable/Joe.
  4. D) Debit Bad Debt Expense; credit Allowance for Doubtful Accounts.

Answer:  C

Diff: 2

LO:  7-4

EOC Ref:  S7-7

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

28) Ben is a customer of Haskins & Co. which uses the allowance method to account for uncollectible accounts. The company wrote off his account of $1,200 on August 15. On October 12, he sent in a payment of $560. What will Haskins & Co. record first to reinstate his account?

  1. A) Debit Cash; credit Accounts Receivable/Ben.
  2. B) Debit Bad Debt Expense; credit Accounts Receivable/Ben.
  3. C) Debit Allowance for Doubtful Accounts; credit Accounts Receivable/Ben.
  4. D) Debit Accounts Receivable/Ben; credit Allowance for Doubtful Accounts.

Answer:  D

Diff: 2

LO:  7-4

EOC Ref:  P7-45A

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

29) Piper, Inc. had credit sales for the period of $85,000. The balance in Allowance for Doubtful Accounts is a debit of $817. How much will the credit be to Allowance for Doubtful Accounts if Piper uses the percent of credit sales method of estimating uncollectible accounts and they estimate that 5% of credit sales will be uncollectible?

  1. A) $3,433
  2. B) $4,291
  3. C) $5,067
  4. D) $4,250

Answer:  D

Diff: 3

LO:  7-4

EOC Ref:  S7-9

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

30) Piper, Inc. had credit sales for the period of $85,000. The balance in Allowance for Doubtful Accounts is a debit of $817. What is the credit to Allowance for Doubtful Accounts if Piper uses the aging  method to estimate uncollectible accounts and an aging of Accounts Receivable reflected an estimated  amount of uncollectible accounts of $6,342?

  1. A) $7,159
  2. B) $5,525
  3. C) $6,342
  4. D) $4,250

Answer:  A

Diff: 3

LO:  7-4

EOC Ref:  S7-10

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

31) Charmed, Inc. had credit sales for the period of $142,000. The balance in Allowance for Doubtful Accounts is a debit of $643. If Charmed estimates that 2% of credit sales will be uncollectible, what is the required journal entry to record estimated uncollectible accounts?

  1. A) Debit Bad Debt Expense, $2,840; credit Allowance for Uncollectible Accounts, $2,840.
  2. B) No entry is required.
  3. C) Debit Bad Debt Expense, $3,483; credit Allowance for Uncollectible Accounts, $3,483.
  4. D) Debit Bad Debt Expense, $2,197; credit Allowance for Uncollectible Accounts, $2,197.

Answer:  A

Diff: 2

LO:  7-4

EOC Ref:  S7-8

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

32) Charmed, Inc. had credit sales for the period of $142,000. The balance in Allowance for Doubtful Accounts is a debit of $643. If Charmed ages Accounts Receivable and determines estimated uncollectible accounts to be $2,840, what is the required journal entry to record estimated uncollectible accounts?

  1. A) Debit Bad Debt Expense, $2,840; credit Allowance for Uncollectible Accounts, $2,840.
  2. B) No entry is required.
  3. C) Debit Bad Debt Expense, $3,483; credit Allowance for Uncollectible Accounts, $3,483.
  4. D) Debit Bad Debt Expense, $2,197; credit Allowance for Uncollectible Accounts, $2,197.

Answer:  C

Diff: 3

LO:  7-4

EOC Ref:  S7-10

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

33) Robbins Company has given you the following information from its aging of Accounts Receivable. Using this information, determine the amount of the journal entry to record the estimated uncollectible accounts.

 

Current $24,400 2% uncollectible
31-60 days 7,350 8% uncollectible
61-90 days 3,380 15% uncollectible
91 and up 1,220 30% uncollectible

 

The current balance in Allowance for Doubtful Accounts is a $958 credit.

  1. A) $2,457
  2. B) $1,949
  3. C) $991
  4. D) $541

Answer:  C

Diff: 3

LO:  7-4

EOC Ref:  S7-10

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

34) Capital Masonry has given you the following information from its aging of Accounts Receivable. Using this information, determine the amount of the journal entry to record the estimated uncollectible accounts.

 

Current $22,000 1% uncollectible
31-60 days 5,500 6% uncollectible
61-90 days 2,400 10% uncollectible
91 and up 900 18% uncollectible

 

The current balance in Allowance for Doubtful Accounts is a $146 debit.

  1. A) $952
  2. B) $1,098
  3. C) $1,759
  4. D) $806

Answer:  B

Diff: 3

LO:  7-4

EOC Ref:  S7-9

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

35) Cypress Co. has given you the following information from its aging of Accounts Receivable. Using this information, determine the amount of the journal entry to record the estimated uncollectible accounts.

 

Current $20,000 2% uncollectible
31-60 days 6,500 5% uncollectible
61-90 days 3,400 11% uncollectible
91 and up 850 16% uncollectible

 

The current balance in Allowance for Doubtful Accounts is a $326 debit.

  1. A) $909
  2. B) $1,235
  3. C) $1,561
  4. D) $1,887

Answer:  C

Diff: 3

LO:  7-4

EOC Ref:  S7-9

AACSB:  Analytical Thinking

 

36) Thames, Inc. has given you the following information from its aging of Accounts Receivable. Using this information, determine the amount of the journal entry to record the estimated uncollectible accounts.

 

Current $18,000 3% uncollectible
31-60 days 2,600 7% uncollectible
61-90 days 1,300 12% uncollectible
91 and up 650 20% uncollectible

 

The current balance in Allowance for Doubtful Accounts is a $152 credit.

  1. A) $856
  2. B) $1,008
  3. C) $1,160
  4. D) None of the above

Answer:  A

Diff: 3

LO:  7-4

EOC Ref:  S7-9

AACSB:  Analytical Thinking

 

37) When using the allowance method for uncollectible accounts, the percent-of-sales method is called the:

  1. A) Balance Sheet approach.
  2. B) Income Statement approach.
  3. C) allowance approach.
  4. D) direct write-off approach.

Answer:  B

Diff: 2

LO:  7-4

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

38) When using the allowance method for uncollectible accounts, the aging method is called the:

  1. A) Balance Sheet approach.
  2. B) Income Statement approach.
  3. C) allowance approach.
  4. D) direct write-off approach.

Answer:  A

Diff: 2

LO:  7-4

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

7.5   Questions

 

1) Accounts Receivable are reported at current market value in the Current Assets sections of the Balance Sheet.

Answer:  FALSE

Diff: 2

LO:  7-5

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

2) Accounts Receivable may be reported net of Allowance for Doubtful Accounts.

Answer:  TRUE

Diff: 2

LO:  7-5

EOC Ref:  Figure 7-21

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

3) Accounts Receivable should be reported at ________ in the ________ section of a company’s Balance Sheet.

  1. A) Market value; Long-Term Assets
  2. B) Net realizable value; Long-Term Assets
  3. C) Net realizable value; Current Assets
  4. D) Market value; Current Assets

Answer:  C

Diff: 2

LO:  7-5

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

4) How are net realizable receivables calculated?

  1. A) Accounts Receivable plus the Allowance for Doubtful Accounts
  2. B) Allowance for Doubtful Accounts plus NSF checks
  3. C) Accounts Receivable less the Allowance for Doubtful Accounts
  4. D) Accounts Receivable divided by the Allowance for Doubtful Accounts

Answer:  C

Diff: 1

LO:  7-5

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

5) Allied Inc. has an Account Receivable balance of $24,500 and its Allowance for Uncollectible Accounts balance is $1,250. How will this be reported on the Balance Sheet?

  1. A) Accounts Receivable 24,500

Less: Allowance for Uncollectible Accounts             250

Accounts Receivable, Net                                   $23,250

  1. B) Accounts Receivable $23,250
  2. C) Accounts Receivable, Net of Allowance for Uncollectible Accounts of $1,250 $23,250
  3. D) Both A and C are acceptable ways to report Accounts Receivable.

Answer:  D

Diff: 2

LO:  7-5

EOC Ref:  P7-45A

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

7.6   Questions

 

1) A promissory note is a verbal promise to pay a specified amount of money on a particular future date.

Answer:  FALSE

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

2) The business or person that signs the note and promises to pay the required amount is called the payee.

Answer:  FALSE

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

3) The amount loaned out by the payee is called the maturity value.

Answer:  FALSE

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

4) The maturity value is the sum of the principal plus the interest due at maturity.

Answer:  TRUE

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

5) Interest is an expense to the debtor and income to the creditor.

Answer:  TRUE

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

6) Interest rates are almost always stated for a period of one month.

Answer:  FALSE

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

7) A 4-month promissory note dated on July 17 will be due on November 17.

Answer:  TRUE

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

8) A 77-day note dated March 3, 2010 will be due on May 20.

Answer:  FALSE

Diff: 2

LO:  7-6

EOC Ref:  S7-13

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

9) The payee of a note is also called the creditor.

Answer:  TRUE

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

10) When counting the days of a note, one should remember to count the day the note was issued.

Answer:  FALSE

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

11) Using a 360-day year, the maturity value of a 90-day note for $3,500 at 8% annual interest is:

  1. A) $3,780.
  2. B) $3,710.
  3. C) $3,570.
  4. D) $3,500.

Answer:  C

Diff: 2

LO:  7-6

EOC Ref:  S7-14

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

12) Using a 360-day year, the maturity value of a 60-day note for $1,500 at 7% annual interest is (rounded to the nearest cent):

  1. A) $1,605.00.
  2. B) $1,482.50.
  3. C) $1,517.50.
  4. D) $17.50.

Answer:  C

Diff: 2

LO:  7-6

EOC Ref:  S7-14

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

13) Using a 365-day year, the maturity value of a 180-day note for $2,700 at 9% annual interest is (rounded to the nearest cent):

  1. A) $2,943.00.
  2. B) $2,821.50.
  3. C) $2,819.84.
  4. D) $119.84.

Answer:  C

Diff: 2

LO:  7-6

EOC Ref:  S7-14

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

14) A 135-day note issued on May 17 will mature on:

  1. A) September 28.
  2. B) September 29.
  3. C) September 30.
  4. D) October 1.

Answer:  B

Diff: 3

LO:  7-6

EOC Ref:  S7-14

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

15) An 83-day note issued on November 13, 2014 will mature on:

  1. A) February 2, 2015.
  2. B) February 3, 2015.
  3. C) February 4, 2015.
  4. D) February 5, 2015.

Answer:  C

Diff: 2

LO:  7-6

EOC Ref:  S7-14

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

16) On September 1, 2013, Sharp Corp. lent $2,400 to Marla Smith on a 6-month 8% promissory note. The journal entry to record the note for Sharp Corp. would be to:

  1. A) debit Note Receivable/M Smith, $2,400; credit Cash, $2,400.
  2. B) debit Note Receivable/M Smith, $2,496; credit Cash, $2,496.
  3. C) debit Note Receivable/M Smith, $96; credit Interest Income, $96.
  4. D) debit Cash, $2,400; credit Note Payable/M Smith, $2,400.

Answer:  A

Diff: 1

LO:  7-6

EOC Ref:  S7-15

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

17) On September 1, 2013, Sharp Corp. lent $2,400 to Marla Smith on a 6-month 8% promissory note. The amount of interest to be accrued on December 31 will be:

  1. A) $192.
  2. B) $128.
  3. C) $96.
  4. D) $64.

Answer:  D

Diff: 1

LO:  7-6

EOC Ref:  S7-15

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

18) On March 1, 2014, Archer Inc. lent $3,500 to Ron Wood on a 1-year 6% promissory note. The amount of interest to be accrued on December 31 will be:

  1. A) $210.00.
  2. B) $175.00.
  3. C) $157.50.
  4. D) $140.00.

Answer:  B

Diff: 1

LO:  7-6

EOC Ref:  S7-15

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

19) On August 9, Alice paid $3,568 to Cyrus Corp. to fulfill her promissory note agreement. Of the $3,568, $400 is interest. The journal entry Cyrus Corp. will record is to:

  1. A) debit Cash, $3,568; credit Note Receivable/Alice, $3,568.
  2. B) debit Cash, $3,568; credit Note Receivable/Alice, $3,168; credit Interest Revenue, $400.
  3. C) debit Note Receivable/Alice, $3,568; credit Cash $3,168; credit Interest Revenue, $400.
  4. D) debit Note Receivable/Alice, $3,568; credit Cash $3,568.

Answer:  B

Diff: 2

LO:  7-6

EOC Ref:  S7-15

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

20) On March 15, Diego paid $4,750 to Island, Inc. to fulfill his promissory note agreement. Of the $4,750, $750 is interest. The journal entry Island, Inc. will record is to:

  1. A) debit Cash, $4,750; credit Note Receivable/Diego, $4,750.
  2. B) debit Cash, $4,750; credit Note Receivable/Diego, $4,000; credit Interest Revenue, $750.
  3. C) debit Note Receivable/Diego, $4,750; credit Cash $4,700; credit Interest Revenue $750.
  4. D) debit Note Receivable/Diego, $4,750; credit Cash $4,750.

Answer:  B

Diff: 2

LO:  7-6

EOC Ref:  S7-15

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

21) Magick, Inc. converted a $4,000 account receivable from Ronaldo to a 75-day, 8% note receivable. The maturity value (assume a 360-day year) that will be due from Ronaldo in 75 days (round to nearest dollar) is:

  1. A) $4,000.
  2. B) $4,067.
  3. C) $4,320.
  4. D) some other number.

Answer:  B

Diff: 3

LO:  7-6

EOC Ref:  S7-15

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

22) TLR Corporation lent $25,000 to Blitz, Inc. for 75 days at 7% interest on November 22, 2013. How much interest will have accrued to TLR Corporation on December 31, 2013, assuming a 360-day year?

  1. A) $364.58
  2. B) $189.58
  3. C) $175.00
  4. D) Some other number

Answer:  B

Diff: 2

LO:  7-6

EOC Ref:  S7-15

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

23) A note is signed on April 15, 2013 at 9% for 216 days. The maturity date will be:

  1. A) November 15.
  2. B) November 16.
  3. C) November 17.
  4. D) November 18.

Answer:  C

Diff: 1

LO:  7-6

EOC Ref:  S7-15

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

24) Using a 365-day year, the maturity value of a 55-day, 7% note for $23,000 rounded to the nearest cent is:

  1. A) $23,000.00.
  2. B) $23,242.60.
  3. C) $23,245.97.
  4. D) $24,610.00.

Answer:  B

Diff: 2

LO:  7-6

EOC Ref:  S7-15

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

25) A customer’s written promise to pay an amount of money to a business with interest is a(n) ________ of the business.

  1. A) account receivable
  2. B) account payable
  3. C) note receivable
  4. D) note payable

Answer:  C

Diff: 1

LO:  7-6

EOC Ref:  S7-13

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

 

26) The formula: principle x rate x time represents

  1. A) The amount charged for loaning money.
  2. B) The amount of revenue to the creditor for loaning money.
  3. C) The amount of expense to the debtor for borrowing money.
  4. D) All of the above.

Answer:  D

Diff: 1

LO:  7-6

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

27) The entity that signs the note and promises to pay the required amount is referred to as:

  1. A) maker of a note
  2. B) payee of a note
  3. C) debtor
  4. D) both A and C

Answer:  D

Diff: 1

LO:  7-6

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

28) Principal is the amount loaned out by the ________ and borrowed by the ________.

  1. A) payee of a note, creditor
  2. B) maker of a note, payee of a note
  3. C) debtor, maker of a note
  4. D) payee of a note, maker of a note

Answer:  D

Diff: 1

LO:  7-6

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

29) The entity to whom the maker promises future payment is referred to as:

  1. A) maker of a note.
  2. B) creditor.
  3. C) debtor.
  4. D) both A and C.

Answer:  B

Diff: 1

LO:  7-6

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

 

7.7   Questions

 

1) Another name for the quick ratio is the acid-test ratio.

Answer:  TRUE

Diff: 1

LO:  7-7

EOC Ref:  S7-16

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

2) The formula for the quick ratio is quick assets divided by non-current assets.

Answer:  FALSE

Diff: 1

LO:  7-7

EOC Ref:  S7-16

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

3) Accounts Receivable turnover measures the ability to collect cash from a company’s credit customers.

Answer:  TRUE

Diff: 1

LO:  7-7

EOC Ref:  S7-17

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

4) The account receivable turnover is computed by taking the average net Accounts Receivable and dividing it by the net credit sales.

Answer:  FALSE

Diff: 1

LO:  7-7

EOC Ref:  S7-17

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

5) The receivables collection period measures the ability to collect cash from customers who buy on credit.

Answer:  FALSE

Diff: 1

LO:  7-7

EOC Ref:  Vocabulary

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

6) Quick assets include cash, Accounts Receivable, and prepaid expenses.

Answer:  FALSE

Diff: 1

LO:  7-7

EOC Ref:  S7-16

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

 

7) Piper Inc. has cash of $56,000; net Accounts Receivable of $67,000; short-term investments of $12,000 and inventory of $40,000. It also has $45,000 in current liabilities and $75,000 in long-term liabilities. The quick ratio for Piper Inc. is:

  1. A) 2.33.
  2. B) 2.73.
  3. C) 3.00.
  4. D) 3.89.

Answer:  C

Diff: 2

LO:  7-7

EOC Ref:  S7-16

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

8) Quicksilver Co. has cash of $33,000; net Accounts Receivable of $41,000; short-term investments of $15,000 and inventory of $25,000. It also has $30,000 in current liabilities and $50,000 in long-term liabilities. The quick ratio for Quicksilver Co. is:

  1. A) 1.78.
  2. B) 2.97.
  3. C) 3.30.
  4. D) 3.80.

Answer:  B

Diff: 2

LO:  7-7

EOC Ref:  S7-16

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

9) Lionworks Company has cash of $143,000; net Accounts Receivable of $89,000; short-term investments of $35,000 and prepaid expenses of $40,000. It also has $50,000 in current liabilities and $80,000 in long-term liabilities. The quick ratio for Lionworks Company is:

  1. A) 3.34.
  2. B) 4.64.
  3. C) 5.34.
  4. D) 6.14.

Answer:  C

Diff: 2

LO:  7-7

EOC Ref:  S7-16

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

10) Piper Inc. has cash of $56,000; net Accounts Receivable of $67,000; short-term investments of $12,000 and inventory of $40,000. It also has $45,000 in current liabilities and $75,000 in long-term liabilities. The current ratio for Piper Inc. is:

  1. A) 2.73.
  2. B) 3.00.
  3. C) 3.62.
  4. D) 3.89.

Answer:  D

Diff: 2

LO:  7-7

EOC Ref:  Focus on Decision Making

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

11) Quicksilver Co. has cash of $33,000; net Accounts Receivable of $41,000; short-term investments of $15,000 and inventory of $25,000. It also has $30,000 in current liabilities and $50,000 in long-term liabilities. The current ratio for Quicksilver Co. is:

  1. A) 3.80.
  2. B) 1.48.
  3. C) 2.47.
  4. D) 1.43.

Answer:  A

Diff: 2

LO:  7-7

EOC Ref:  Focus on Decision Making

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

12) Lionworks Company has cash of $143,000; net Accounts Receivable of $89,000; short-term investments of $35,000 and prepaid expenses of $40,000. It also has $50,000 in current liabilities and $80,000 in long-term liabilities. The current ratio for Lionworks Company is:

  1. A) 5.44.
  2. B) 6.14.
  3. C) 5.34.
  4. D) 4.64.

Answer:  B

Diff: 2

LO:  7-7

EOC Ref:  Focus on Decision Making

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

13) Gallego & Co. reported sales of $515,000; beginning net Accounts Receivable of $212,000 and ending net Accounts Receivable of $224,000. Gallego & Co.’s Accounts Receivable turnover is:

  1. A) 2.30.
  2. B) 2.36.
  3. C) 2.43.
  4. D) 3.44.

Answer:  B

Diff: 2

LO:  7-7

EOC Ref:  S7-17

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

14) Valdez Company reported sales of $343,000; beginning net Accounts Receivable of $89,000 and ending

net Accounts Receivable of $111,000. Valdez Company’s Accounts Receivable turnover is:

  1. A) 4.61.
  2. B) 3.85.
  3. C) 3.43.
  4. D) 3.09.

Answer:  C

Diff: 2

LO:  7-7

EOC Ref:  S7-17

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

15) Gallego & Co. reported sales of $515,000; beginning net Accounts Receivable of $212,000 and ending net Accounts Receivable of $224,000. Gallego & Co.’s receivable collection period (rounded to the nearest day) is:

  1. A) 150.
  2. B) 159.
  3. C) 106.
  4. D) 155.

Answer:  D

Diff: 2

LO:  7-7

EOC Ref:  Focus on Decision Making

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

16) Valdez Company reported sales of $343,000; beginning net Accounts Receivable of $89,000 and ending net Accounts Receivable of $111,000. Valdez Company’s receivable collection period (rounded to the nearest day) is:

  1. A) 106.
  2. B) 79.
  3. C) 118.
  4. D) 95.

Answer:  A

Diff: 2

LO:  7-7

EOC Ref:  Focus on Decision Making

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

17) A company with an Accounts Receivable turnover of 11.78 would be collecting its receivables about:

  1. A) once a week.
  2. B) once a month.
  3. C) once a quarter.
  4. D) once a year.

Answer:  B

Diff: 2

LO:  7-7

EOC Ref:  S7-17

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

18) A company with a quick ratio of 1.23 means that the company:

  1. A) has $1.00 in quick assets for every $1.23 in current liabilities.
  2. B) has $1.23 in quick assets for every $1.00 in current liabilities.
  3. C) could not pay off all of its current liabilities using quick assets.
  4. D) would have to use inventory to help pay off its current liabilities.

Answer:  B

Diff: 2

LO:  7-7

EOC Ref:  S7-16

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

19) If a company has n/90-credit terms, you would expect its Accounts Receivable turnover to be:

  1. A) 12.
  2. B)
  3. C)
  4. D)

Answer:  B

Diff: 2

LO:  7-7

EOC Ref:  S7-17

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

20) A company with a current ratio of 2.75 means that the company:

  1. A) has $2.75 of quick assets to pay each $1 of current liabilities.
  2. B) has $2.75 of current assets to pay each $1 of current liabilities.
  3. C) has $1.00 of quick assets for every $2.75 of current liabilities.
  4. D) has $1.00 of current assets for every $2.75 of current liabilities.

Answer:  B

Diff: 2

LO:  7-7

EOC Ref:  P7-48A

AACSB:  Analytical Thinking

 

 

21) A company with 5.6 Accounts Receivable turnover means that the company:

  1. A) has a good Accounts Receivable turnover.
  2. B) has a bad Accounts Receivable turnover.
  3. C) needs to tighten its credit terms.
  4. D) cannot be determined from the information provided.

Answer:  D

Diff: 2

LO:  7-7

EOC Ref:  P7-48A

AACSB:  Analytical Thinking

7.8   Questions

 

1) A petty cash fund may be established for minor expenditures, such as postage.

Answer:  TRUE

Diff: 1

LO:  7-8

EOC Ref:  S7A-1

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

2) A petty cash fund is established by making a check payable to Petty Cash, cashing the check, and placing the funds in the cash register.

Answer:  FALSE

Diff: 1

LO:  7-8

EOC Ref:  S7A-1

AACSB:  Reflective Thinking (Able to understand oneself in the context of society)

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Decision Modeling

 

3) The journal entry to record the set-up of a petty cash fund is to debit Petty Cash and to credit Cash.

Answer:  TRUE

Diff: 1

LO:  7-8

EOC Ref:  S7A-1

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

4) The total of cash in the petty cash box plus the amount of the petty cash ticket receipts should total the beginning amount of the petty cash fund.

Answer:  TRUE

Diff: 1

LO:  7-8

EOC Ref:  S7A-1

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

5) Island Equipment has a petty cash fund of $350. At the end of the month, $7.89 remains in the fund along with $340.56 in various receipts. The journal entry to replenish the fund would show a debit(s) to:

  1. A) various expenses for $340.56 and Cash short of $1.55.
  2. B) various expenses for $340.56 and Cash over of $1.55.
  3. C) Cash for $342.11.
  4. D) Cash for $340.56.

Answer:  A

Diff: 2

LO:  7-8

EOC Ref:  S7A-1

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

6) DogCo has a petty cash fund of $275. At the end of the month, $14.37 remains in the fund along with $269.43 in various receipts. The journal entry to replenish the fund would be to:

  1. A) debit various expenses, $269.43; debit Cash Short for $8.80 and credit Cash for $278.23.
  2. B) debit various expenses, $269.43; credit Cash Over for $8.80 and credit Cash for $260.63.
  3. C) debit Petty Cash for $260.63 and credit Cash for $260.63.
  4. D) debit various expenses, $269.43 and credit Cash for $269.43.

Answer:  B

Diff: 3

LO:  7-8

EOC Ref:  S7A-1

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

 

7) Aspen Inc. has a petty cash fund of $200. At the end of the month, $6.41 remains in the fund along with $190.96 in various receipts. The journal entry to replenish the fund would show a debit(s) to:

  1. A) various expenses for $190.96 and Cash Short of $2.63.
  2. B) various expenses for $190.96 and Cash Over of $2.63.
  3. C) Cash for $190.96.
  4. D) Cash for $193.59.

Answer:  A

Diff: 2

LO:  7-8

EOC Ref:  E7A-3A

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

8) Leo Company has a petty cash fund of $300. At the end of the month, $42.38 remains in the fund along with $260.75 in various receipts. The journal entry to replenish the fund would be:

  1. A) debit Petty Cash for $257.62 and credit Cash for $257.62.
  2. B) debit various expenses, $254.49; debit Cash Short for $3.13 and credit Cash for $257.62.
  3. C) debit various expenses, $260.75; credit Cash Over for $3.13 and credit Cash for $257.62.
  4. D) debit various expenses, $260.75 and credit Cash for $260.75.

Answer:  C

Diff: 2

LO:  7-8

EOC Ref:  E7A-3A

AACSB:  Analytical Thinking

AICPA Business:  Strategic/Critical Thinking

AICPA Functional:  Measurement and Reporting

 

9) Island Equipment wants to increase the size of its petty cash fund from $350 to $400. Island Equipment will:

  1. A) not be allowed to do this, $400 is too large for a petty cash fund.
  2. B) debit Cash, $400; credit Petty Cash $400.
  3. C) debit Petty Cash $400, credit Cash $400.
  4. D) debit Petty Cash $50, credit Cash $50.

Answer:  D

Diff: 2

LO:  7-8

EOC Ref:  E7A-3A

AACSB:  Analytical Thinking

 

 

10) Stella Company wants to increase the size of its petty cash fund from $150 to $250, the journal entry will be:

  1. A) debit Petty Cash $250; credit Cash $250.
  2. B) debit Cash $250; credit Petty Cash $250.
  3. C) debit Petty Cash $100; credit Cash $100.
  4. D) debit Cash $100; credit Petty Cash $100.

Answer:  C

Diff: 2

LO:  7-8

EOC Ref:  E7A-3A

AACSB:  Analytical Thinking

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