ACC 291T PRINCIPLES OF
ACCOUNTING II WEEK 4 QUIZZES AND
EXERCISES | QUESTIONS AND
ANSWERS | 2026 UPDATE | WITH
COMPLETE SOLUTIONS.
The accounting equation is: - answer- Assets = Liabilities + Owners' Equity
Balance Sheet
The expanded accounting equation: - answer- Assets = Liabilities + Paid-in Capital +
(Revenues - Expenses - Dividends)
Income Statement
Stockholders' Equity equation: - answer- Stockholders' Equity = Paid-In Capital + Net
income - Dividends - Treasury Stock
Net Income equation: - answer- Net Income = Revenues - Expenses
Revenues are most often recognized when: - answer- A sale takes place or a service is
performed
The accounting term for the recording of a sale through a journal entry is: - answer-
Revenue recognition
The two criteria that need to be met in order revenue to be recognized are: - answer-
Work has been substantially completed and cash collection is reasonably assured.
The Talmage Company owns several shopping malls. One of the shopping malls is
undergoing an underground renovation. Copeland Construction is the construction
company that is performing these renovations. According to GAAP, when is the most
appropriate time to recognize revenue from this construction project? - answer- At the
end of each year, as a percentage completed for that year at the end of an accounting
period
Sally is a college student who decided that she spends entirely too much time inside of
the library studying. She decided to join a health club in order to become more active.
After researching several Health Clubs and Gyms, Sally decided to purchase a
membership at Deseret Health Club. Sally bought a contract for one year. Upon signing
,this contract, Sally agreed to pay an upfront membership fee, which will ensure use of
the health facilities during the full year. She also agreed to pay a monthly fee that will be
paid at the beginning of each month during the length of the contract. According to
GAAP and assuming that the up-front fee does not relate to a specific activity and is
nonrefundable, when is the best time for Deseret Health Club to recognize the revenue
for the up-front fee paid by Sally? - answer- Allocate it over the life of the contract and
recognize it as time passes
What is included in the journal entry necessary to record the sale of goods on account?
- answer- A credit to Sales Revenue
The journal entry includes a DEBIT to Accounts Receivable (reflecting an increase in
this asset) and a CREDIT to Sales Revenue (reflecting an increase in equity because
Sales Revenue is a subcategory of the Retained Earnings equity account).
Why are receivables and revenue ripe areas for abuse or outright fraud? - answer- No
real event, such as the receipt of cash, is necessary to record a debit to Accounts
Receivable and a credit to Revenue.
What is included in the journal entry necessary to record the collection of the cash for a
previously recorded credit sale? - answer- CREDIT Accounts Receivable
The journal entry to record the collection of cash for a previously recorded credit sale is
a DEBIT to Cash (reflecting an increase in this asset) and a CREDIT to Accounts
Receivable (reflecting a decrease to this asset which was recorded when the credit sale
was initially recorded).
Typically, what do companies want to do with their reported revenue in cases in which
they are trying to reach revenue or profit targets? - answer- Companies desire to report
revenue as soon as possible to make themselves look better.
What is it that complicates the revenue recognition process for Rent-A-Center, the rent-
to-own company? - answer- Only about 25% of customers pay the full amount stated in
their sales contracts.
Net Sales equation: - answer- Gross Sales − Sales Discounts − Sales Returns and
Allowances
= Net Sales
Common cash controls include: - answer- Separation of duties in handling and
accounting for cash
Daily deposits of all cash receipts
Payment of all expenditures by prenumbered checks
Which of the following accounts would normally be found on the income statement? -
answer- Sales Returns and Allowances
, Sales Discounts
Sales Discounts is which type of account? - answer- Contra-revenue
Sales Returns and Allowances is which type of account? - answer- Contra-revenue
The difference between gross sales and net sales is: - answer- Sales discounts and
sales returns and allowances
Which of the following is not a cash control procedure? - answer- Invest excess cash in
high-yielding securities
A customer of Boulder Company returned goods previously purchased on credit. The
customer had not yet paid for the goods. What is included in the journal entry necessary
in the books of Boulder Company to record this sales return? - answer- DEBIT to Sales
Returns and Allowances
CREDIT to Accounts Receivable
When a company has a generous credit policy, cash is tied up in receivables and the
company must finance its expansion or the payment of its bills through increased
borrowing. What label is given to this cost of selling on credit? - answer- Carrying cost
Why is it important to require that all cash receipts be deposited daily in bank accounts?
- answer- A large accumulation of cash can tempt even the most trusted employee.
What problem is caused for you if you have a credit policy of requiring cash payment in
30 days and your competitor has a credit policy of requiring cash payment in 75 days? -
answer- More attractive credit terms can allow your competitor to steal customers from
you.
Two ways of accounting for losses from uncollectible receivables include: - answer-
Allowance method (generally accepted)
Direct write-off method (NOT generally accepted)
Two ways of estimating losses from uncollectible receivables include: - answer-
Percentage of credit sales (existing balance is ignored)
Fraction of total outstanding receivables (often determined by aging the accounts
receivable) (existing balance is considered)
Customers who do not pay for the merchandise that they bought on credit are referred
to as: - answer- Bad debts
Bad Debt Expense is classified as a(n): - answer- Selling expense
ACCOUNTING II WEEK 4 QUIZZES AND
EXERCISES | QUESTIONS AND
ANSWERS | 2026 UPDATE | WITH
COMPLETE SOLUTIONS.
The accounting equation is: - answer- Assets = Liabilities + Owners' Equity
Balance Sheet
The expanded accounting equation: - answer- Assets = Liabilities + Paid-in Capital +
(Revenues - Expenses - Dividends)
Income Statement
Stockholders' Equity equation: - answer- Stockholders' Equity = Paid-In Capital + Net
income - Dividends - Treasury Stock
Net Income equation: - answer- Net Income = Revenues - Expenses
Revenues are most often recognized when: - answer- A sale takes place or a service is
performed
The accounting term for the recording of a sale through a journal entry is: - answer-
Revenue recognition
The two criteria that need to be met in order revenue to be recognized are: - answer-
Work has been substantially completed and cash collection is reasonably assured.
The Talmage Company owns several shopping malls. One of the shopping malls is
undergoing an underground renovation. Copeland Construction is the construction
company that is performing these renovations. According to GAAP, when is the most
appropriate time to recognize revenue from this construction project? - answer- At the
end of each year, as a percentage completed for that year at the end of an accounting
period
Sally is a college student who decided that she spends entirely too much time inside of
the library studying. She decided to join a health club in order to become more active.
After researching several Health Clubs and Gyms, Sally decided to purchase a
membership at Deseret Health Club. Sally bought a contract for one year. Upon signing
,this contract, Sally agreed to pay an upfront membership fee, which will ensure use of
the health facilities during the full year. She also agreed to pay a monthly fee that will be
paid at the beginning of each month during the length of the contract. According to
GAAP and assuming that the up-front fee does not relate to a specific activity and is
nonrefundable, when is the best time for Deseret Health Club to recognize the revenue
for the up-front fee paid by Sally? - answer- Allocate it over the life of the contract and
recognize it as time passes
What is included in the journal entry necessary to record the sale of goods on account?
- answer- A credit to Sales Revenue
The journal entry includes a DEBIT to Accounts Receivable (reflecting an increase in
this asset) and a CREDIT to Sales Revenue (reflecting an increase in equity because
Sales Revenue is a subcategory of the Retained Earnings equity account).
Why are receivables and revenue ripe areas for abuse or outright fraud? - answer- No
real event, such as the receipt of cash, is necessary to record a debit to Accounts
Receivable and a credit to Revenue.
What is included in the journal entry necessary to record the collection of the cash for a
previously recorded credit sale? - answer- CREDIT Accounts Receivable
The journal entry to record the collection of cash for a previously recorded credit sale is
a DEBIT to Cash (reflecting an increase in this asset) and a CREDIT to Accounts
Receivable (reflecting a decrease to this asset which was recorded when the credit sale
was initially recorded).
Typically, what do companies want to do with their reported revenue in cases in which
they are trying to reach revenue or profit targets? - answer- Companies desire to report
revenue as soon as possible to make themselves look better.
What is it that complicates the revenue recognition process for Rent-A-Center, the rent-
to-own company? - answer- Only about 25% of customers pay the full amount stated in
their sales contracts.
Net Sales equation: - answer- Gross Sales − Sales Discounts − Sales Returns and
Allowances
= Net Sales
Common cash controls include: - answer- Separation of duties in handling and
accounting for cash
Daily deposits of all cash receipts
Payment of all expenditures by prenumbered checks
Which of the following accounts would normally be found on the income statement? -
answer- Sales Returns and Allowances
, Sales Discounts
Sales Discounts is which type of account? - answer- Contra-revenue
Sales Returns and Allowances is which type of account? - answer- Contra-revenue
The difference between gross sales and net sales is: - answer- Sales discounts and
sales returns and allowances
Which of the following is not a cash control procedure? - answer- Invest excess cash in
high-yielding securities
A customer of Boulder Company returned goods previously purchased on credit. The
customer had not yet paid for the goods. What is included in the journal entry necessary
in the books of Boulder Company to record this sales return? - answer- DEBIT to Sales
Returns and Allowances
CREDIT to Accounts Receivable
When a company has a generous credit policy, cash is tied up in receivables and the
company must finance its expansion or the payment of its bills through increased
borrowing. What label is given to this cost of selling on credit? - answer- Carrying cost
Why is it important to require that all cash receipts be deposited daily in bank accounts?
- answer- A large accumulation of cash can tempt even the most trusted employee.
What problem is caused for you if you have a credit policy of requiring cash payment in
30 days and your competitor has a credit policy of requiring cash payment in 75 days? -
answer- More attractive credit terms can allow your competitor to steal customers from
you.
Two ways of accounting for losses from uncollectible receivables include: - answer-
Allowance method (generally accepted)
Direct write-off method (NOT generally accepted)
Two ways of estimating losses from uncollectible receivables include: - answer-
Percentage of credit sales (existing balance is ignored)
Fraction of total outstanding receivables (often determined by aging the accounts
receivable) (existing balance is considered)
Customers who do not pay for the merchandise that they bought on credit are referred
to as: - answer- Bad debts
Bad Debt Expense is classified as a(n): - answer- Selling expense
