Accounting Exam 2 with correct answers 2024.

What determines a company's use of the specific identification method of costing? A : when the company purchases a large number of low-unit-cost items B : when the company sells large numbers of low-unit-cost items C : when the company sells a limited number of high-unit-cost items D : when the physical flow of units cannot be determined - answer-C ________ is located on the balance sheet as a current asset immediately below receivables. A : Cost Of Goods Sold B : Gross Profit C : Inventory D : Net Income - answer-C. Inventory What happens when the value of inventory is lower than its cost? A : The inventory is written down to its net realizable value. B : The company abandons the convention of conservatism. C : The inventory is sold off immediately. D : The company switches to the just-in-time method. - answer-A Which of the following statements is true? A : Regulations limit the types of inventory costing methods managers may choose, depending on the volume of goods. B : Management may choose any inventory costing method it desires. C : Management may choose any inventory costing method it desires as long as the cost flow assumption chosen is consistent with the physical movement of goods in the company. D : Regulations limit the types of inventory costing methods managers may choose, depending on whether the goods have a low or high unit cost. - answer-B When is the specific identification method of costing inventories used? A : when the physical flow of units cannot be determined B : when the company sells a limited number of high-unit-cost items C : when the company sells large quantities of relatively low-cost heterogeneous items D : when the company sells large quantities of relatively low-cost homogeneous items - answer-B Lost sales are a possible consequence of A : high inventory levels. B : low net income. C : low inventory levels. D : high operating expenses. - answer-C The first cost to be allocated to cost of goods sold is the cost of the latest goods purchased, according to the assumptions of the ________ inventory method. A : FIFO B : average-cost C : LIFO D : specific identification - answer-C. LIFO Carrying a large amount of inventory may increase A : customer complaints. B : obsolete goods. C : manufacturing activities. D : lost sales. - answer-B : obsolete goods. Which of the following statements is true? A : A company is not allowed to change its inventory valuation method. B : If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements. C : If a company changes its inventory valuation method, the effect of the change on net income need not be disclosed in the financial statements. D : If a company changes its inventory valuation method, the effect of the change on net income needs to be disclosed only within the company. - answer-B : If a company changes its inventory valuation method, the effect of the change on net income should be disclosed in the financial statements. Which of the following statements is true? A : A company cannot use more than one inventory cost flow method at the same time. B : A company is required to use different inventory cost flow methods for domestic and foreign inventories. C : A company may use more than one inventory cost flow method at the same time. D : A company is required to use different inventory flow methods for low-unit-cost and high-unit-cost items. - answer-C : A company may use more than one inventory cost flow method at the same time. Specific identification is a type of A : price calculation method. B : management system. C : inventory costing method. D : inventory location system. - answer-C : inventory costing method One type of inventory costing method is A : lower-of-cost-or-market. B : periodic. C : specific identification. D : perpetual. - answer-C : specific identification. Manufacturing inventory accounts are A : Finished Goods, Merchandise Inventory, and Work in Process. B : Finished Goods, Raw Materials, and Merchandise Inventory. C : Finished Goods, Raw Materials, and Work in Process. D : Finished Goods, Unfinished Goods, and Raw Materials. - answer-C : Finished Goods, Raw Materials, and Work in Process. Inventory costs _________ the costs of warehousing the inventory. - answer-do not include The LIFO inventory method assumes that the cost of the latest units purchased are the ________ to be allocated to A first; ending inventory. B first; cost of goods sold. C last; cost of goods sold. D first; beginning inventory. - answer-B first; cost of goods sold. The specific identification method of inventory costing may enable management to manipulate net income. A : True B : False - answer-A : True In the notes to the financial statements, a stockholder will find information regarding a company's A : operating expenses, basis and cost method. B : net income, gross profit, and cost of goods sold. C : sales revenue, beginning inventory, and ending inventory. D : major inventory classifications, basis, and cost method. - answer-D : major inventory classifications, basis, and cost method. Miller Enterprises shows total inventories of $96,600. Unfortunately, errors were made in calculating this amount. Based on the information in the chart, what is the correct amount of total inventories for Miller? Merchandise inventory: 72,600 FOB Destination from supplier A: 4,600 FOB shipping point from supplier B: 9,700 FOB shipping point to customer B: 7,200 Consignment goods received: 2,500 A : $89,500 B : $86,900 C : $79,700 D : $82,300 - answer-D : $82,300 FOB destination from supplier, FOB shipping point to customer, and consignment goods were erroneously included in inventories. Miller's total inventories are $96,600 - $4,600 - $7,200 - $2,500 = $82,300. The ________________________ method of inventory valuation is desirable when a company sells a limited number of high-unit-cost items. - answer-specific identification When is a physical inventory usually taken? A : on the first weekend of the new fiscal year B : when the company has its greatest amount of inventory C : at the end of the company's fiscal year D : when the company has its greatest amount of inventory or on the first weekend of the new fiscal year - answer-C : at the end of the company's fiscal year Bank service charges are___________ the balance per books in a bank reconciliation - answer-deducted from Which of the following statements is true? A Payments from petty cash funds are not recorded. B Companies rely on a petty cash fund to increase their liquid assets. C Transactions involving a petty cash fund are subject to some internal controls. D Payments from petty cash funds are made by check. - answer-C Transactions involving a petty cash fund are subject to some internal controls. Which of the following statements are true of cash equivalents? Select all that apply A Cash equivalents are non-liquid investments. B Cash equivalents have maturities of 180 days or less. C Cash equivalents can be converted into a specific amount of cash. D The market value of cash equivalents is relatively insensitive to changes in interest rates. - answer-C. Cash equivalents can be converted into a specific amount of cash. D. The market value of cash equivalents is relatively insensitive to changes in interest rates. NSF means "not sufficient funds" on ________ returned by the bank. A credit memoranda B reconciliations C debit memoranda D checks - answer-D checks ________ are highly liquid investments that are close to their maturity and easily convertible. A : Treasury bills B : Cash subsidies C : Cash equivalents D : Dividends - answer-C : Cash equivalents Which of the following would be included in the definition of cash? Select all that apply. A petty cash B money on deposit in a bank C coins D NSF checks - answer-A. petty cash B. money on deposit in a bank C. coins Which of the following will require the depositor to make a journal entry? Select all that apply. A bank errors B collection of a note receivable C an NSF check D bank service charges - answer-B. collection of a note receivable C. an NSF check D. bank service charges Employees who commit fraud because of financial pressure are most likely A being monitored closely by employers. B facing too much debt. C feeling that their employer makes too much money. D earning a high salary. - answer-B facing too much debt. The ________ is responsible for the management of a company's cash. A accountant B president C treasurer D vice president - answer-C treasurer A check with a date that is later than the current date_______ considered cash. - answer-is not Which of the following is an internal control feature that would address employees who do not take vacations? A : risk assessment B : establishment of responsibility C : independent internal verification D : human resource controls - answer-D : human resource controls Keeping inventories low is one way to improve a company's chances of having adequate A cash. B investments. C sales revenue. D financing. - answer-A cash The acronym DM could indicate which of the following? A the cost of printing checks B deposits made C collection of a note D interest earned by the account holder - answer-A the cost of printing checks A company that avoids paying liabilities too early is A : following a basic principle of cash management. B : following an unsound approach to cash management. C : minimizing the amount of non-revenue-generating cash on hand. D : interrupting the cash to cash operating cycle of a merchandising operation. - answer-A : following a basic principle of cash management. Which of the following enables a company to prepare for possible cash deficiencies at the end of any month? A cash account B cash verification C cash budget D cash surplus - answer-C cash budget Errors made by banks tend to A occur regularly. B be infrequent. C require an adjusting entry on the company's books. D be expected. - answer-B be infrequent. Which of the following is a responsibility of a company's treasurer? A managing cash B managing investor relations C generating sales D overseeing production - answer-A managing cash At the end of a clerk's shift, two copies of the deposit slip are necessary; one for ________ and the other to the bank. A the treasurer B the accounting department C human resources D the cashier - answer-B the accounting department Fraud occurs when A companies are subject to fines. B internal controls are in place and operational. C an employee commits a dishonest act for personal benefit that harms the employer. D companies have redundant controls. - answer-C an employee commits a dishonest act for personal benefit that harms the employer. Money market accounts, commercial paper, and U.S. Treasury bills with maturities of 90 days or less are called A cash equivalents. B current liabilities. C deposits in transit. D fixed assets. - answer-A cash equivalents. Notes collected by the bank would be added to the ________ in a bank reconciliation. A credit balance B balance per bank C balance per books D expected earnings section - answer-C balance per books Which of the following is an example of segregation of duties? A having one person in charge of all related activities B having two employees do the same task to evaluate each other's work C having one person design and use a computer system D giving responsibility for recordkeeping of an asset and physical custody of the asset to two different people - answer-D giving responsibility for recordkeeping of an asset and physical custody of the asset to two different peopl What is the main responsibility of the treasurer of a company? A collection of receivables B issuance of stocks and bonds C management of the company's cash D journal entry of transactions - answer-C management of the company's cas Which of the following is an example of establishment of responsibility? A allowing only designated personnel to sign checks B having different employees approve and make payments C conducting background checks on employees D reconciling the bank statement monthly - answer-A allowing only designated personnel to sign checks Monica Moran processes hundreds of vouchers each week for Sunlight Company. When will she create journal entries in Sunlight's voucher system? A when the order is made and the liability is paid B when the voucher is issued and when the liability is paid C when the order is made and when the goods are received D when the goods are received and the liability is paid - answer-B when the voucher is issued and when the liability is paid In banking, what is the relationship between a deposit and a credit? A A customer's deposit will be a credit to the bank's cash account. B A customer's deposit will be a credit to their account at the bank. C A customer deposits credits to be used like cash. D A customer uses credits to make a deposit - answer-B A customer's deposit will be a credit to their account at the bank. Which of the following would be classified as "other receivables"? A advances to employees B written promise to pay amount owed C accounts receivable D trade receivables - answer-A advances to employees Evaluating the ________ of receivables is one of the five steps in sound management of accounts receivable. A liquidity B maturity date C gross total D statement presentation - answer-A liquidity Correctly calculating interest can be done in - answer-different ways How is Bad Debt Expense reported on the income statement? A : as an expense subtracted from net sales to determine gross profit B : as an operating expense C : as part of cost of goods sold D : as a contra revenue account - answer-B : as an operating expense Where is bad debt expense reported on the income statement? A : in the operating expenses section B : under receivables C : under other revenues and gains D : under other expenses and losses - answer-A : in the operating expenses section Which of the following will reduce Accounts Receivable? A : sale of goods B : sales returns C : advances to employees D : adjusting entry for interest owed - answer-B : sales returns The net amount expected to be received in cash from receivables is termed the cash ________ value. A : realizable B : receivable C : equivalent D : payable - answer-A : realizable A note that is not paid in full at its maturity is called a ________ note. A : promissory B : factored C : deferred D : dishonored - answer-D : dishonored Which of the following entries will be used when a merchandiser sells goods on account? Assume the merchandiser expects payment within 30 days. Select all that apply. A debit to Notes Receivable B credit to Service Revenue C credit to Interest Revenue D credit to Sales Revenue E debit to Accounts Receivable F debit to Cash - answer-D credit to Sales Revenue E debit to Accounts Receivable ________ is often the most critical part of managing receivables. A : Determining who gets credit and who does not B : Establishing a payment period C : Determining which method to use to account for bad debts D : Monitoring the receivables - answer-A : Determining who gets credit and who does not A note receivable can be transferred ________ by endorsement. A : to another party B : into Bad Debt Expense C : within the bookkeeping department D : to Accounts Payable - answer-A : to another party Uncollectible Accounts Expense is another name for - answer-bad debt expense Which of the following statements about credit cards is true? A : The retailer receives more cash from the issuer as a result of accepting the card. B : The retailer receives less cash from the credit card issuer as a result of accepting the card. C : The issuer leaves the credit investigation of customers to the retailer. D : The issuer leaves the collection process to the retailer. - answer-B : The retailer receives less cash from the credit card issuer as a result of accepting the card. Companies often sell their receivables to A : lengthen the collection period. B : decrease the inventory turnover. C : shorten the operating cycle. D : lengthen the operating cycle. - answer-C : shorten the operating cycle. Journalize the entry for the receipt of cash by Flowers Company when the company sells $2,100 of merchandise to Thorne Corporation on January 12th with terms 2/15, n/EOM if payment is made on January 22nd. - answer-Because Thorne Corporation paid within the discount period, it is entitled to a 2% discount ($2,100 × .02 = $42). Flowers Company will receive cash of $2,058 ($2,100 - 42). What is the maturity date of a 60-day note receivable issued on November 17th, 2021? A : January 31st, 2022 B : January 15th, 2022 C : January 16th, 2022 D : January 17th, 2022 - answer-C : January 16th, 2022 Fisher Manufacturing uses the allowance method of writing off doubtful accounts. On March 1st, Fishers wrote off what it believed to be an uncollectible receivable from Mega Corporation for $3,145. Later, on July 1st, Fisher received the $3,145 from Mega. Which of the following entries should Fisher make? A : Accounts Receivable—Mega Corporation = Debit of $3,145; Allowance for Doubtful Accounts = Credit of $3,145 B : Cash = Debit of $3,145; Bad Debt Expense = Credit of $3,145 C : Accounts Receivable—Mega Corporation = Debit of $3,145; Bad Debt Expense = Credit of $3,145 D : Allowance for Doubtful Accounts = Debit of $3,145; Bad Debt Expense = Credit of $3,145 - answer-A : Accounts Receivable—Mega Corporation = Debit of $3,145; Allowance for Doubtful Accounts = Credit of $3,145 When should a merchandiser recognize an accounts receivable? A : at the point of sale B : when the goods are delivered C : when cash is received D : when payment is requested - answer-A : at the point of sale The financial statements of the Dimensions Company report net sales of $600,000 and accounts receivable of $20,000 and $10,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for Dimensions? A : 10 B : 21 C : 20 D : 40 - answer-D : 40 Accounts receivable turnover = $600,000 ÷ ($20,000 + $10,000)/2 = 40 Saddle Incorporated accepts a $9,000, 7%, 120-day note receivable from Rope Company as a result of lending them $9,000. Journalize the appropriate entry on the date of issuance. - answer-notes receivable(debit) 9000 cash (credit) 9000 Notes receivable are to be recognized at their face value. If a company has significant concentration of credit risk, it A should offer a sales discount to the customer to encourage prompt payment. B is required by law to investigate the personnel who allowed the credit risk. C must include a note about this in its financial statements. D should write off the risk as a bad debt. You selected A : should offer a sales discount to the customer to encourage prompt payment. got it wrong the correct Answer is C : must include a note about this in its financial statements. - answer-C must include a note about this in its financial statements Interest receivable, income taxes refundable, and advances to employees are examples of A : trade receivables. B : notes receivable. C : accounts receivable. D : other receivables. - answer-D : other receivables. : ________ are usually collected within 30 to 60 days, while __________ are collected over a longer time period and are accompanied by a formal instrument. A : Interest receivable, accounts receivable B : Notes receivable, accounts receivable C : Notes receivable, nontrade receivables D : Accounts receivable, notes receivable - answer-D : Accounts receivable, notes receivable Which of the following statements is true? A : Notes receivable are often listed last under receivables. B : Interest revenue is shown as an operating revenue on the income statement. C : Both the gross amount of receivables and the allowance for doubtful accounts should be reported. D : Selling receivables lengthens the cash-to-cash cycle. - answer-C : Both the gross amount of receivables and the allowance for doubtful accounts should be reported. Newman Shoes and Bowman Footwear both decided to write off a specific customer's uncollectible account as a bad debt expense. If Newman Shoes uses the direct write-off method and Bowman Footwear uses the allowance method for uncollectible accounts, what will be the difference in the journal entries for these two companies? A : Newman Shoes will record a credit to Allowance for Doubtful Accounts, whereas Bowman Footwear will record a credit to Bad Debt Expense. B : Newman Shoes will record a credit to Bad Debt Expense, whereas Bowman Footwear will record a credit to Allowance for Doubtful Accounts. C : Newman Shoes will record a debit to Bad Debt Expense, whereas Bowman Footwear will record a debit to Allowance for Doubtful Accounts. D : Newman Shoes will record a debit to Allowance for Doubtful Accounts, whereas Bowman Footwear will record a debit to Bad Debt Expense. - answer-C : Newman Shoes will record a debit to Bad Debt Expense, whereas Bowman Footwear will record a debit to Allowance for Doubtful Accounts. When recording an uncollectible account under the direct write-off method, the company records a debit to Bad Debt Expense and a credit to the specific Accounts Receivable account that is uncollectible. This characterizes Newman Shoes' method. When recording an uncollectible account under the allowance method, the company records a debit to Allowance for Doubtful Accounts and a credit to the specific Accounts Receivable account that is uncollectible. This characterizes Bowman Footwear's method. Vanderbilt Corporation, which utilizes a calendar year as its fiscal year, is the payee on a $12,000, 7%, 8-month note receivable from Stanford Company dated October 1st, 2021. Journalize the entry to record the receipt of payment in full on June 1, 2022 - answer-cash (debit) 12560 notes receivable(credit) 12000 interest receivable(credit) 210 Interest Revenue(credit) 350 Vanderbilt must accrue interest of $210 [($12,000 × .07 × (3/12)] at year-end. Interest for 2022 is recorded as interest revenue [$12,000 × .07 × (5/12)] = $350. Why are national credit card sales considered cash sales even though cash is not received at the time the transaction is carried out? A : because the issuer absorbs any losses associated with a failure to collect B : because the service fee must be recorded as a cash loss C : because the credit card issuer guarantees payment D : because there is no other way to differentiate national and store-issued credit sales - answer-C : because the credit card issuer guarantees payment How is the average collection period for receivables computed? A : by dividing 365 days by accounts receivable turnover B : by dividing 365 days by ending accounts receivable C : by dividing 365 days by average accounts receivable D : by dividing 365 days by net credit sales - answer-A : by dividing 365 days by accounts receivable turnover Credit sales result in the creation of ________ for the company. A : cash receipts B : accounts receivable C : notes payable D : debt - answer-B : accounts receivable Assuming a 36% annual rate of interest on a company-issued credit card, which of the following best explains what is meant by a journal entry that reads accounts receivable(debit) 60 interest revenue(credit) 60 A The customer paid off all but 3% of a $2,000 purchase. B The customer owes one month's interest on a purchase of $2,000. C The customer paid one month's interest on a purchase of $2,000. D The customer paid only 3% on a $2,000 purchase. - answer-B The customer owes one month's interest on a purchase of $2,000. If the yearly interest rate is 36%, this rate is divided by 12 to arrive at a monthly rate of 3%. A $60 charge represents 3% of a $2,000 purchase ($60/.03). What is the annual interest rate for a 90-day note issued with a face value of $8,000 that will earn interest of $160? A : 12% B : 8% C : 16% D : 4% - answer-B : 8% Using the formula I = PRT where I is the amount of interest earned on the note, P is the principal of the note, R is the interest rate, and T is the time of the note in terms of one year, the interest rate can be determined by multiplying the principal and time ($8,000 × (90/360) = $2,000). Dividing the interest by this amount ($160/$2,000) results in an interest rate of 8%. Both Fowler Landscaping and Stanley Cleaning Services have estimated their uncollectible accounts at 12/31/22 to be $3,500. In addition, both companies use the allowance method for uncollectible accounts. If Stanley has to record an amount larger than $3,500 for their Bad Debts Expense at the end of 2022, and Fowler has to record an amount less than $3,500, what can you assume about the balance of the Allowance for Doubtful Accounts account for each company? A : Stanley Cleaning Services had a zero balance in Allowance for Doubtful Accounts at the end of 2022, whereas Fowler Landscaping has a debit balance. B : Stanley Cleaning Services had a credit balance in Allowance for Doubtful Accounts at the end of 2022, whereas Fowler Landscaping has a debit balance. C : Stanley Cleaning Services had a debit balance in Allowance for Doubtful Accounts at the end of 2022, whereas Fowler Landscaping has a credit balance. D : Sta - answer-C : Stanley Cleaning Services had a debit balance in Allowance for Doubtful Accounts at the end of 2022, whereas Fowler Landscaping has a credit balance The normal balance for Allowance for Doubtful Accounts is a credit balance. A company with a debit or zero balance will have a higher adjusting entry than a company with a credit balance, and a company with a zero or credit balance will have a lower adjusting entry than a company with a debit balance, provided both companies need the same ending balance. If Stanley Cleaning Services has Bad Debts Expense larger than $3,500, and Fowler Landscaping has a Bad Debts Expense smaller than $3,500, then the only correct option is that Stanley had a debit balance and Fowler had a credit balance in their Allowance for Doubtful Accounts at the end of 2022. Graves Construction is journalizing two transactions related to uncollectible accounts. The first transaction does not affect cash flows, but the second transaction does affect cash flows. If Graves Construction uses the allowance method to account for uncollectibles, which of the following scenarios may pertain to these transactions? A : The first transaction is to record the write-off of an uncollectible account, and the second transaction is to record the estimate of uncollectible accounts. B : The first transaction is to record the write-off of an uncollectible account, and the second transaction is to record the recovery of a previously written off uncollectible account. C : The first transaction is to record the sale of uncollectible accounts to a factor, and the second transaction is to record the write-off of an uncollectible account. D : The first transaction is to record the recovery of a previously written - answer-B : The first transaction is to record the write-off of an uncollectible account, and the second transaction is to record the recovery of a previously written off uncollectible account Bad debt expense is classified as ________ on a multiple-step income statement. A : service charge expense B : a nonoperating expense C : interest expense D : a selling expense - answer-D : a selling expense Which of the following statements is true? A A note receivable is a written promise to pay an amount owed. B A note receivable is usually collected in under 30 days. C An account receivable normally requires the collection of interest. D An account receivable is usually collected in 60 to 90 days. You selected A : A note receivable is a written promise to pay an amount owed. got it correct - answer-A : A note receivable is a written promise to pay an amount owed. What will happen if the amount of bad debt expense is understated at year-end? A : Net income will be understated. B : Stockholders' equity will be understated. C : Allowance for Doubtful Accounts will be overstated. D : Net Accounts Receivable will be overstated. - answer-D : Net Accounts Receivable will be overstated. Because the ________ method violates the ________, it is unacceptable for financial reporting. A : allowance; matching principle B : direct write-off; matching principle C : allowance; relevance criteria D : direct write-off; going-concern principle - answer-B : direct write-off; matching principle Reeves Incorporated is accepting notes receivable from four individuals for $5,000 each. Which individual will end up paying the MOST in interest, assuming all individuals pay in full on the maturity date? A : Individual 1 has an annual interest rate of 3.5% and a maturity date of 60 days. B : Individual 2 has an annual interest rate of 4.75% and a maturity date of three months. C : Individual 3 has an annual interest rate of 4.05% and a maturity date of one year. D : Individual 4 has an annual interest rate of 3.8% and a maturity date of six months. - answer-C : Individual 3 has an annual interest rate of 4.05% and a maturity date of one year. Individual 1 will pay $5,000 * 3.5% * 60/360 = $29.17. Individual 2 will pay $5,000 * 4.75% * 3/12 = $59.38. Individual 3 will pay $5,000 * 4.05% * 1 = $202.50. Individual 4 will pay $5,000 * 3.8% * 6/12 = $95. Therefore, Individual 3 will end up paying the most in interest. Velocity Company reports an average collection period of 43.8 days. Beginning and ending accounts receivable are $61,225 and $51,025, respectively. What were Velocity's net credit sales? A : $1,018,750 B : $467,708 C : $510,208 D : $425,208 - answer-B : $467,708 Dividing 365 days by the average collection period results in accounts receivable turnover of 8 and 1/3 times. Multiplying this figure by average accounts receivable of $56,125 [($61,225 + $51,025) ÷ 2] results in net sales of $467,708. Compare and contrast two common types of receivables. A : Accounts receivable are amounts customers owe on an account, whereas interest receivable are written promises for amounts to be received. B : Notes receivable are written promises for amounts to be received, whereas interest receivable are amounts customers owe on an account. C : Accounts receivable are written promises for amounts to be received, whereas notes receivable are amounts customers owe on an account. D : Accounts receivable are amounts customers owe on an account, whereas notes receivable are written promises for amounts to be received. - answer-D : Accounts receivable are amounts customers owe on an account, whereas notes receivable are written promises for amounts to be received. On March 1, 2022, Cullumber Company acquired real estate, on which it planned to construct a small office building, by paying $87,000 in cash. An old warehouse on the property was demolished at a cost of $9,600; the salvaged materials were sold for $1,980. Additional expenditures before construction began included $1,480 attorney's fee for work concerning the land purchase, $5,200 real estate broker's fee, $8,980 architect's fee, and $15,400 to put in driveways and a parking lot. - answer-101,300 (pur. price. + demo cost -salv. + attor. fee + brok. fee) 1. Depreciation is a process of asset valuation, not cost allocation. False. 2.Depreciation provides for the proper recording of expenses (efforts) with revenues (results). True 3. The book value of a plant asset should approximate its fair value. False 4.Depreciation applies to three classes of plant assets: land, buildings, and equipment. False 5. Depreciation does not apply to a building because its usefulness and revenue-producing ability generally remain intact over time. False. 6. The revenue-producing ability of a depreciable asset will decline due to wear and tear and to obsolescence. True 7.Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset. False 8.The balance in accumulated depreciation represents the total cost that has been charged to expense since placing the asset in service. True 9.Depreciation expense and accumulated depreciation are reported - answer- Oriole Company purchased a new machine on October 1, 2022, at a cost of $90,240. The company estimated that the machine has a salvage value of $8,800. The machine is expected to be used for 70,300 working hours during its 8-year life. Compute the depreciation expense under the straight-line method for 2022 and 2023, assuming a December 31 year-end. - answer-Answer: Depreciation for 2022 = $2,545 Depreciation for 2023 = $10,180 Explanation: The computation of the depreciation expense is shown below:- Cost of assets = $90,240 Salvage value = $8,800 Useful life of assets = 8 years Depreciation expenses = (Cost of assets - Salvage value) ÷ Estimated useful life of assets = ($90,240 - $8,800) ÷ 8 = $10,180 So Depreciation for 2022 = (Depreciation expenses × 3 months(i.e. from Oct 1 to Dec 31)) ÷ 12 = ($10,180 × 3 months) ÷ 12 = $2,545 and Depreciation for 2023 = $10,180 Sandhill Company purchased a delivery truck for $48,000 on July 1, 2022. The truck has an expected salvage value of $4,000, and is expected to be driven 100,000 miles over its estimated useful life of 8 years. Actual miles driven were 15,000 in 2022 and 12,000 in 2023. Sandhill uses the straight-line method of depreciation. Compute depreciation expense for 2022 and 2023. - answer-Answer: Depreciation expense for 2022 was $2,750 Depreciation expense for 2023 was $5,500 Explanation: Sandhill Company uses straight-line depreciation method, Depreciation Expense each year is calculated by following formula: Annual Depreciation Expense = (Cost of delivery truck − Salvage Value )/Useful Life = ($48,000-$4,000)/8 = $5,500 In 2022, the delivery truck was used from July 1 to December 31 (6 months) Depreciation Expense for 2022 = ($5,500 /12) x 6 = $2,750 Depreciation Expense for 2023 = $5,500 Suppose during 2014 that Federal Express reported the following information (in millions): net sales of $34,272 and net income of $84. Its balance sheet also showed total assets at the beginning of the year of $24,738 and total assets at the end of the year of $23,242. Calculate the asset turnover and return on assets. - answer-Asset turnover = Net sales / Average total assets $34,272 / [($24,738 + 23,242) / 2] = 1.43 Return on assets = Net income / Average total assets $84 / [($24,738 + 23,242) / 2] = 0.0035 or 0.35% When a company purchases vacant land, which account should expenditures for clearing, draining, filling, and grading be charged to? A land improvement account B machinery account C land account D plant account - answer-C land account Which of the following are ways that plant assets can be disposed of? Select all that apply. A sales B write-off C exchange D retirement - answer-all but write off How many dollars of sales a company generates for each dollar invested in assets is calculated by A profit margin. B inventory turnover. C asset turnover. D return on assets. - answer-C asset turnover. Depreciation refers to the periodic allocation of a plant asset's A book value. B liability. C cost. D fair market value. - answer-C cost. Rights and privileges resulting from the ownership of long-lived assets that do not have physical substance are called A plant assets. B intangible assets. C franchises. D tangible assets. - answer-B intangible assets When is the cost of a long-term asset recorded as an expense? A : in the period in which it is acquired B : in the period in which it is disposed of C : at the time of payment D : as the asset benefits the company - answer-D : as the asset benefits the company Which is not true about leasing? A : Leasing accounts for about one-third of all business investment. B : Airlines lease most of their airplanes on short-term leases. C : Major banks are the major lessors. D : One-third of heavy-duty commercial trucks are leased. - answer-B : Airlines lease most of their airplanes on short-term leases. A plant asset is ________ from the books upon sale or exchange whether or not it is fully depreciated. A retired B removed C amortized D devalued - answer-B removed Balances of the land, buildings, and equipment are presented within A The balance sheet. B The operating section of the statement of cash flows. C The notes to financial statements. D Either the balance sheet or the notes to the financial statement. - answer-D Either the balance sheet or the notes to the financial statement. How is a trademark classified on the balance sheet? A : as a fixed asset B : as a liquid asset C : as a tangible asset D : as an intangible asset - answer-D : as an intangible asset Companies must initially record plant assets at A : market value. B : the greater of cost or fair value. C : cost. D : fair value. - answer-C : cost. Which of the following processes best describes depreciation? A : cost accumulation B : asset valuation C : cost allocation D : asset devaluation - answer-C : cost allocation A loss on disposal occurs if the cash proceeds from the sale are less than the ________ value of the plant asset sold. A : book B : market C : estimated D : current - answer-A : book The best way to select a depreciation method is to choose that one which best measures the plant asset's A : contribution to revenue. B : need for repairs. C : market value. D : salvage value. - answer-A : contribution to revenue Which of the following best defines the return on assets ratio? A : overall measure of depreciation B : overall measure of investment C : overall measure of loss D : overall measure of profitability - answer-D : overall measure of profitability When estimating the useful life of an asset, accountants consider - answer-obsolescence How are plant assets disposed of? A : write-off, exchange, or sales B : retirement, write-off, or sales C : exchange, retirement, or write-off D : sale, exchange, or retirement - answer-D : sale, exchange, or retirement When vacant land is acquired, ________ should be charged to the land account. A : interest costs incurred during construction of a building B : expenditures for putting up fences around the land C : construction costs for a new building D : expenditures for clearing, draining, and filling - answer-D : expenditures for clearing, draining, and filling ________ indicates an overall measure of profitability. A : Net revenue B : The return on assets ratio C : The asset turnover ratio D : The profit margin ratio - answer-B : The return on assets ratio ________is the process of allocating the cost of intangible assets. - answer-Amortization The sale of old assets causes a(n)________in cash flows - answer-increase Asset turnover is used to calculate how many dollars of ________ a company generates for each dollar A : sales; invested in assets. B : income; received by sales. C : sales; of liabilities. D : income; invested in assets. - answer-A : sales; invested in assets. Companies usually list an Accumulated Depreciation contra account for plant assets and an Accumulated Amortization contra account for intangible assets on the balance sheet. A : True B : False - answer-B : False The periodic allocation of a plant asset's cost is called A : amortization. B : expiration of useful life. C : depletion. D : depreciation. - answer-D : depreciation A company creates a(n) ________ report to identify how the company is meeting its corporate social responsibilities. A triple bottom line B community C environmental D sustainability - answer-D sustainability Which of the following should be disclosed in the balance sheet or the notes to the financial statements? A : amount of depreciation and amortization expense for the period, but not depreciation and amortization methods used. B : depreciation and amortization methods used, but not balances of major classes of assets. C : balances of major classes of assets, but not the amount of depreciation and amortization expense for the period. D : depreciation and amortization methods used, balances of major classes of assets, and the amount of depreciation and amortization for the period. - answer-D : depreciation and amortization methods used, balances of major classes of assets, and the amount of depreciation and amortization for the period. The amount of income generated by each dollar of assets is determined by calculating A : asset turnover. B : inventory turnover. C : profit margin. D : return on assets. - answer-D : return on assets. What is the book value of an asset equal to? A : the replacement cost of the asset B : the blue book value relied on by secondary markets C : the asset's fair value less its historical cost D : the asset's cost less accumulated depreciation - answer-D : the asset's cost less accumulated depreciation Which is not an advantage of leasing vs purchasing? A : Reduced risk of obsolescence. B : Use of the leased asset by both parties during the lease term. C : Little or no down payment. D : Shared tax advantages. - answer-B : Use of the leased asset by both parties during the lease term Which of the following is included in the cost of land? Select all that apply. A : closing costs B : parking lots C : real estate brokers' commissions D : accrued property taxes - answer-all except parking lots Franchises are classified as ________ assets. A : tangible B : plant C : fixed D : intangible - answer-D : intangible Management should select a depreciation method that A : is the easiest method to apply. B : it has used most often in the past. C : best measures the plant asset's contribution to revenue over its useful life. D : best measures the plant asset's market value over its useful life - answer-C : best measures the plant asset's contribution to revenue over its useful life. Old equipment that is retired is A : scrapped or discarded. B : exchanged for new equipment. C : sold to another party. D : stored in an inventory facility. - answer-A : scrapped or discarded. What is the difference between the cost of an intangible asset and the amortization recorded to date? A : historical value B : book value C : fair market value D : estimated value - answer-B : book value A plant asset is removed from the books upon sale or exchange whether or not it is fully A : devalued. B : paid for. C : depreciated. D : utilized. - answer-C : depreciated. Plant assets A : are intangible. B : include Inventory. C : are intended for sale to customers. D : are expected to be in service for a number of years. - answer-D : are expected to be in service for a number of years. Which of the following costs are included in a land account? Select all that apply. A : the cost of planting trees B : property taxes and liens assumed by the purchaser C : attorney's fees to title and deed D : demolition and removal costs of old buildings - answer-ALL but A. the cost of planting trees Intangible assets____________use an Accumulated Amortization contra account similar to the Accumulated Depreciation contra account for plant assets. - answer-DO NOT An overall measure of profitability is the ________ ratio. A : gross profit B : net sales C : average total D : return on assets - answer-D : return on assets ________ is a process of cost allocation. A : Impairment B : Depreciation C : Accumulation D : Devaluation - answer-B : Depreciation An advantage of leasing is A : a larger down payment. B : that all taxes are paid by the lessee. C : reduced risk of obsolescence. D : the short-term nature of all lease - answer-C : reduced risk of obsolescence. The cost of a plant asset is equal to the ________ when it is purchased for cash. A : cash paid or fair value of the asset, whichever is higher B : fair value of the asset C : amount of cash paid D : book value of the seller - answer-C : amount of cash paid Hat Trick Manufacturing had the following expenditures related to plant assets for its most recent fiscal year Oil changes on delivery vans: $750 Oil and belt replacement in machinery: $2,250 Engine Replacement on 2 delivery vans: $6,500 Installation of heating system for manufacturing facility: $25,000 Painting corporate office building: $4,000 Expansion of corporate office building: $60,000 What amount is Hat Trick Manufacturing's revenue expenditures? A $38,500 B $9,500 C $7,000 D $13,500 - answer-C. $7000 Revenue expenditures include ordinary repairs. Painting, vehicle maintenance, and replacement parts for machinery and equipment are considered revenue expenditures ($750 + 2,250 + 4,000 = $7,000). The engine replacement in the delivery vans is considered a capital expenditure because it extends the useful life of the asset Which of the following statements is true? A : Capital expenditures are debited to Maintenance and Repairs Expense as incurred. B : Capital expenditures are made to maintain the operating efficiency of plant assets. C : Capital expenditures are fairly small amounts that are spent frequently throughout the life of a plant asset. D : Capital expenditures are made to increase a company's investment in plant assets - answer-D : Capital expenditures are made to increase a company's investment in plant assets Amortization refers to the A : process of bifurcation of revenue and capital expenditure. B : cost allocation of an intangible asset. C : process of allocating to expense the cost of a plant asset over its useful life in a systematic manner. D : cost allocation of a tangible asse - answer-B : cost allocation of an intangible asset. When a company purchases land, which of the following costs is included in the purchase price? A : net removal cost of an old building B : fences C : driveways D : the cost to install a new parking lot - answer-A : net removal cost of an old building According to GAAP, what is the correct classification for the cost of an oil change on a delivery vehicle? A : a reduction of the vehicle's historical cost B : revenue expenditure C : an addition to accumulated depreciation D : capital expenditure - answer-B : revenue expenditure A debit to Accumulated Depreciation occurs when A : an asset is purchased. B : an asset is disposed of. C : depreciation is recorded for an asset. D : an asset is stored. - answer-B : an asset is disposed of Jacobson & Sons recently purchased some new equipment for $75,600. Other associated costs are as follows: Freight Costs: $580 Sales Taxes: $2,250 Installation Costs: $6,500 Freight Insurance:$750 For what amount will Russell debit equipment at the acquisition date? A : $85,680 B : $75,600 C : $78,580 D : $77,850 - answer-A : $85,680 Equipment should be debited for the amount necessary to make the asset ready for its intended use. The freight costs, installation costs, sales taxes, and freight insurance are added to the price of the equipment to arrive at a total cost of $85,680. Gemini Group ordered motor tune ups and oil changes on their entire fleet of company vehicles in the third quarter. How should this expense be recorded? A : As a capital expenditure. B : As an increase in salvage value. C : As a depreciation expense. D : As a revenue expenditure - answer-D : As a revenue expenditure Which of the following is a characteristic of a plant asset? A : held for sale in the ordinary course of business B : used in the operations of business C : intangible D : not currently used in the business but held for future use - answer-B : used in the operations of business The service potential of ________ does not decline over its useful life. A : a land improvement B : land C : equipment D : a building - answer-B : land Return on assets is used to calculate the amount of ________ generated by each dollar A : income; of assets. B : sales; of assets. C : sales; paid to employees. D : income; of sales. - answer-A : income; of assets. A sustainability report is used by companies to describe how they are meeting their A : budget restrictions. B : fiscal year goals. C : sales and inventory goals. D : corporate social responsibilities. - answer-D : corporate social responsibilities Ellis Company had asset turnover of .60 in 2022. If net assets were $4,200,000 at the beginning of the year and $4,800,000 at the end of the year, what were Ellis' net sales for 2022? A : $2,700,000 B : $2,880,000 C : $5,400,000 D : $2,520,000 - answer-A : $2,700,000 Asset turnover is multiplied by average total assets to determine net sales. Average total assets are $4,500,000: ($4,200,000 + $4,800,000) /2. Multiplying this figure by .60 yields $2,700,000 in net sales for 2022. The cost of ________ is expensed as it benefits the company. A : a long-term liability B : equipment C : a short-term liability D : land - answer-B : equipment Which of the following is included in the cost of construction of a building? A : interest incurred during construction B : cost of repairing vandalism damage incurred after construction is complete C : cost of paving a parking lot D : cost of removing a demolished building on the land when it was purchased - answer-A : interest incurred during construction A merchandising company sells very high-end gear for professional athletes. Therefore, they have a hard time increasing their asset turnover. If the company wants to increase their return on assets, what should they focus on? A decreasing their retained earnings B decreasing their profit margin C increasing their inventory levels D increasing their profit margin - answer-D : increasing their profit margin An overall measure of profitability is the return on assets ratio. A : True B : False - answer-A : True Patrick Enterprises recently installed a parking lot. The paving costs were $38,750, and the lighting costs were $20,000. In addition, the company entered into a $1,000 annual agreement with Romero Cleaning to maintain the parking lot. For what amount should Patrick Enterprises debit the land improvements account when the parking lot is completed? A : $38,750 B : $59,750 C : $58,750 D : $57,750 - answer-C : $58,750 The maintenance contract is expensed as Romero completes its work. The relevant costs to complete the parking lot include the paving and the lighting ($38,750 + 20,000 = $58,750). Old equipment that is scrapped or discarded when it is no longer useful is said to be A : written off. B : retired. C : sold. D : exchanged. - answer-B : retired. Which of the following costs are recognized as an intangible asset? A : franchise acquisition costs B : research and development costs C : labor costs D : plant operating costs - answer-A : franchise acquisition costs The company with the lowest operating efficiency is one with an asset turnover of A : 0.68. B : 0.52. C : 0.94. D : 1.37. - answer-B : 0.52. Emerson Resources had the following financial information for : Total Assets, December 31, 2021: $4.12million Total Assets, December 31, 2022: $4.27million Net Income, December 31, 2022: $298,000 What was Emerson's return on assets for 2022? A : 7.23% B : 7.34% C : 6.98% D : 7.10% - answer-D : 7.10% Return on assets is calculated by net income divided by average total assets. Average total assets is ($4.12 million + $4.27 million) / 2 = $4,195,000. Therefore, return on assets is $298,000/$4,195,000 = 7.10 percent. The ________ of an asset is equal to the asset's cost less accumulated depreciation. A : book value B : fair market value C : resale value D : replacement cost - answer-A : book value The asset turnover ratio is calculated as ________ divided by average total assets. A : net income B : ending total assets C : net sales D : average sales - answer-C : net sales Blair Automotive performed mechanic services for two customers. The first customer owed $5,280 for services, so Blair Automotive made them sign a written promise to pay in full after six months with an annual interest rate of 3.5%. The second customer owed $326 for services, so Blair Automotive plans to send them a bill within the next two weeks, due within 30 days of receipt of the bill. What is the difference between these two transactions? A : The first transaction will be recorded as a note receivable, whereas the second transaction will be recorded as an account receivable. B : The first transaction will be recorded as a note receivable, whereas the second transaction will be recorded as a cash sale. C : The first transaction will be recorded as an account receivable, whereas the second transaction will be recorded as a cash sale. D : The first transaction will be recorded as an account receivable, whereas the s - answer-A : The first transaction will be recorded as a note receivable, whereas the second transaction will be recorded as an account receivable. Solution: A note receivable requires a written promise to pay as well as the calculation of interest using an interest rate and maturity date. This is characteristic of the first transaction. An account receivable does not require a written promise to pay, nor does it require the calculation of interest. Instead, the customer will usually be expected to pay within 30 days. A cash sale would require payment in cash at the time of service Williamson Paints offers a store credit card to customers. A customer that purchased $247 in merchandise failed to pay their account within 30 days. Therefore, Williamson added an interest charge of 1.25% per month to the customer's account. What adjusting entry would Williamson make to record this transaction for the first month? - answer-Accounts Receivable $3.09 Interest Revenue $3.09 Laser Company reports the following information for its most recent fiscal year, before adjustments Sales: $581, 500 Beginning Accounts Receivable Balance: $32,500 Sales Returns and Allowances: $9,500 Ending Accounts Receivable Balance:$34,400 Allowance for Doubtful Accounts: $2,100 (credit balance) An accounts receivable aging schedule results in $4,800 of estimated bad debts. If Laser uses the percentage-of-receivables basis to estimate bad debts, journalize the appropriate year-end adjusting entry. - answer-Bad Debt Expense 2700 Allowance for Doubtful Accounts 2700 Solution The allowance for doubtful accounts should have an ending credit balance based on the aging schedule. Since the account has an unadjusted credit balance, the amount of the entry is the result of the aging schedule, less the existing balance ($4,800 - 2,100 = $2,700) What is the principal of a 10-month, 8% note that will earn $800 of interest? A : $10,000 B : $12,000 C : $8,000 D : $18,000 - answer-B : $12,000 Solution: Using the formula I = PRT where I is the amount of interest earned on the note, P is the principal of the note, R is the interest rate, and T is the time of the note in terms of one year, the principal can be determined by multiplying the interest rate and time (.08 × (10/12) = .066666). Dividing the interest by this amount ($800/.066666) results in principal of $12,000. The financial statements of Baker Company report net sales of $500,000 and accounts receivable of $10,000 and $15,000 at the beginning of the year and end of year, respectively. What is the average collection period for accounts receivable in days? A : 12 B : 8 C : 9.1 D : 10.2 - answer-C : 9.1 Solution: $500,000 ÷ [($10,000 + $15,000) ÷ 2] = 40; 365 ÷ 40 = 9.1 Which of the following best explains what is meant by a journal entry that reads Accounts Receivable- Westin Corporation $2400 Sales Revenue $2400 A A $2,400 sale was made to Westin Corporation. B A $2,400 sale was made by Westin Corporation. C A $2,400 payment was made by Westin Corporation. D A $2,400 payment is due to Westin Corporation. - answer-A. A $2,400 sale was made to Westin Corporation. If the amount of bad debt expense is overstated at year end, net Accounts Receivable will be_______ - answer-Understated Grant Incorporated has loaned $15,000 to a corporate officer. Grant should classify the loan as a(n) ________ since the transaction is outside the normal course of business. A : notes receivable B : current liability C : other receivable D : accounts receivable - answer-C : other receivable Assuming a 2/10, n/30 term, which of the following best explains what is meant by a journal entry that reads Cash 980 Sales Discount 20 Accounts Receivable 1000 A A 2% interest charge was charged to Wilson Company on a purchase of $1,000 because Wilson paid after 30 days. B A 2% interest charge was charged by Wilson Company to a customer on a purchase of $1,000 because the customer paid after 30 days. C A 2% discount was extended to Wilson Company on a purchase of $1,000 because Wilson paid within 10 days. D A 2% discount was extended by Wilson Company to a customer on a purchase of $1,000 because the customer paid within 10 days. - answer-C. A 2% discount was extended to Wilson Company on a purchase of $1,000 because Wilson paid within 10 days Solution: Wilson Company received 2% discount ($1,000 × .02 = $20). The company with which Wilson did business will receive cash of $980 ($1,000 - $20). You selected B : A 2% interest charge was charged by Wilson Company to a customer on a purchase of $1,000 because the customer paid after 30 days. got it wrong the correct Answer is C : A 2% discount was extended to Wilson Company on a purchase of $1,000 because Wilson paid within 10 days. What are claims that are expected to be received in cash? A : payments B : profits C : receivables D : interest - answer-C : receivables When should a service organization record a receivable? A when it performs a service on account B when it contracts to perform a service on account C when a customer pays for a service done on account D when it performs a service paid for in cash - answer-A when it performs a service on account What is the annual interest rate for a 60-day note issued with a face value of $2,500 that will earn interest of $42? A : 14.3% B : 10.1% C : 1.7% D : 5.95% - answer-B : 10.1% Using the formula I = PRT where I is the amount of interest earned on the note, P is the face value of the note, R is the annual interest rate, and T is the time of the note in terms of one year, the interest rate can be determined by multiplying the principal and time ($2,500 × (60/360) x R = $42). Dividing the interest by this amount (R = $42/416.67) results in an interest rate of 10.1% On January 5, 2022, Lawrence Industries returned $862 of products to Lynch Company. If the products were originally purchased on account, how would Lynch Company record this transaction in their books? - answer-Sales Returns and Allowances: 862 Accounts Receivable-Lawrence: 862 Credit sales result in the creation of ________ for the company. A : debt B : notes payable C : accounts receivable D : cash receipts - answer-C : accounts receivable When a company collects on an account after writing it off as uncollectible, it makes one journal entry A : reversing the entry made when writing off the account, and another entry recording the collection in the usual manner. B : recording the collection in the usual manner. C : charging the amount to Bad Debt Expense, and other entry recording the collection in the usual manner. D : reversing the entry made when writing off the account - answer-A : reversing the entry made when writing off the account, and another entry recording the collection in the usual manner. The financial statements of the Darlington Company report net sales of $500,000 and accounts receivable of $40,000 and $20,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for Darlington? A : 10 B : 23 C : 16.7 D : 21.1 - answer-C : 16.7 $500,000 ÷ [($40,000 + $20,000) ÷ 2] = 16.7 Sanders Company has a debit balance of $7,000 in its Allowance for Doubtful Accounts before any adjustments are made. Based on a review of its accounts receivable at the end of the year, Sanders estimates that $70,000 of its receivables are uncollectible. The amount of bad debt expense which should be reported for the year is A : $63,000. B : $77,000. C : $70,000. D : $7,000. - answer-B : $77,000 Year-end balance = Beginning debit balance + Necessary ending balance = 7,000 + 70,000 = $77,000. Higgins Enterprises is accepting notes receivable from four customers for $18,000 each. Which customer will end up paying the LEAST in interest, assuming all individuals pay in full on the maturity date? A : Individual 2 has an annual interest rate of 5.98% and a maturity date of one year. B : Individual 1 has an annual interest rate of 6.75% and a maturity date of four months. C : Individual 3 has an annual interest rate of 7.3% and a maturity date of 90 days. D : Individual 4 has an annual interest rate of 7.15% and a maturity date of eight months. - answer-C : Individual 3 has an annual interest rate of 7.3% and a maturity date of 90 days. Individual 1 will pay $18,000 * 6.75% * 4/12 = $405. Individual 2 will pay $18,000 * 5.98% * 1 = $1,076.40. Individual 3 will pay $18,000 * 7.3% * 90/360 = $328.50. Individual 4 will pay $18,000 * 7.15% * 8/12 = $858. Therefore, Individual 3 will end up paying the least in interest. Simmons Home Hardware offers a store credit card to customers. A customer that purchased $812 in merchandise failed to pay their account within 30 days. Therefore, Simmons added an interest charge of 2% per month to the customer's account. What adjusting entry would Simmons make to record this transaction for the first month? - answer-Accounts Receivable $16.24 Interest Revenue $16.24 Holland Trucks is journalizing two transactions. The first is to write off an uncollectible account. The second is to record the recovery of an uncollectible account. Which of the following differences will apply to these transactions? A : The first transaction will affect only assets, but the second transaction will affect only stockholders' equity. B : The first transaction will require two journal entries, but the second transaction will only require one journal entry. C : The first transaction will not affect cash flows, but the second transaction will affect cash flows. D : The first transaction will affect both balance sheet and income statement accounts, but the second transaction will only affect balance sheet accounts. - answer-C : The first transaction will not affect cash flows, but the second transaction will affect cash flows The financial statements of R & P Imports report net sales of $600,000 and accounts receivable of $60,000 and $100,000 at the beginning of the year and end of year, respectively. What is the accounts receivable turnover for R & P Imports? A : 7.5 times B : 8.3 times C : 10.5 times D : 12 times - answer-A : 7.5 times $600,000 ÷ [($60,000 + $100,000) ÷ 2] = 7.5 times Which of the following will occur if a company shortens its collection period? A : Accounts receivable turnover will decrease. B : Net credit sales will decrease. C : Net credit sales will increase. D : Accounts receivable turnover will increase. - answer-D : Accounts receivable turnover will increase. Why is it wise to segregate duties related to accounts receivable and cash handling? A : because doing so decreases the difficulty associated with re