- Merchandise inventory
Answer
/ a. / is a long-term asset./ b. / is a current asset.
/ c. / includes supplies.
/ d. / is classified with investments on the balance sheet.
/ e. / must be sold within one month.
3 points
Question 2
The credit terms 2/10, n/30 are interpreted as
Answer
/ a. / 2% cash discount if the amount is paid within 10 days, with the balance due in 30 days./ b. / 10% cash discount if the amount is paid within 2 days, with the balance due in 30 days.
/ c. / 30% discount if paid within 2 days.
/ d. / 30% discount if paid within 10 days.
/ e. / 2% discount if paid within 30 days.
3 points
Question 3
A company purchased $1,800 of merchandise on December 5. On December 7, it returned $200 worth of merchandise. On December 8, it paid the balance in full, taking a 2% discount. The amount of the cash paid on December 8 equals
Answer
/ a. / $200./ b. / $1,564.
/ c. / $1,568.
/ d. / $1,600.
/ e. / $1,800.
3 points
Question 4
A debit to Sales Returns and Allowances and a credit to Accounts Receivable
Answer
/ a. / reflect an increase in the amount due from a customer./ b. / recognizes that a customer returned merchandise and/or received an allowance.
/ c. / requires a debit memorandum to recognize the customer's return.
/ d. / is recorded when a customer takes a discount.
/ e. / reflects an increase in net sales.
3 points
Question 5
Multiple-step income statements
Answer
/ a. / are required by the FASB./ b. / contain more detail than a simple listing of revenues and expenses.
/ c. / are required for the perpetual inventory system.
/ d. / list cost of goods sold as an operating expense.
/ e. / can only be used in perpetual inventory systems.
3 points
Question 6
Merchandise inventory includes
Answer
/ a. / all goods owned by a company and held for sale./ b. / all goods in transit.
/ c. / all goods on consignment.
/ d. / only damaged goods.
/ e. / only items that are on the shelf.
3 points
Question 7
Physical inventory counts
Answer
/ a. / are not necessary under the perpetual system./ b. / are necessary to measure and adjust for inventory shrinkage.
/ c. / must be taken at least once a month.
/ d. / require the use of hand-held portable computers.
/ e. / are not necessary under the cost-to-benefit constraint.
3 points
Question 8
The full disclosure principle
Answer
/ a. / requires that when a change in inventory valuation method is made, the notes to the financial statements report the type of change, why it was made, and its effect on net income./ b. / requires that companies use the same accounting method for inventory valuation period after period.
/ c. / is not subject to the materiality principle.
/ d. / is only applied to retailers.
/ e. / is also called the consistency principle.
3 points
Question 9
A company had inventory on November 1 of 5 units at a cost of $20 each. On November 2, they purchased 10 units at $22 each. On November 6, they purchased 6 unitsx at $25 each. On November 5, 8 units were sold for $55 each. Using the Weighted Average perpetual inventory methods, what was the value of the inventory on November 30?
Answer
/ a. / $304.00/ b. / $404.00
/ c. / $322.72
/ d. / $280.00
/ e. / $276.00
3 points
Question 10
The conservatism principle
Answer
/ a. / requires that when there are more than one equally likely estimates of amounts expected to be received or paid in the future, then the less optimistic amount should be used./ b. / requires that a company use the same accounting methods period after period.
/ c. / requires that revenues and expenses be reported in the period in which they are earned or incurred.
/ d. / requires that all items of a material nature be included in financial statements.
/ e. / requires that all inventory items be reported at full cost.
3 points
Question 11
Acme Company has an agreement with a major credit card company which calls for cash to be received immediately upon deposit of Acme customers' credit card sales receipts. The credit card company receives 3.5% of card sales as its fee. If Acme has $2,000 in credit card sales, which of the following statements is true?
Answer
/ a. / Acme debits Cash for $2,000./ b. / Acme debits Cash for $1,930.
/ c. / Acme debits Accounts Receivable - Credit Card Co. $2,000.
/ d. / Acme debits Accounts Receivable - Credit Card Co. $1,930.
/ e. / Acme credits Sales $1,930.
3 points
Question 12
A promissory note
Answer
/ a. / is a short-term investment for the maker./ b. / is a liability to the payee.
/ c. / is another name for an installment receivable.
/ d. / cannot be used in payment of an account receivable.
/ e. / is a written promise to pay a specified amount of money at a certain date.
3 points
Question 13
A company receives a 10%, 90-day note for $1,500. The total interest due upon the maturity date is
Answer
/ a. / $37.50./ b. / $150.00.
/ c. / $75.00.
/ d. / $50.00.
/ e. / $87.50.
3 points
Question 14
The matching principle requires
Answer
/ a. / that expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user./ b. / the use of the direct write-off method for bad debts.
/ c. / that bad debts be discolsed in the financial statements.
/ d. / the use of the allowance method of accounting for bad debts.
/ e. / that bad debts not be written off.
3 points
Question 15
On December 31 of the current year, a company's unadjusted trial balance included the following: Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts, credit balance of $951. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts receivable at the end of the current year will be uncollectible?
Answer
/ a. / $951/ b. / $3,992
/ c. / $4,884
/ d. / $5,835
/ e. / $6,786