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1 | |
Financial assets include mostly cash, receivables, and plant and equipment assets. |
| | A) | True |
| | B) | False |
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2 | |
Receivables appear in the balance sheet at the estimated collectible amount, which is called the net realizable value. |
| | A) | True |
| | B) | False |
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3 | |
U.S. Treasury bills are not considered to be cash equivalents but certificates of deposit are. |
| | A) | True |
| | B) | False |
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4 | |
Any interest received from owning cash equivalents is reported on the statement of cash flows as cash receipts from operating activities. |
| | A) | True |
| | B) | False |
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5 | |
The unused portion of a credit line is not considered an asset or a liability. |
| | A) | True |
| | B) | False |
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6 | |
One of the basic objectives of cash management is the prevention or minimization of losses from theft or fraud. |
| | A) | True |
| | B) | False |
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7 | |
For good cash control, the custody of cash should be included with the record keeping of cash. |
| | A) | True |
| | B) | False |
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8 | |
Three major steps in achieving internal control over cash include, making daily deposits of cash receipts, making all major payments by check, and making one person responsible to take part in all cash control functions. |
| | A) | True |
| | B) | False |
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9 | |
The Cash Over and Short account should be closed to the Retained Earnings account during the closing process. |
| | A) | True |
| | B) | False |
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10 | |
One form of control over cash disbursements is the voucher system. |
| | A) | True |
| | B) | False |
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11 | |
An analysis prepared to explain the difference between an entity's book balance of cash and its bank balance of cash is known as the bank reconciliation. |
| | A) | True |
| | B) | False |
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12 | |
You must make journal entries for outstanding deposits and outstanding checks in order to adjust your checking account to the correct balance shown on the bank statement. |
| | A) | True |
| | B) | False |
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13 | |
It is not possible for the bank statement to show a larger ending cash balance than the ending cash balance shown on the balance sheet. |
| | A) | True |
| | B) | False |
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14 | |
During the reconciliation analysis, if it is determined that the firm's bank has made an error in recording a deposit the firm should record a correcting entry for the amount of the error. |
| | A) | True |
| | B) | False |
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15 | |
Replenishing a petty cash fund will require a debit to the Petty Cash account and a credit to the Cash account for the amount of the replenishment. |
| | A) | True |
| | B) | False |
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16 | |
FASB ruling 115 made in 1993 calls for short-term investments to be recognized at their initial cost on the balance sheet. |
| | A) | True |
| | B) | False |
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17 | |
Mark-to-market, the balance sheet valuation standard applied to investments in marketable securities, is an exception to the cost principle. |
| | A) | True |
| | B) | False |
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18 | |
The Allowance for Doubtful Accounts is a contra account. |
| | A) | True |
| | B) | False |
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19 | |
The net realizable value of accounts receivable decreases each time an account receivable is written off through the allowance method. |
| | A) | True |
| | B) | False |
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20 | |
The full recovery of an account previously written off will increase the net realizable value of the accounts receivable. |
| | A) | True |
| | B) | False |
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21 | |
When the balance sheet approach is used in determining the required amount of the allowance account, the end-of-period adjusting entry made is for an amount necessary to bring the allowance account to its required balance. |
| | A) | True |
| | B) | False |
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22 | |
When the income statement approach is used in determining the uncollectible account expense, the ending balance of the Allowance for Doubtful Accounts account must be considered when making the end-of-period adjusting entry for uncollectible accounts expense. |
| | A) | True |
| | B) | False |
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23 | |
The direct write off method of recognizing uncollectible accounts does a better job of matching revenues with expenses than does the allowance method of recognizing uncollectible accounts. |
| | A) | True |
| | B) | False |
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24 | |
The allowance method is the only write-off method that may be used for tax purposes. |
| | A) | True |
| | B) | False |
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25 | |
Failure to record an adjusting entry for uncollectible accounts expense will cause the operating income for the period to be overstated and current assets to be understated. |
| | A) | True |
| | B) | False |
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26 | |
The direct method of writing off uncollectible accounts does not require the use of the Allowance for Doubtful Accounts account. |
| | A) | True |
| | B) | False |
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27 | |
Factoring is the process of selling the accounts receivable to obtain cash for operations. |
| | A) | True |
| | B) | False |
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28 | |
Generally, when a customer uses a credit card issued by a bank, the seller records the sale with a debit to cash. |
| | A) | True |
| | B) | False |
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29 | |
If a firm offers its credit customers terms of 2/10, n/30 and its accounts receivable turnover rate is 5.0 times, it is managing its accounts receivables well. |
| | A) | True |
| | B) | False |
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30 | |
Which of the following would be considered a major step in achieving internal control over cash transactions? |
| | A) | Separate the function of handling cash from the maintenance of accounting records. |
| | B) | Require that all cash receipts be deposited daily. |
| | C) | Make all payments by check (with the exception of the Petty Cash fund). |
| | D) | Prepare a controlling list of cash receipts. |
| | E) | All of the above |
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31 | |
The proper treatment of outstanding checks on a bank reconciliation is to show them as which of the following? |
| | A) | Addition per book balance of cash |
| | B) | Deduction per book balance of cash |
| | C) | Addition per bank statement balance |
| | D) | Deduction per bank statement balance |
| | E) | None of the above |
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32 | |
The proper treatment of a deposit recorded by the business but not yet recorded by the bank, is to report the deposit on the bank reconciliation as which of the following? |
| | A) | Addition per book balance of cash |
| | B) | Deduction per book balance of cash |
| | C) | Addition per bank statement balance |
| | D) | Deduction per bank statement balance |
| | E) | Either A or C |
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33 | |
Which of the following is the proper treatment on a bank reconciliation of bank service charges? |
| | A) | Addition per book balance of cash |
| | B) | Deduction per book balance of cash |
| | C) | Addition per bank statement balance |
| | D) | Deduction per bank statement balance |
| | E) | Either B or D |
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34 | |
Which of the following is the proper treatment on a bank reconciliation of a note receivable collected by the bank for the firm? |
| | A) | Addition per book balance of cash |
| | B) | Deduction per book balance of cash |
| | C) | Addition per bank statement balance |
| | D) | Deduction per bank statement balance |
| | E) | None of the above |
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35 | |
Which of the following is the proper treatment on a bank reconciliation of an NSF check returned with the bank statement? |
| | A) | Addition per book balance of cash |
| | B) | Deduction per book balance of cash |
| | C) | Addition per bank statement balance |
| | D) | Deduction per bank statement balance |
| | E) | Either A, B, or D |
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36 | |
The bookkeeper recorded a bank deposit at $450, but the bank recorded the deposit at its correct amount of $540. The proper treatment of this issue on the bank reconciliation is to show it as which of the following? |
| | A) | Addition per book balance of cash |
| | B) | Deduction per book balance of cash |
| | C) | Addition per bank statement balance |
| | D) | Deduction per bank statement balance |
| | E) | None of the above |
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37 | |
The bookkeeper recorded a payment by check for store supplies as $1,340.56. The bank recorded the check at its correct amount of $3,140.56. If no adjusting entries are made and the error is not detected through the bank reconciliation, which of the following will occur? |
| | A) | The trial balance will not balance |
| | B) | Accounts payable will be understated |
| | C) | The book Cash account will be understated |
| | D) | Store supplies will be overstated |
| | E) | The checking account might become overdrawn |
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38 | |
The bookkeeper recorded a check at $140.56 for store supplies. The bank recorded the check at an incorrect amount of $410.56. The bank reconciliation will show this error as which of the following? |
| | A) | Addition per book balance of cash |
| | B) | Deduction per book balance of cash |
| | C) | Addition per bank statement balance |
| | D) | Deduction per bank statement balance |
| | E) | Either A or C |
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39 | |
Which of the following would require a credit to the Petty Cash account? |
| | A) | The petty cash fund is short by $3.50. |
| | B) | The petty cash fund is over by $4.50. |
| | C) | The Petty Cash account is being increased. |
| | D) | The Petty Cash account is being decreased. |
| | E) | The Petty Cash account is being created. |
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40 | |
If the petty cash fund is not replenished at the end of the accounting period, which of the following will occur? |
| | A) | Net income will be understated or net loss will be overstated. |
| | B) | Assets will be understated on the balance sheet. |
| | C) | The cash account will be understated. |
| | D) | It indicates that the petty cash fund is probably short. |
| | E) | The balance sheet and the income statement will not be correct. |
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41 | |
Allowance for Doubtful Accounts can be called which of the following? |
| | A) | A current asset account |
| | B) | A contra asset account |
| | C) | A valuation account |
| | D) | A or C |
| | E) | A, B, or C |
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42 | |
When a firm writes off a bad debt under the allowance method of accounting for bad debts, which of the following will occur? |
| | A) | The realizable value of accounts receivable decreases. |
| | B) | Total net current assets will decrease. |
| | C) | The cash account will decrease. |
| | D) | The realizable value of accounts receivable will not change. |
| | E) | Net income will decrease and expenses will increase. |
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43 | |
When a firm collects (recovers) part of an account receivable that was previously written off under the allowance method of accounting for bad debts, which of the following will occur? |
| | A) | The realizable value of accounts receivable will increase. |
| | B) | The cash account will decrease by the amount of the recovery. |
| | C) | The allowance account will decrease by the amount collected. |
| | D) | The realizable value of accounts receivable will decrease. |
| | E) | The gross amount of accounts receivable will decrease. |
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44 | |
The Allowance for Doubtful Accounts account has a year-end credit balance, prior to adjustment, of $450. The uncollectible accounts are estimated at 3% of credit sales of $650,000. After the appropriate adjusting entry to recognize the uncollectible account expense, the Allowance for Doubtful Accounts account should have a credit balance of which of the following? |
| | A) | $19,950 |
| | B) | $19,500 |
| | C) | $19,050 |
| | D) | $20,400 |
| | E) | None of the above. |
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45 | |
The Allowance for Doubtful Accounts account has a year-end debit balance, prior to adjustments, of $500. Estimated uncollectible accounts, based on an aging of the accounts receivable, are $6,200. After the appropriate adjusting entry to recognize the uncollectible accounts expense, the Allowance for Doubtful Accounts account should have a credit balance of which of the following? |
| | A) | $6,700 |
| | B) | $5,700 |
| | C) | $6,200 |
| | D) | $6,100 |
| | E) | None of the above |
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46 | |
The Allowance for Doubtful Accounts account has a year-end credit balance, prior to adjustments, of $600. Estimated uncollectible accounts, based on an aging of the accounts receivable, are $6,200. The appropriate adjusting entry to recognize the uncollectible accounts expense should include a credit to the Allowance for Doubtful Accounts account of which of the following? |
| | A) | $6,800 |
| | B) | $5,600 |
| | C) | $6,200 |
| | D) | $6,000 |
| | E) | None of the above |
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47 | |
Which accounting principle or concept permits the direct write-off method of accounting for uncollectible accounts? |
| | A) | Full-disclosure principle |
| | B) | Business entity concept |
| | C) | Matching principle |
| | D) | Materiality principle |
| | E) | Discounting principle |
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48 | |
Gross Sales total $505,000 and Sales Returns & Allowances total $15,000. Average accounts receivable for the period are $42,000. What is the accounts receivable turnover rate? |
| | A) | 11.67 |
| | B) | 12.02 |
| | C) | 12.38 |
| | D) | 12.55 |
| | E) | 13.05 |
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49 | |
Net credit sales total $355,000. The beginning accounts receivable balance was $15,000 and the ending accounts receivable balance is currently $21,000. Assuming a 365-day year, what is the average number of days required to collect accounts receivable? |
| | A) | 18.51 |
| | B) | 23.67 |
| | C) | 19.72 |
| | D) | 17.55 |
| | E) | 45.65 |
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2002 McGraw-Hill Higher Education