Enter the letter corresponding to the response that best completes each of the following statements or questions.
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| 1 | |
Which of the following might be classified as a cash equivalent? |
| | A) | Cash in a checking account. |
| | B) | 30-day treasury bill. |
| | C) | Money orders waiting to be deposited. |
| | D) | 120-day treasury bill. |
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| 2 | |
An internal control system is designed to do all but which of the following? |
| | A) | Promote operational efficiency. |
| | B) | Safeguard assets. |
| | C) | Encourage adherence to company policies. |
| | D) | Assure the promotion of the most qualified employees. |
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| 3 | |
A company uses the gross method to account for cash discounts offered to its customers. If payment is made before the discount period expires, which of the following is correct? |
| | A) | Sales discounts is debited for the amount of discounts taken by customers. |
| | B) | Sales discounts is credited for the amount of discounts taken by customers. |
| | C) | Interest expense is debited for the amount of discounts taken by customers. |
| | D) | Accounts receivable is credited for the amount of discounts taken by customers. |
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| 4 | |
Allister Company does not use the allowance method to account for bad debts and instead any bad debts that do arise are written off as bad debt expense. What problem might this create if bad debts are material? |
| | A) | Receivables likely will be understated. |
| | B) | No problems are created. |
| | C) | Receivables likely will be overstated. |
| | D) | The matching principle is violated when the write-off occurs in the same period that the receivable is initially recorded. |
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| 5 | |
Jasper Company uses the allowance method to account for bad debts. During 2006, the company recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling $5,000. These transactions caused a decrease in working capital (current assets minus current liabilities) of: |
| | A) | $7,000 |
| | B) | $5,000 |
| | C) | $9,000 |
| | D) | $14,000 |
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| 6 | |
The Reingold Hat Company uses the allowance method to account for bad debts. During 2006, the company recorded $800,000 in credit sales. At the end of 2006, account balances were: Accounts receivable, $120,000; Allowance for uncollectible accounts, $3,000 (credit). If bad debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a debit to bad debt expense of: |
| | A) | Zero. |
| | B) | $27,000 |
| | C) | $21,000 |
| | D) | $24,000 |
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| 7 | |
Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a desired amount based on an aging of accounts receivable. At the beginning of 2006, the allowance account had a credit balance of $18,000. During 2006, credit sales totaled $480,000 and receivables of $14,000 were written off. The year-end aging indicated that a $21,000 allowance for uncollectible accounts was required. Enchill's bad debt expense for 2006 would be: |
| | A) | $17,000 |
| | B) | $2,600 |
| | C) | $21,000 |
| | D) | $14,400 |
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| 8 | |
Harmon Sporting Goods received a $60,000, 6-month, 10% note from a customer. Four months after receiving the note, it was discounted at a local bank at a 12% discount rate. The cash proceeds received by Harmon were: |
| | A) | $63,000 |
| | B) | $64,680 |
| | C) | $61,740 |
| | D) | $67,200 |
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| 9 | |
At the end of June, the Marquess Company factored $200,000 in accounts receivable with Homemark Finance. The transfer is made without recourse. Homemark charges a fee of 3% of receivables factored. During July, $150,000 of the factored receivables are collected. What amount of loss on sale of receivables would Marquess record in June? |
| | A) | $6,000 |
| | B) | $4,500 |
| | C) | $1,500 |
| | D) | Zero. |
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| 10 | |
In question 9, if the transfer were made with recourse but is still accounted for as a sale, what amount of loss on sale of receivables would the company record in June assuming the estimated recourse liability is $2,000? |
| | A) | $6,500 |
| | B) | $8,000 |
| | C) | $4,000 |
| | D) | Zero. |
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| 11 | |
The following data are available for the Hunting Balloon Company:
| Sales for the current year | $1,500,000 | | Cost of goods sold for the current year | 1,200,000 | | Accounts receivable, beginning of year | 140,000 | | Accounts receivable, end of year | 160,000 |
The accounts receivable turnover ratio for the current year is: |
| | A) | 8.00 |
| | B) | 10.71 |
| | C) | 10.00 |
| | D) | 9.375 |
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| 12 | |
Questions 12 through 15 are based on Appendix 7. The replenishment of a petty cash fund might include which of the following? |
| | A) | A debit to cash. |
| | B) | A debit to petty cash. |
| | C) | A debit to office supplies expense. |
| | D) | A credit to petty cash. |
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| 13 | |
In a bank reconciliation, deposits outstanding are: |
| | A) | Subtracted from the bank balance. |
| | B) | Added to the book balance. |
| | C) | Added to the bank balance. |
| | D) | Subtracted from the book balance. |
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| 14 | |
In a bank reconciliation, NSF checks are: |
| | A) | Subtracted from the bank balance. |
| | B) | Added to the book balance. |
| | C) | Added to the bank balance. |
| | D) | Subtracted from the book balance. |
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| 15 | |
Alvin Electronics is in the process of reconciling its bank account for the month of November. The following information is available:
| Balance per bank statement | $8,325 | | Outstanding checks | 2,400 | | Deposits outstanding | 1,215 | | Bank service charges for November | 35 | Check written by Alvin for $300 but recorded incorrectly by
Alvin as a $30 disbursement. | |
What should be the corrected cash balance at the end of November? |
| | A) | $6,870 |
| | B) | $7,140 |
| | C) | $6,835 |
| | D) | $7,105 |
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