Question 1

Upon completing an aging analysis of trade receivables,the accountant for Rosco Works estimated that $5,000 of the current $98,000 of trade receivables would be uncollectible.The allowance for doubtful accounts had a $400 credit balance at year-end prior to adjustment.What amount of bad debt expense should appear in Rosco's income statement for the year?

Accepted Answer

Calculation: $5,000 - $400 = $4,600.

Question 2

When using the allowance method for bad debts,how should bad debt expense be recorded?

Accepted Answer

Bad debt expense should be recorded as an adjusting entry at the end of the accounting period when using the allowance method for bad debts. This is because the allowance for doubtful accounts is an estimate of the amount of accounts receivable that will not be collected. The bad debt expense is recorded to match this estimated amount with the revenues earned during the accounting period. The actual write-off of specific accounts occurs later and does not affect the bad debt expense account.

Question 3

A high receivables turnover ratio indicates

Accepted Answer

A high receivables turnover ratio means that customers are making payments quickly, which is a good sign for the company as it ensures a steady cash flow.

Question 4

Which of the following is NOT a control activity over cash?

Accepted Answer

Having the same individual receive the cash and pay the bills does not provide adequate segregation of duties, which is an important internal control over cash. The remaining options, B, C, and D, all represent internal control activities over cash. Surprise audits help ensure that cash is not misappropriated, limited access to cash reduces the likelihood of theft, and designated personnel handling cash helps to ensure accountability and accuracy.

Question 5

If C Co.'s trade receivables balance was $1,666 million in 2011 and $1,798 million in 2012,what would be the impact on the statement of cash flows?

Accepted Answer

An increase in trade receivables indicates that more sales were made on credit rather than cash. This would result in a decrease in cash flow from operating activities as cash was not received at the time of the sale.

Question 6

Following the completion of an aging analysis,the accountant for Liberty estimated that $1,100 of the receivables would be uncollectible.What would the net realizable year-end balance sheet be?

Accepted Answer

The net realizable value of receivables is calculated by subtracting the estimated uncollectible amount ($1,100) from the total receivables. Assuming the total receivables are $30,000, the net realizable value would be $30,000 - $1,100 = $28,900.

Question 7

For accounting purposes,cash includes which of the following?

Accepted Answer

Cash includes balances on deposit in banks. IOU's received from employees and notes received from customers are not considered cash until they are actually collected. A post-dated cheque is also not considered cash until the date on the cheque is reached and it can be deposited.

Question 8

In 2012,T Co.reported a receivables turnover ratio of 11.1 and their competitor,WWW Co.,reported a ratio of 4.6.Which of the following is true?

Accepted Answer

A higher receivables turnover ratio indicates that T Co. is collecting its receivables more efficiently than WWW Co. Therefore, WWW Co. needs to improve its credit and collection process.

Question 9

Apple Company's bank statement showed an ending balance of $5,000.Items appearing in the bank reconciliation included: outstanding cheques,$500; deposits in transit,$1,000; bank service charges,$10; and Orange Company's cheque erroneously charged to Apple's bank account by the bank,$110.What is the correct cash balance at the end of the month?

Accepted Answer

To calculate the correct cash balance at the end of the month, we need to adjust the ending balance on the bank statement by adding deposits in transit and deducting outstanding cheques. We also need to adjust for any errors or bank charges that do not appear on the bank statement. 
Starting with the ending balance on the bank statement ($5,000), add deposits in transit ($1,000) to get a subtotal of $6,000. Then, deduct outstanding cheques ($500) to get a new subtotal of $5,500. 
Next, deduct the bank service charges ($10) to get $5,490, and then add back the erroneously charged cheque from Orange Company ($110) to get a final corrected balance of $5,600. 
So, the correct answer is C) $5,610.

Question 10

The WD Co.reported revenue of $23,402 million for 2012.Their trade receivables balance was $3,999 million in 2012 and $3,633 million in 2011.How much cash was collected from customers?

Accepted Answer

The answer of The WD Co.reported revenue of $23,402 million...

Question 11

For which of the following errors should the appropriate amount be added to the balance per bank on a bank reconciliation?

Accepted Answer

The bank recorded a deposit of $500 as $50, so the bank balance is understated by $450. This amount should be added to the balance per bank to correct the error.

Question 12

Bittner Corporation developed the following reconciling information in preparing its September bank reconciliation: Using the above information,determine the cash balance per books (before adjustments)for the Bittner Corporation.

Accepted Answer

The answer of Bittner Corporation developed the following reconciling information...

Question 13

In 2012,A Co.reported product sales revenue of $2,514.4 million and trade receivables of $319.9 million for 2012 and $269.0 million in 2011.What was the cash flow generated by sales?

Accepted Answer

The cash flow generated by sales is calculated by adjusting the sales revenue for the change in trade receivables. The change in trade receivables is $319.9 million (2012) - $269.0 million (2011) = $50.9 million. Therefore, cash flow from sales is $2,514.4 million - $50.9 million = $2,463.5 million.

Question 14

When a depositor receives a bank statement indicating a "NSF cheque," what should he do?

Accepted Answer

When a depositor receives a bank statement indicating a "NSF cheque," it means that the cheque was not cleared due to insufficient funds in the issuer's account. Therefore, the depositor should credit their cash account for the amount of the cheque since the deposit will be reversed.

Question 15

Which of the following is true about bad debt expense?

Accepted Answer

Bad debt expense should appear on the income statement as part of selling expenses, as it is an expense related to the company's sales operations. It represents the amount of sales that are not expected to be collected and is therefore deducted from the revenue to arrive at the net sales figure. Options A, B, and D are all incorrect as they incorrectly describe the treatment of bad debt expense in financial statements.

Question 16

The cash records and the bank statement of Molus Company showed the following at the end of February 20A: Outstanding cheques at the end of January 20A,$8,000; cheques written by Molus Company during February 20A,$50,000; and cheques cleared by the bank during February 20A,$54,000.Therefore,the outstanding cheques at the end of February 20A,amounted to which of the following?

Accepted Answer

To find the outstanding cheques at the end of February 20A, we need to subtract the cheques cleared by the bank during February 20A from the cheques written by Molus Company during February 20A and then add the outstanding cheques at the end of January 20A. 
$50,000 - $54,000 + $8,000 = $4,000
Therefore, the outstanding cheques at the end of February 20A amounted to $4,000, which is choice B.

Question 17

Following the completion of an aging analysis,the accountant for Liberty estimated that $1,100 of the receivables would be uncollectible.The year-end adjusting entry to record bad debt expense would include which of the following?

Accepted Answer

The answer of Following the completion of an aging analysis,the...

Question 18

Cash equivalents typically include investments with original maturities of which of the following?

Accepted Answer

Cash equivalents typically include investments that have original maturities of three months or less. This means that the investment can be quickly converted into cash without a significant risk of loss in value. Investments with longer maturities, such as those in choices C and D, are generally not considered to be cash equivalents.

Question 19

In 2012,G CO.reported product sales of $717.8 million and trade receivables of $79.4 million.In 2011,product sales were $584.9 million and trade receivables were $71.4 million.What was its receivables turnover ratio for 2012?

Accepted Answer

Receivables turnover ratio = Net credit sales / Average accounts receivable

To calculate net credit sales, we need to subtract returns and allowances from product sales:
Net credit sales = product sales - returns and allowances

In 2012:
Net credit sales = $717.8 million - $21.4 million (returns and allowances) = $696.4 million

Average accounts receivable = (beginning accounts receivable + ending accounts receivable) / 2
Average accounts receivable = ($71.4 million + $79.4 million) / 2 = $75.4 million

Receivables turnover ratio = $696.4 million / $75.4 million = 9.2

Therefore, the best choice is D with a ratio of 9.2, which is closest to 9.52.

Question 20

To aid internal control,the individual authorized to sign cheques should be which of the following?

Accepted Answer

The treasurer is the individual responsible for managing a company's finances and ensuring internal controls are in place. They are typically the authorized signatory for checks, as they have the necessary oversight and knowledge to ensure the payments being made are legitimate and in accordance with company policies. Option A, B, and D do not have the necessary level of authority or expertise to effectively manage the issuance of checks.

Quiz 7: Reporting and Interpreting Cost of Goods Sold and Inventory