Financial Accounting 1

Topics: Generally Accepted Accounting Principles, Inventory, Balance sheet Pages: 28 (4818 words) Published: February 20, 2013
Multiple Choice:

1. In general terms, financial assets appear in the balance sheet at:

a. Face value

b. Current value

c. Cost

d. Estimated future sales value

2. Which of the following practices contributes to efficient cash management?

a. Never borrow money – maintain a cash balance sufficient to make all necessary payments.

b. Record all cash receipts and cash payments at the end of the month when reconciling the bank statements.

c. Prepare monthly forecasts of planned cash receipts, payments, and anticipated cash balances up to a year in advance.

d. Pay each bill as soon as the invoice arrives.

3. Each of the following measures strengthens internal control over cash receipts except:

a. Factoring accounts receivable.

b. Preparation of a daily listing of all checks received through the mail.

c. The deposit of cash receipts in the bank on a daily basis.

d. The use of cash registers.

4. Quinn Company’s bank statement at January 31 shows a balance of $13,360, while the ledger account for Cash in Quinn’s ledger shows a balance of $12,890 at the same date. The only reconciling items are the following:

• Deposit in transit, $890.

• Bank service charge, $24.

• NSF check from customer Greg Denton in the amount of $426.

• Error in recording check no. 389 for rent: check was written in the amount of $1,320, but was recorded improperly in the accounting records as $1,230.

• Outstanding checks, $????

What is the total amount of outstanding checks at January 31?

a. $1,048

b. $868

c. $1,900

d. $1,720

5. Assuming a single journal entry is made to adjust Quinn Company’s accounting records at January 31, the journal entry includes:

a. A debit to Rent Expense for $90.

b. A credit to Accounts Receivable, G. Denton, for $426.

c. A credit to Cash for $450.

d. A credit to Cash for $1,720.

6. Which of the following best describes the application of generally accepted accounting principles to the valuation of accounts receivable?

a. Realization principle – Accounts receivable are shown at their net realizable value in the balance sheet.

b. Matching principle – the loss due to an uncollectible account is recognized in the period in which the sale is made, not in the period in which the account receivable is determined to be worthless.

c. Cost principle – Accounts receivable are shown at the initial cost of the merchandise to customers, less the cost the seller must pay to cover uncollectible accounts.

d. Principle of conservatism – Accountants favor using the lowest reasonable estimate for the amount of uncollectible accounts.

7. On January 1, Dillon Company had a $3,100 credit balance in the Allowance for Doubtful Accounts. During the year, sales totaled $780,000, and $6,900 of accounts receivable were written off as uncollectible. A December 31 aging of accounts receivable indicated the amount probably uncollectible to be $5,300. (No recoveries of accounts previously written off were made during the year.) Dillon’s financial statements for the current year should include:

a. Uncollectible accounts expense of $9,100.

b. Uncollectible accounts expense of $5,300.

c. Allowance for doubtful accounts with a credit balance of $1,500.

d. Allowance for doubtful accounts with a credit balance of $8,400.

8. Under the direct write off method of accounting for uncollectible accounts:

a. The current year uncollectible accounts expense is less than the expense would be under the allowance approach.

b. The relationship between the current period net sales and current period uncollectible accounts expense illustrates the matching principle.

c. The Allowance for Doubtful Accounts...
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