1. which of the following is not considered a “cost” of financing

1.  Which of the following is not considered a “cost” of financing credit sales? 

A. The opportunity cost of lost interest.

B. The increased sales resulting from the extension of credit.

C. Keeping the records for accounts receivable.

D. The possibility of unpaid accounts.


2.  Lowe Company has the following account balances:




Compute the net realizable value of Lowe’s accounts receivable & show work above. 



3.  In the first year of operations, 2011, Jake’s Repair Service recognized $110,000 of service revenue on account. The ending accounts receivable balance was $7,550. Jake estimates that 3% of sales on account will not be collected; no accounts receivable had been written off by year end. Assume there were no other transactions affecting accounts receivable.


a)  What amount of cash was collected in 2011?


b)  What amount of uncollectible accounts expense was recognized in 2011? 




4.  If Jenkins Company loans $5,000 to Brown Company on March 1, 2011, and the one-year note carries an interest rate of 8%, how much interest revenue will Jenkins recognize in 2011? How much in 2012? 


5.  On January 1, 2011, the Accounts Receivable balance was $18,000 and the balance in the Allowance for Doubtful Accounts was $1,400. On January 15, 2011 a $400 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is: 

A  $17,600.

B  $16,200.

C  $16,600.   

D  $17,000.


The Mason Company earned $90,000 of revenue on account during 2011. There was no beginning balance in the accounts receivable and allowance accounts. During 2011 Morgan collected $68,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account.


6.  The amount of uncollectible accounts expense recognized on the 2011 income statement was 

A. $2,040.

B. $660.

C. $2,700.   

D. $22,000.


7.  Richmond Company made a loan of $6,000 to one of the company’s employees on April 1, 2011. The one-year note carried a 6% rate of interest. The amount of interest revenue that Richmond would report in 2011 and 2012, respectively would be: 

A. $360, $0

B. $0, $360

C. $90, $270

D. $270, $90    


8.  Einstein Company accepted credit card payments for $25,000 of services provided to customers. The credit card company charges a 3% service charge. This transaction would 

A. decrease expenses by $750.

B. increase assets by $25,000.

C. increase Retained Earnings by $24,250.   

D. b and c.


9.  Beacon Company accepts a credit card as payment for $950 of services provided for the customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the sale would affect Beacon’s financial statements.







10.   Accounts receivable turnover is computed by dividing: 

A. 365 divided by Accounts Receivable.

B. Accounts receivable divided by Sales.

C. Accounts Receivable by net income.

D. Sales divided by Accounts Receivable.


11.  The average number of days to collect accounts receivable is computed by dividing: 

A. Accounts Receivable by net income.

B. Accounts Receivable by 365.

C. 365 by the accounts receivable turnover ratio.

D. Sales divided by Accounts Receivable.


12.  A firm’s operating cycle can be determined by:

A. Adding the inventory turnover ratio to the receivables turnover ratio divided into 365 days.

B. Adding the average days in inventory to the average days in receivables.

C. Dividing cost-of-goods-sold by average inventory.

D. Dividing 365 days by the difference in the inventory turnover and the receivable turnover.


13.  The following information is available for Bluefield Company for the most recent year.





What was Bluefield’s operating cycle for the most recent year? (rounded) 

A. 52 days

B. 76 days

C. 83 days  

D. 122 days


14.  Which of the following statements is correct regarding accounting treatment of goodwill? 

A. Goodwill is recorded as an asset and amortized over 5 years regardless of any change in value.

B. Goodwill is recorded as an asset and is not written off as an expense unless its value decreases.

C. Goodwill is recorded as an asset and amortized over 40 years unless its value decreases.

D. Goodwill is expensed immediately in the year of purchase.


15.  Which of the following terms is used to identify the expense recognition for intangible assets? 

A. Amortization.

B. Depletion.

C. Depreciation.

D. Allocation.


16.  Which of the following terms is applied to long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses? 

A. Tangible assets

B. Intangible assets

C. Natural resources

D. Property, plant and equipment


17.  Which of the following is not classified as property, plant and equipment? 

A. Computers

B. Land

C. Copyright

D. Office furniture


18.  Which of the following terms is used to identify the process of expense recognition for property, plant and equipment? 

A. Amortization

B. Depletion

C. Depreciation

D. Revision


19.  Chesapeake Company paid $375,000 for a group purchase that included office furniture, a building and land. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Office furniture – $75,000; Building – $320,000, Land – $36,000. Based on this information the amount of cost that would be allocated to the office furniture is: 

A. $31,323.

B. $65,255.   

C. $75,000.

D. $278,422.


20.  Albemarle Company purchased an asset with a list price of $70,000 and received a 2% cash discount on the purchase. The asset was delivered under terms FOB shipping point, and freight costs amounted to $1,400. Albemarle paid $1,600 to have the asset installed. Insurance costs to protect the asset from fire and theft amounted to $800 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be: 

A. $73,000.

B. $72,800.

C. $70,000.

D. $70,600.  


21.  At the end of the current accounting period, Rodgers Co. recorded depreciation of $25,000 on its equipment. The effect of this entry on the company’s balance sheet is to: 

A. decrease assets and increase liabilities.

B. decrease owners’ equity and increase liabilities.

C. decrease assets and increase owners’ equity.

D. decrease owners’ equity and decrease assets.


22.  On January 1, 2010, Leland Company purchased an asset that cost $10,000. The asset had an expected useful life of five years and an estimated salvage value of $2,000. Leland uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $1,000. Based on this information, the amount of depreciation expense to be recognized at the end of 2013 is: 

A. $4,200.

B. $2,100.

C. $1,600.

D. $1,000.


23.  The Harlow Company purchased the Hampton Company for $600,000 cash. The fair market value of Hampton’s assets was $520,000, and the company had liabilities of $30,000. Which of the following choices would reflect the purchase on Harlow’s financial statements? 






24.  The Parks Corporation, a U.S. business, is a direct competitor of the Riddler Company, a Japanese firm. The two firms not only compete for customers, but also for investment capital. In 2011, each company spent about $35,000 U.S. dollars or the equivalent on research and development. U.S. GAAP requires the entire amount to be expensed, while Japan requires its businesses to record R&D expenditures as an asset and then to expense it over its useful life. Assuming the treatment of R&D is the only difference between the two firms, which of the following is correct? 

A. Parks will have higher total assets than Riddler in 2011.

B. Riddler will have a lower net income for 2011.

C. Parks will have a higher debt-to-assets ratio than Riddler in 2011.

D. This difference in accounting principles does not affect the total amount of assets reported by the two companies.




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