Response to the following multiple choice questions:
1. Which of the following methods is appropriate for a business whose inventory consists of a relatively small number of unique, high-cost items?
a. FIFO
b. average
c. LIFO
d. specific identification
2. Sales to customers who use bank credit cards such as MasterCard and Visa are usually recorded by a
a. debit to Bank Credit Card Sales, debit to Credit Card Expense, and a credit to Sales
b. debit to Cash and a credit to Sales
c. debit to Cash, credit to Credit Card Expense, and a credit to Sales
d. debit to Sales, debit to Credit Card Expense, and a credit to Cash
3. The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles
a. requires a correcting entry for the period in which the account was written off.
b. does not affect net income in the period it is collected.
c. will increase net income in the period it is collected.
d. will decrease net income in the period it is collected.
4. If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer's account as uncollectible?
a. Interest Expense
b. Uncollectible Accounts Expense
c. Accounts Receivable
d. Allowance for Doubtful Accounts
5. Dorman Co. sold merchandise to Smith Co. on account, $18,000, terms 2/15, net 45. The cost of the merchandise sold is $15,500. Dorman Co. issued a credit memo for $1,750 for merchandise returned that originally cost $1,400. The Smith Co. paid the invoice within the discount period. What is amount of net sales from the above transactions?
a. $15,925
b. $16,250
c. $13,818
d. $14,100
6. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for $25,000. The seller paid freight costs of $2,000 and issued a credit memo for $10,000 prior to payment. What is the amount of the cash discount allowable?
a. $130
b. $170
c. $250
d. $150
7. A check drawn by a company for $270 in payment of a liability was recorded in the journal as $720. What entry is required in the company's accounts?
a. debit Cash; credit Accounts Receivable
b. debit Accounts Receivable; credit Cash
c. debit Cash; credit Accounts Payable
d. debit Accounts Payable; credit Cash
8. On October 1, Black Company receives a 6% interest bearing note from Reese Company to settle a $20,000 account receivable. The note is due in six months. At December 31, Black should record interest revenue of
a. $1,200
b. $300
c. $600
d. $0
9. Two methods of accounting for uncollectible accounts are the
a. allowance method and the net realizable method.
b. allowance method and the accrual method.
c. direct write-off method and the allowance method.
d. direct write-off method and the accrual method.