Q: A company receives a note receivable for $10,000 at 6% annual interest for 6 months. What is the maturity value?

Maturity Value $$= 10,000 + (10,000 \times 0.06 \times 0.5) = 10,000 + 300 = 10,300$$

Question 1

Which of the following is NOT a component of internal control as defined in financial accounting?

Accepted Answer

Market segmentation

Question 2

A company discovers a $500 check written to a supplier has not yet cleared the bank. How should this be reflected on the bank reconciliation?

Accepted Answer

Subtract $500 from the bank side as an outstanding check

Question 3

Which of the following would NOT be classified as a cash equivalent on the balance sheet?

Accepted Answer

Accounts receivable

Question 4

A company’s bank statement shows a balance of $$12,000. There are 1$$,500 in deposits in transit and $800 in outstanding checks. What is the adjusted bank balance?

Accepted Answer

$$12,000 + 1$$,500 - $$800 = 12$$,700

Question 5

Which journal entry correctly records a company’s collection of a sale on account within the discount window using the gross method? Assume a $1,000 sale with 2% discount.

Accepted Answer

Debit Cash $$980; Debit Sales Discounts 20$$; Credit Accounts Receivable $1,000

Question 6

A company estimates that $2,000 of its accounts receivable will be uncollectible. Which journal entry should be made using the allowance method?

Accepted Answer

Debit Bad Debt Expense $$2,000; Credit Allowance for Doubtful Accounts 2$$,000

Question 7

A company writes off a $500 account as uncollectible. What is the correct journal entry using the allowance method?

Accepted Answer

Debit Allowance for Doubtful Accounts $$500; Credit Accounts Receivable 500$$

Question 8

A company sells goods for $2,000 on account. It estimates that 5% of sales will be returned. What is the journal entry to record the estimated sales returns?

Accepted Answer

Debit Sales Returns and Allowances $$100; Credit Allowance for Sales Returns 100$$

Question 9

A company’s accounts receivable is $$50,000 and allowance for doubtful accounts is 3$$,000. What is the Net Realizable Value (NRV)?

Accepted Answer

$47,000

Question 10

Which of the following best describes the impact of fraud on financial statements?

Accepted Answer

Fraud can distort financial statements, leading to incorrect decision-making by users

Question 11

A company sells merchandise for $1,000 using a credit card with a 3% fee. What is the correct journal entry?

Accepted Answer

Debit Cash $$970; Debit Credit Card Expense 30$$; Credit Sales $1,000

Question 12

A company receives a note receivable for $10,000 at 6% annual interest for 6 months. What is the maturity value?

Accepted Answer

Maturity Value $$= 10,000 + (10,000 	imes 0.06 	imes 0.5) = 10,000 + 300 = 10,300$$

Question 13

Which of the following is included on the 'book side' of a bank reconciliation?

Accepted Answer

Bank service charges

Question 14

A company uses the aging method to estimate uncollectible accounts. If the aging report suggests $$4,000 should be in the Allowance for Doubtful Accounts and the current balance is 1$$,000 (credit), what is the required adjusting entry?

Accepted Answer

Debit Bad Debt Expense $$3,000; Credit Allowance for Doubtful Accounts 3$$,000

Question 15

Which of the following best describes the revenue recognition principle?

Accepted Answer

Revenue is recognized when the performance obligation is satisfied

Question 16

A company ships goods FOB Shipping Point. When should the company recognize revenue?

Accepted Answer

When goods leave the seller’s shipping dock

Question 17

A company receives a bank statement showing a $50 service charge not yet recorded in the books. What is the correct journal entry?

Accepted Answer

Debit Bank Service Expense $$50; Credit Cash 50$$

Question 18

A company’s accounts receivable T-account shows a beginning balance of $$10,000, sales on account of 25$$,000, collections of $$20,000, and write-offs of 2$$,000. What is the ending balance?

Accepted Answer

Ending Balance $$= 10,000 + 25,000 - 20,000 - 2,000 = 13,000$$

Question 19

A company receives a note receivable for $5,000 at 8% annual interest for 9 months. What is the accrued interest at year-end if the note was issued 3 months before year-end?

Accepted Answer

Accrued Interest $$= 5,000 	imes 0.08 	imes \frac{3}{12} = 5,000 	imes 0.08 	imes 0.25 = 100$$

Unit 2 Exam Study Guide: Internal Controls, Cash, Receivables, and Revenue Recognition

Study Guide - Practice Questions

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