Q: Which formula is used to compute interest on a loan?

$$(\text{principal} \times \text{rate} \times \text{time})$$

Question 1

Which of the following best describes trade accounts receivable?

Accepted Answer

They arise from the sale of a company's products or services.

Question 2

Malcom's financial statements revealed uncollectible accounts expense of $$8,000, accounts receivable of 140$$,000, and allowance for uncollectible accounts of $12,000. What is the net realizable value of Malcom's accounts receivable?

Accepted Answer

$128,000

Question 3

Branz Company had credit sales of $700,000 during the year. Historically, 3% of credit sales are uncollectible. If Branz uses the allowance method, what is the correct journal entry for the year?

Accepted Answer

Uncollectible Accounts Expense 21,000; Allow. for Uncollectible Accounts 21,000

Question 4

Lindy Company estimates that 5% of its $$750,000 accounts receivable will be uncollectible. The Allowance for Uncollectible Accounts has a 9$$,000 credit balance before adjustment. What amount should Lindy record as uncollectible accounts expense?

Accepted Answer

$28,500

Question 5

Flynn Company writes off a $4,000 account as uncollectible under the allowance method. What is the correct journal entry?

Accepted Answer

Allow. for Uncollectible Accounts 4,000; Accounts Receivable 4,000

Question 6

Which formula is used to compute interest on a loan?

Accepted Answer

$$(	ext{principal} 	imes 	ext{rate} 	imes 	ext{time})$$

Question 7

Lux had net purchases of $$50,000, ending inventory of 25$$,000, net sales of $$100,000, and gross profit of 32$$,000. What was Lux's beginning inventory?

Accepted Answer

$43,000

Question 8

Under a perpetual inventory system, what is the correct entry when Russell Merchandising records a sale?

Accepted Answer

Credit inventory

Question 9

Inventory accounts should be classified in which section of the balance sheet?

Accepted Answer

Current assets

Question 10

Ritz Company agreed to purchase inventory shipped F.O.B. destination. On December 31, the goods are in transit. Should Ritz include the goods in its inventory?

Accepted Answer

No, do not include the goods in inventory or the payable

Question 11

Hefty Company sold 2,700 units during the year. Using FIFO, what is the value of ending inventory if the purchases were: 500 units at $$3.00, 1,100 units at 3.20$$, 400 units at $$4.00, and 1,600 units at 4.40$$?

Accepted Answer

$3,960

Question 12

Hefty Company sold 2,700 units during the year. Using periodic LIFO, what is the cost of goods sold?

Accepted Answer

$9,700

Question 13

Hefty Company sold 2,700 units during the year. Using the weighted-average method, what is the cost of goods sold?

Accepted Answer

$10,245

Question 14

Which of the following items should be expensed as incurred?

Accepted Answer

Repair of damage occurring during the installation of new equipment.

Question 15

Lancer Corporation purchased land for $$150,000 and incurred 2$$,000 in legal fees for the land purchase contract and $$25,000 in architect’s fees. Construction costs were 250$$,000. What is the cost of the land and building, respectively?

Accepted Answer

$$152,000 and 275$$,000

Question 16

Cross Country Trucking Company replaced the tires on one of its rigs. How should this cost be accounted for?

Accepted Answer

As a repair and maintenance expense.

Question 17

A truck cost $$20,000, has a four-year life, and a 4$$,000 residual value. Using straight-line depreciation, what is the book value at the end of year 3?

Accepted Answer

$8,000

Question 18

What is the appropriate journal entry to record machinery depreciation of $1,000?

Accepted Answer

Depreciation Expense 1,000; Accumulated Depreciation 1,000

Question 19

A machine that cost $$18,000, with a book value of 4$$,000, is sold for $3,400. Which is true concerning the journal entry to record the sale?

Accepted Answer

Accumulated Depreciation is debited for $14,000.

Question 20

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were:

Accepted Answer

Less than book value.

Question 21

Which of the following terms best relates to intangible assets?

Accepted Answer

Amortization

Question 22

Which of the following statements regarding goodwill is false?

Accepted Answer

Goodwill may be recorded for a company whether it is internally generated or purchased.

Question 23

Smith Company earns a 12% return on assets. If net income is $720,000, what are average total assets?

Accepted Answer

$6,000,000

Receivables, Inventory, and Plant Assets: Principles of Accounting Chapters 5–7 Study Guide

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