Question 1

Which of the following best describes when revenue should be recognized under the revenue recognition principle?

Accepted Answer

When the company has satisfied its performance obligation to the customer.

Question 2

A company sells goods FOB shipping point. When should the company recognize revenue from this sale?

Accepted Answer

When the goods are shipped from the seller's warehouse.

Question 3

A customer purchases $10,000 of merchandise with terms 2/10, n/30. If the customer pays within the discount period, what is the amount of cash received by the seller?

Accepted Answer

$9,800

Question 4

Which of the following is NOT included in the calculation of net revenue?

Accepted Answer

Cost of Goods Sold

Question 5

Which of the following best describes the Allowance for Doubtful Accounts?

Accepted Answer

A contra-asset account that reduces accounts receivable.

Question 6

A company estimates bad debts using the percent-of-sales method. If credit sales are $200,000 and the estimated uncollectible rate is 1.5%, what is the journal entry to record bad debt expense?

Accepted Answer

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

Question 7

If a company writes off an uncollectible account under the allowance method, what is the effect on net realizable value of accounts receivable?

Accepted Answer

Net realizable value remains unchanged.

Question 8

A company issues a 6-month, 8% note receivable for $$50,000. What is the total interest revenue earned at maturity? Use the formula $$ 	ext{Interest} = 	ext{Principal} 	imes 	ext{Rate} 	imes \frac{	ext{Time}}{12} $.

Accepted Answer

$2,000

Question 9

Which of the following is included in the calculation of the Quick (Acid-Test) Ratio?

Accepted Answer

Accounts receivable

Question 10

Which of the following costs should be capitalized as part of the cost of land?

Accepted Answer

Cost of removing an old building on the land

Question 11

A company purchases equipment for $$120,000, expects to use it for 8 years, and estimates a residual value of 8$$,000. Using the straight-line method, what is the annual depreciation expense? Use the formula $$ 	ext{Depreciation Expense} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Useful Life}} .$$

Accepted Answer

$14,000

Question 12

Which of the following statements about the double-declining-balance depreciation method is TRUE?

Accepted Answer

It ignores the asset's residual value in the first year calculation.

Question 13

A company sells a machine with a book value of $$5,000 for 7$$,000 cash. What is the journal entry to record the sale?

Accepted Answer

Debit Cash $$7,000; Credit Machine 5$$,000; Credit Gain on Sale $2,000

Question 14

Which of the following is an example of an intangible asset that is amortized?

Accepted Answer

Patent

Question 15

Which of the following best describes the effect of impairment on a plant asset?

Accepted Answer

The asset's carrying value is written down to its recoverable amount.

Question 16

A company purchases inventory on consignment. How should this inventory be reported on the company's balance sheet?

Accepted Answer

It should be included in the consignor's inventory.

Question 17

Which inventory costing method will result in the highest net income during a period of rising prices?

Accepted Answer

FIFO

Question 18

A company has net sales of $$500,000 and cost of goods sold of 350$$,000. What is the gross profit percentage? Use the formula $$ 	ext{Gross Profit Percentage} = \frac{	ext{Net Sales} - 	ext{Cost of Goods Sold}}{	ext{Net Sales}} 	imes 100\% .$$

Accepted Answer

30%

Question 19

Which of the following best describes the effect of a higher inventory turnover ratio?

Accepted Answer

It indicates more efficient inventory management.

Question 20

Which of the following is the correct formula for Return on Assets (ROA)?

Accepted Answer

$$ 	ext{ROA} = \frac{	ext{Net Income}}{	ext{Average Total Assets}} $$

Receivables, Inventory, Plant Assets, and Investments: Study Guide for Financial Accounting

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