Question 1

On July 1, 2018, Cromartie Furniture established a $150 petty cash fund. A check for $150 was made out to the petty cash custodian. During July, the petty cash custodian paid the following bills from the petty cash fund:   Office supplies $36 Postage 22 Delivery charges 40 Bottled water 28 Total $126\begin{array}{lr}	ext { Office supplies } & \$ 36 \	ext { Postage } & 22 \	ext { Delivery charges } & 40 \	ext { Bottled water } & 28 \	ext { Total } & \$ 126\end{array} Office supplies  Postage  Delivery charges  Bottled water  Total ​$36224028$126​  
-At the end of July the petty cash fund was replenished. The journal entry to establish the petty cash fund includes:

Accepted Answer

A)   A credit to petty cash and a debit to cash for $150.
B)   A debit to petty cash and a credit to cash for $150.
C)   A credit to cash and a debit to various expenses for $126.
D)   A credit to petty cash and a debit to various expenses for $126. E) A) and B)
F) A) and C)

Question 2

Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. Gershwin would record this reduction by crediting accounts receivable and debiting:

Accepted Answer

A)   Sales.
B)   Sales discounts.
C)   Sales returns.
D)   Sales allowances.E) B) and D)
F) All of the above

Question 3

On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for cash discounts. What entry would Cherokee make on December 10, assuming the correct payment was received on that date?

Accepted Answer

A)     Cash 8,000 Accounts receivable 7,840 Discounts revenue 160\begin{array}{|l|r|r|}\hline 	ext { Cash } & 8,000 & \\hline 	ext { Accounts receivable } & & 7,840 \\hline 	ext { Discounts revenue } & & 160 \\hline\end{array} Cash  Accounts receivable  Discounts revenue ​8,000​7,840160​​ 
B)     Cash 8,000 Accounts receivable 7,840 Sales discounts forfeited 160\begin{array}{|l|r|r|}\hline 	ext { Cash } & 8,000 & \\hline 	ext { Accounts receivable } & & 7,840 \\hline 	ext { Sales discounts forfeited } & & 160 \\hline\end{array} Cash  Accounts receivable  Sales discounts forfeited ​8,000​7,840160​​ 
C)     Cash 8,160 Accounts receivable 8,000 Sales discounts forfeited 160\begin{array}{|l|r|r|}\hline 	ext { Cash } & 8,160 & \\hline 	ext { Accounts receivable } & & 8,000 \\hline 	ext { Sales discounts forfeited } & & 160 \\hline\end{array} Cash  Accounts receivable  Sales discounts forfeited ​8,160​8,000160​​ 
D)     Cash 8,000 Accounts receivable 8,000\begin{array}{|l|r|r|}\hline 	ext { Cash } & 8,000 & \\hline 	ext { Accounts receivable } & & 8,000 \\hline\end{array} Cash  Accounts receivable ​8,000​8,000​​E) B) and C)
F) All of the above

Question 4

Calistoga Produce estimates bad debt expense at ½% of credit sales. The company reported accounts receivable and allowance for uncollectible accounts of $471,000 and $1,650, respectively, at December 31, 2017. During 2018, Calistoga's credit sales and collections were $315,000 and $319,000, respectively, and $1,720 in accounts receivable were written off.
- Calistoga's 2018 bad debt expense is:

Accepted Answer

A)   $1,720.
B)   $1,650.
C)   $1,505.
D)   $1,575.E) C) and D)
F) B) and D)

Question 5

Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2018. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%. The cash collection on December 31, 2019, would be recorded as:

Accepted Answer

A)     Discount on note receivable 55,000 Cash 605,000 Note receivable 605,000 Interest revenue 55,000\begin{array}{|c|c|c|}\hline 	ext { Discount on note receivable } & 55,000 & \\hline 	ext { Cash } & 605,000 & \\hline 	ext { Note receivable } & & 605,000 \\hline 	ext { Interest revenue } & & 55,000 \\hline\end{array} Discount on note receivable  Cash  Note receivable  Interest revenue ​55,000605,000​605,00055,000​​ 
B)     Cash 605,000 Note receivable 605,000\begin{array}{|c|c|c|}\hline 	ext { Cash } & 605,000 & \\hline 	ext { Note receivable } & & 605,000 \\hline\end{array} Cash  Note receivable ​605,000​605,000​​ 
C)     Cash 605,000 Note receivable 500,000 Discount on note receivable 105,000\begin{array}{|l|l|l|}\hline 	ext { Cash } & 605,000 & \\hline 	ext { Note receivable } & & 500,000 \\hline 	ext { Discount on note receivable } & & 105,000 \\hline\end{array} Cash  Note receivable  Discount on note receivable ​605,000​500,000105,000​​ 
D)     Cash 605,000 Discount on note receivable 105,000 Note receivable 605,000 Interest revenue 105,000\begin{array}{|l|l|l|}\hline 	ext { Cash } & 605,000 & \\hline 	ext { Discount on note receivable } & 105,000 & \\hline 	ext { Note receivable } & & 605,000 \\hline 	ext { Interest revenue } & & 105,000 \\hline\end{array} Cash  Discount on note receivable  Note receivable  Interest revenue ​605,000105,000​605,000105,000​​E) B) and C)
F) None of the above

Question 6

Cash equivalents would include investments in marketable equity securities as long as management intends to sell the securities in the next three months.

Accepted Answer

A) True 
 B)False

Question 7

If a company uses the balance sheet approach to estimate bad debt expense, bad debt expense for a period can be determined by:

Accepted Answer

A)   Multiplying net credit sales by the bad debt experience ratio.
B)   Adding the beginning balance in the allowance for uncollectible accounts to the provision for uncollectible accounts and deducting the desired ending balance in the allowance for uncollectible accounts.
C)   Multiplying ending accounts receivable in each age category by the expected loss ratio for each age category.
D)   Taking the difference between the unadjusted balance in the allowance account and the desired balance of the allowance account.E) A) and D)
F) None of the above

Exam 7: Cash and Receivables

Cash equivalents would include investments in marketable equity securities as long as management intends to sell the securities in the next three months.

Correct Answer
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If a company uses the balance sheet approach to estimate bad debt expense, bad debt expense for a period can be determined by:

Correct Answer
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On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for cash discounts. What entry would Cherokee make on December 10, assuming the correct payment was received on that date?

Correct Answer
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Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2018. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%. The cash collection on December 31, 2019, would be recorded as:

Correct Answer
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Correct Answer
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Correct Answer
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Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. Gershwin would record this reduction by crediting accounts receivable and debiting:

Correct Answer
verified

Exam 7: Cash and Receivables

Cash equivalents would include investments in marketable equity securities as long as management intends to sell the securities in the next three months.

Correct AnswerverifiedShow Answer

If a company uses the balance sheet approach to estimate bad debt expense, bad debt expense for a period can be determined by:

Correct AnswerverifiedShow Answer

On November 10 of the current year, Cherokee Industries sold materials to a customer for $8,000 with credit terms 2/10, n/30. Cherokee uses the net method of accounting for cash discounts. What entry would Cherokee make on December 10, assuming the correct payment was received on that date?

Correct AnswerverifiedShow Answer

Chen Inc. accepted a two-year noninterest-bearing note for $605,000 on January 1, 2018. The note was accepted as payment for merchandise with a fair value of $500,000. The effective interest rate is 10%. The cash collection on December 31, 2019, would be recorded as:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to keep the paint upon being offered a 15% price reduction. Gershwin would record this reduction by crediting accounts receivable and debiting:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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