Principles of Accounting, Volume 1: Financial Accounting
Unit III Homework
Multiple Choice
1. LO 9.1 Which of the following is not a criterion to recognize revenue under GAAP?
A. The earnings process must be completed.
B. A product or service must be provided.
C. Cash must be collected.
D. GAAP requires that the accrual basis accounting principle be used in the revenue
recognition process.
2. LO 9.1 Which of the following best represents the matching principle criteria?
A. Expenses are reported in the period in which they were incurred.
B. Expenses may be reported in a different period than the matching revenues.
C. Revenue and expenses are matched based on when expenses are paid.
D. Revenue is recognized when an order occurs and not when the actual sale is initiated.
3. LO 9.1 If a customer pays with a credit card and the service has been provided, which of the
following accounts will be used to record the sales entry for this transaction?
A. Cost of Goods Sold, Merchandise Inventory, Sales Revenue
B. Sales Revenue, Credit Card Expense, Accounts Receivable
C. Accounts Receivable, Merchandise Inventory, Credit Card Expense
D. Cost of Goods Sold, Credit Card Expense, Sales Revenue
4. LO 9.1 A car dealership sells a car to a customer for $35,000. The customer makes a 10%
down payment, and the dealership finances the remaining 90% in-house. How much will the car
dealership record in Accounts Receivable for this customer?
A. $31,500
B. $19,250
C. $8,750
D. $7,000
5. LO 9.2 Tines Commerce computes bad debt based on the allowance method. They determine
their current year’s balance estimation to be a credit of $45,000. The previous period had a credit
balance in Allowance for Doubtful Accounts of $12,000. What should be the reported figure in
the adjusting entry for the current period?
A. $12,000
B. $45,000
C. $33,000
D. $57,000
6. LO 9.2 Doer Company reports year-end credit sales in the amount of $390,000 and accounts
receivable of $85,500. Doer uses the income statement method to report bad debt estimation. The
estimation percentage is 3.5%. What is the estimated balance uncollectible using the income
statement method?
A. $13,650
B. $2,992.50
C. $136,500
D. $29,925
7. LO 9.2 Balloons Plus computes bad debt based on the allowance method. They determine
their current year’s balance estimation to be a credit of $84,000. The previous period had a credit
balance in Allowance for Doubtful Accounts of $26,000. What should be the reported figure in
the adjusting entry for the current period?
A. $84,000
B. $58,000
C. $26,000
D. $110,000
8. LO 9.2 Conner Pride reports year-end credit sales in the amount of $567,000 and accounts
receivable of $134,000. Conner uses the balance sheet method to report bad debt estimation. The
estimation percentage is 4.6%. What is the estimated balance uncollectible using the balance
sheet method?
A. $26,082
B. $6,164
C. $260,820
D. $61,640
9. LO 9.2 Which method delays recognition of bad debt until the specific customer accounts
receivable is identified?
A. income statement method
B. balance sheet method
C. direct write-off method
D. allowance method
10. LO 9.2 Which of the following estimation methods considers the amount of time past due
when computing bad debt?
A. balance sheet method
B. direct write-off method
C. income statement method
D. balance sheet aging of receivables method
11. LO 9.3 Which of the following best represents a positive product of a lower number of days’
sales in receivables ratio?
A. collection of receivables is quick, and cash can be used for other business expenditures
B. collection of receivables is slow, keeping cash secured to receivables
C. credit extension is lenient
D. the lender only lends to the top 10% of potential creditors
12. LO 9.3 South Rims has an accounts receivable balance at the end of 2018 of $357,470. The
net credit sales for the year are $769,346. The balance at the end of 2017 was $325,300. What is
the accounts receivable turnover rate for 2018 (rounded to two decimal places)?
A. 2.02 times
B. 2.25 times
C. 2.15 times
D. 1.13 times
13. LO 9.3 What information can best be elicited from a receivable ratio?
A. company performance with current debt collection
B. credit extension effect on cash sales
C. likelihood of future customer bankruptcy filings
D. an increase in future credit sales to current customers