Wainwright Stores accepts both its own and national credit cards. During the year the
following selected summary transactions occurred.
Instructions
(a) Journalize the transactions for Wainwright Stores.
(b) Indicate the statement presentation of the financing charges and the credit card
service charge expense for Wainwright Stores.
Answer:
When the allowance method of recognizing bad debts expense is used, the entry to
recognize that expense
a. increases net income.
b. decreases current assets.
c. has no effect on current assets.
d. has no effect on net income.
Answer:
Identify whether each of the following items would be (a) added to the book balance, or
(b) deducted from the book balance in a bank reconciliation.
1> EFT transfer to a supplier
2> Bank service charge
3> Check printing charge
4> Error recording check # 214 which was written for $450 but recorded for $540
5> Collection of note and interest by bank on company’s behalf
Answer:
Which receivables accounting and reporting issue is not essentially the
same for IFRS and GAAP?
a. The use of allowance accounts and the allowance method.
b. How to record discounts.
c. How to record factoring.
d. All of these are essentially the same for IFRS and GAAP.
Answer:
For each of the following accounts indicate (a) the type of account (Asset, Liability,
Stockholders’ Equity, Revenue, Expense), (b) the debit and credit effects, and (c) the
normal account balance.
Example
0 Cash a. Asset account
b. Debit increases, credit decreases
c. Normal balance – debit
Answer:
In a period of rising prices, the inventory method that results in the lowest income tax
payment is
a. LIFO.
b. FIFO.
c. average cost.
d. specific identification.
Answer:
Druganaut Company buys a $21,000 van on credit. The transaction will affect the
a. income statement only.
b. balance sheet only.
c. income statement and retained earnings statement only.
d. income statement, retained earnings statement, and balance sheet.
Answer:
Compute bad debt expense based on the following information:
(a) RLF Company estimates that 2% of net credit sales will become uncollectible. Sales
revenue are $600,000, sales returns and allowances are $30,000, and the allowance for
doubtful accounts has a $6,000 credit balance.
(b) RLF Company estimates that 10% of accounts receivable will become uncollectible.
Accounts receivable are $100,000 at the end of the year, and the allowance for doubtful
accounts has a $500 debit balance.
Answer:
Proprietorships, partnerships, and corporations
a. are the three most common forms of business organizations in the U.S.
b. are the three most common forms of business organizations internationally.
c. are used in different proportions in different countries.
d. all of these answers are correct.
Answer:
Cash equivalents are defined by IFRS as
a. cash on hand.
b. demand deposits.
c. cash on hand and demand deposits.
d. short-term, highly liquid investments that are readily convertible into known amounts
of cash.
IFRS
Answer:
Cash is defined by IFRS as
a. cash on hand.
b. demand deposits.
c. cash on hand and demand deposits.
d. cash on hand, demand deposits, and highly liquid investments.
IFRS
Answer:
The ratios that are used to determine a company’s short-term debt paying ability are
a. asset turnover, times interest earned, current ratio, and accounts receivable turnover.
b. times interest earned, inventory turnover, current ratio, and accounts receivable
turnover.
c. times interest earned, acid-test ratio, current ratio, and inventory turnover.
d. current ratio, acid-test ratio, accounts receivable turnover, and inventory turnover.
Answer:
Interest expense on an interest-bearing note is
a. always equal to zero.
b. accrued over the life of the note.
c. only recorded at the time the note is issued.
d. only recorded at maturity when the note is paid.
Answer:
If the market interest rate is 10%, a $10,000, 12%, 10-year bond, that pays interest
semiannually would sell at an amount
a. less than face value.
b. equal to face value.
c. greater than face value.
d. that cannot be determined.
Answer:
Williams Company established a petty cash fund on May 1, cashing a check for $250.
The company reimbursed the fund on June 1 with the following results.
June 1: Cash in fund $64. Receipts: delivery expense $81; postage expense $39; and
miscellaneous expense $62.
July 1: Cash in funds $43 Receipts: delivery expense $91.00; entertainment expense
$71.00; and miscellaneous expense $45
On July 10, Williams increased the fund form $250 to $400.
Instructions
(a) Prepare journal entries for Williams Company for May 1, June 1, July 1, and July
10.
(b) What internal control features are present in the petty cash fund?
Answer:
The origins of accounting are attributed to Luca Pacioli, a famous mathematician.
Answer:
Roxy Corporation makes a short-term investment in 180 shares of Sager Company’s
common stock. The stock is purchased for $53 a share. The entry for the purchase is
Answer:
Stockholders elect the _______________, who in turn hire the ______________ of the
company who have day to day responsibility for running the corporation.
Answer:
Internal control is mainly concerned with the amount of authority a supervisor exercises
over a subordinate.
Answer:
Below is a partial listing of accounts in the general ledger of Denton Co.
Instructions: Place an X in the appropriate column to designate whether the account
should be closed at year-end and, if so, whether the appropriate closing entry would
require a debit or credit to the account.
Answer: