Book Title; Author

Chapter 12 - Multiple choice quiz


1.
When a credit sale involving GST is recorded, the sales account:
A.
Includes the GST
B.
Does not include the GST
C.
Has the GST deducted
D.
Is input taxed


2.
Which of these is not one of the ways in which the asset 'other receivables' could arise?
A.
Loan to director
B.
Sale of non-current asset on credit
C.
Rent receivable
D.
Accrued wages


3.
Allowing customers to buy on credit is only profitable if the costs associated with granting credit are less than the increased sales generated. Which of the following is not one of the additional costs of selling on credit?
A.
Credit checks on customers
B.
Additional record keeping
C.
Sales commission
D.
The cost of collecting outstanding debts


4.
Amaad Company calculated that this year's estimated bad debts expense will be $7 500. When the necessary adjusting entry is made what effect will it have on the following accounts?   Bad debts expense: Allowance for doubtful debts: Gross Accounts receivable:
A.
No affect: increase: decrease
B.
No affect: decrease: increase
C.
Increase: increase: no affect
D.
Increase: increase: increase


5.
Jarrod Co has the following balances in its general ledger:
Accounts receivable
$42 000
Less Allowance for doubtful debts
- 4 000
 
$38 000
           
If a debt for $1 000, previously provided for as doubtful, is written off as bad, what is the estimated net realisable value of accounts receivable after the write off?
A.
$37 000
B.
$39 000
C.
$41 000
D.
$38 000


6.
The statement regarding the direct write-off method of bad debts that is untrue is:
A.
No estimate is made of future bad debts
B.
Bad debts are written off when they are determined to be uncollectable
C.
Its use is justified on the basis of simplicity
D.
Bad debts are matched against the related sales revenue


7.
The general journal entry to provide for estimated bad debts under the allowance method is:
A.
Debit allowance for doubtful debts; credit bad debts expense
B.
Debit bad debts expense; credit allowance for doubtful debts
C.
Debit accounts receivable; credit bad debts expense
D.
Debit bad debts expense; credit accounts receivable


8.
Christo uses the allowance method of accounting for bad and doubtful debts. When he received notice that Debtor 3459, who owed him $10 000, was in liquidation he decided to write off the debt as bad. What is the general journal entry to record the write off?
A.
Debit bad debts expense $10 000; credit allowance for doubtful debts $10 000
B.
Debit allowance for doubtful debts $10 000; credit accounts receivable $10 000
C.
Debit bad debts expense $10 000; credit accounts receivable $10 000
D.
Debit allowance for doubtful debts $10 000; credit bad debts expense $10 000


9.
Why should an accounts receivable be re-established if it has previously been written-off but is later collected in full?
A.
So that the debits equal the credits
B.
To restore the credit rating of the debtor
C.
So that assets are not understated
D.
All of the above


10.
Allowance for doubtful debts is classified as a/an _______________ account in the balance sheet.
A.
Liability
B.
Contra asset
C.
Asset
D.
Equity


11.
The allowance for doubtful debts account had a balance of $2 200 before bad debts of $1 400 were written off and the allowance was adjusted to 10% of the figure for closing accounts receivable of $20 000. The amount for bad debts expense that will appear in the income statement for the year is:
A.
$1 200
B.
$2 000
C.
$800
D.
$1 400


12.
If no adjustment is made for doubtful debts:
A.
Assets are overstated and profit is understated
B.
Assets are understated and profit is overstated
C.
Assets are overstated and profit is overstated
D.
Assets are understated and profit is understated


13.
The formula for calculating the average collection period for accounts receivable in days, is:
A.
Average receivables / net credit sales
B.
Net credit sales/ average receivables
C.
365 / average receivables
D.
Average receivables x 365 / net credit sales


14.
The statement concerning the accounting treatment of bank issued credit card sales that is true is:
A.
The treatment of bank issued credit card sales is the same as the treatment of non-bank issued credit card sales
B.
A 'merchant fee' for the month's sales is debited to the firm's bank statement at month-end
C.
The business does not retain a copy of the transaction slip
D.
All the statements are true


15.
Factoring is a term that means the sale of accounts receivable to a business that will then collect the debts. Which of the following could be a reason for 'factoring' debtors?
A.
Needing cash to finance trading activities
B.
Needing cash to expand the business
C.
Needing cash to pay off debts
D.
All could be possible reasons for factoring debtors


16.
For a sale for $440 (including GST) using a non-bank issued credit card, (commission 4 % x $440 = $17.60), as with other credit sales, two accounting entries are required. The first is to record the sale, the second, to record the receipt of the cash, is:
A.
Debit accounts receivable-credit card $440; credit sales $400; credit GST collected $40
B.
Debit bank $422.40; debit merchant fees expense $17.60; credit accounts receivable-credit card $440
C.
Debit accounts receivable-credit card $400; debit GST collected $40; credit sales $440
D.
Debit bank $440; credit accounts receivable-credit card $422.40; credit merchant fees expense $17.60


17.
How many of these are internal controls relating to accounts receivable?
•
Sending monthly statements of account to customers
•
Reviewing slow paying accounts
•
Regular reconciliation of the control account and the subsidiary ledger
•
Restricting access to the debtor's records
•
Allowing debtors discount for early settlement
 
A.
2
B.
3
C.
4
D.
5


18.
The statement concerning bank issued credit card fees (merchant fees) that is untrue is:
A.
They are calculated by the bank once a month
B.
They are calculated as a flat charge regardless of sales
C.
They are recorded by a debit to the merchant fees expense account and a credit to bank
D.
None of the statements are untrue, i.e. all are true


19.
Which of these is the most likely way a bills receivable would be settled?
A.
Passed on or negotiated to a third party
B.
Cashed at a bank before its due date (discounted)
C.
The full value received before the due date
D.
The full value received at maturity.


20.
Xi Co has an accounts receivable for $3 000 that is overdue and has agreed to accept a 90 day 12% promissory note in exchange for the debt. What is the accounting entry in Xi Co's books for the receipt of the note? (Make calculations to the nearest $).
A.
Debit bills receivable $3 089; credit accounts receivable $3 000; credit unearned interest $89
B.
Debit bills receivable $3 000; credit accounts receivable $3 000
C.
Debit accounts receivable $3 000; debit unearned interest $89; credit bills receivable $3 089
D.
Debit bills receivable $3 000; debit unearned interest $89; credit accounts receivable $3 089


21.
The following general journal entry is made on June 1 in the books of Jo Jo.
 
Dr  
Cr
Bills receivable    
$8 197.26
Unearned interest
$197.26
Accounts receivable  
$8 000.00
 To record bills receivable $8 000 x 10% x 90 days/365 days.
                            
The adjusting entry required for interest at balance day on 30 June is:
A.
Debit unearned interest $65.75; credit interest revenue $65.75
B.
Debit interest revenue $65.75; credit unearned interest $65.75
C.
Debit unearned interest $131.51; credit interest revenue $131.51
D.
Debit bank $65.75; credit interest revenue $65.75


22.
In calculating the discount on a bill of exchange the discount rate is applied to what?
A.
The maturity value of the bill for the period it is held by the discounter
B.
The principal for the period it is held by the discounter
C.
The face value
D.
The interest for the period it is held by the discounter


23.
If a 60 days bills receivable was written on 15 February 2009 the maturity date is:
A.
16 April 2009
B.
15 April 2009
C.
14 April 2009
D.
13 April 2009


24.
A bill of exchange which represents the right to receive cash in the future is a:
A.
Bills payable
B.
Bills receivable
C.
Sundry debtor
D.
Credit card


25.
The maturity value of a bills receivable includes:
A.
Interest only
B.
Principal only
C.
Principal and interest
D.
None of the above


26.
If XYZ issued a 60 day promissory note for $40 000 at an agreed interest rate of 7% per annum, the amount of interest payable, to the nearest $, is:
A.
$2 800
B.
$1 400
C.
$460
D.
Cannot be calculated without more information


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