DIVINE WORD COLLEGE OF LEGAZPI

School of Business, Management and Accountancy

A.Y. 2018 - 2019

Financial Accounting and Reporting - Pre-final Quiz 2

Name: ____________________________________ Course and year: _______________ Date: _________________

Instructions: Encircle the letter of the correct or best answer. Use pens with permanent ink only. No erasures allowed.
Do not make unnecessary marks on the examination papers. A separate sheet of paper will be provided as scratch paper.

1. The category "trade receivables" includes

a) advances to officers and employees.
b) income tax refunds receivable.
c) claims against insurance companies for casualties sustained.
d) none of these.

2. When a customer purchases merchandise inventory from a business organization, she may be given a discount
which is designed to induce prompt payment. Such a discount is called a(n)
a) trade discount. c) enhancement discount.
b) nominal discount. d) cash discount.

3. Trade discounts are

a) not recorded in the accounts; rather they are a means of computing a price.
b) used to avoid frequent changes in catalogues.
c) used to quote different prices for different quantities purchased.
d) all of the above.

4. If a company employs the gross method of recording accounts receivable from customers, then sales discounts
taken should be reported as
a) a deduction from sales in the income statement.
b) an item of "other expense" in the income statement.
c) a deduction from accounts receivable in determining the net realizable value of accounts receivable.
d) sales discounts forfeited in the cost of goods sold section of the income statement.

5. The accounting for cash discounts and trade discounts are

a) the same.
b) always recorded net.
c) not the same.
d) tied to the timing of cash collections on the account.

6. Why is the allowance method preferred over the direct write-off method of accounting for bad debts?
a) Allowance method is used for tax purposes.
b) Estimates are used.
c) Determining worthless accounts under direct write-off method is difficult to do.
d) Improved matching of bad debt expense with revenue.

7. AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method
to record sales made on credit, how much should be recorded as revenue?
a) $14,700. b) $14,850. c) $15,000. d) $15,150.

8. AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the gross
method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale?
a) Debit Accounts Receivable for $14,850.
b) Debit Accounts Receivable for $14,850 and Sales Discounts for $150.
c) Debit Accounts Receivable for $15,000.
d) Debit Accounts Receivable for $15,000 and Sales Discounts for $150.
DIVINE WORD COLLEGE OF LEGAZPI
Financial Accounting and Reporting - Pre-final Quiz 2

9. At the close of its first year of operations, December 31, 2012, Ming Company had accounts receivable of
$1,080,000, after deducting the related allowance for doubtful accounts. During 2012, the company had charges to
bad debt expense of $180,000 and wrote off, as uncollectible, accounts receivable of $80,000. What should the
company report on its balance sheet at December 31, 2012, as accounts receivable before the allowance for
doubtful accounts?
a) $1,340,000 b) $1,180,000 c) $980,000 d) $880,000

10. During the year, Kiner Company made an entry to write off a $16,000 uncollectible account. Before this entry was
made, the balance in accounts receivable was $200,000 and the balance in the allowance account was $18,000. The
net realizable value of accounts receivable after the write-off entry was
a) $200,000. b) $198,000. c) $166,000. d) $182,000.

11. Lankton Company has the following account balances at year-end:

Accounts receivable $80,000

Allowance for doubtful accounts 4,800
Sales discounts 3,200

Lankton should report accounts receivable at a net amount of

a) $72,000. b) $75,200. c) $76,800. d) $80,000.

12. Ace Co. prepared an aging of its accounts receivable at December 31, 2012 and determined that the net realizable
value of the receivables was $600,000. Additional information is available as follows:

Allowance for uncollectible accounts at 1/1/12—credit balance $ 68,000

Accounts written off as uncollectible during 2012 46,000
Accounts receivable at 12/31/12 650,000
Uncollectible accounts recovered during 2012 10,000

For the year ended December 31, 2012, Ace's uncollectible accounts expense would be
a) $50,000. b) $46,000. c) $32,000. d) $18,000.
DIVINE WORD COLLEGE OF LEGAZPI
Financial Accounting and Reporting - Pre-final Quiz 2

Key

1. D 33 7
2. D 36
3. D 37
4. A 38
5. C 40
6. D 43
7. B 79
8. C 80
9. B 85
10. D 87
11. B 91
12. D 124