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Exam 6: Merchandising Operations and the Multistep Income Statement

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Question 91

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A portion of the statement of earnings for Tea Company is shown below. Provide the missing account titles and amounts. $\begin{array} { | l | l | l | r | r | } \hline \text { A. } &\underline{\quad\quad}&&{ \$ 110,000 } & \\\hline \text { B. }& \text { Sales returns and allowances } & &\underline{\quad\quad} & \\\hline \text { C. } & \underline{\quad\quad}& & & \$ 100,000 \\\hline \text { D. } &\underline{\quad\quad}& & &\underline{\quad\quad} \\\hline & \text { Gross Margin } & & & \$25,000\\\hline\end{array}$

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A.Sales revenue
B. $110,000 -...

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Question 92

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An aging of trade accounts receivable schedule is based on the premise that the longer the period an account remains unpaid, the greater the probability that it will eventually be collected.

A) True
B) False

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Question 93

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-When credit terms for a sale are 2/15, n/40, the customer saves by paying the bill early. Approximately what percent would this savings amount to on an annual basis?

The balance in Allowance for Doubtful Accounts would have a debit balance when

A Co. and G Co. are competitors in the biotechnology market. In 20X3, A Co. reported a gross profit percentage of 86.3% while G Co's percentage was 80.7%. What is the most likely cause of G Co.'s lower gross profit percentage?

The trade receivable turnover ratio is computed by dividing net sales by net trade receivables at the end of the year.

T Co's gross profit percentage has been increasing in the three years from 20X1 through 20X3 from 36.5% to 39.8%. This change has most likely been caused by which of the following?

When is revenue recognized under the completed contract method?

When do most companies usually recognize revenue as earned and record the revenue?

"FOB shipping point" means that title to the shipped goods passes to the buyer when they are delivered.

Merchandise was sold on credit for $3,000, terms 1/10, n/30. The entry to record the cash collection should include which of the following?

The following information was available to the accountant of Midland Company when preparing the monthly bank reconciliation: $\begin{array} { | l | r | } \hline \text { Outstanding cheques: } & \begin{array} { r } \# 643 \text { for } \$ 502 \\\# 651 \text { for } \$ 43\end{array} \\\hline \text { Bank service charges } & \$ 25 \\\hline \text { Deposits in transit } & \$ 190 \\\hline \text { Customer note receivable collected by bank } & \$500\\\hline \text { Cash balance per bank statement } & \$ 975 \\\hline \text { Cash balance per books (prior to reconciliation) } & \$ 145\\\hline\end{array}$ What is the corrected cash balance per books following completion of the reconciliation?

If a company uses the completed contract method rather than the percentage of completion method, the total profit the company recognizes from the beginning of the project throughout its completion will be which of the following?

Credit terms "2/10, n/30" mean that if payment is made in two days, a 10% discount will be given; if not paid within two days, the full invoice price will be due in thirty days.

Journal entries made to update the cash account, after a bank reconciliation has been prepared, should affect the "Bank Statement" part of the reconciliation rather than the "Depositor's Books" part of the reconciliation.

A merchant who accepts credit cards as payment exposes himself to greater risk of credit card fraud.

The books of Tweed Company provided the following information: Beginning balances: Trade receivables $30,000 Allowances for doubtful accounts (a credit) $2, 000 Transactions during the year: Sales revenue (of which 1/3 were on credit) $1,800,000 Collections on trade receivables $590,000 Accounts written off as uncollectible $2,500 Past collection experience has indicated that 1% of credit sales normally is not collected. Therefore, an adjusting entry for bad debt expense should be made in the amount of

Under the allowance method for uncollectible accounts, Bad Debts Expense is debited when an account is deemed uncollectible and must be written off.

When is revenue recognized under the percentage of completion method?

Outstanding cheques from the prior period which clear the bank in the current period