To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash True / False Questions "F.O.B destination" means that title to the shipped goods passes to the buyer on the shipment date FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Most companies record revenue when they ship goods to customers not when they are delivered to customers TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 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 FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: The sales returns and allowances account should be reported as a deduction from sales revenue because it is a contra-revenue account TRUE AACSB Tag: Communications Difficulty: Medium L.O.: 6-1 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash Sales returns and allowances should be included as a selling expense FALSE AACSB Tag: Communications Difficulty: Easy L.O.: Many merchants accept credit cards for the sale of goods because it can increase the number of customers TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: A company is thinking of borrowing money at an 18% annual interest rate in order to pay a $30,000 invoice within the discount period The invoice terms are 2/10, n/30 They should borrow the money because they will still have a net savings of 19.2% TRUE AACSB Tag: Analytic Difficulty: Medium L.O.: An entry to bad debts expense and the allowance for doubtful accounts is made to write off a customer's account during the year when it is determined to be uncollectable FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 6-2 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash When a particular account receivable is determined to be uncollectible, the entry to write off the account requires a debit to the allowance for doubtful accounts TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 10 The allowance for doubtful accounts normally has a debit balance after the year-end adjustment FALSE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 11 An entry to write off an uncollectible account does not change the net realizable value (book value) of accounts receivable TRUE AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 12 Accounts Receivables turnover is computed as net credit sales divided by net trade accounts receivable at the end of the accounting period FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 6-3 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 13 When a company reports a higher accounts receivable turnover ratio, then the number of days it takes to collect the receivables has also increased FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 14 While preparing the statement of cash flows, the reason that we must adjust sales revenue for the change in accounts receivables to convert the figure to cash collected from customers is that accounts receivable represent sales revenue not collected from customers at the beginning and end of the accounting year TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 15 Effective internal control of cash should include the separation of the duties for receiving and disbursing cash TRUE AACSB Tag: Ethics Difficulty: Medium L.O.: 16 If a check received from a customer that has been deposited by the seller is returned with the bank statement marked not sufficient funds (NSF), it would appear on the seller's bank reconciliation as a deduction from the ending bank statement balance FALSE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 6-4 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 17 The primary purpose of preparing a bank reconciliation is to reconcile the bank balance at the end of the period with the company's book balance at the end of the period TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 18 When completing a bank reconciliation, bank service charges should be deducted from the company's cash balance TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 19 If a customer pays for merchandise using a credit card, the Sales Revenue recorded by the retailer will be more than the amount of Cash recorded TRUE AACSB Tag: Relative Thinking Difficulty: Medium L.O.: Sup A 20 Under the completed-contract method of accounting for long-term construction projects, revenue is not recognized until the project is complete TRUE AACSB Tag: Relative Thinking Difficulty: Easy L.O.: Sup B 6-5 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash Multiple Choice Questions 21 Which of the following statements is true? A revenue is usually recorded when goods are shipped B revenue is recorded when cash collection is made C revenue is usually recorded upon delivery to the customer D revenue is recorded either when the sale is made, collection occurs and/or delivery is made It is the company's decision AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 22 A company that sells magazines and collects subscription fees prior to the publication and distribution of the magazine As the cash is received in advance from the customers, the company should record a debit to Cash and a credit to A Sales revenue B Prepaid expenses C Unearned revenue D Accounts payable AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 23 Most companies usually recognize revenue as earned and record the revenue when A the customer's order is received B the order is shipped C the order is delivered D the return period is over AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 6-6 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 24 When a company ships product to a customer with the terms FOB (free on board) destination, which of the following is true? A The seller will pay the shipping charges and title will not be exchanged until goods are received by the customer B The buyer will pay the shipping charges and title is exchanged at point of shipment C The seller will pay the shipping and title is exchanged at point of shipment D The buyer will pay the shipping and title is exchanged when the goods are received by the customer AACSB Tag: Relative Thinking Difficulty: Hard L.O.: 25 On the income statement, the amount of sales returns and allowances is normally A added into selling expenses B subtracted from gross margin to determine net sales C added in the calculation of cost of goods sold D subtracted from gross sales to determine net sales AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 26 Which of the following statements is false? A Sales returns and allowances is always treated as a contra-revenue B Sales returns and allowances, sales discounts and credit card discounts are always treated as selling expenses C Credit card discounts and sales discounts can be treated as contra-revenue accounts or as selling expenses D Sales discounts are used to encourage early payment by customers AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 6-7 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 27 Credit terms of 2/10, n/30 indicate that a A two percent discount for early payment is available if the invoice is paid before the tenth day of the month following the month to of sale B two percent discount for early payment is available within ten days of the date of sale C ten percent discount for early payment is available if the invoice is paid within two days of the date of the invoice D two percent discount for early payment is available if the invoice is paid after the tenth day, but before the thirtieth day of the invoice date AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 28 Miranda Corp received an order from a customer on October The toys were shipped on October 15 The customer sent a check for full payment on November Miranda received the check on November 10 and deposited it in the bank account Miranda should record sales revenue related to this series of transactions on A October B October 15 C November D November 10 AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 29 A customer purchased $5,000 of goods on credit from Discount Paper Supply on September The customer received the bill on September 13 and mailed a $5,000 check on September 30 Discount Paper Supply received the check on October In recording this transaction, Discount Paper Supply should credit Sales Revenue for $5,000 on A September B September 13 C September 30 D October AACSB Tag: Analytic Difficulty: Easy L.O.: 6-8 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 30 When a credit sale is made with terms of 2/10, net 30 on May 10 and the customer's check is received on May 19, which of the following is true about the May 19 journal entry? A The debit to cash will equal the credit to accounts receivable because the discount was recorded on May 10 B There will be a debit to sales discounts on May 10 C The debit to cash will be less than the credit to accounts receivable on May 19 D There will be a credit to sales discounts on May 19 AACSB Tag: Analytic Difficulty: Medium L.O.: 31 When goods are sold to a customer with credit terms of 2/10, n/30, the customer will receive a A 10% discount if they pay within days B 2% discount if they pay 10% of the amount due within 30 days C 10% discount if they pay within 30 days D 2% discount if they pay within 10 days AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 32 A company had the following partial list of account balances at year-end: The amount of Net Sales shown on the income statement would be A $91,900 B $90,700 C $89,900 D $88,600 AACSB Tag: Analytic Difficulty: Medium L.O.: 6-9 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 33 A company purchased goods on credit with credit terms of 3/15, n/45 Although the company does not have cash available to pay within the discount period, the manager of the company is considering borrowing money to take advantage of the discount In order to make the appropriate decision, the manager computed the annual interest rate associated with the sales discount This annual rate is approximately A 56% B 38% C 25% D 18% AACSB Tag: Analytic Difficulty: Hard L.O.: 34 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? A 18% B 20% C 30% D 37% AACSB Tag: Analytic Difficulty: Hard L.O.: 35 What is the annual interest rate of a sales discount of 3/10, n/60? A 21.9% B 22.6% C 18.8% D 14.6% AACSB Tag: Analytic Difficulty: Medium L.O.: 6-10 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 100 Chicago Company has hired you to reconcile its bank statement and cash account For June, the Cash account showed the following: The June bank statement, just received, showed the following: There were neither outstanding checks nor deposits in transit at May 31 A Prepare the bank reconciliation B Prepare the adjusting journal entries needed due to the bank reconciliation C What is the June 30 ending cash balance? 6-42 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash AACSB Tag: Analytic Difficulty: Medium L.O.: 6-43 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 101 A comparison of the balance in Cottonwood Company's cash account (per its books) as of April 30, 2009, and the bank statement dated April 30, 2009, revealed the following information: Required: Prepare a bank reconciliation using the format below Indicate the proper handling of each of the items given above by listing the appropriate item code (letter) and amount under each section of the reconciliation statement form below Then determine the correct cash balance Note: If one or more of the items given above should not appear on the reconciliation statement, not include the item(s) 6-44 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash AACSB Tag: Analytic Difficulty: Medium L.O.: 6-45 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 102 Burke Company has just received its June 30 bank statement from Urban Bank The bank statement and the cash account, summarized below, are to be reconciled for the month of June Required: A Prepare a bank reconciliation B Give the journal entries that should be made in the accounts of Burke Company as a result of the above bank reconciliation 6-46 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash AACSB Tag: Analytic Difficulty: Medium L.O.: 6-47 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 103 Kerr Company received the following October 31, 2009 bank statement: The cash account reflected the following for October: The September 30 bank reconciliation showed deposits in transit, $3,000, and outstanding checks, $500 Required: A What was the amount of the deposits in transit at October 31? B What was the amount of outstanding checks at October 31? C Prepare a bank reconciliation for October Use the following format: D Give the journal entries that should be made by Kerr Company based on the bank reconciliation 6-48 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash A [$38,000 (40,000 B [$38,600 ($38,300 3,000)] = $1,000 500)] = $800 C D Entries AACSB Tag: Analytic Difficulty: Hard L.O.: 104 What are "cash equivalents"? Specifically where would they appear on the financial statements? Cash equivalents are short-term investments that can be readily converted into cash and whose value is unlikely to change They normally have maturities of three months or less They usually appear with cash on the balance sheet as the first listed current asset AACSB Tag: Relative Thinking Difficulty: Easy L.O.: 6-49 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 105 You are the new manager of West Coast Company The company distributes goods throughout the Rocky Mountain area Customers are billed after the shipments are sent Most customers pay within two weeks You notice that one employee is responsible for opening all incoming payments, recording them in the accounting records, and depositing all receipts in the bank daily When asked why this one person performed all of these duties, you were told that it was more efficient for one person to handle cash and to keep track of things If any cash was missing, responsibility could be easily determined Do you agree with this arrangement? If you were to make changes, what would you do, and why? Note: Answers may vary This is definitely not a good system One person should not be responsible for the receipt of cash, accounting for cash, and depositing in the bank The duties of handling cash and accounting for cash should definitely be separated This person could be stealing from the firm; since he/she is the only one handling the receipt of cash, the theft could easily be concealed For example, when a customer pays cash on account, the employee could debit sales returns and allowances instead of the cash account To prevent such an occurrence, different employees should have the responsibility of receiving cash, accounting for cash, and depositing cash in the bank on a daily basis AACSB Tag: Ethics Difficulty: Medium L.O.: 6-50 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 106 Asia Company sold $10,000 of goods to Euro Company on credit on May At the time of the sale, Asia recorded a debit to Accounts Receivable and a credit to Sales Revenue for $10,000 Terms were 2/10, n/30 Required: Present the entries Asia Company would record for each of the following independent situations: A Euro paid the balance due, less the discount, on May 10 B Euro returned half of the goods for credit on May Euro paid the balance due, less the discount, on May 10 C Euro paid their bill on May 30 (there were no returns) AACSB Tag: Analytic Difficulty: Hard L.O.: Sup A 6-51 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 107 On July 10, 2010, Rex Company sold merchandise at an invoice price of $5,000 with terms of 2/10, n/30 Give the journal entries required below by indicating the account code of the appropriate account for each debit and credit and the amounts involved AACSB Tag: Analytic Difficulty: Medium L.O.: Sup B 6-52 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 108 On June 1, 2010, Concorde Company sold merchandise on credit at an invoice price of $1,000; terms 2/10, n/30 Give the journal entries to record the following: A To record the sale B Assumption A: To record collection on June 28, 2010 C Assumption B: To record collection on June 9, 2010 AACSB Tag: Analytic Difficulty: Medium L.O.: Sup B 6-53 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 109 Thomas' Toy World sells a variety of toys at discount prices The following transactions occurred on May 16 Consider credit card discount a selling expense A Sold a bike for $250 cash B Sold a $900 swing set; customer will be billed at the end of the month C Customer returned a $45 doll that had been purchased for cash on May 12; gave customer a cash refund D Sold a pair of $100 roller blades; customer paid with a credit card The credit card company charges Thomas' Toy World a 2% fee for this service Required: a Present journal entries for each of the above transactions b Compute the net sales for the day a b Net sales = Sales Revenue $1203 = $1,250 $45 $2 Sales R&A Credit Card Discounts AACSB Tag: Analytic Difficulty: Medium L.O.: and Sup B 6-54 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash Matching Questions 110 This question relates to accounting for cash For each item listed, indicate the best description Cash reported on the balance sheet Outstanding checks Checks written but not yet cashed by the bank None of the answers apply Deposits made but not yet reflected on the bank NSF check statement A check received from a customer, then deposited in the bank and later returned as a "bounced" check or "bad" Cash equivalents check due to lack of funds in the customer's account The "true" amount for the company and the bank as reflected on the bank reconciliation (assuming no Deposits in transit undeposited cash) AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 6-55 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank,visit visithttp://downloadslide.blogspot.com http://downloadslide.blogspot.com Chapter 006: Reporting and Interpreting Sales Revenue, Receivables, and Cash 111 Indicate the effect on a monthly bank reconciliation of each of the items listed below A deposit in transit Interest paid by the bank The monthly service fee charged by the bank A company recorded a check as a credit to its cash account in the books The check was recorded for $360 but it was actually written to a supplier for $630 Assume the bank correctly recorded this check for $630 when cleared An outstanding check A customer's check returned by the bank marked NSF Deduction from the balance in the company's Cash account Deduction from the balance in the company's Cash account Addition to the balance on the bank statement Addition to the balance in the company's Cash account Deduction from the balance on the bank statement Deduction from the balance in the company's Cash account AACSB Tag: Relative Thinking Difficulty: Medium L.O.: 6-56 ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e ... ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com... ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com... ©2009 McGraw-Hill Inc Test Bank to accompany Libby Financial Accounting 6/e To Todownload downloadmore moreslides, slides,ebook, ebook,solutions solutionsand andtest testbank, bank, visit visithttp://downloadslide.blogspot.com