Intermediate Accounting Exam ACTUAL
QUESTIONS AND CORRECT ANSWERS
Which of the following might be classified as a cash equivalent?
A) Cash in a checking account.
B) 30-day treasury bill.
C) Money orders waiting to be deposited.
D) 120-day treasury bill. - CORRECT ANSWERS B
A 30-day treasury bill is short-term enough to be viewed as almost as liquid as cash.
An internal control system is designed to do all but which of the following?
A)Promote operational efficiency.
B)Safeguard assets.
C)Encourage adherence to company policies.
D)Assure the promotion of the most qualified employees. - CORRECT ANSWERS D
Human resource evaluations should help assure that the most qualified employees get promoted.
That is not a role of the internal control system.
Which of the following is true about cash reporting under IFRS?
A) Cash accounts are typically viewed as investments, with overdrafts treated as unrealized
losses.
B) Overdrafts in one cash account can typically be offset against positive balance in other cash
accounts.
C) Overdrafts are typically treated as current liabilities, regardless of the existence of other cash
accounts.
,D) Cash accounts are typically viewed as immaterial. - CORRECT ANSWERS B
Offsetting typically is allowed under IFRS, but not under U.S. GAAP.
A company uses the gross method to account for cash discounts offered to its customers. If
payment is made before the discount period expires, which of the following is correct?
A) Sales discounts is debited for the amount of discounts taken by customers.
B) Sales discounts is credited for the amount of discounts taken by customers.
C) Interest expense is debited for the amount of discounts taken by customers.
D) Accounts receivable is credited for the amount of discounts taken by customers. - CORRECT
ANSWERS A
The sales discounts account is contra to revenue, reducing it to the amount collected net of
discount
Allister Company does not use the allowance method to account for bad debts and instead any
bad debts that do arise are written off as bad debt expense. What problem might this create if bad
debts are material?
A) Receivables likely will be understated.
B) No problems are created.
C) Receivables likely will be overstated.
D) The matching principle is violated when the write-off occurs in the same period that the
receivable is initially recorded. - CORRECT ANSWERS C
Receivables will be overstated because not accruing bad debts will result in the receivables being
stated at an amount that is greater than the amount expected to be collected.
Jasper Company uses the allowance method to account for bad debts. During 2018, the company
recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling
, $5,000. These transactions caused a decrease in working capital (current assets minus current
liabilities) of:
$7,000
$5,000
$9,000
$14,000 - CORRECT ANSWERS Recording bad debt expense will credit the allowance
for bad debts for $9,000, and writing off bad debts will debit it for $5,000 as well as crediting
accounts receivable, so the net decrease in working capital will be $9,000 + 5,000 - 5,000 =
$9,000.
The Reingold Hat Company uses the allowance method to account for bad debts. During 2018,
the company recorded $800,000 in credit sales. At the end of 2018, account balances were:
Accounts receivable, $120,000; Allowance for uncollectible accounts, $3,000 (credit). If bad
debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a
debit to bad debt expense of:
Zero.
$27,000
$21,000
$24,000 - CORRECT ANSWERS $800,000 × 3% = $24,000
Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit
sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a
desired amount based on an aging of accounts receivable. At the beginning of 2018, the
allowance account had a credit balance of $18,000. During 2018, credit sales totaled $480,000
and receivables of $14,000 were written off. The year-end aging indicated that a $21,000
allowance for uncollectible accounts was required. Enchill's bad debt expense for 2018 would
be:
QUESTIONS AND CORRECT ANSWERS
Which of the following might be classified as a cash equivalent?
A) Cash in a checking account.
B) 30-day treasury bill.
C) Money orders waiting to be deposited.
D) 120-day treasury bill. - CORRECT ANSWERS B
A 30-day treasury bill is short-term enough to be viewed as almost as liquid as cash.
An internal control system is designed to do all but which of the following?
A)Promote operational efficiency.
B)Safeguard assets.
C)Encourage adherence to company policies.
D)Assure the promotion of the most qualified employees. - CORRECT ANSWERS D
Human resource evaluations should help assure that the most qualified employees get promoted.
That is not a role of the internal control system.
Which of the following is true about cash reporting under IFRS?
A) Cash accounts are typically viewed as investments, with overdrafts treated as unrealized
losses.
B) Overdrafts in one cash account can typically be offset against positive balance in other cash
accounts.
C) Overdrafts are typically treated as current liabilities, regardless of the existence of other cash
accounts.
,D) Cash accounts are typically viewed as immaterial. - CORRECT ANSWERS B
Offsetting typically is allowed under IFRS, but not under U.S. GAAP.
A company uses the gross method to account for cash discounts offered to its customers. If
payment is made before the discount period expires, which of the following is correct?
A) Sales discounts is debited for the amount of discounts taken by customers.
B) Sales discounts is credited for the amount of discounts taken by customers.
C) Interest expense is debited for the amount of discounts taken by customers.
D) Accounts receivable is credited for the amount of discounts taken by customers. - CORRECT
ANSWERS A
The sales discounts account is contra to revenue, reducing it to the amount collected net of
discount
Allister Company does not use the allowance method to account for bad debts and instead any
bad debts that do arise are written off as bad debt expense. What problem might this create if bad
debts are material?
A) Receivables likely will be understated.
B) No problems are created.
C) Receivables likely will be overstated.
D) The matching principle is violated when the write-off occurs in the same period that the
receivable is initially recorded. - CORRECT ANSWERS C
Receivables will be overstated because not accruing bad debts will result in the receivables being
stated at an amount that is greater than the amount expected to be collected.
Jasper Company uses the allowance method to account for bad debts. During 2018, the company
recorded bad debt expense of $9,000 and wrote off as uncollectible accounts receivable totaling
, $5,000. These transactions caused a decrease in working capital (current assets minus current
liabilities) of:
$7,000
$5,000
$9,000
$14,000 - CORRECT ANSWERS Recording bad debt expense will credit the allowance
for bad debts for $9,000, and writing off bad debts will debit it for $5,000 as well as crediting
accounts receivable, so the net decrease in working capital will be $9,000 + 5,000 - 5,000 =
$9,000.
The Reingold Hat Company uses the allowance method to account for bad debts. During 2018,
the company recorded $800,000 in credit sales. At the end of 2018, account balances were:
Accounts receivable, $120,000; Allowance for uncollectible accounts, $3,000 (credit). If bad
debt expense is estimated to be 3% of credit sales, the appropriate adjusting entry will include a
debit to bad debt expense of:
Zero.
$27,000
$21,000
$24,000 - CORRECT ANSWERS $800,000 × 3% = $24,000
Enchill Company accrues bad debt expense during the year at an amount equal to 3% of credit
sales. At the end of the year, a journal entry adjusts the allowance for uncollectible accounts to a
desired amount based on an aging of accounts receivable. At the beginning of 2018, the
allowance account had a credit balance of $18,000. During 2018, credit sales totaled $480,000
and receivables of $14,000 were written off. The year-end aging indicated that a $21,000
allowance for uncollectible accounts was required. Enchill's bad debt expense for 2018 would
be:
