Accounting & Finance – 20 Multiple Choice Questions

1. An analysis and aging of accounts receivable of the Lucille
Company at December 31, 2007, showed the following:
Accounts Receivable $840,000
Allowance for Doubtful Accounts
(before adjustment) 36,000 (cr)
Accounts estimated to be uncollectible 76,800
Compute the net realizable value of the accounts receivable of
Lucille Company at December 31, 2007.
A. $804,000 C. $763,200
B. $799,200 D. $727,200
2. A new product introduced by Wilkenson Promotions carries a two-year warranty against
defects. The estimated warranty costs related to dollar sales are as follows:
Year of sale 3 percent
Year after sale5 percent
Sales and actual warranty expenditures for the years ended December 31, 2007 and
2008, are as follows:
Sales Actual Warranty
2007 $ 800,000 $20,000
2008 1,000,000 70,000
What amount should Wilkenson report as its estimated liability as of December 31, 2008?
A. $4,000 C. $54,000
B. $24,000 D. $74,000

3. How should the balances of Progress Billings and Construction in Progress be shown at
reporting dates prior to the completion of a long-term contract?
A. Progress Billings as income, Construction in Progress as inventory
B. Net, as income from construction if credit balance, and loss from construction if debit
C. Progress Billings as deferred income, Construction in Progress as a current asset
D. Net, as a current asset if debit balance, and current liability if credit balance

4. Brown Construction Company uses the percentage-of-completion method for long-term
construction contracts. A specific job was begun in 2007 and completed in 2009. The
contract price was $1,400,000, and cost information as of each year-end is given below:
2007 2008 2009
End of year estimated cost to complete $400,000 $200,000 $ 0
Annual cost incurred 400,000 400,000 120,000
Assuming Brown correctly recorded gross profit in 2007, how much gross profit should the
company record in 2008?
A. $0 C. $300,000
B. $20,000 D. $320,000
5. On July 1, 2007, ABC Corporation sold $20,000 in factored receivables for $18,350.
Assume the allowance of bad debts to be $500. What is the loss from factoring
A. $500 C. $1,650
B. $1,150 D. $2,150

6. First Company sold merchandise on credit to Second Company for $1,000 on July 1, with
terms of 2/10, net /30. On July 6, Second returned $200 worth of merchandise claiming
the materials were defective. On July 8, First received a payment from Second and credited
Accounts Receivable for $450. On July 24, Second Company paid the remaining balance
on their account. What was the total cash received from Second during July?
A. $441 C. $791
B. $450 D. $800

7. When the allowance method of recognizing bad debt expense is used, the entry to record
the write-off of a specific uncollectible account would decrease
A. allowance for doubtful accounts.
B. net income.
C. net realizable value of accounts receivable.
D. working capital.

8. Based on the aging of its accounts receivable at December 31, Pribob Company
determined that the net realizable value of the receivables at that date is $760,000.
Additional information is as follows:
Accounts Receivable at December 31 $ 880,000
Allowance for Doubtful Accounts at January 1 128,000 (cr)
Accounts written off as uncollectible during the year 88,000
Pribob’s doubtful accounts expense for the year ended December 31 is
A. $80,000. C. $120,000.
B. $96,000. D. $160,000.
9. Hillson Company began operations on January 1, 2007, and appropriately uses the
installment method of accounting. The following data are available for 2007 and 2008:
2007 2008
Installment sales $1,200,000 $1,500,000
Cash collections from:
2007 sales 400,000 500,000
2008 sales – 600,000
Gross profit on sales 30% 40%
The realized gross profit for 2008 is
A. $240,000. C. $440,000.
B. $390,000. D. $600,000.

10. Grant Company accepted a $400,000 face value, 6-month, 10 percent note dated May 15
from a customer. On that same date, Grant discounted the note at Eagle National Bank at
a 12 percent discount rate. How much cash should Grant receive from the bank on May 15?
A. $400,000 C. $394,800
B. $396,000 D. $387,200

11. Lake Construction Company uses the completed-contract method for long-term construction
contracts. The information for a specific contract as of January 1, 2007, is shown below.
Costs incurred to date $ 700,000
Contract price 2,000,000
Estimated remaining cost to complete 800,000
$600,000 of cost was incurred during 2007 and on December 31, 2007, the estimated
remaining cost to complete was still $800,000. The correct balance for the Construction in
Progress at December 31, 2007 is
A. $600,000. C. $1,200,000.
B. $700,000. D. $1,300,000
12. In preparing the bank reconciliation of Crews Company for the month of July, the following
information is available:
Balance per bank statement, 7/31 $54,075
Deposits in transit, 7/31 9,375
Outstanding checks, 7/31 8,625
Deposit erroneously recorded by bank to Crews account, 7/18 375
Bank service charges for July 75
What is the correct cash balance at July 31?
A. $52,875 C. $54,450
B. $54,375 D. $54,825

13. C & J Construction, Inc. has consistently used the percentage-of-completion method of
recognizing income. Last year, C & J started work on a $4,500,000 construction contract,
which was completed this year. The accounting records disclosed the following data for
last year:
Progress billings $1,650,000
Costs incurred 1,350,000
Collections 1,050,000
Estimated cost to complete 2,700,000
How much income should C & J have recognized on this contract last year?
A. $105,000 C. $300,000
B. $150,000 D. $350,000

14. Under which approach does a company record all earnings from a project to the current
period even though only a percentage of these earnings were actually realized during
this period?
A. Proportional performance method
B. Cost-to-cost method
C. Efforts-expended method
D. Completed-contract method

15. On June 30, 2007, Simon Company discounted a customer’s $180,000, 6-month, 10 percent
note receivable dated April 30, 2007. A discount rate of 12 percent was charged by the
bank. Simon’s proceeds from this discounted note would be
A. $169,200. C. $181,440.
B. $172,800. D. $185,220.
16. Lake Construction Company uses the percentage-of-completion method for long-term
construction contracts. The company has a project with a contract price of $7,000 on
which $600 of gross profit has been recognized in prior years. Information for the current
year is as follows:
Total cost incurred through current year $5,000
Estimated costs remaining at end of current year 2,800
What is the loss that Lake should recognize in the current year?
A. $600 C. $1,400
B. $800 D. No loss should be recognized.

17. On September 1, Riva Co. assigns specific receivables totaling $750,000 to Pacific Bank
as collateral on a $625,000, 12 percent note. Riva Co. will continue to collect the assigned
accounts receivable. Pacific also assesses a 2 percent service charge on the total
accounts receivable assigned. Riva Co. is to make monthly payments to Pacific with cash
collected on assigned accounts receivable. Collections of assigned accounts during
September totaled $260,000 less cash discounts of $3,500. What amount is owed to
Pacific by Riva Co. for September collections plus accrued interest on the note to
September 30?
A. $260,000 C. $264,000
B. $262,750 D. $266,250

18. Richards Company uses the allowance method of accounting for bad debts. The following
summary schedule was prepared from an aging of accounts receivable outstanding on
December 31 of the current year.
No. of Days Outstanding Amount Probability of Collection
0-30 days $500,000 .98
31-60 days 200,000 .90
Over 60 days 100,000 .80
The following additional information is available for the current year:
Net credit sales for the year $4,000,000
Allowance for Doubtful Accounts:
Balance, January 1 45,000 (cr)
Balance before adjustment, December 31 2,000 (dr)
If Richards determines bad debt expense using 1.5 percent of net credit sales, the net
realizable value of accounts receivable on the December 31 balance sheet will be
A. $738,000. C. $742,000.
B. $740,000. D. $750,000.
19. Assume a retail company makes a $5,000 deposit of credit card receipts for sales made
on Visa and MasterCard and that the bank charges a 4 percent service charge for sales
on these cards. The company would debit cash for
A. $0. C. $5,000.
B. $4,800. D. $5,200.

20. Jane likes to shop at The Gap upon occasion. Last week she bought a sweater
because it was just the right color to match another item in her wardrobe. Once she
got the sweater home, it didn’t match at all. So Jane revisited her local Gap store to
return the sweater. Which of the following indicates the account(s) that would be
affected by Jane’s return?
A. Sales Return and Allowances and Cost of Goods Sold
B. Accounts Receivable
C. Inventory and Sales Return
D. Sales Return and Allowances, Cost of Goods Sold, Inventory,
and Accounts Receivable

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