315 Accounting Practice Questions and Problems Chapters 6 and 7 Multiple Choice Questions: 1. When goods or services are exchanged for cash or claims to cash (receivables), revenues are a. earned. b. realized. c. recognized. d. all of these. 2. When the entity has substantially accomplished what it must do to be entitled to the benefits represented by the revenues, revenues are a. earned. b. realized. c. recognized. d. all of these. The profession requires that the percentage-of-completion method be used when certain conditions exist. Which of the following is not one of those necessary conditions? a. Estimates of progress toward completion, revenues, and costs are reasonably dependable. b. The contractor can be expected to perform the contractual obligation. c. The buyer can be expected to satisfy some of the obligations under the contract. d. The contract clearly specifies the enforceable rights of the parties, the consideration to be exchanged, and the manner and terms of settlement. In accounting for a long-term construction-type contract using the percentage-of-completion method, the gross profit recognized during the first year would be the estimated total gross profit from the contract, multiplied by the percentage of the costs incurred during the year to the a. total costs incurred to date. b. total estimated cost. c. unbilled portion of the contract price. d. total contract price. Under the cost recovery method of revenue recognition,
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a. profit is recognized on a proportionate basis as the cash is received on the sale of the product. b. profit is recognized when the cash received from the sale of the product is greater than the cost of the product. c. profit is recognized immediately. d. none of these. 6. Preparing the statement of cash flows involves all of the following except determining the a. cash provided by operations. b. cash provided by or used in investing and financing activities. c. change in cash during the period. d. cash collections from customers during the period. Which of the following is a generally accepted method of determining the amount of the adjustment to bad debts expense? a. A percentage of sales adjusted for the balance in the allowance b. A percentage of sales not adjusted for the balance in the allowance c. A percentage of accounts receivable not adjusted for the balance in the allowance d. An amount derived from aging accounts receivable and not adjusted for the balance in the allowance Carson Construction Co. uses the percentage-of-completion method. In 2003, Carson began work on a contract for $1,650,000 and it was completed in 2004. Data on the costs are: Year Ended December 31 2003 2004 Costs incurred $585,000 $420,000 Estimated costs to complete 390,000 -- For the years 2003 and 2004, Carson should recognize gross profit of 2003 2004 a. $0 $645,000 b. $387,000 $258,000 c. $405,000 $240,000 d. $405,000 $645,000
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Use the following information for questions 9 and 10: Mendez, Inc. began work in 2003 on contract #3814, which provided for a contract price of $2,400,000. Other details follow: 2003 2004 Costs incurred during the year $ 400,000 $1,225,000 Estimated costs to complete, as 12/31 1,200,000 0 Billings during the year 450,000 1,800,000 Collections during the year 300,000 1,950,000 9. Assume that Mendez uses the percentage-of-completion method of accounting. The portion of the total gross profit to be recognized as income in 2003 is a. $150,000. b. $200,000. c. $600,000. d. $800,000. Assume that Mendez uses the completed-contract method of accounting. The portion of the total gross profit to be recognized as income in 2004 is a. $300,000. b. $450,000. c. $775,000. d. $2,400,000.
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Use the following information for questions 11 and 12: Jersey, Inc. began work in 2003 on a contract for $2,100,000. Other data are: 2003 2004 Costs incurred to date $900,000 $1,400,000 Estimated costs to complete 600,000 -- Billings to date 700,000 2,100,000 Collections to date 500,000 1,800,000 11. If Jersey uses the percentage-of-completion method, the gross profit to be recognized in 2003 is a. $360,000. b. $400,000. c. $540,000. d. $600,000. If Jersey uses the completed-contract method, the gross profit to be recognized in 2004 is a. $340,000. b. $700,000. c. $350,000. d. $1,400,000. Which of the following is not true? a. The imprest petty cash system in effect adheres to the rule of disbursement by check. b. Entries are made to the Petty Cash account only to increase or decrease the size of the fund or to adjust the balance if not replenished at yearend. c. The Petty Cash account usually is debited when the fund is replenished. d. A Cash Over and Short account is used when the petty cash fund fails to prove out.
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During the year, Jantz Company made an entry to write off a $4,000 uncollectible account. Before this entry was made, the balance in accounts receivable was $60,000 and the balance in the allowance account was $4,500. The net realizable value of accounts receivable after the write-off entry was a. $60,000. b. $59,500. c. $51,500. d. $55,500. In preparing its August 31, 2003 bank reconciliation, Baker Corp. has available the following information: Balance per bank statement, 8/31/03 $21,650 Deposit in transit, 8/31/03 5,900 Return of customer's check for insufficient funds, 8/30/03 Outstanding 600 checks, 8/31/03 2,750 Bank service charges for August 100 At August 31, 2003, Baker's correct cash balance is a. $24,800. b. $24,200. c. $24,100. d. $22,500. 16. Which of the following is usually correct for the replenishment entry for petty cash? a. A debit to the petty cash account. b. A debit to the cash account. c. A credit to the petty cash account. d. A credit to various costs and expenses. e. A credit to the cash account. 17. When using the indirect method for cash flow from operations, an increase in prepaid expenses for the period is: a. Added to net income. b. Subtracted from net income. c. Added to cash flows from investing activities. d. Deducted from cash flows from investing activities. e. Added to cash flows from financing activities.
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Problems 1. Howard Construction Co. contracted to build a bridge for $2,500,000. Construction began in 2003 and was completed in 2004. Data relating to the construction are: 2003 2004 Costs incurred $810,000 $700,000 Estimated costs to complete 690,000 -- Howard uses the percentage-of-completion method. Instructions (a) How much revenue should be reported for 2003? Show your computation. (b) How much gross profit should be reported for 2004? Show computation. 2. A trial balance before adjustment included the following: Debit Credit Accounts receivable $124,000 Allowance for doubtful accounts $ 965 Sales 440,000 Sales returns and allowances 7,000 Give journal entries assuming that the estimate of uncollectibles is determined by taking (1) 3% of gross accounts receivable and (2) 1 1/2% of net sales.
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The trial balance before adjustment of Pratt Company reports the following balances: Dr. $140,000 $ 30,000 Cr. 5,500 750,000
Accounts receivable Allowance for doubtful accounts Sales (all on credit) Sales returns and allowances
Instructions (a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated to be (1) 6% of gross accounts receivable and (2) 2% of net sales. (b) Assume that all the information above is the same, except that the Allowance for Doubtful Accounts has a debit balance of $5,500 instead of a credit balance. How will this difference affect the journal entries in part (a)?
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Adcock Plastics Company deposits all receipts and makes all payments by check. The following information is available from the cash records: MARCH 31 BANK RECONCILIATION Balance per bank Add: Deposits in transit Deduct: Outstanding checks Balance per books Month of April Results Per Bank Per $30,355 15,889 10,080 -0-0-0$26,746 2,100 (3,800) $25,046
Books Balance April 30 $27,995 April deposits 10,784 April checks 11,100 April note collected (not included in April deposits) 3,000 April bank service charge 35 April NSF check of a customer returned by the bank (recorded by bank as a charge) 900 Instructions (a) Calculate the amount of the April 30: 1. Deposits in transit 2. Outstanding checks (b) What is the April 30 adjusted cash balance? Show all work.
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R.J. Morrison Corporation operates on a calendar year basis and uses the installment sales method of accounting recognition for all of its sales. The following data comes from the 2003 and 2004 accounting records. 2003 Installment sales $800,000 Cost of installment sales 520,000 Cash collections on 2003 sales 350,000 Cash collections on 2004 sales 2004 $900,000 576,000 340,000 410,000
Required: Compute the amount of realized gross profit in each year.
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On December 31, 2003 Long Corporation sold some of its product to Doane Company, accepting a 3%, four-year promissory note having a maturity value of $400,000 (interest payable annually on December 31). Doane Company pays 8% for its borrowed funds.
Instructions (a) Determine the present value of the note and the amount of the discount. (b) What is the amortization of the discount for the first period. Use effective interest amortization. Present value table information appears below. Table 1 Present Value of 1 Periods 1 2 3 4 5 2% 0.98039 0.96117 0.94232 0.92385 0.90573 3% 0.97087 0.94260 0.91514 0.88849 0.86261 4% 0.96154 0.92456 0.88900 0.85480 0.82193 6% 0.94340 0.89000 0.83962 0.79209 0.74726 8% 0.92593 0.85734 0.79383 0.73503 0.68058
Table 2 Present Value of Ordinary Annuity of 1 Periodic Rents 2% 1 0.98039 2 1.94156 3 2.88388 4 3.80773 5 4.71346 3% 0.97087 1.91347 2.82861 3.71710 4.57971 4% 0.96154 1.88609 2.77509 3.62990 4.45182 6% 0.94340 1.83339 2.67301 3.46511 4.21236 8% 0.92593 1.78326 2.57710 3.31213 3.99271
7. Taden Trucking, Inc. is about to reconcile their major cash account for the month of October 2006. The following information is available: Deposits in transit for the month of October $12,400 The bank charged Taden's account for customers' NSF checks 7,400 Balance per the company books, October 31, 2006 ? Outstanding checks for October 9,430 Notes collected by the bank for Taden 12,000 Check drawn by Lamon Hauling, Inc. incorrectly charged to Taden's account 5,260 Bank service charges for October 2006 75 Balance per bank statement, October 31, 2006 44,720 Taden's CPA recorded a customer's check for $134 as $314 in the cash receipts journal Required: Determine the amount of the balance per the company books at October 31, 2006, before the reconciliation. What is the correct amount of cash to be shown on the October 31, 2006 balance sheet?