1- The income statement is prepared from the:
a- general journal.
b- worksheet.
c- Post-Closing Trial Balance.
d- statement of owner's equity.
2- Net Purchases are:
a- Total Purchases + Purchases Discounts - Purchases Returns and Allowances.
b- Total Purchases - Purchases Discounts - Purchases Returns and Allowances.
c- None of these is correct.
d- Total Purchases + Purchases Discounts + Purchases Returns and Allowances.
3- Net Sales - Cost of Goods Sold is equal to:
a- Gross Expenses.
b- Gross Profit.
c- Operating Expenses.
d- Net Income from Operations.
4- The current balance of Allowance for Doubtful Accounts is considered when calculating the current period's Bad Debts Expense under the following approach:
a- Income statement approach
b- Direct write-off method
c- All of these answers are correct.
d- Balance sheet approach
5- Joe's Auto Repair estimates that approximately 3% of net credit sales are uncollectible. Joe's calculates Bad Debts Expense using the:
a- gross method.
b- balance sheet method.
c- direct write-off method.
d- income statement method.
6- Net Purchases + Purchases Returns and Allowances + Purchase Discount equals:
a- Gross Purchases.
b- Gross Profit.
c- Net Income.
d- Net Loss.
7- Gross Accounts Receivable is $15,000. Allowance for Doubtful Accounts has a credit balance of $300. Net credit sales for the year are $140,000. In the past, 1% of credit sales had proved uncollectible. What would be the adjusted balance of the Allowance account under the income statement approach?
a- $1,100
b- $2,400
c- $1,700
d- $1,400
8- Using the aging method, estimated uncollectible accounts are $3,000. If the balance in the Allowance for Doubtful Accounts is a $600 debit before adjustment, what is the Bad Debts Expense adjustment for the period?
a-$3,600
b- $2,400
c- $3,000
d- $600
9- Which method uses an aging of Accounts Receivable to calculate the Bad Debts Expense?
a- Income statement approach
b- Direct write-off
c- Balance sheet approach
d- Aging the Accounts Receivable approach
10- Harry's Hardware estimates that approximately $1.75 out of every $100 of credit sales proves to be uncollectible. Harry calculates Bad Debts Expense using the:
a- direct write-off method.
b- balance sheet approach.
c- income statement approach.
d- aging the Accounts Receivable approach.
11- Cost of Goods Sold includes:
a- Net Sales.
b- Freight-in.
c- Freight-out.
d- Supplies Expense.
12- How is Income Summary closed if the company had a net income?
a- Debit Capital; credit Withdrawals
b- Debit Withdrawals; credit Capital
c- Debit Capital; credit Income Summary
d- Debit Income Summary; credit Capital
13- The first step in the closing process is to:
a- transfer the balance from the Income Summary Account to the Capital Account.
b- close all balances on the income statement debit column of the worksheet except Income Summary.
c- transfer the balance of the Owner's Withdrawals Account to Capital.
d- close all balances on the income statement credit column of the worksheet except Income Summary.
14- Freight-in is:
a- a Cost of Purchasing Goods.
b- recorded as an asset.
c- recorded as an Operating Expense.
d- a Cost of Selling Goods.
15- Which of the following is NOT an operating expense?
a- Depreciation Expense - Office Equipment
b- Payroll Tax Expense
c- Supplies Expense
d- Freight-in
16- Jody Sport and Hobby's Allowance for Doubtful Accounts had an unadjusted credit balance of $600. The manager estimates that $700 of the Accounts Receivable is uncollectible. Using the balance sheet approach, the year-end adjusting entry for Bad Debts Expense:
a- includes a debit to the Bad Debts Expense account for $700.
b- includes a debit to the Bad Debt Expense account for $100.
c- includes a credit to the Bad Debts Expense account for $1,300.
d- includes a credit to the Bad Debts Expense account for $100.
17- The adjustment for bad debts using the percentage of receivables ignored the debit balance in the Allowance account. This error would cause:
a- None of these is correct.
b- total assets to be overstated.
c- total liabilities to be understated.
d- net income to be understated.
18- The adjustment for bad debts using the percentage of receivables ignored the credit balance in the Allowance account. This error would cause:
a- total assets to be overstated.
b- total liabilities to be understated.
c- None of these is correct.
d- net income to be understated.
19- Which of the following could be recorded as a reversing entry?
a- Depreciation of building
b- Accrual of interest expense
c- Cash
d- Allocation of prepaid rent in the current period