Accounting Exam 2

An airline receives $575 for a flight that is to be taken two months from now. How would this transaction affect the financial statements?

• Increase cash, increase revenues.

• Increase cash, increase liabilities.

• Decrease cash, decrease liabilities.

• Decrease cash, increase expenses.

Which of the following transactions would result in an account receivable?

• Paying for supplies previously purchased on account.

• Receiving a loan from the bank.

• Providing services to customers on account.

• Purchasing supplies on account.

Schmidt Company’s Accounts Receivable balance is $100,000, its adjusted balance in Allowance for Uncollectible Accounts is $4,000, and its bad debt expense is $3,800. The net amount of accounts receivable is:

• $104,000.

• $96,000.

• $96,200.

• $100,000.

If a company uses the allowance method of accounting for uncollectible accounts and writes off a specific account:

• Net accounts receivable decrease.

• Net accounts receivable increase.

• Net accounts receivable do not change.

• The effect on net account receivables depends on the relationship between the allowance account balance and the amount of the write off.

For a typical manufacturing company, the most common critical point for recognizing revenue is the date:

• the product is delivered.

• production is completed.

• payment is received.

• an order is received.

A manufacturer's inventory consists of what type of inventory?

• Raw materials

• Finished goods

• Work-in-process

• All of the other answer choices are included in a manufacturer's inventory.

At the end of the year, Marline Corporation determines that its ending inventory has a cost of $2,000 and a net realizable value of $1,900. What would be the effect of the adjusting entry to write down inventory to net realizable value?

• Decrease in net income.

• Increase in net income.

• Increase in cost of ending inventory.

• No effect on net income or ending inventory.

Under a perpetual inventory system:

• Inventory purchases are recorded only at the end of the period.

• Purchase discounts are not recorded.

• Cost of good sold is recorded with a period-end adjusting entry.

• Cost of goods sold is recorded with each sale.

The cost of the goods that a company sold during a period is shown in its financial statements as _________blank and the cost of the goods that a company still has on hand at the end of the year is shown in the financial statements as _________blank.

• Goods on hand; inventory expense

• Inventory; cost of goods sold

• Sales revenue; cost of goods sold

• Cost of goods sold; inventory

Companies that purchase inventories that are primarily in finished form for resale to customers are known as:

• Merchandising companies.

• Delivering companies.

• Manufacturing companies.

• Service companies.