3.4 Lab Quiz 2

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