Multiple Choice Questions
1. United First Bank, the nationwide banking company, owns many types of investments.
Assume that United First Bank paid $700,000 for trading securities on December 3. Two weeks later United First Bank received a $37,000 cash dividend. At December 31, these trading securities were quoted at a market price of $705,000. United First Banks December income statement should report:
a. Unrealized loss of $5,000.
b. Unrealized loss of $3,000.
c. Both a and b.
d. None of the above.
2. Refer to the United First Bank data in Quiz question 1. At December 31, United First Banks balance sheet should report:
a. Dividend revenue of $37,000.
b. Short-term investment of $700,000.
c. Short-term investment of $705,000.
d. Unrealized gain of $5,000.
3. Under the allowance method for uncollectible receivables, the entry to record uncollectible-account expense has what effect on the financial statements?
a. Decreases owners equity and increases liabilities
b. Increases expenses and increases owners equity
c. Decreases assets and has no effect on net income
d. Decreases net income and decreases assets
4. Vincent Company uses the aging method to adjust the allowance for uncollectible accounts at the end of the period. At December 31, 2010, the balance of accounts receivable is $200,000 and the allowance for uncollectible accounts has a credit balance of $4,000 (before adjustment). An analysis of accounts receivable produced the following age groups:
Current...................................... $160,000
60 days past due......................... 32,000
Over 60 days past due................ 8,000
$200,000
Based on past experience, Vincent estimates that the percentage of accounts that will prove to be uncollectible within the three age groups is 4%, 10%, and 21%, respectively. Based on these facts, the adjusting entry for uncollectible accounts should be made in the amount of
a. $7,280.
b. $11,280.
c. $16,280.
d. $2,000.
5. Refer to Question 4. The net receivables on the balance sheet is _______.
a. $7,280.
b. $11,280.
c. $16,280.
d. $2,000.
6. Graham Company uses the percent-of-sales method to estimate uncollectibles. Net credit sales for the current year amount to $130,000 and management estimates 3% will be uncollectible. Allowance for doubtful accounts prior to adjustment has a credit balance of $2,000. The amount of expense to report on the income statement will be
a. $3,900.
b. $5,200.
c. $1,000.
d. $5,900.
7. Refer to question 6. The balance of Allowance for Doubtful Accounts, after adjustment, will be
a. $7,900.
b. $1,000.
c. $5,900.
d. $5,200.
e. Cannot be determined from the information given.
8. Refer to Quiz questions 6 and 7. The following year, Graham Company wrote off $3,900 of old receivables as uncollectible. What is the balance in the Allowance account now?