1. Which item is one of the two main criteria in the revenue recognition principle?

0. Revenue targets for the period have been reached.
0. Earnings process is substantially complete.
0. Necessary documentation has been filed.
0. Substantial evidence of budget approval has been received.

1. What is a sales discount?

1. Net collection after paying sales taxes
1. Amount of cash collected from customers
1. Supplier reduction in inventory purchase cost
1. Incentive for the buyer to pay more quickly

1. Which items are subtracted in computing NET SALES for the year?

2. Cash and accounts payable
2. Cost of goods sold and cash collected from customers
2. Sales discounts and sales returns and allowances
2. Interest expense and income tax expense
2. Purchases and inventory shrinkage

1. With respect to bad debts, what is the allowance method?

3. Including bad debt expense as a subtraction from the sales amount rather than as a separate expense
3. Recognizing bad debt expense after confirming that a specific customer is not going to pay
3. Including bad debt expense in the computation of cost of goods sold in the period in which the sale takes place
3. Estimating and recognizing bad debt expense in the same period in which the associated sale takes place

1. Draper Company estimated bad debt expense for the year to be $20,000. Which debit or credit is included in the adjusting entry to record bad debt expense for the year?

4. CREDIT Bad Debt Expense
4. CREDIT Allowance for Bad Debts
4. CREDIT Cash
4. CREDIT Accounts Receivable
4. DEBIT Allowance for Bad Debts

1. How is the inventory in a merchandising business different from the inventory in a manufacturing business?

5. In a merchandising business, there is just one category of inventory; in a manufacturing business there are three categories of inventory.
5. In a manufacturing business, there is just one category of inventory; in a merchandising business there are three categories of inventory.
5. In a merchandising business, there is work-in-process inventory; in a manufacturing business there is no work-in-process inventory.
5. In a merchandising business, final inventory cost includes materials, labor and overhead; in a manufacturing business final inventory cost includes only the original purchase cost of the inventory.

1. With a perpetual inventory system, how are inventory purchases and sales recorded?

6. Sales are reported only when cash is collected; no accounts receivable are recorded.
6. Inventory records are updated whenever a purchase or a sale is made.
6. Inventory records are not updated when a sale is made; only the dollar amount of the sale is recorded.
6. Inventory records are not updated when a purchase is made; only the dollar amount of the purchase is recorded.

1. How is inventory shrinkage reported in the financial statements?

7. Increase in expenses
7. Increase in liabilities
7. Increase in as




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