accounting ch 7,8,9
On October 1, 2019, Westfield, Inc. sold machinery to a customer for $21,000. The customer could not pay at the time of sale, but agreed to pay 12 months later, and signed a 12−month note at 12% interest. How much interest revenue was earned during 2019? Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.
$630 $21,000 x 0.12 x 3/12=$630
______________ is the cost that arises when a business is unable to collect from a credit customer.
Bad debts expense
Which of the following should be included in the cost of land improvements? A. sprinkler system for the landscaping B. fencing C. driveways D. all of the above
D
Revenue expenditure
Do not increase the capacity of a plant asset or extend it's useful life
capitalize
Recording the acquisition of land, building, or other assets by debiting (increasing) an asset account.
pledging receivables
To assign to a bank, factor, finance company, or other lender an exclusive claim against accounts receivable as security for a debt.
Minor Company purchased land and which is being prepared for the construction of a new office building. Which of the following should be included in the cost of the land? A. cost of removing an old building B. cost of clearing and grading the land C. cost of the fence which surrounds the property
a & b
impairment
a permanent decline in asset value
depreciation is expense recognition
a systematic rational way to alloacate a plant assets cost over its useful life
Double−declining−balance depreciation: A. is an accelerated depreciation method. B. is based on the book value of the plant asset. C. ignores the residual value in computing depreciation, except during the last year. D. is all of the above.
all of the above
Which costs are not included in the cost of purchasing land?
c. Cost of installing a sprinkler system Your answer is correct. D. Cost of property taxes after acquisition
intangible asset: Definite life
have legal or contractual stipulations that limit the time of its usefulness
When compared to the other methods of depreciation, the double−declining−balance method of depreciation gives depreciation expense that is:
higher in the earlier periods
The depreciable cost of a plant asset equals the:
historical cost of the asset minus the estimated residual value.
The long−term asset that is not depreciated or amortized is:
land
Depreciation Methods
straight line, units of production, double declining balance
Amortization
the process of allocating to expense the cost of an intangible asset
Smart Touch Learning purchased land, paying $75,000 cash. In addition, Smart Touch Learning paid delinquent property taxes of $2,200, title insurance costing $800, $3,800 to build a fence, and $5,200 to clear and grade the land. What is the cost of the land?
$83,200 -everything but building the fence
A machine is purchased for $70,000. The transportation from the seller was $2,000, installation costs were $1,000 and taxes on the purchase price were $400. Testing runs of the new machine cost $5,000. What is the cost of the machine?
78,400
allowance for bad debts
A contra asset account, related to accounts receivable, that holds the estimated amount of uncollectible accounts.
allowance method
A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period.
Relative-Market-Value Method
A method of allocating the total cost (100%) of multiple assets purchased at one time. Total cost is divided among the assets according to their relative market values.
Cost Principle
A principle that states that acquired assets and services should be recorded at their actual cost.
Which of the following statements are true regarding receivables?
A receivable can include a loan of money to another party Receivables involve two parties—a creditor and a debtor A receivable can be listed as either a current asset or a long-term asset
Smart Touch Learning paid a combined purchase price of $560,000 for land and a building. An independent appraiser values the land at $50,000 and the building at $300,000. What should Smart Touch Learning record for the cost of the land and the building?
A. Land $80,000; Building 480,000
Trade marks
An asset that represents distinctive identifications of a product or service -Nike "swoosh" -slogans
intangible asset
An asset with no physical form that is valuable because of the special rights it carries.
copyright
An exclusive right to reproduce and sell a book, musical, film, or other work of art or intellectual property -includes computer programs -life of the creator + 70 years
Patent
An intangible asset that is a federal government grant conveying an exclusive 20-yr right to produce and sell a process, product, or formula
intangible asset: Indefinite life
Do NOT have and legal stipulations that limit the time of its usefulness
goodwill
Excess of the cost of an acquired company over the sum of the market values of its net assets (assets minus liabilities).
estimated residual value
Expected cash value of an asset at the end of its useful life. Also called salvage value.
special features of goodwill
It is recorded by an acquiring company when it purchases another company for more than the market value of the net assets acquired, goodwill is not amortized - a company never records goodwill for its own business
Asset Turnover Ratio
Measures how efficiently a business uses its average total assets to generate sales. Net sales / Average total assets.
license
Privilege granted by a government to use public property in performing services.
Debtor
The party to a credit transaction who takes on an obligation/payable.
creditor
The party who receives a receivable and will collect cash in the future.
factoring receivables
The practice of selling accounts receivable to a third party at a discount. The third party attempts to collect the accounts and keeps the money
depletion
The process by which businesses spread the allocation of a natural resource's cost over its usage.
How is a lump-sum purchase accounted for?
The total cost of the multiple assets purchased is divided among the assets according to their relative market values
natural resources
an asset that comes from the earth and is consumed
The process by which businesses spread the allocation of a plant asset's cost over its useful life is called
depreciation
Which of the following depreciation methods best applies to those assets that generate greater revenue earlier in their useful lives?
double declining method
The direct write-off method is mainly used by large public companies to account for uncollectible accounts.
false
extraordinary repair
generates a capital expenditure because it extends the assets life past the normal expected life
Half-Month Convention
if an asset is purchased on or before the 15th of the month, it is depreciated for the whole month -if it is purchased after the 15th it is recorded the following month
An impairment loss is recorded
in the period the decline is identified
capital expenditures
increase the asset's capacity or efficiency of a plant asset or extends the asset's useful life
Major Company purchased equipment to be used in its distribution center. All of the following should be included in the cost of the equipment EXCEPT for: A. employee training costs before the equipment is placed in service. B. insurance costs after the equipment is up and running. Your answer is correct. C. insurance while in transit. D. wages of workers who test the equipment before it is placed in service.
insurance costs after the equipment is up and running.
The entity that signs the promissory note and promises to pay the required amount is the ________.
maker of the note
Recording depreciation for a plant asset conforms to which accounting principle/assumption?
matching principle
Franchise
privilege granted by a business to sell a product or service under specified conditions -mcdonalds locations
Revenue Recognition Principle
requires companies to record revenue when it has been earned.
A depreciation method in which an equal amount of depreciation expense is assigned to each year of the asset's use is the
straight line method
A limitation of the direct write-off method is that it violates the matching principle by not recording the bad debts expense in the same fiscal period as the related revenue.
true
A receivable is a monetary claim against a business or an individual.
true
The allowance method for recording uncollectibles is allowed by Generally Accepted Accounting Principles.
true
The days' sales in receivables indicates the number of days it takes to collect the average level of accounts receivable.
true
obsolete
when a newer asset can preform the job more effieciently
A company reports net accounts receivable of $152,000 on its December 31, 2019 balance sheet. The Allowance for Bad Debts has a credit balance of $19,000. What is the balance of Accounts Receivable?
$171,000
The Allowance for Bad Debts has a credit balance of $8,000 before the adjusting entry for bad debts expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the aging-of-receivables method, the company's management estimates that uncollectible accounts will be $17,000. What will be the amount of Bad Debts Expense reported on the income statement?
$9,000 $17,000-$8,000=9,000