Accounting Exam 3

$89100. 858,000+350+1400-130+1110+570

Bramble Company acquires land for $85800 cash. Additional costs are as follows: Removal of shed $ 350 Filling and grading 1400 Salvage value of lumber of shed 130 Broker commission 1110 Paving of parking lot 9800 Closing costs 570 Bramble will record the acquisition cost of the land as

NSF check When a company receives notice of an NSF check on the bank statement, the journal entry is a debit to Accounts Receivable and a credit to Cash. The company must also contact the customer who wrote the NSF check to communicate that the debt has not been settled.

Which adjustment to the book side of the bank reconciliation requires action beyond a journal entry?

Experimentation

Which costs related to creating new products are expensed as research and development when incurred?

Vendor's invoice

Which document does Phil Matthews, an accounts payable clerk for Abigail Industries, use to prepare a voucher?

Debit Accounts Receivable and credit Cash

Which journal entry recognizes that an NSF check had been deposited by a company and returned by their bank?

Land, land improvements, buildings, and equipment

Which of the following are considered subcategories of plant assets?

Treasury Bill, Accounts Receivable, Prepaid Insurance

Which of the following correctly lists assets from most to least liquid?

Maturity date

the due date

Allowance for Doubtful Accounts

A debit is made to Bad Debt Expense and a credit is made to _______ when making an adjusting entry to record estimated uncollectible accounts using the allowance method.

When a change in estimating depreciation occurs, the book value as of the day the change occurs must be calculated. By subtracting the salvage value from the cost of the truck and dividing by 10, the original yearly depreciation was $19,200 per year ($215,000 − 23,000) ÷ 10 = $19,200. Accumulated depreciation for the first five years of the useful life of the asset is $96,000 ($19,200 × 5). Book value on January 1, 2020, is $119,000 ($215,000 − 96,000). The revised remaining useful life is seven years, and the new depreciable cost is $98,000 ($119,000 − new salvage value of $21,000). Depreciation expense for 2020 is $14,000 ($98,000 ÷ 7).

Aledo Manufacturing utilizes a calendar year as its fiscal year and depreciates plant assets using the straight-line method. On January 2, 2015, the company purchased a semi-truck for $215,000 with a useful life of 10 years and an estimated salvage value of $23,000. On January 1, 2020, the company decided to extend the useful life to 12 years while decreasing the estimated salvage value to $21,000. What amount of depreciation expense did Aledo record for the year ended December 31, 2020?

Independent internal verification

Although strong systems may exist regarding inventory, a year-end physical count is used to verify the records of a perpetual inventory system. This is an example of which type of internal control?

cash disbursement transactions. An employee authorized to sign checks should not have the responsibility to record cash disbursement transactions.

An employee authorized to sign checks should not record

$179900 174,800+1,700+900+2500=179,900

Bramble Clinic purchases land for $174800 cash. The clinic assumes $1700 in property taxes due on the land. The title and attorney fees totaled $900. The clinic has the land graded for $2500. What amount does Bramble Clinic record as the cost for the land?

Sale, exchange, or retirement

By what means can companies dispose of plant assets?

$140.00 Interest accrued at fiscal year-end is based on the 3-month period from the date of issuance (August 1) through the year-end (October 31) as follows: [$8,000 × 0.07 × (3/12) = $140].

On August 1, 2020, Whicker Company receives a 7%, 8-month note receivable of $8,000 from one of its customers. What amount of interest revenue will Whicker report on its income statement for the fiscal year ended October 31, 2020?

$16700 $14800 + $1900 = $16700. (Total estimated uncollectible amount + Allowance for doubtful account debit balance = Bad debt expense adjusted amount)

Using the percentage of receivables method for recording bad debt expense, estimated uncollectible accounts are $14800. If the balance of the Allowance for Doubtful Accounts is $1900 debit before adjustment, what is the amount of bad debt expense?

When a note receivable is not paid in full at maturity, it is no longer negotiable. Walker is still responsible for paying Brown the amount of the note plus interest. If Brown expects Walker to pay the amount due, it will transfer the debt to an accounts receivable account. If Brown does not expect to receive payment, it writes off the amount due to Allowance for Doubtful Accounts.

Walker Inc. wrote Brown Inc. a promissory note that it later dishonored. The face value of the note is $7,750. When recording the dishonor of the note, Brown should record a

$38400 40,200-3800+2000

Waterway's Blooms purchased a delivery van for $40200. The company was given a $3800 cash discount by the dealer, and paid $2000 sales tax. Annual insurance on the van is $900. As a result of the purchase, by how much will Waterway's Blooms increase its van account?

Accounts receivable

are amounts customers owe on account. They result from the sale of goods and services. Companies generally expect to collect accounts receivable within 30 to 60 days. They are usually the most significant type of claim held by a company.

Note receivable

backed up by a promissory note, for a fixed period of time, you borrowed some amount of time for a period of time

other revenues and gains or other expenses and losses on the income statement.

Gains and losses on the disposal of plant assets are reported as

Payee

the party to whom the money is owed, interest rate

Maturity Value

the total amount to be repaid

Maker

party who owes the money

income statement

Bad Debt Expense is reported on the ________ as an operating expense.

Time is a fraction

Days/Days in a year = 6/360

does not allow a grace period before interest is accrued.

A credit card holder will pay lower interest charges when the card company

simplification/ used in accounting

360 not 365 because of

Petty cash, cash on hand, cash in banks

Which of the following lists only items that should be included as cash on the balance sheet?

In order to attempt to match revenues with expenses, an estimate of uncollectible accounts must be made.

Why must uncollectible accounts be estimated?

the collection of a note receivable by the bank for the depositor. A credit memorandum notifies the depositor that the bank has deposited funds into the depositor's account; an example is the collection of a note receivable by the bank for the depositor.

A bank may issue a credit memorandum for

$10340. ($517000 × 0.02) = $10340. [(Net credit sales x estimated uncollectible %) + Allowance for doubtful accounts balance = Bad debt expense adjusted amount]

A company has total accounts receivable of $517000 for the year and it estimates that uncollectible accounts will be 2% of accounts receivable. If Allowance for Doubtful Accounts has a credit balance of $2100 prior to adjustment, its balance after adjustment will be a credit of

$11100. [($173000 - $25000) ÷ 10] × 9/12 = $11100. [((Cost - Salvage value) ÷ Useful life) x Fraction of a year = Depreciation expense]

A company purchased factory equipment on April 1, 2021 for $173000. It is estimated that the equipment will have a $25000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2021 is

If the company expects to use the restricted cash within the next year, it reports the amount as a current asset. When this is not the case, it reports the restricted funds as a noncurrent asset.

Argon Labs has a fund of restricted cash to cover decontamination costs related to the remodel of the storage area for radioactive isotopes in three years. Xenon Tech has a fund of restricted cash to cover worker's compensation claims that have payments due in three months. Which statement is true?

A negative cash balance represents an amount owed to the bank; it may arise from temporary reasons and quickly turn around to a positive balance.

Which of the following would be a current liability?

oustanding checks

Written and recorded by depositors, but not yet presented to bank for payment

First, find the depletion expense per barrel by dividing $8 million by 16 million barrels, which yields a result of $0.50 per barrel. Initial inventory capitalization would be $1.25 million. Cost of goods sold would be $1.00 million.

Beacon Petroleum purchased an operational oil well for $8 million and expects to extract 16 million barrels over the 10-year life of the well. Beacon estimated the well's salvage value to be zero. What is the firm's cost of goods sold for year 1 if it extracts 2.5 million barrels of oil and sells 2.0 million barrels of oil?

interest revenue; face value

Because ________ is not initially recognized, a note receivable is to be recorded at its ________.

liquidity; Cash

Because of its ________, Masters Company lists accounts receivable directly below ________ on the balance sheet.

an increase in accounts receivable and a corresponding decrease in cash.

Bella Epoch Fashion received notice that its bank had received an NSF check as part of their weekly deposit. What would be the result for Bella Epoch Fashion? It should journalize

Segregation of duties

Betty's Bakery is a start-up bakery that employs Betty, the owner, as well as one sales clerk, and one baker. Which cash receipt control may be hardest to enforce in this environment?

$24030. $20400 + $4890 - $100 - $1160 = $24030. (Cash balance per books + Notes receivable & interest collected by bank - Bank service charges - NSF check = Adjusted cash balance)

Bonita Company gathered the following reconciling information in preparing its August bank reconciliation: Cash balance per books, 8/31 $20400 Deposits in transit 800 Notes receivable and interest collected by bank 4890 Bank charge for check printing 100 Outstanding checks 12600 NSF check 1160 The adjusted cash balance per books on August 31 is

$24040. ($1202000 × 0.02) = $24040. [(Credit sales × Estimated uncollectible %) = Ending balance allowance for doubtful accounts]

Bonita Company provides for bad debt expense at the rate of 2% of accounts receivable. The following data are available for 2021: Allowance for doubtful accounts, 1/1/21 (Cr.) $ 12900 Accounts written off as uncollectible during 2021 10100 Ending accounts receivable 1202000 The Allowance for Doubtful Accounts balance at December 31, 2021, should be

Bad Debt Expense 25950 Allowance for Doubtful Accounts 25950 ($609000 × 0.05) - $4500 = $25950. (Credit sales x Estimated uncollectible %) - Credit Balance if Allowance for Doubtful Accounts = Adjusted amount)

Bonita Company uses the percentage of receivables method for recording bad debt expense. The accounts receivable balance is $609000 and credit sales are $2700000. Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry will Bonita Company make to record bad debt expense if the Allowance for Doubtful Accounts has a $4500 credit balance before adjustment?

$150,000 + $10,000 + $5,000 = $165,000. The total cost of land includes all costs incurred to make land ready for its intended use.

Calculate the total cost of land if the purchase price was $150,000; the real estate broker commissions were $10,000, and the demolition cost for the old building was $5,000.

Cash consists of coins, currency (paper money), checks, money orders, and money on hand or deposit in a bank or similar depository. NSF checks are a part of accounts receivable. Restricted cash is not readily available.

Cash reported on the balance sheet includes cash on hand, cash in banks, and

A salary advance to an employee, because it is not considered to be an "arm's length" transaction

Which of the following receivables would most likely be reported separately in a firm's financial statements, and why?

Money market funds and treasury bills are liquid enough to be reported as cash and cash equivalents.

Which of the following should be reported as cash and cash equivalents and why?

The retailer receives less cash from the credit card issuer as a result of accepting the card.

Which of the following statements about credit cards is true?

Cash is listed first in the current assets section.

Which of the following statements correctly describes the reporting of cash?

Total costs consist of the oil well, drilling rights, and site preparation costs. When the total ($11,000,000) is divided by the total expected yield, depletion of $2.50 per barrel results. Multiplying this rate by 625,000 barrels results in a depletion of $1,562,500. Subtracting the accumulated depletion from the total cost results in a book value of $9,437,500 after the first year.

Diversified Drilling purchased an oil well for $7,850,000. Additional costs included drilling rights of $1,350,000 and site preparation costs of $1,800,000. The salvage value was estimated to be zero. If 4,400,000 barrels are expected to be extruded over the next eight years, what is the book value of the oil well after the first year if 625,000 barrels of oil are extruded?

$30000. 151000+7400+21000=179400 179400-29400=150000 150000/5=30000

Equipment was purchased for $151000. Freight charges amounted to $7400 and there was a cost of $21000 for building a foundation and installing the equipment. It is estimated that the equipment will have a $29400 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

$57120. 292000+13600+39600=345200 345200-59600/5=57120

Equipment was purchased for $292000. Freight charges amounted to $13600 and there was a cost of $39600 for building a foundation and installing the equipment. It is estimated that the equipment will have a $59600 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be

$37760 96000+3300+10400=109700 109700-15300*2/5=37760

Equipment was purchased for $96000 on January 1, 2021. Freight charges amounted to $3300 and there was a cost of $10400 for building a foundation and installing the equipment. It is estimated that the equipment will have a $15300 salvage value at the end of its 5-year useful life. What is the amount of accumulated depreciation at December 31, 2022, if the straight-line method of depreciation is used?

Ordinary repairs are expenditures to maintain the operating efficiency and productive life of the asset. They usually are small amounts that occur frequently. Examples are motor tune-ups and oil changes, the painting of buildings, and the replacing of worn-out gears on machinery. Companies record such repairs as debits to Maintenance and Repairs Expense as they are incurred.

Expenditures that occur frequently during the period of plant asset ownership are classified as

Accounts Receivable

Factoring is the sale or transfer of ________ in order to raise funds.

Cash and cash equivalents consist of cash in bank, treasury bills, the petty cash fund, and the money market fund ($12,225 + $8,775 + $10,500 + $250 = $31,750).

Gallon Corporation has the following current assets. cash in bank 12,225 dollars treasury bills 8,775. supplies 11,180 money market fund 10,500 restricted cash 22,000 accounts receivable 6,010 petty cash fund 250 cash prepaid expense 5,485 inventories 3,825 total current assets for 80,250 dollars. What amount should Gallon report as cash and cash equivalents?

Restricted cash to be used within the next year is reported as current assets. The warranty claims, one-tenth of the workers' compensation claims, and the cleanup costs will all be paid within the next year ($22,500 + $200,000 + $1,500,000 = $1,722,500).

General Corporation has the following restricted cash items reported on its balance sheet dated December 31, 2020: Bonds to be paid in full on January 1, 2022 700,000 Warranty Claims to be paid during 2021 22,500 Workers compensation claims to be paid equally for the next 10 years 2,000,000 Cleanup costs due to asbestos removal to be completed by October 31, 2021 1,500,000 What amount of restricted cash should General Corporation report as current assets?

segregation of duties.

Having one person post entries to accounts receivable subsidiary ledger and a different person post to the Accounts Receivable Control account in the general ledger is an example of

segregation of duties; independent internal verification

Henry's Hobbies is a new retail business that has only three employees. Although the business uses prenumbered deposit slips and invoices, a lack of ________ and ________ could be major fraud risks.

At the maturity date of the note, it becomes non-negotiable and must be disposed of. At that time, either the note is paid in full, the maker defaults or the payee sells the note.

Honoring a note on its maturity date, selling a note to receive cash before the maturity date, and default by the maker are all methods of ________ a note receivable.

By debiting Interest Receivable and crediting Interest Revenue

How does the holder of a note adjust for accrued interest at the fiscal year-end?

add $72 to the book's balance. $491 - $419 = $72. (Incorrect amount recorded - Correct amount = Amount added to book balance)

If a check correctly written and paid by the bank for $419 is incorrectly recorded on the company's books for $491, the appropriate treatment on the bank reconciliation would be to

Mar 25-31 6 Apr 30 May 31 90- 67 23 June

If its stated in days, we gotta count: 90-day note issued on March 25,2022

Has a maturity date of June 25,2022

If its stated in months, then the maturity date is still the anniversary date but in months 3 month note issued on March 25,2022

Has a maturity date of March 25,2025

If its stated in years, then the maturity date of a note is simply the anniversary date 3 year note issued on March 25th,2022

When a specific customer's account is determined to be uncollectible

If the allowance method is used to account for uncollectible accounts, when is Bad Debt Expense debited?

$15990

In reviewing the accounts receivable, the cash realizable value is $15990 before the write-off of a $1510 account. What is the cash realizable value after the write-off?

Research and development costs of $400,000 are included on the income statement as an expense and legal fees of $50,000 are reported on the balance sheet as part of the Patents account. Research and development costs are recorded as an expense when incurred, and thus are reported on the income statement. Legal fees incurred for the successful legal defense of a patent are added to the Patents account which is an intangible asset and thus, reported on the balance sheet.

In the current year, Betz Company incurred $400,000 of research and development costs to develop a patent. It is estimated that these costs will be recouped at the end of 3 years. On August 1 of the current year, the patent was granted. On November 1, Betz Company paid $50,000 in legal fees in a successful defense of the patent. How should Betz Company report the research and development costs and legal fees for the current year?

do not have physical substance.

Intangible assets are the rights and privileges that result from ownership of long-lived assets that

physically extracted in operations and are replaceable only by an act of nature.

Natural resources are

Land improvements always have a limited useful life. As a result, companies expense (depreciate) the cost of land improvements over their useful life.

Land improvements are depreciated

Restricted cash to be used within the next year are reported as current assets. The warranty claims, one-tenth of the workers' compensation claims, and the clean-up costs will all be paid within the next year ($20,000 + $10,000 + $95,000 = $125,000).

Larson Brothers has the following restricted cash items reported on its balance sheet dated December 31, 2020: Bonds to be paid in full on January 15, 2022 500,000 Warranty Claims to be paid during 2021 20,000 Workers compensation claims to be paid equally for the next 10 years 100,000 Cleanup costs due to asbestos removal to be completed by June 15, 2021 95,000 What amount of restricted cash should Larson Brothers classify as current assets?

Trade receivables are the total of accounts receivable and notes receivable ($42,500 + $18,750 = $61,250).

Levy Industries has the following items listed on its most recent trial balance: $23,000 loan to the company's CEO $2,450 income tax refundable $42,500 accounts receivable $300 interest receivable $18,750 notes receivable $2,400 prepaid expenses What amount represents Levy's total trade receivables?

A loss occurs when the book value of the plant asset is greater than the selling price at the time of sale. For Luna's equipment, the book value at the time of sale was $23,000 ($65,000 − $42,000). Thus, the firm is taking a loss equal to the difference between the equipment's book value ($23,000) and its selling price ($20,000), or $3,000. ($23,000 − $20,000 = $3,000)

Luna Manufacturing operates on a fiscal year that ends on June 30. Luna Manufacturing purchased a large piece of production equipment on November 1, 2015, for $65,000. On July 1, 2020, when there was $42,000 of accumulated depreciation, Luna sold the equipment for $20,000. How should Luna record the details of the sale?

The percentage-of-sales method does not consider the balance in the allowance account before making the adjusting entry. Using the estimated percentage and multiplying this figure by net credit sales ($725,000 × 0.01 = $7,250) results in an adjustment of $7,250.

Matthews Company uses the percentage-of-sales method to estimate the Allowance for Doubtful Accounts. Before adjustment, the Allowance for Doubtful Accounts has a debit balance of $2,500. If net credit sales are $725,000 and Matthews estimates 1% of the net credit sales to be uncollectible, what will be the amount of the journal entry for the adjusting entry at year-end?

The cost of land includes the cash purchase price, closing costs such as title and attorney fees, real estate broker commissions, and accrued property taxes and other liens assumed by the purchaser. Companies record as debits (increases) to the Land account all necessary costs incurred to make land ready for its intended use. $250,000 + $1,500 + $1,000 + $2,200 = $254,700.

Morgan Farms purchased land for $250,000 cash. The company assumed $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The company had the land graded for $2,200. What is the total cost to be included in the Land account?

Subtracting the salvage value from the asset cost results in a $228,000 depreciable cost. Dividing this result by 40 results in annual depreciation of $5,700. Multiplying the yearly depreciation by 6.5 years (the time period from the date of purchase to December 31, 2020) results in accumulated depreciation of $37,050. Subtracting this figure from the original costs yields a book value of $202,950.

On July 1, 2014, Phillips Industries, whose fiscal year-end is December 31, purchased a building for $240,000. The building was expected to remain in service for 40 years. It is being depreciated using the straight-line method. If the expected salvage value was $12,000, what will be the book value of the building on December 31, 2020?

$22500 gain. 595000-110000/5=97,000 97000*6/12=48,500 350000+48,500=398500 595000-398,500=196,500 219,000-196,500=22500

On July 1, 2021, Hale Kennels sells equipment for $219000. The equipment originally cost $595000, had an estimated 5-year life and an expected salvage value of $110000. The accumulated depreciation account had a balance of $350000 on January 1, 2021, using the straight-line method. The gain or loss on disposal is

The journal entry would include a $20 ($1,000 × 0.02) debit to Service Charge Expense, a $980 ($1,000 − $20) debit to Cash, and a $1,000 credit to Accounts Receivable.

On March 17, Rollo's Antiques factors $1,000 of receivables to Arco Factor Company. Arco charges a service fee of 2% of the amount of receivables sold. The entry to record this transaction would include a

Fraud Triangle

Opportunity Financial Revenue Rationalization

Sarbanes

Oxley Act(SOX)

When there is no hope of collection, no interest revenue is recorded, and the face value of the note is written off by debiting Allowance for Doubtful Accounts.

Parker Inc. is the payee of a $5,000, 90-day, 12% note written by Kent Inc. and due on September 1. On that date, Kent dishonors the note, and Parker believes there is no hope of eventual collection. Given this situation, what accounting entry should Parker make on September 1?

The maintenance contract is expensed as Romero completes its work. The relevant costs to complete the parking lot include the paving and the lighting ($38,750 + $20,000 = $58,750).

Patrick Enterprises recently installed a parking lot. The paving costs were $38,750, and the lighting costs were $20,000. In addition, the company entered into a $1,000 annual agreement with Romero Cleaning to maintain the parking lot for three years. What is the total cost to be included in the Land Improvements account?

A loss must be recognized when a company discards an asset before it is fully depreciated. At the time of disposal, the asset and accumulated depreciation must be removed from the balance sheet. In this case, the loss is equal to the asset's book value ($11,250), which means the accumulated depreciation on the asset is equal to the original cost minus the current book value, or $100,000 − $11,250 = $88,750.

Premiere Corporation operates on a calendar year. Premiere Corporation purchased a piece of equipment on March 15, 2015, for $100,000. On January 1, 2020, Premiere discarded the equipment, even though its book value was $11,250. How should Premiere record the details of the equipment disposal?

pay off debt due three years from the balance sheet date.

Restricted cash reported as noncurrent would most likely be used to

1. Establishment of Responsibility 2. Segregation of Duties 3. Documentation Procedures 4.Physical Controls 5. Independent Internal Verification 6. Human Resource Controls

Six principles of control activities

Physical controls

Storing cash in a company safe is an application of which internal control principle?

years, months, or days

Term of a note can be stated in

a violation of establishment of responsibility.

Two individuals at a retail store work the same cash register. You evaluate this situation as

$92499. $91000 + $2300 - $660 - ($1130 - $940) + ($189 - $140) = $92499. [Cash account balance + Collection by bank - Customer's NSF check - (Incorrect amount of customer's check - Correct amount of check) + (Incorrect amount of company check - Correct amount of company check = Correct cash account balance]

The cash account shows a balance of $91000 before reconciliation. The bank statement does not include a deposit of $4700 made on the last day of the month. The bank statement shows a collection by the bank of $2300 and a customer's check for $660 was returned because it was NSF. A customer's check for $940 was recorded on the books as $1130, and a check written for $140 was recorded as $189. The correct balance in the cash account was

The company sells its receivables at a cost less than that of in-house processing.

Under which of the following circumstances is it possible for a company to eliminate its accounts receivable department?

independent internal verification.

The daily cash count of cash register receipts made by department supervisors is an example of

less than the book value.

The loss on disposal of a plant asset occurs when the proceeds from the sale are

July 11. The maturity date of a 90-day note dated April 12 is July 11 [18 days in April + 31 days in May + 30 days in June + 11 days in July].

The maturity date of a 90-day note dated April 12 is

$56840. $56000 + ($56000 × 0.09 × 60/360) = $56840. [(Principal x Interest rate x Fraction of a year = Interest); (Principal + Interest = Maturity value)]

The maturity value of a $56000, 9%, 60-day note receivable dated July 3 is

By signing a check and recording the decrease in cash, accounting personnel can make unauthorized purchases.

The potential for fraudulent activities is higher when the same employee is responsible for which duties in a voucher system?

combining of duties.

The principles of internal control include all of the following except

months.

The time factor in computing interest is the number of months divided by 12 when the due date of a note is stated in

documentation procedures.

The use of pre-numbered checks in disbursing cash is an application of the principle of

Face value and Principle

These two things are the same

Proceeds received - (Cost - Accumulated depreciation) = Gain on disposal of plant asset. Accumulated depreciation = $38,000 January 1 balance + $3,000 six months depreciation = $41,000. $22,000 − ($56,000 − $41,000) = $7,000 gain on disposal of plant asset.

Wells Company has a calendar year reporting period. On July 1, 2020, Wells Company's delivery truck, with an original cost of $56,000, was sold to Fargo Corporation for $22,000. January 1, 2020, the balance in the Accumulated Depreciation account was $38,000. Depreciation for the first six months of 2020 was $3,000. How much is the gain or loss on this sale?

Using the formula I = F × R × T where I is the amount of interest earned on the note, F is the face value of the note, R is the annual interest rate, and T is the time of the note in terms of one year, the interest rate can be determined by multiplying the face value and time [$2,500 × (60/360) = $416.67]. The formula is now $416.67 × R = $42. Dividing the interest by this amount (R = $42/$416.67) results in an interest rate of 10.1% (rounded).

What is the annual interest rate for a 60-day note issued with a face value of $2,500 that will earn interest of $42?

The book value of a plant asset is the difference between the cost of the plant asset and the accumulated depreciation to date.

What is the difference between the cost of the plant asset and the accumulated depreciation to date?

When a specific customer's account that has been previously written off under the allowance method is recovered, the company makes two entries. One reverses the write-off by debiting Accounts Receivable and crediting Allowance for Doubtful Accounts. The second records the collection by debiting Cash and crediting Accounts Receivable.

What is the effect of the collection of a specific customer account that had been previously written off under the allowance method of accounting?

They should employ internal auditors who in addition to providing audits could evaluate and improve the control systems for the company.

What would be the best internal control option for Sporting Good Apparel, Inc. which is a large national retail chain that sells athletic clothing, accessories, and equipment?

Research and development costs are generally expensed as incurred. When a company capitalized those costs, it overstates assets. The research and development expense will be understated causing net income to be overstated.

What would happen to assets and expenses if a company capitalized its research and development costs?

A debit to Bad Debt Expense is a means of matching sales revenue to related expenses. A credit to Allowance for Doubtful Accounts serves to reduce the cash realizable value to report the best estimate of the cash to be received in the future.

What would the adjusting entry involve when recording estimated uncollectible accounts using the allowance method?

By factoring its receivables to meet the payroll, Branch was able to appease the employees and keep the business afloat. Not meeting payroll would have most likely caused the employees to leave the company, with Branch going out of business.

When First National Bank informed Branch Company that the company had ________, Branch decided to sell its receivables to a factor to meet the current payroll. This factoring arrangement addresses the accounting characteristic or concept of ___________.

Credit card companies investigate credit of customers, maintain customer accounts, are responsible for collections, and absorb any losses due to customers' nonpayment.

When a customer pays for a purchase with a national credit card, the ________ is responsible for the collection process.

dishonored

When a note is not paid in full on the maturity date it is said to be

honored

When a note is paid in full it is

you are protected

When a service man (Air Condition, Plumber) is bended that means what

Deposit slip

When making a bank deposit, which document should accompany checks and currency?

a copy of the list of checks; record the journal entry

When processing the mail receipts, the accounting department should only have access to ________ since its function is to ______.

collusion.

When two or more people get together for the purpose of circumventing prescribed controls, it is called

debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts.

When using the allowance method, at the end of each accounting period a firm should record an adjusting entry for estimated uncollectible accounts. The entry will include a

Allowance for Doubtful Accounts; Accounts Receivable

When writing off an uncollectible account under the allowance method, ________ is debited, and ________ is credited at the end of the accounting period.

Used in the operations of the business

Which of the following is a characteristic of a plant asset?

Ordinary repairs are expenditures to maintain the operating efficiency and productive life of the asset. They usually are small amounts that occur frequently. Examples are motor tune-ups and oil changes, the painting of buildings, and the replacing of worn-out gears on machinery. These costs are often referred to as revenue expenditures. Replacing factory equipment with a newer model and purchasing a new factory that will increase output are considered capital expenditures. Real estate broker commissions are included in the cost of land and buildings and are considered a capital expenditure.

Which of the following is a revenue expenditure?

Treasury bills with a maturity date of 2 months from the balance sheet date

Which of the following is an example of a cash equivalent?

A retail store installs security cameras to prevent shoplifting because it deters many shoplifters but does not reduce sales by innocent customers.

Which of the following is an example of a control that provides reasonable assurance and why?

"Even though the assets are fully depreciated, you need to continue to report both the assets and their accumulated depreciation on the balance sheet to indicate that the assets are still owned and in use. However, you must be careful not to take any additional depreciation on the assets, because in no situation can the accumulated depreciation on an asset exceed its cost."

Your friend Pete owns a small business, and he is not sure how he should report fully depreciated assets that are still in use by the company. What advice should you offer to Pete?

Credit sales to customers; loans to company officers

________ are said to be at "arm's length," while ________ are to be reported separately in the financial statements.