Chapter 5 Lecture

Jefferson Company made a loan of $6,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of cash flow from operating activities that Jefferson would report in Year 1 and Year 2, respectively would be

$0, and $360.

Blain Company has $10,000 of accounts receivable that are current, $5,000 that are between 0 and 30 days past due, $3,000 that are between 30 and 60 days past due, and $800 that are more than 60 days past due. Blain estimates that 2% of the receivables that are current will be uncollectible, 5% of those between 0 and 30 days past due will be uncollectible, 10% of those between 30 and 60 days past due will be uncollectible, and 50% of those more than 60 days past due will be uncollectible. Just prior to recognizing uncollectible accounts expense, Blain's allowance for doubtful accounts account has a $100 positive balance. Assuming Blain uses the aging method to estimate uncollectible accounts expense, the amount of uncollectible expense will be

$1,050.

On September 1, Year 1, Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's Year 2 financial statements would be

$1,200 interest revenue and $1,800 cash inflow from operating activities.

At the beginning of Year 3 Omega Company had a $52,000 balance in its accounts receivable account and a $1,400 balance in allowance for doubtful accounts. During Year 3, Omega experienced the following events. (1) Omega earned $220,000 of revenue on account. (2) Collected $230,000 cash from accounts receivable. (3) Wrote-off $1,000 of accounts receivable as uncollectible. Omega estimates uncollectible accounts to be 4% of receivables. Based on this information, the amount of uncollectible accounts expense shown on the Year 3 income statement is

$1,240.

At the end of Year 1, Blain Company has $10,000 of accounts receivable that are current, $5,000 that are between 0 and 30 days past due, $3,000 that are between 30 and 60 days past due, and $800 that are more than 60 days past due. Blain estimates that 2% of the receivables that are current will be uncollectible, 5% of those between 0 and 30 days past due will be uncollectible, 10% of those between 30 and 60 days past due will be uncollectible, and 50% of those more than 60 days past due will be uncollectible. At the beginning of Year 1, Blain had a $1,000 positive balance in its allowance for doubtful accounts account. During Year 1 Blain wrote-off $1,100 of uncollectible receivables. Assuming Blain uses the aging method to estimate uncollectible accounts expense, the amount of uncollectible expense will be

$1,250.

At the beginning of Year 3 Omega Company had a $52,000 balance in its accounts receivable account and a $1,400 balance in allowance for doubtful accounts. During Year 3 Omega experienced the following events. (1) Omega earned $220,000 of revenue on account. (2) Collected $230,000 cash from accounts receivable. (3) Wrote-off $1,000 of accounts receivable as uncollectible. Omega estimates uncollectible accounts to be 4% of receivables. The December 31, Year 3 ending balance in the allowance for doubtful accounts account (balance after expense recognition) is

$1,640.

On December 31, Year 3, Alpha Company had an ending balance of $200,000 in its accounts receivable account and an unadjusted (current) balance in its allowance for doubtful accounts account of $300. Alpha estimates uncollectible accounts expense to be 1% of receivables. Based on this information, the amount of uncollectible accounts expense shown on the Year 3 income statement is

$1,700.

DeKalb Company made a loan of $6,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that DeKalb would report in Year 1 and Year 2, respectively would be

$270, and $90.

The following information was drawn from the inventory records of Alpha Company as of December, Year 2. Beginning inventory (purchased in Year 1) 200 Units @ $ 5 each Purchases made in Year 2 800 Units @ $ 8 each Units Sold 900 Units @ $ 12 each Which of the following is the amount of the gross margin shown on the Year 2 income statement assuming Alpha uses a LIFO cost flow method

$3,900

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the LIFO cost flow method, the balance in the inventory account after the sales transaction will be

$30.

At the beginning of Year 3 Omega Company had a $52,000 balance in its accounts receivable account and a $1,400 balance in allowance for doubtful accounts. During Year 3 Omega experienced the following events. (1) Omega earned $220,000 of revenue on account. (2) Collected $230,000 cash from accounts receivable. (3) Wrote-off $1,000 of accounts receivable as uncollectible. Omega estimates uncollectible accounts to be 4% of receivables. Based on this information, the amount of net realizable value of receivables shown on the Year 3 balance sheet is

$39,360.

At the end of the accounting period Anderson Company had $4,500 in accounts receivable and $500 in its allowance for doubtful accounts account. Based on this information the net realizable value of accounts receivable is

$4,000

The following information was drawn from the inventory records of Alpha Company as of December 31, Year 2. Beginning inventory (purchased in Year 1) 200 Units @ $ 5 each Purchases made in Year 2 800 Units @ $ 8 each Units Sold 900 Units @ $ 12 each Which of the following is the amount of the gross margin assuming Alpha uses a FIFO cost flow method?

$4,200

At the beginning of Year 3 Omega Company had a $52,000 balance in its accounts receivable account and a $1,400 balance in allowance for doubtful accounts. During Year 3 Omega experienced the following events. (1) Omega earned $220,000 of revenue on account. (2) Collected $230,000 cash from accounts receivable. (3) Wrote-off $1,000 of accounts receivable as uncollectible. Omega estimates uncollectible accounts to be 4% of receivables. The December 31, Year 3 unadjusted (current) balance in the allowance for doubtful accounts account (balance before expense recognition) is

$400.

At the beginning of Year 3 Omega Company had a $52,000 balance in its accounts receivable account and a $1,400 balance in allowance for doubtful accounts. During Year 3, Omega experienced the following events. (1) Omega earned $220,000 of revenue on account. (2) Collected $230,000 cash from accounts receivable. (3) Wrote-off $1,000 of accounts receivable as uncollectible. Omega estimates uncollectible accounts to be 4% of receivables. Based on this information, the December 31, Year 3 balance in the accounts receivable account is

$41,000.

On September 1, Year 1, Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's December 31, Year 1 financial statements would be

$600 interest revenue and zero cash flow from operating activities.

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the weighted average cost flow method, the amount of gross margin shown on the income statement will be

$9.

Ron Company experienced an accounting event that had the following effects on its financial statements. Balance sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. (3,300) = NA + (3,300) NA − 3,300 = (3,300) NA Which of the following events could have caused these effects?

All of the answers describe events that could have caused the effects shown in the statements model.

Barron Company accepts a credit card as payment for $1,200 of services provided to a customer. The credit card company charges a 5% handling fee for its collection services. Select the answer that shows how the entry to recognize the event would affect Barron's financial statements.

Assets will increase by $1,140. Revenue will increase by $1,200. Expenses will increase by $60.

Forest Beach Company experienced an event that had the following effects on its financial statements. Balance sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. NA = NA + NA NA − NA = NA + IA Which of the following events could have caused these effects?

Collected cash for the principal balance of a note receivable.

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. When the Company sold one of the items for $40, it expensed $30 to its cost of goods sold account. Based on this information which of the following cost flow methods is the company using?

FIFO

Which of the following cost flow methods would provide the lowest amount of net income in an inflationary environment?

LIFO

A company will earn more profit from a cash sale than from a credit card sale.

True

Accrued interest revenue will appear on the income statement but not on the statement of cash flows.

True

Cash revenue generated from notes receivable appears in the operating activities section of the statement of cash flows but as a non-operating item on the income statement.

True

Which of the following is a cost of providing credit to customers?

Uncollectible accounts expense Determining customers credit worthiness Recording keeping and collection costs

Zane Enterprises accepts a credit card as payment for $500 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Based on this information

Zane will collect $480 cash from the credit card company.

In the video, uncollectible accounts expense is

estimated and recognized at the end of the accounting period.

Most companies expect to collect the full balance of all of their accounts receivable. This statement is

false

An aging schedule is used to improve the estimate used in the percent of revenue method of determining the uncollectible accounts expense. This statement is

false.

The recovery and collection of an account receivable that had previously been written off will

not affect total assets.

The balance in the allowance for doubtful accounts provides an estimate of the amount of accounts receivable that is expected to be uncollectible. This statement is

true

The cash flow associated with buying and selling inventory is not affected by the inventory cost flow method. This statement is

true

The net realizable value of accounts receivable represents an estimate of the amount of the accounts receivable that a company realistically expects to collect. This statement is

true

Many retail companies are motivated to incur credit costs because many customers are emotional buyers and offering credit generally leads to increases in sales revenue. This statement is

true.

The aging method of estimating uncollectible accounts is based on the assumption that the longer an account receivable remains outstanding, the less likely it is to be collected. This statement is

true.

In the video, recognizing the write-off of an uncollectible account receivable will

will not affect the total amount of the net realizable value of receivables.