Chapter 7

Noon, Inc. determined that a $16,000 receivable from Srinvasan was uncollectible and the account was written off on August 15. On November 7, Srinivasan paid Noon the entire unpaid balance of $16,000. The effect of collecting the previously written off Srivanas account on the Noon's net income is

$0.00 Only asset accounts are affected when a previously written off account is collected.

At June 30, Lopez, Inc. determines that approxmately 1% of its $300,000 accounts receivable balance will ultimately prove to be uncollectible. Lopez has an $800 credit balance in the Allowance for Doubtful Accounts at June 30 before any needed adjusting entry. As a result of this information, Lopez's income will (increase/decrease) _____________________ by $__________________.

$2,200

Which item typically is recorded by the bank but not yet recorded by the depositor

A. NSF check NSF checks are typically recorded by the bank but not yet recorded by the depositor

On July 10, Yang concludes that a $24,000 receivable due from Jones, Inc. is uncollectible. Yang will credit _______________ _________________________ to write off the receivable

Accounts Receivable

Which of the following are widely used nonbank credit cards A. American Express B. Discover C. Mastercard D. Visa

Answer A. American Express B. Discover

Srinvasan, Inc. owns 500 shares of Campbell inc. common stock. Campbell pays $1.75 per share as a dividend. Srinivasan will credit ___________________________ ____________________________ for $ ______________________________ .

Answer Dividend Revenue for $875

Food Service Distributors, Inc. accepts a 90 day, 8% note receivable for $75,000 on September 1 in exchange for an account receivable due from Fresh Food, Inc. Food Service Distributors prepares financial statements ( and makes adjusting entries) quarterly. The effect of this transaction on food service distributor's net income for the quarter ended September 30 is an increase of $500.

Answer $500 $75,000 * .08 = $6,000 a year $6,000/12 = $500 a month From september 1 to september 30 = 1 month so, $500

Food Service Distributors accepts a 90 day 8% note receivable for $75,000 on September 1 in exchange for an account receivable due from Fresh Foods, Inc. The effect of this transaction on Food Service Distributor's net income on September 1 is $_____.

Answer: $0.00 The loan and effect dates are the same

Food Service Distributors, Inc. accepts a 90 day, 8% note receivable for $75,000 on September 1 in exchange for an account receivable due from Fresh Foods, Inc. Food Service Distributors prepares financial statements quarterly. The effect of this transaction on Food Service Distributor's net income for the quarter ending September 30 is an increase of $______.

Answer: $500 loan: $75,000 * .08(rate) / 12 months = $500 a month.

In order to be considered a cash equivalent, an investment must: A. Be very safe B. Have a very stable market value C. Be in Domestic securities D. Mature within 180 days of the date of the acquistions

Answer: A. Be very safe B. Have a very stable market value Not C. Not D. A cash equivalent must mature within 90 days of the date of acquisition.

Which items are typically included as part of a company's cash balance? A. Checks B. Traveler's checks C. Money Orders D. bank deposits E. High quality corporate bonds F. High quality stocks

Answer: A. Checks B. Traveler's Checks C. Money Orders D. Bank Deposits

The principle source of a company's daily receipts is the A. Collections of accounts receivable B. Issuance of debt C. Issuance of stock D. Receipt of interest and dividends from investments

Answer: A. Collections of accounts receivable

The most common method for estimating the probable amount of uncollectiable accounts is based on ______________ the accounts receivable

Answer: Aging

A bank statement includes: A. a balance at the beginning of the month B. Checks paid during the month. C. Deposits during the month D. A balance at the end of the month. E. Sales on account during the month

Answer: All but D.

When a company estimates its uncollectible accounts, which of the following is recorded?

Answer: An expense

The primary object of bank reconciliation is to A. Ensure that the bank has not made any errors B. Compute the correct balance for the Cash Account C. Determine whether the company has any outstanding borrowings with the bank D. Determine whether the return on the company's cash balance is reasonable.

Answer: B. Compute the correct balance for the cash account.

A compensating cash balance should be shown in the balance sheet as A. A current liability B. A noncurrent asset C. A current asset as part of the cash balance D. A current asset as part of the short-term investments balance.

Answer: C. A current asset as part of the cash balance

Marketable securities generally consist of A. Investments in gold and other precious metals B. Investments in land C. Investments in common stock of public companies D. Investments in bonds

Answer: C. Investments in common stock of public companies D. Investments in bonds

Available for sale marketable securities are presented in the balance sheet at A. Their net realizable value B. The cash paid for them C. Their Current market value D. Their historic cost

Answer: C. Their current market value

Which of the following are advantages to the merchant of making sales through credit card companies? A. An account receivable subsidiary ledger is maintained B. Selling prices are higher C. Cash is received more slowly D. Uncollectible accounts expense is avoided.

Answer: D. Uncollectiable accounts expense is avoided.

At June 30, Lopez, Inc., determines that approximately 1% of its $300,000 accounts receivable balance will ultimately prove to be uncollectiable. Lopez has an $800 credit balance in the Allowance for Doubtful Accounts at June 30 before any needed adjusting entry. As a result of this information, Lopez's income will (increase/decrease) ____________________ by $________________________.

Answer: Decrease by $2,200

If the amount written off as uncollectible are greater than the estimated amount, then the prior period's net income is ________________________(higher/lower) thanit would have been if the estimation process were more accurate.

Answer: Higher

If the amounts written off as uncollectible turn out to be less than the estimated amount, the Allowance for Doubtful Accounts will show a(n) __________________ balance

Answer: credit

Stein, Inc. uses the aging of receivables method to determine the balance in the Allowance for Doubtful Accounts. At September 30, Stein has $1.2 million of accounts receivable, distributed within aging categories as follows: not yet past due: $900,000; 1-30 days past due: $180,000; 31-60 past due; $60,000; 61-90 days past due: $40,000; and over 90 days past due: $20,000. The percentages considered uncollectible in each category are not yet past due: 1.5%, 1-30 days past due 3%; 31-60 days past due: 5% 61-90 days past due: 25% and over 90 days past due 75%. Stein has a credit balance in the allowance account at September 30 of $2,000. The adjustment to fairly state the Allowance for Doubtful Accounts at September 30 is $___________________________.

Answer: $44,900 Estimated uncollectible amount 46,900 -2000 credit balance = 44,900

The cash balance in Eulerich, Inc. October 31 general ledge is $76,500. The October bank statement sent by the bank indicates that Eulerich has a cash balance of $68,000 on October 31. Other information is as follows: 1. a deposit for $10,000 made on October 31 does not appear on the bank statement 2. The checks issues during October that have yet to clear the bank total $1,700 3. The bank service charges during October are $200 Eulerish adjusted cash balance at October 31 is

Answer: $76,300 $68,000 (beg bank balance)+$10,000 (deposits)-$1,700= $76,300 or $ 76,500 (general ledge balance)-$200 (bank service charges) = $76,300

Which of the following are widely used bank credit cards: A. Visa B. Discover C. MasterCard D. American Express

Answer: A and C A. Visa C. Mastercard

The objectives of cash management include: A. Anticipating borrowing needs and ensuring that adequate amounts of cash are available B. Preventing or minimizing losses due to theft or fraud C. Growing the cash balance to be as high as possible D. Providing accurate accounting for cash receipts cash disbursement and cash balances

Answer: A,B, and D not C.

Noon, Inc. determined that a $16,000 receivable from Srinvason Ltd was uncollectable and the account was written off August 15. On November 7, Srinvasan paid noon the entire unpaid balance of $16,000. The effect of collecting the previously written-off Srinvasan account on Noon's Allowance for Doubtful Account is a(n) increase/decrease of $16,000.

Answer: Increase of $16,000

The cash balance in Wood, Inc. April 30 general ledger is $47,000. The April bank statement sent by the bank indicates that Wood has a cash balance of $49,200 on April 30. Other information is as follows: 1. April bank service charges total $300. 2. Interest earned on Wood's cash account is $75. 3. A note due Wood was collected by the bank in the amount of $1,200 4. A check deposited by Wood in the amount of $450 was returned NSF 5. Checked issued but still outstanding total $1,675.

Answer: $47,525 reconcile account general ledger balance $47,000 - 300 + 75 + 1200 + 450 = 47525 bank balance $ 49200 - 1675 = 47525

Ladd, Inc. bought 400 shares of Dey, LLC for $20 per share and incurred brokerage commissions of $100. Ladd later sold its stake in Dey for $22 per share and incurred brokerage commisssions of $175. The effect of the sale on Ladd's income is a(n) increase/decrease ___________________ of $_____________

Answer: Increase of $525

In determining the adjusting entry needed for the Allowance for Doubtful Accounts, what information is most important? A. The ending balance of Accounts Receivable B. The current balance in the Allowance for Doubtful Accounts C. The estimate of uncollectible accounts D. The amount of sales for the period.

Answer: B, C B. The current balance in the Allowance for Doubtful Accounts C. The estimate of uncollectible accounts

Lopez, Inc. bought 300 shares of Carter, Inc. common stock for $12 per share. Brokerage commissions were $90. Lopez later sold its shares in Carter for $11.25 per share, and brockerage commissions on the sale were $75. The effect of the sale on Lopez's net income is a(n) ___________________________ (increase/decrease) of $________________________.

Answer: decrease of $390 12-11.25= .75 * 300= 225(loss) on stock plus 75+90 fees=165 so, 225(loss)+165(fees) = $390 (loss) decrease

Henderson, Inc. buys 400 shares of Grabowski Inc. at $10,200 on March 31. Henderson treats its investment in Grabowski as available for sale marketable securities. On December 31, the market price of each share of Grabowski is $27 per share. Henderson's net income would. A. Decrease by $10,200 B. See no change C. Increase by $10,800 D. Increase by $600

B. See no change Changes in the value of available for sale marketable securities directly effect the stockholder's equity section of the balance sheet without affecting the net income.

Cash is reported in which location in the balance sheet? A. The first item listed among noncurrent assets B. The first item listed amoung current assets C. The last item listed among noncurrent asssets D. The last item listed among current assets

B. The first item listed among current assets

Cash is carried in the balance sheet at A. Its net realizable value B. Its fair market value C. the lower of cost of market D. Its face amount

D. Its face amount

An agreement made by a bank to lend money to a business up to a specific limit is known as a ___________________ A.Note Payable B. Account Payable C. Accrued Liability D. Line of credit

D. Line of credit

The party that receives the note (i.e. whom the payment is to be made) is referred to as the A. Borrower B. Maker C. Debtor D. Payee

D. Payee

True or False: The Allowance for Doubtful Accounts has a normal credit balance

True

True or false: Transactions where a customer uses a bank credit card (e.g. Visa, Mastercard) are considered cash sales

True: Drafts signed by customers using a bank credit card are considered cash sales

The cash balance in Eulerich, Inc., October 31 general ledger is $76,500. The October bank statement sent by the bank indicates that Eulerich has a cash balance of $68,000 on October 31. Other information is as follows: 1. A deposit for $10,000 made on October 31 does not appear on the bank statement. 2. Checks issued during October that have yet to clear the bank total $1,700. 3. Bank service charges during October are $200. Based on the information contained in the October bank reconciliation, Eulerich's net income would ______________________ (increase or decrease) by $________________________________-

answer: decrease by $200

On July 10, Yang Inc. concludes that a $24,000 receivable due from Jones inc., is uncollectible. As a result of writing off the Accounts receivable, Yang's net assets will change by ______________.

zero - 0 There is no effect on net assets from writing off an uncollectiable account receivable because both the accounts receivabe and the Allowances from doubtfu accounts are decreased by the same amount