ACC 111 exam 3

Tops Co. purchases equipment for $12,000 and has been using straight-line depreciation, estimating a 5-year life and $500 salvage value. At the beginning of the third year, Tops decides to use the equipment for a total of 6-years with no salvage value. Compute the revised depreciation for the third year.

$1,850 Reason: (12,000-500)/5=2,300 per year. $2,300 x 2 years = $4,600 depreciation taken. Book value at beginning of year 3 = $12,000-4,600= $7,400/4 = $1,850.

On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.

$1000 Reason: This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.

On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.

$1400 Reason: (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation The partial year depreciation should be recorded for seven months (June 1- December 31).

Leo Co. uses the allowance method to account for bad debts. At the end of the year, Leo Co.'s accounts receivable balance is $25,000; allowance for doubtful accounts balance of $100 (credit); and sales of $500,000. Based on history, Leo estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$400 $25,000 x 2% = $500 desired ending balance in the allowance account. Subtract the beginning credit balance to determine the amount of the adjusting entry. $500 - $100 = $400.

Seven Co. owns a coal mine with an estimated 1,000,000 tons of available coal. It was purchased for $300,000 and has $50,000 salvage value. During the current period, Seven mined and sold 200,000 tons of coal. Depletion expense for the period will be how much?

$50,000 Reason: (300,000 - 50,000)/1,000,000 x 200,000 = 50,000.

Yates Co. uses the allowance method to account for bad debts. At the end of the period, Yate's unadjusted trial balance shows an accounts receivable balance of $10,000; allowance for doubtful accounts balance of $400 (credit); and sales of $500,000. Based on history, Yates estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of:

$5000

Revise depreciation formula

(Book value-revised salvage value)/revised remaining useful life

Depletion per unit

(cost - salvage value) / total units of capacity

Determining depreciation formula

(cost - salvage value) / useful life

Accounting for Contingent Liabilities

1. Record Liability: Future event is probable and amount owed can be reasonable estimated. 2. Disclose in notes: Future event is reasonably possible 3. No disclosure: Future event is remote

Daley Co. owns a mineral deposit with an estimated 600,000 tons of available ore. It was purchased for $300,000 and has no salvage value. During the current period, Daley mined and sold 40,000 tons of ore. Depletion expense for the period will be how much?

20,000 Reason: $300,000/600,000 x 40,000=20,000

Multi-period known liability

A known liability that extends over multiple periods.

Estimated liability

A known obligation of an uncertain amount that can be reasonably estimated

Known liability

A measurable obligation arising from agreements, contracts, or laws

A liability created by buying goods or services on credit is typically recorded to

Accounts Payable

On September 1, Horn Co. accepted a 60-day, 5% note in the amount of $3,000 from a customer. On the due date of the note, the customer dishonors the note and fails to pay. The journal entry that Horn would make on the due date would include debit to:

Accounts Receivable for $3,025 Reason: Interest = $3,000x.05x(60/360)=$25. Accounts receivable is debited for $3,025, for the note plus the interest.

Ella Co. owns a mineral deposit and recognizes $15,000 of depletion expense during the period. This entry will be recorded with a credit to:

Accumulated Depreciation- Mineral Deposit

Revenue expenditures

Additional cost of plant assets that don't materially increase the asset's life or capabilities

Land improvements

Additions to land, have limited useful lives (walkways, fences)

A company has $150,000 of credit sales during the year and estimates that $1,000 of its accounts receivable will be uncollectible. The adjusting entry will include a credit to:

Allowance for Doubtful Accounts

Control Account

Appears in the general ledger and is supported by information in a separate subsidiary ledger

Natural Resources

Assets that are physically consumed when used, such as mineral deposits and oil and gas fields

Plant assets

Assets used in a company's operations that have a useful life of more than one accounting period

On August 1, Harris Co. determines that it cannot collect $200 from its customer, L. Dash. Harris Co. uses the direct write-off method, so they will record the write-off of this account by debiting:

Bad Debt Expense

Some expenses that would be considered revenue expenditures related to a company vehicle:

Car wash Oil change Dent repair

On January 1, JC Co. accepted a 60-day, 6%, note in the amount of $10,000 from a customer. On March 2, the due date of the note, the customer honors the note and pays in full. The journal entry that JC would make to record the receipt of payment of this note would include a debit to:

Cash in amt of $10,100 Reason: Cash will be debited for $10,100. $10,000 x .06 x (60/360)=$100. $10,000+$100=$10,100.

Reasons a company may convert receivables before the due date

Company doesn't want to deal with collecting receivables Company needs cash

On February 15, Symth Co. determines that it cannot collect $500 owed by its customer, A. Winds. Symth records the loss using the direct write-off method. This entry to record the write-off on February 15 would include a:

Credit to Accounts Receivable Debit to Bad Debts Expense Reason: Under the direct write-off method, Bad Debts Expense would be debited when the account becomes uncollectible. Accounts receivable is credited to reduce it

Amt withheld from employee's earnings for employee income tax is considered a __________ by the employer until govt is paid

Current liability

Patel Paving collected $1,000 cash in advance from a customer to provide paving services next month. The entry to record this cash receipt would include the following entries?

Debit to Cash Credit to Unearned Paving Fees

Star Co. reported $10,000 of net income during the month of January. Star estimates that it owes income taxes of $2,000 for the month. The month-end adjusting entry to record this estimate would require which of the following entries?

Debit to Income Tax Expense Credit to Income Taxes Payable

Depletion expense formula

Depletion per unit x units extracted and sold in period

__ is the process of allocating the cost of a plant asset to expense while it is in use.

Depreciation

Method of accounting for bad debts records the loss from an uncollectible account receivable when it's determined to be uncollectible. No attempt is made to predict bad debts expense

Direct write-off

Simar Sales Co. sells and installs kitchen appliances. Simar guarantees parts and labor for one year after installation. Simar would record potential claims in a(n) ____________ account

Estimated Warranty Liability

Patent

Exclusive right granted to its owner to manufacture and sell and item or use a process for 20 years

Ordinary repairs

Expenditures that keep an asset in good operating condition. Necessary if an asset is to perform to expectations over its useful life.

Betterments

Expenditures to make a plant asset more efficient or productive; also called improvements. Don't always increase an asset's useful life

Each month, a corporation will accrue income taxes based on the month's earnings. To record the income tax for the month, the company will debit the Income Tax Expense account and credit the _____________ account

Income Taxes Payable

Times Interest Earned Ratio

Income before interest expense and income taxes/Interest expense

Kaiven Company accepted a $12,000, 60-day, 6% note on December 21 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 would include a debit to:

Interest Receivable for $20. Interest receivable would be debited, interest revenue credited Need to record interest from December 21 to December 31 which is 10 days. $12,000 x .06 x (10/360) = $20.

Bryne Co. sells merchandise and collects a 5% state sales tax. The tax is recorded on Bryne's general ledger as a(n) ___________ account

Liability Sales tax payable is a liability account

On December 31, Briar Co. disposed of a piece of equipment that cost $6,000 with accumulated depreciation of $4,500. The entry to record this disposal would include a debit to which account and for how much?

Loss on Disposal of Equipment for $1,500

Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the _________ account

Machinery

________ of the note is the one that signed the note and promised to pay at maturity. ___________ of the note is the person to whom the note is payable

Maker Payee

Brice Co. purchases land in order to drill oil. This oil field would be classified as a(n) _________________ on the balance sheet

Natural resource

Total asset turnover

Net sales/Average Total Assets

Intangible Assets

Nonphysical assets used in operations that give companies long-term rights or competitive advantages

__________ assets purchased as a group in a single transaction for a lump-sum price are allocated the purchase price based on their relative market values

Plant

2 methods company can use to convert receivables to cash before they're due

Pledging them Selling them

Contingent liability

Potential obligation that depends on a future event arising form a past transaction or event.

For a contingent liability to be recorded as a journal entry, it must be

Probable and Reasonable Estimable

Amortization

Process of intangible assets being expensed over their useful lives; like depreciation for intangibles

The cost at which a company records purchases of machinery and equipment should include which of the following?

Purchase price Shipping fees Installation Taxes

Allowance method of accounting for bad debts

Records estimated bad debts expense in the period when related sales are recorded.

Direct write-off method of accounting for bad debts

Records the loss from an uncollectible account receivable when it's determined to be uncollectible. No attempt is made to predict bad debts expense

To record a customer's check in full payment for a sale that was made the prior month, the company should debit the __________ account

Sales

Warranty

Seller's obligation to replace or fix a product/service that fails to perform as expected within a specified period.

Accounts receivable ledger

Supplementary record created to maintain a separate account for each customer

A fully depreciated asset that is sold is recognized as a gain on sale of a plant asset.

True

Contingent liabilities can't be recorded for future events

True

Employers must pay employee taxes in addition to those paid by the employees. Which of the following is paid only by the employer?

Unemployment

Aging of receivables method of estimating bad debts

Uses both past and current receivables information to estimate the allowance amount. Each receivable is classified by how long it is past its due date.

Abby Co. allows each employee two weeks of paid time off during each calendar year. Since employees are working for 50 weeks, rather than 52 weeks, Abby must accrue the paid time off during the 50 weeks that the employees work. The year-end adjusting entry is recorded as a credit to the ____________ account

Vacation Benefits Payable

Form 941, which employers use to report FICA and income tax information to the IRS is due:

Within one month after the end of each calendar quarter

Promissory note

Written promise to pay a certain specified amount of money

On March 14, Ian Co. accepted a 180-day, 5% note in the amount of $1,000 from Ali Co., a customer. On the due date of the note, Ali dishonors the note. The journal entry that Ian would record on the due date would include a:

credit to Interest Revenue for $25. credit to Notes Receivable for $1,000. debit to Accounts Receivable - Ali for $1,025. $1,000 x (180/360) x .05 = $25 interest. When a note is dishonored, the full amount due (note receivable plus the interest) is debited to accounts receivable.

Purchase of a group of plant assets for one prices is called

lump-sum

Employee income tax depends on:

number of employee withholding allowances employee's income

Interest

principal x rate x time

Bonus plan

when an employer provides employees with a percentage of the company's net income earned during the year.