accounting
Indicate whether the following statement is true or false. A benefit of accepting credit cards is that there is no cost to the merchant.
false
Indicate whether the following statement is true or false. Accumulated depreciation is classified as a current liability.
false
Rosewood Company made a loan of $11,000 to one of the company's employees on April 1, 2016. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report in 2016 and 2017, respectively would be:
$495, $165
Eureka Company issued $100,000 in bonds payable on January 1, 2016. The bonds were issued at face value and carried 5-year term to maturity. They had a 7% stated rate of interest that was payable in cash on January 1st of each year beginning January 1, 2017. Based on this information, the amount of total liabilities appearing on the December 31, 2016 balance sheet would be:
107000
Eureka Company issued $130,000 in bonds payable on January 1, 2016. The bonds were issued at face value and carried 5-year term to maturity. They had a 6% stated rate of interest that was payable in cash on January 1st of each year beginning January 1, 2017. Based on this information, the amount of total liabilities appearing on the December 31, 2016 balance sheet would be:
137800
Hancock Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $160,000 of revenue on account during 2016. During 2016, Hancock collected $128,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 1% of revenue on account. The amount of net realizable value of receivables on the December 31, 2016 balance sheet would be:
30400 ($0 beginning accounts receivable + $160,000 revenue on account - $128,000 collected = $32,000 ending accounts receivable; $0 beginning allowance balance + ($160,000 × 1%) uncollectible accounts expense = $1,600 ending allowance balance; net realizable value of receivables = $32,000 - $1,600 = $30,400)
A firm's operating cycle can be determined by:
Adding the average days in inventory to the average days in receivables.
When an uncollectible account receivable is written off, the amount of total assets is unchanged.
true
Which of the following terms is used to identify the expense recognition for intangible assets?
Amortization.
Which of the following describes the characteristics of a convertible bond?
Bonds may be exchanged for stock at the discretion of the bondholder.
The party who borrows money in a note payable is known as the
Both the Maker and the Issuer.
On June 1, 2016, Carolina Company collected a $24,000 note receivable that had been issued on June 1, 2015. The note carried a 6% interest rate. The interest revenue recognized on the maturity date is $1,440.
False
Houff Company uses the allowance method to account for uncollectible accounts. An account that had been previously written-off as uncollectible was recovered. How would the recovery affect the company's accounting equation?
Have no effect on assets, liabilities or equity.
What does the accounts receivable turnover ratio measure?
How quickly inventory turns into accounts receivable.
Burger Barn has been named as a plaintiff in a $5 million lawsuit filed by a customer over the addictive nature of the company's french fries. Burger Barn's attorneys have advised them that the likelihood of a future obligation from the suit is remote. As a result of the lawsuit, Burger Barn should:
Ignore the lawsuit in its financial statements.
Which one of the following is not an accurate description of allowance for doubtful accounts?
Income statement account
Franklin Company issued a $40,000 note to the Mercantile Bank on August 1, 2016. The note carried a one-year term and a 12% rate of interest. The adjusting entry on Franklin's books to record accrued interest expense on December 31, 2016 will
Increase liabilities and decrease equity by $2,000.
Houston Co. borrowed $20,000 from Dallas Co. on March 1, 2016. Houston is to repay the principal and interest on March 1, 2017. The interest rate is 8%. If the year-end adjustment is properly recorded, what will be the effects of the accrual on Houston's 2016 financial statements?
Increase liabilities and increase expenses
For a company that uses the allowance method, the write-off of an uncollectible account receivable is an asset use transaction.
false
Which of the following is not a significant difference between the allowance method and the direct write-off method of accounting for uncollectible accounts?
One method requires writing off of uncollectible accounts and the other does not.
Accounts receivable turnover is computed by dividing:
Sales by Accounts Receivable
Which one of the following is not an accurate description of the Allowance for Doubtful Accounts?
The account is a temporary account.
Which of the following is not considered a "cost" of financing credit sales?
The increased sales resulting from the extension of credit.
Which accounting concept can be used by some companies to justify the use of the direct write-off method of accounting for uncollectible accounts?
The materiality concept.
How do real-world accountants estimate bad debts expense?
all of the above
With the direct write-off method, writing off an account receivable is an asset use transaction.
true
What term is used to describe the situation where the value of an intangible asset may be significantly diminished?
impairment
On January 1, 2015, Li Company purchased an asset that cost $55,000. The asset had an expected useful life of five years and an estimated salvage value of $11,000. Li uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $5,500. Based on this information, the amount of depreciation expense to be recognized at the end of 2018 is:
$11,550. ($55,000 cost - $11,000 orig. salvage value)/5 years = $8,800 original annual depreciation expense; $55,000 cost - ($8,800 × 3 years) = $28,600 book value at the time of the revision; ($28,600 book value - $5,500 revised salvage value)/2 remaining years = $11,550 new annual depreciation expense.
On January 1, 2016, the City Taxi Company purchased a new taxi cab for $57,000. The cab has an expected salvage value of $16,000. The company estimates that the cab will be driven 200,000 miles over its life. It uses the units of production method to determine depreciation expense. The cab was driven 66,000 miles the first year and 69,000 the second year. What would be the depreciation expense reported on the 2017 income statement and the book value of the taxi at the end of 2017? (Do not round intermediate calculations.)
$14,145/$29,325. ($57,000 - $16,000)/200,000 miles = $.205/mile depreciation; 66,000 miles × $.205 = $13,530 depreciation expense in 2016; 69,000 miles × $.205 = $14,145 depreciation expense in 2017; $57,000 - ($13,530 + $14,145) = $29,325 book value at the end of 2017.
Hancock Medical Supply Co., which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts, earned $83,000 of revenue on account during 2016. During 2016, Hancock collected $66,200 of cash from its receivables accounts. The company estimates that it will be unable to collect 1% of revenue on account. The amount of net realizable value of receivables on the December 31, 2016 balance sheet would be:
$15,970.
Allegheny Company ended 2015 with balances in Accounts Receivable and Allowance for Doubtful Accounts of $23,000 and $900, respectively. During 2016, Allegheny wrote off $1,500 of Uncollectible Accounts. After aging its receivables, Allegheny estimates that the ending Allowance for Doubtful Accounts balance should be $1,600. What will Allegheny report as Uncollectible Accounts Expense on its 2016 income statement?
$2,200
Laramie Co. paid $1,200,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $234,000, Building, $754,000, and Office Furniture, $312,000. Based on this information the cost that would be allocated to the land is:
$216,000. $234,000/($234,000 + $754,000 + $312,000) = 18% of market value; $1,200,000 purchase price × 18% = $216,000.
Eureka Company issued $280,000 in bonds payable on January 1, 2016. The bonds were issued at face value and carried 5-year term to maturity. They had a 6% stated rate of interest that was payable in cash on January 1st of each year beginning January 1, 2017. Based on this information, the amount of total liabilities appearing on the December 31, 2016 balance sheet would be:
$296,800.
Rosewood Company made a loan of $7,400 to one of the company's employees on April 1, 2016. The one-year note carried a 6% rate of interest. The amount of interest revenue that Rosewood would report in 2016 and 2017, respectively would be:
$333, $111
On January 1, 2016 Ballard Company spent $23,000 on an asset to improve its quality. The asset had been purchased on January 1, 2015 for $60,000. The asset had a $15,600 salvage value and a 6-year life. Ballard uses straight-line depreciation. What would be the book value of the asset on January 1, 2019?
$39,600. ($60,000 cost - $15,600 salvage value)/6 years = $7,400 original annual depreciation; $60,000 - ($7,400 × 1 year) = $52,600 book value at the time of capital expenditure; ($52,600 book value + $23,000 capital expenditure - $15,600 salvage value)/5 years of remaining useful life = $12,000 new annual depreciation; $83,000 total cost of asset - $7,400 depr. in 2015 - $12,000 depr. in 2016 - $12,000 depr. in 2017 - $12,000 depr. in 2018 = $39,600 book value on 1/1/2019.
On January 1, 2016, Stiller Company paid $280,000 to obtain a patent. Stiller expected to use the patent for 5 years before it became technologically obsolete. The remaining legal life of the patent was 8 years. Based on this information, the amount of amortization expense on the December 31, 2018 income statement and the book value of the patent on the December 31, 2018 balance sheet would be:
$56,000/$112,000. Patents are amortized over the shorter of their legal or useful lives. $280,000 cost of patent/5 years = $56,000 annual amortization expense; $280,000 - ($56,000 × 3 years) = $112,000 book value.
Anchor Company purchased a manufacturing machine with a list price of $81,000 and received a 2% cash discount on the purchase. The machine was delivered under terms FOB shipping point, and freight costs amounted to $1,400. Anchor paid $1,800 to have the machine installed and tested. Insurance costs to protect the asset from fire and theft amounted to $2,200 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:
$82,580. $81,000 list price - ($81,000 × 2% discount) + $1,400 freight + $1,800 installation and testing = $82,580. The insurance cost is not included in the cost of the machine, but is instead expensed during the first year.
On January 1, 2015, Li Company purchased an asset that cost $45,000. The asset had an expected useful life of five years and an estimated salvage value of $9,000. Li uses the straight-line method for the recognition of depreciation expense. At the beginning of the fourth year of usage, the company revised its estimated salvage value to $4,500. Based on this information, the amount of depreciation expense to be recognized at the end of 2018 is:
$9,450.
Bonds payable are usually classified on the balance sheet as:
long-term liabilities.
Eureka Company issued $300,000 in bonds payable on January 1, 2016. The bonds were issued at face value and carried 6-year term to maturity. They had a 4% stated rate of interest that was payable in cash on January 1st of each year beginning January 1, 2017. Based on this information, the amount of total liabilities appearing on the December 31, 2016 balance sheet would be:
312000
Madison Company owned an asset that had cost $44,000. The company sold the asset on January 1, 2016 for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Based on this information, the sale would result in:
A $16,000 cash inflow in the investing activities section of the cash flow statement.
The year-end adjusting entry to accrue interest on a note receivable is an asset source transaction.
true
Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?
The outcome is probable and can be reasonably estimated.
The advantage of offering credit is it:
helps increase sales.
When an uncollectible account receivable is written off, the amount of total assets is unchanged
true
Which of the following would most likely not be expensed using the straight-line method?
a timber reserve
On January 1, 2016 Boothe Company paid $12,000 cash to extend the useful life of a machine. Which of the following general journal entries would be required to recognize this expenditure?
accumulated depreciation: 12000 cash 12000
How would accountants estimate the amount of a company's uncollectible accounts expense?
all of these are correct
Which of the following items would be least likely to appear in the current liabilities section of a classified balance sheet?
bonds payable
On a classified balance sheet, the financial statement user will be able to distinguish between:
current and noncurrent assets.
At the end of the current accounting period, Ringgold Co. recorded depreciation of $15,000 on its equipment. The effect of this entry on the company's balance sheet is to:
decrease owners' equity and decrease assets.
A company that uses the direct write-off method of accounting for uncollectible accounts must still prepare a year-end adjusting entry to estimate its uncollectibles.
false
A copyright is an intangible asset with an indefinite useful life.
false
A trademark is a tangible asset with an indefinite useful life
false
Accumulated Depreciation is a temporary account that is closed each year.
false
Chadwick Company's sales for 2016 were $8,700,000. Its accounts receivable were $801,000 at the end of the year. During 2016, Chadwick collected $8,400,000 on its accounts receivable. The accounts receivable turnover ratio for the year was 10.5.
false
Expenditures that extend the useful life of a plant asset are debited to the asset account.
false
Indicate whether the following statement is true or false. An accelerated depreciation method provides a lower depreciation charge in the early years of an asset's life cycle.
false
Indicate whether the following statement is true or false. The direct write-off method of accounting for bad debts requires the computation of net realizable value.
false
Indicate whether the following statement is true or false. The matching concept requires that assets be recorded at the amount paid.
false
Indicate whether the following statement is true or false. The recognition of an accrued interest revenue increases both equity and liabilities.
false
Indicate whether the following statement is true or false. The recognition of bad debt expense does not affect the net realizable value of accounts receivable.
false
One of the methods of accounting for bad debts is the direct write-off method. Indicate whether the following statement is true or false. The direct write-off method requires an advance estimate of anticipated bad debts
false
The adjusting entry to recognize uncollectible accounts expense does not affect the net realizable value of receivables.
false
The direct write-off method does a better job of matching revenues and expenses than does the allowance method.
false
The net realizable value of accounts receivable decreases when an account receivable is written off.
false
Title search and document costs incurred to purchase a building are expensed in the period the building is acquired.
false
When a customer's account, previously written off as uncollectible, is reinstated, the net realizable value of Accounts Receivable increases.
false
true or false: All lawsuits in which a company has been named a defendant should be either disclosed in the company's notes to the financial statements, or recognized as a liability on its balance sheet.
false
true or false: If a company is located in an area where floods or earthquakes are deemed to be possible, the company should record a contingent liability.
false
true or false: Joseph Company is preparing to repay a one-year note on May 1, 2016. The first step in this process is to accrue eight months of interest expense.
false
true or false: Payment of interest on a note payable is considered a financing activity on the statement of cash flows.
false
Which of the following intangible assets does not convey a specific legal right or privilege?
goodwill
The net effect of the entries to recognize the receipt of a previously written-off account under the allowance method is to:
have no effect on total assets or total equity.
Glebe Company accepted a credit card account receivable in exchange for $1,100 of services provided to a customer. The credit card company charges a 5% service charge. The collection of cash from the credit card company when it settles the account receivable balance will act to:
none of these answer choices are correct.
Kier Company issued $700,000 in bonds on January 1, 2016. The bonds were issued at face value and carried a 4-year term to maturity. They had a 6.50% stated rate of interest that was payable in cash on December 31st. Based on this information alone, the amount of interest expense shown on the 12/31/2016 income statement and the cash flow from operating activities shown on the 12/31/2016 statement of cash flows would be:
option A interest expense: 45,000 cash outflow: 45,000
The Grant Company acquired the Lee Company for $600,000 cash. The fair value of Lee's assets was $520,000, and the company had $40,000 in liabilities. Which of the following choices would reflect the acquisition on Grant's financial statements?
option D (600,000) 520,000 120,000 40,000 NA NA NA NA (600,000) IA
Marvin Company issues $125,000 of bonds at face value on January 1. The bonds carry a 6% annual stated rate of interest. Interest is payable in cash on December 31 of each year. Which of the following reflects the financial statement effects of the first interest payment?
option D assets: (7500) liability: na equity: (7500) revenue: na expense: 7500 net income: (7500) cash flow: (7500)OA
A machine with a book value of $38,000 is sold for $32,000. Which of the following answers would accurately represent the effects of the sale on the financial statements?
option D assets= (6000) liabilities= NA equity= (6000) rev/gain= NA exp/loss= (6000) net inc= (6000) cash flow= 32000 IA
On January 1, 2016, Ruiz Company spent $850 on a plant asset to improve its quality. The asset had been purchased on January 1, 2014 for $8,400 and had an estimated salvage value of $1,200 and a useful life of five years. Owens uses the straight-line depreciation method. Which of the following correctly shows the effects of the 2016 expenditure on the financial statements?
option a (850) 850 na na na na na (850)IA
Bonds that mature at specified intervals throughout the life of the issuance are called:
serial bonds
The practice of reporting net realizable value of receivables in the financial statements is commonly called:
the allowance method of accounting for bad debts
The percent of receivables method to estimate uncollectible accounts expense is also known as:
the balance sheet approach.
If a company estimates uncollectible accounts based on a percentage of receivables, the resulting estimate will be presented on the balance sheet as the ending balance in Allowance for Doubtful Accounts.
true
If a company uses the percent of receivables method to estimate uncollectible accounts, the company will first determine the required ending balance in Allowance for Doubtful Accounts, and Uncollectible Accounts Expense will be the difference between that amount and the current balance in the allowance.
true
Indicate whether the following statement is true or false. A note receivable, which will be due in nine months, is classified as a current asset.
true
Indicate whether the following statement is true or false. A trademark has an indefinite legal lifetime.
true
Indicate whether the following statement is true or false. Delivery charges on equipment would be added to the equipment account.
true
Indicate whether the following statement is true or false. Most companies do not expect to receive the full face value of their receivables
true
Indicate whether the following statement is true or false. Natural resources are examples of tangible long-term assets.
true
Indicate whether the following statement is true or false. Notes receivable is a balance sheet account.
true
Indicate whether the following statement is true or false. Straight-line depreciation is the most widely used method in the U.S.
true
Indicate whether the following statement is true or false. The write-off of an uncollectible account does not affect the net realizable value of accounts receivable.
true
Indicate whether the following statement regarding accounting for long-term assets is true or false. Other things being equal, the lower a company estimates the salvage value of an asset to be, the lower its net income will be.
true
Making a loan to another party is considered an investing activity on the statement of cash flows.
true
One of the methods of accounting for bad debts is the direct write-off method. Indicate whether the following statement is true or false. The direct write-off method does not require the use of an allowance account.
true
Other things being equal, the longer a company's operating cycle, the higher the company's operating costs are likely to be.
true
The direct write-off method of accounting for uncollectible accounts overstates assets on the balance sheet.
true
The longer an account receivable has been outstanding, the less likely it is to be collected.
true
The longer it takes to collect accounts receivable, the greater the opportunity cost incurred.
true
Willis Company had $200,000 in credit sales for 2016, and it estimated that 2% of the credit sales would not be collected. The balance in Accounts Receivable at the end of the year was $38,000. Willis had never used the allowance method to account for its receivables till 2016. The net realizable value of its accounts receivable at the end of the year was $34,000
true
indicate whether the following statement is true or false. The net realizable value of receivables is the difference between the ending balance of accounts receivable and the ending balance in the allowance for doubtful accounts
true
true or false: A classified balance sheet is necessary for calculating a company's current ratio.
true
true or false: Contingent liabilities are only recognized if they arise from past events.
true
true or false: In September of 2016, Hansen Company issued a note payable to borrow money from its bank. Principal and interest on the note would come due in June 2017. Interest expense on this note must be accrued at the end of 2016 for the period from issuance of the note to the last day of the accounting period.
true
true or false: The issuer of a note payable is also known as the maker.
true
true or false: When calculating interest expense on a 6-month note, multiply the principal by the interest rate, and then multiply by 6/12.
true