Accounting Exam Ch 7-9

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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 41,000 - 1,640 = 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

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 1,400 - 1,000 = $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 52,000 + 220,000 - 230,000 - 1,000 = $41,000

Medicare Rate

1.5% on all earnings

Average # of Days to Collect Accounts Receivable

365/Turnover ratio

Federal Unemployment Tax Rate

6% of first $7,000 5.4%= state 0.6%= federal

Social Security Rate

6% on the first $110,000 of income

Which of the following statements is true concerning the modified accelerated cost recovery system (MACRS) for the recognition of depreciation expense, for tax purposes?

7-year property will be depreciated more rapidly than 10-year property under the MACRS depreciation method. MACRS is used for the determination of depreciation expense that is reported on an income tax return Under MACRS more depreciation will be recorded in the second accounting period than in the first accounting period because of the half-year convention.

Ending Balance for Doubtful accounts

= beginning balance for doubtful accounts + uncollectible accounts expense (unknown) - write-offs 5000 = 3150 + x - 5,700 5000 - 3150 + 5700 = $7,550

Which of the following terms is used to identify the expense recognition associated with intangible assets?

Amortization

Which financial statement reports the amount of accumulated depreciation?

Balance Sheet

Balance in Accounts Receivable

Beginning Accounts Receivable balance + Revenue earned on account - Collections of accounts receivable - Write-off of accounts receivable = Ending Accounts Receivable balance

Collection of Accounts Receivable

Beginning Balance + Revenue on account - Write off - Ending balance = Collection of Accounts Receivable

Which of the following should be the main determinant for selection of the allocation method for long-term operational assets?

Best matches asset use

Unit depletion Charge

Cost / profitable

Which of the following is considered an accelerated depreciation method?

Double-Declining and MACRS

Net Pay

Employees gross pay less all deductions

net realizable value of accounts receivable

Ending Accounts Receivable - Ending Allowance for doubtful accounts balance

Tangible Assets

Equipment, machinery, natural resources, land

What does the accounts receivable turnover ratio measure?

How quickly accounts receivable turn into cash

When is it acceptable to use the direct write-off method?

If the dollar amount of uncollectible accounts is not material.

Which of the following terms is used to describe long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses?

Intangible Assets

What is the current ratio used to evaluate?

Liquidity

Cost of Machine

List Price - Cash Discount + Freight Costs +Installation Costs

Which of the following would most likely not be expensed using the straight-line method?

Natural Resources

What is the term used to describe the amount of accounts receivable that is actually expected to be collected?

Net Realizable Value

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

Not affect total assets

Interest Expense Formula

Principal x Interest Rate x Time Outstanding

Allocation to furniture

Purchase price x (office / total market price)

Accounts Receivable Turnover

Sales/Net Realizable Value

Which of the following statements is true?

The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity.

What is the purpose of the Federal W-4 form?

To allow an employee to choose the number of withholding allowances for calculating federal withholding tax

Intangible Assets

long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value

book value

original cost - accumulated depreciation

Depletion Expense

unit depletion charge x number sold

Under the direct write-off method, uncollectible accounts expense is recognized

when an account is determined to be 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 52,000 + 220,000 - 230,000 - 1,000 = 41,000 41,000 x 0.04 = $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 $2000 (200,000 x 0.01) - 300 = $1,700

Annual Depreciation Expense

(cost - salvage value) / useful life

Straight-line Depreciation

(cost - salvage value) / useful life

Double-Declining Balance Depreciation

1. Determine straight-line rate - 1/useful life 2. Determine doubt-declining rate - 2 x straight-line rate 3. Determine depreciation expense - double declining rate x book value (at beginning of year)

Book Value of Patent

Cost of patent - amortization to date $200,000 - ($40,000 x 3 for year 3) = $120,000 200,000 - 120,000 = $80,000

Amortization Expense

Cost of patent / expected useful life $200,000 / 5 = $40,000

Ending Balance in the Allowance for Doubtful Accounts

Ending Accounts Receivable x Estimate of Uncollectible accounts

Uncollectible Accounts Expense

Ending Balance in Allowance Account - Unadjusted (current) balance in in allowance account = Estimated Uncollectible Accounts Expense

Payroll Tax Expense

FICA- Social Security Payable FICA- Medicare Payable Federal Unemployment Tax Payable State Unemployment Tax Payable

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

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

False

Which of the following is not an item deducted from salary expense to arrive at net pay

Federal Unemployment Tax

Which of the following is an asset that has an identifiable useful life?

Patents

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

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

Goodwill may be recorded in which of the following circumstances?

When one business acquires another business

Depreciable cost

cost - salvage value

The net realizable value of receivables is not shown on the balance sheet of a company using the

direct write-off method.

FICA Tax including both employer and employee

employee portion of FICA tax MATCHED ( x 2)


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