ACCT 301 Practice for Exam 7,8

Craigmont uses the allowance method to account for uncollectible accounts. Its year-end unadjusted trial balance shows Accounts Receivable of $154,500, allowance for doubtful accounts of $1,165 (credit) and sales of $1,175,000. If uncollectible accounts are estimated to be 4% of accounts receivable, what is the amount of the bad debts expense adjusting entry?

$154,500 × 4.00% = $6,180 − $1,165 = $5,015

A company borrowed $17,000 by signing a 180-day promissory note at 8%. The total to be paid at maturity of the note is: (Use 360 days a year.)

$17,000 + ($17,000 × 0.08 × 180/360) = $17,680.00

A company uses the percent of sales method to determine its bad debts expense. At the end of the current year, the company's unadjusted trial balance reported the following selected amounts: Accounts receivable$ 350,000debit Allowance for uncollectible accounts650debit Net Sales795,000credit All sales are made on credit. Based on past experience, the company estimates that 0.3% of net sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?

$795,000 × 0.003 = $2,385

A machine originally had an estimated useful life of 8 years, but after 3 complete years, it was decided that the original estimate of useful life should have been 14 years. At that point the remaining cost to be depreciated should be allocated over the remaining:

14 year revised life − 3 years depreciated = 11 years remaining

A company sold a tractor that originally cost $135,000 for $30,000 cash. The accumulated depreciation on the tractor was $69,000. The company should recognize:

A loss of $36,000.

Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,300 uncollectible account of its customer, A. Hopkins. The entry or entries Gideon makes to record the write off of the account on May 3 is:

Allowance for Doubtful Accounts 2,300 Accounts Receivable—A. Hopkins 2,300

Granite Company purchased a machine costing $133,000, terms 2/10, n/30. The machine was shipped FOB shipping point and freight charges were $3,300. The machine requires special mounting and wiring connections costing $11,300. When installing the machine, $2,800 in damages occurred. Compute the cost recorded for this machine assuming Granite paid within the discount period.

Cost of Machine = ($133,000 × 0.98) + $3,300 + $11,300 = $144,940

Mullis Company sold merchandise on account to a customer for $1,085, terms n/30. The journal entry to record this sale transaction would be:

Debit Accounts Receivable $1,085 and credit Sales $1,085.

MacKenzie Company sold $320 of merchandise to a customer who used a Regional Bank credit card. Regional Bank charges a 5.0% fee for sales on its credit cards. The journal entry to record this sale transaction would be:

Debit Cash $304.00; debit Credit Card Expense $16.00 and credit Sales $320.

Jasper makes a $48,000, 90-day, 8.0% cash loan to Clayborn Company. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.)

Debit Cash $48,960.00; credit Interest Revenue $960.00; credit Notes Receivable $48,000.

On November 1, Orpheum Company accepted a $11,100, 90-day, 8% note from a customer to replace an account receivable. What entry should be made by Orpheum on the November 1 to record the acceptance of the note?

Debit Note Receivable $11,100; credit Accounts Receivable $11,100.

Giorgio Italian Market bought $10,800 worth of merchandise from Food Suppliers and signed a 60-day, 7% promissory note for the $10,800. Food Supplier's journal entry to record the sales transaction is:

Debit Notes Receivable $10,800; credit Sales $10,800.

A company purchased a tract of land for its natural resources at a cost of $2,012,000. It expects to mine 2,180,000 tons of ore from this land. The salvage value of the land is expected to be $268,000. The depletion expense per ton of ore is:

Depletion Expense per ton = (Cost − Salvage Value)/Estimated Useful Life (in tons)Depletion Expense per ton = ($2,012,000 − $268,000)/2,180,000 tons = $0.800/ton

Mohr Company purchases a machine at the beginning of the year at a cost of $31,000. The machine is depreciated using the units-of-production method. The company estimates it will use the machine for 5 years, during which time it anticipates producing 45,000 units. The machine is estimated to have a $4,000 salvage value. The company produces 9,700 units in year 1 and 6,700 units in year 2. Depreciation expense in year 2 is:

Depreciation Expense = (Cost − Salvage Value)/Estimated Useful Life (units)Depreciation Expense = ($31,000 − $4,000)/45,000 = $0.60 per unitDepreciation Expense = $0.60 per unit × 6,700 units = $4,020

Martin Company purchases a machine at the beginning of the year at a cost of $66,000. The machine is depreciated using the straight-line method. The machine's useful life is estimated to be 4 years with a $4,000 salvage value. Depreciation expense in year 4 is:

Depreciation Expense = (Cost − Salvage Value)/Estimated Useful LifeDepreciation Expense = ($66,000 − $4,000)/4 = $15,500

Marlow Company purchased a point of sale system on January 1 for $3,400. This system has a useful life of 10 years and a salvage value of $400. What would be the depreciation expense for the first year of its useful life using the double-declining-balance method?

Depreciation Expense = Beginning of Year Book Value × Double Straight-line RateDepreciation Expense = $3,400 × (2 × 10%) = $680 (Year 1, depreciation)

Mohr Company purchases a machine at the beginning of the year at a cost of $44,000. The machine is depreciated using the double-declining-balance method. The machine's useful life is estimated to be 5 years with a $3,000 salvage value. The machine's book value at the end of year 2 is:

Depreciation Expense = Beginning of Year Book Value × Double Straight-line RateDepreciation Expense = $44,000 × (2 × 20%) = $17,600 (Depreciation Expense, year 1) Depreciation Expense = Beginning of Year Book Value × Double Straight-line RateDepreciation Expense = ($44,000 − $17,600) × (2 × 20%) = $10,560 (Depreciation Expense, year 2)Book value at end of year 2 = Cost − Accumulated DepreciationBook value at end of year 2 = $44,000 − ($17,600 + $10,560) = $15,840

A company purchased a weaving machine for $350,170. The machine has a useful life of 8 years and a residual value of $19,500. It is estimated that the machine could produce 769,000 bolts of woven fabric over its useful life. In the first year, 114,500 bolts were produced. In the second year, production increased to 118,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Units ProducedDepreciation per unit = ($350,170 − $19,500)/769,000 units = $0.43 per unitDepreciation Expense = $0.43 × 118,500 = $50,955

A company has $107,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is a(n) $970 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

Desired balance in allowance account:$107,000 × 0.05 =$ 5,350credit Current balance in allowance account: +970debit Adjustment to allowance: $ 6,320credit

Jervis sells $3,700 of its accounts receivable to Northern Bank in order to obtain necessary cash. Northern Bank charges a 2% factoring fee. What entry should Jervis make to record the transaction?

Factoring fee expense: $3,700 × 0.02 = $74Cash received: $3,700 − $74 = $3,626 Debit Cash $3,626; debit Factoring Fee Expense $74; credit Accounts Receivable $3,700

An asset's book value is $43,200 on January 1, Year 6. The asset is being depreciated $600 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $29,400, the company should record:

If the asset's book value is $43,200 on January 1, Year 6 and is being depreciated $600 per month, $10,800 (18 × $600) of additional depreciation expense would be recognized by July 1, Year 7. Thus, the asset's book value on that date would be $32,400. If the asset is sold for $29,400, a loss on sale of $3,000 should be recognized.

Uniform Supply accepted a $4,800, 90-day, 10% note from Tracy Janitorial on October 17. What entry should Uniform Supply make on January 15 of the next year when the note is paid? (Assume reversing entries are not made.) (Use 360 days a year.)

Interest accrued at December 31: $4,800 × 0.10 × 75/360 = $100 Interest earned during January: $4,800 × 0.10 × 15/360 = $20 Debit Cash $4,920; credit Interest Revenue $20; credit Interest Receivable $100; credit Notes Receivable $4,800.

A 90-day note issued on April 10 matures on:

July 9.

Merchant Company purchased property for a building site. The costs associated with the property were: Purchase price$ 181,000 Real estate commissions15,600 Legal fees1,400 Expenses of clearing the land2,600 Expenses to remove old building1,600 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?

Total cost = $181,000 + $15,600 + $1,400 + $2,600 + $1,600 = $202,200 The entire amount of the cost should be allocated to the land, since the new building is not yet constructed.

Peavey Enterprises purchased a depreciable asset for $24,500 on April 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,500, what will be the amount of accumulated depreciation on this asset on December 31, Year 3?

Year 1[($24,500 − $2,500)/4] × 9/12 =$ 4,125 Year 2($24,500 − 2,500)/4 = $ 5,500 Year 3 $ 5,500 _________________________________________________________________ Accumulated $ 15,125