BUS 1A Pretest #3
A company sold equipment that originally cost $400,000 for $160,000 cash. The accumulated depreciation on the equipment was $240,000. The company should recognize a:
$0 gain or loss Cost of equipment$400,000 Accumulated depreciation (240,000) Book value$160,000 Cash received (160,000) Gain or Loss on sale$0
Valley Spa purchased $11,100 in plumbing components from Tubman Co. Valley Spa Studios signed a 120-day, 10% promissory note for $11,100. If the note is dishonored, what is the amount due on the note? (Use 360 days a year.)
$11,470 $11,100 × 0.10 × 120/360 = $370 $370 + $11,100 = $11,470
A company receives a 10%, 90-day note for $6,300. The total interest due on the maturity date is: (Use 360 days a year.)
$157.50 $6,300 × 0.10 × 90/360 = $157.50
Peavey Enterprises purchased a depreciable asset for $27,500 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 $3,100, what will be the amount of accumulated depreciation on this asset on December 31, Year 3?
$16,775 Year 1 [($27,500 − $3,100)/4] × 9/12 =$4,575 Year 2($27,500 − 3,100)/4 =$6,100 Year 3 $6,100 Accumulated $16,775
On December 31 of the current year, the unadjusted trial balance of a company using the percent of receivables method to estimate bad debt included the following: Accounts Receivable, debit balance of $97,300; Allowance for Doubtful Accounts, credit balance of $971. What amount should be debited to Bad Debts Expense, assuming 4% of outstanding accounts receivable at the end of the current year are estimated to be uncollectible?
$2,921 Desired balance in allowance account:$97,300 × 0.04 =$3,892mcredit Current balance in allowance account: −971 credit Required: amount of Bad Debts Expense: $2,921 credit
Franklin Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on August 31, its Cash account shows a debit balance of $19,662. Franklin's August bank statement shows $19,437 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit-$6,450 Outstanding checks-$5,200 Bank service fees, not yet recorded by company - $115 The bank collected on a note receivable, not yet recorded by the company- $1,140 The adjusted cash balance should be:
$20,687 bank balance $19,437 + deposit in transit $6,450 - outstanding checks -$5,200 adjusted bank balance - $20,687 Book balance $19,662 - bank service fee - $115 + notes collected $1,140 Adjusted book balance $20,687
Clayborn Company deposits all cash receipts on the day they are received and makes all cash payments by check. At the close of business on May 31, its Cash account shows a debit balance of $28,525. Clayborn's May bank statement shows $25,000 on deposit in the bank. Determine the adjusted cash balance using the following information: Deposit in transit-$8,650 Outstanding checks-$6,900 Bank service fees, not yet recorded by company-$140 A NSF check from a customer, not yet recorded by the company-$1,635 The adjusted cash balance should be:
$26,750 Bank balance $25,000 + Deposit in transit $8,650 -Outstanding checks -$6,900 Adjusted bank balance $26,750 Book Balance $28,525 - Bank service fees $-140 NSF returned -$1,635 Adjusted book balance $26,750
A company borrowed $28,000 by signing a 180-day promissory note at 6%. The total to be paid at maturity of the note is: (Use 360 days a year.)
$28,840.00 $28,000 + ($28,000 × 0.06 × 180/360) = $28,840.00
A company purchased a weaving machine for $214,810. The machine has a useful life of 8 years and a residual value of $11,500. It is estimated that the machine could produce 753,000 bolts of woven fabric over its useful life. In the first year, 106,500 bolts were produced. In the second year, production increased to 110,500 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?
$29,835 Depreciation Expense = [(Cost − Salvage Value)/Estimated Useful Life (in units)] × Units Produced Depreciation per unit = ($214,810 − $11,500)/753,000 units = $.27 per unit Depreciation Expense = $.27 × 110,500 = $29,835
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- $365,000 debit Allowance for uncollectible accounts -600 debit Net Sales -810,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.4% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?
$3,240 $810,000 × 0.004 = $3,240
Ryan Company deposits all cash receipts on the day they are received and makes all cash payments by check. Ryan's June bank statement shows $29,861 on deposit in the bank. Ryan's comparison of the bank statement to its cash account revealed the following: Deposit in transit-3,750 Outstanding checks-1,458 Additionally, a $56 check written and recorded by the company correctly, was recorded by the bank as a $65 deduction.The adjusted cash balance per the bank records should be:
$32,162 Bank balance $29,861 +deposit in transit $3,750 - outstanding checks -$1,458 + bank error $9 Adjusted bank balance $32,162
A company has $95,000 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) $850 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:
$5,600 Desired balance in allowance account:$95,000 × 0.05 =$4,750 credit Current balance in allowance account: +850. debit Adjustment to allowance: $5,600 credit
When originally purchased, a vehicle costing $26,100 had an estimated useful life of 8 years and an estimated salvage value of $3,300. After 4 years of straight-line depreciation, the asset's total estimated useful life was revised from 8 years to 6 years and there was no change in the estimated salvage value. The depreciation expense in year 5 equals:
$5,700.00. Accumulated Depreciation through the end of year 4: (Cost of Asset − Salvage Value)/Estimated Useful Life × Years Elapsed ($26,100 − $3,300)/8 × 4 = $11,400 Depreciation in Year 5 = (Cost of Asset − Accumulated Depreciation − Salvage Value)/Remaining Estimated Useful Life ($26,100 − $11,400 − $3,300)/2 = $5,700
In the process of reconciling its bank statement for January, Maxi's Clothing's accountant compiles the following information: Cash balance per company books on January 30-$7,125 Deposits in transit at month-end-$2,280 Outstanding checks at month-end-$760 Bank service charges-$49 EFT automatically deducted monthly, not yet recorded by Maxi-$860 An NSF check returned on a customer account-$505 The adjusted cash balance per the books on January 31 is:
$5,711 book balance $7,125 -bank service charges - $49 -EFT -$860 -NSF check returned by Bank -$505 Adjusted book balance $5,711
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-$392,000 debit Allowance for uncollectible accounts -670 credit Net Sales -970,000 credit All sales are made on credit. Based on past experience, the company estimates that 0.6% of net credit sales are uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared?
$5,820 $970,000 × 0.006 = $5,820
Duerr Company makes a $66,000, 60-day, 10% cash loan to Ryan Co. The note and interest to be collected at maturity is: (Use 360 days a year.)
$67,100 $66,000 × 0.10 × 60/360 = $1,100 interest. $66,000 + $1,100 = $67,100 maturity value
Beckman Enterprises purchased a depreciable asset on October 1, Year 1 at a cost of $148,000. The asset is expected to have a salvage value of $16,200 at the end of its five-year useful life. If the asset is depreciated on the double-declining-balance method, the asset's book value on December 31, Year 2 will be:
$79,920 Period: year 1 Boy Bc :148,000 DB rate: 40% Depreciation expense: 59,000x3/12=14,800 EOY BV: 133,200 Period: year 2 Boy Bc :133,200 DB rate: 40% Depreciation expense: 53, 280 EOY BV: 79,920 Accordingly, the asset's book value at the end of Year 2 would be $79,920. BOY BV = Beginning of Year Book Value DB Rate = Declining Balance Rate of Depreciation (1/5 × 2) EOY BV = End of Year Book Value
Marlow Company purchased a point of sale system on January 1 for $5,700. This system has a useful life of 10 years and a salvage value of $550. What would be the depreciation expense for the second year of its useful life using the double-declining-balance method?
$912 Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = $5,700 × (2 × 10%) = $1,140 (Year 1, depreciation) Depreciation Expense = Beginning of Year Book Value × Double Straight-line Rate Depreciation Expense = ($5,700 − $1,140) × (2 × 10%) = $912 (Year 2, depreciation)
A company had average total assets of $937,000. Its gross sales were $1,099,000 and its net sales were $960,000. The company's total asset turnover equals:
1.02 Total Asset Turnover = Net Sales/Average Total Assets Total Asset Turnover = $960,000/$937,000 = 1.02
Spears Co. had net sales of $46,404 million. Its average total assets for the period were $15,602 million. Spears' total asset turnover equals:
2.97 Total Asset Turnover = Net Sales/Average Total Assets Total Asset Turnover = $46,404/$15,602 = 2.97
A company has net sales of $1,831,800 and average accounts receivable of $426,000. What is its accounts receivable turnover for the period?
4.30 Accounts Receivable Turnover = Net Sales/Average Accounts ReceivableAccounts Receivable Turnover = $1,831,800/$426,000 = 4.30
A company had net sales of $29,700 and ending accounts receivable of $4,500 for the current period. Its days' sales uncollected equals: (Use 365 days a year.)
55.30 days Days' Sales Uncollected Ratio = Ending Accounts Receivable/Net Sales × 365Days' Sales Uncollected Ratio = ($4,500/$29,700) × 365 = 55.30 days
A company had total sales of $630,000, net sales of $597,800, and an average accounts receivable of $98,000. Its accounts receivable turnover equals:
6.1 Accounts Receivable Turnover = Net Sales/Average Accounts ReceivableAccounts Receivable Turnover = $597,800/$98,000 = 6.1
Childers Company, which uses a perpetual inventory system, has an established petty cash fund in the amount of $500. The fund was last reimbursed on November 30. At the end of December, the fund contained the following petty cash receipts: December 4-Freight charge for merchandise purchased-$53 December 7-Delivery charge for shipping to customer-$77 December 12-Purchase of office supplies-$42 December 18-Donation to charitable organization-$61 If, in addition to these receipts, the petty cash fund contains $257.25 of cash, the journal entry to reimburse the fund on December 31 will include:
A credit to Cash of $242.75. add all expense = 233 find cash over and short (500-233)=267-257.25=9.75 233+9.75= $242,75
An asset's book value is $18,500 on December 31, Year 5. The asset has been depreciated at an annual rate of $3,500 on the straight-line method. Assuming the asset is sold on December 31, Year 5 for $15,500, the company should record:
A loss on sale of $3,000. Selling price $15,500 − $18,500 Book value = $3,000 Loss.
An asset's book value is $32,400 on January 1, Year 6. The asset is being depreciated $450 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $23,800, the company should record:
A loss on sale of $500 If the asset's book value is $32,400 on January 1, Year 6 and is being depreciated $450 per month, $8,100 (18 × $450) of additional depreciation expense would be recognized by July 1, Year 7. Thus, the asset's book value on that date would be $24,300. If the asset is sold for $23,800, a loss on sale of $500 should be recognized.
Gideon Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Gideon Company wrote off the $2,400 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 Dr. 2,400 Account receivable-a. Hopkins Cr. 2,400
At the end of the current year, using the aging of receivable method, management estimated that $29,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $515. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?
Bad debts expense Dr. 29,235 Allowance for doubtful accounts Cr. 29,235 Desired balance in allowance account:$29,750 credit Current balance: 515 credit Required: adjustment to allowance$29,235 credit
Spencer Co. has a $380 petty cash fund. At the end of the first month the accumulated receipts represent $61 for delivery expenses, $199 for merchandise inventory, and $30 for miscellaneous expenses. The fund has a balance of $90. The journal entry to record the reimbursement of the account includes a:
Credit to Cash for $290.
Uniform Supply accepted a $3,600, 90-day, 10% note from Tracy Janitorial on October 17. If the note is dishonored, but Uniform Supply intends to continue collection efforts, what entry should Uniform Supply make on January 15 of the next year? (Assume no reversing entries are made.) (Use 360 days a year.)
Debit Accounts Receivable $3,690; credit Interest Revenue $15; credit Interest Receivable $75, credit Notes Receivable $3,600. Interest accrued at December 31: $3,600 × 0.10 × 75/360 = $75 Interest earned during January: $3,600 × 0.10 × 15/360 = $15
At the end of the day, the cash register tape shows $1,080 in cash sales, but the count of cash in the register is $1,110. The proper entry to account for this excess is:
Debit Cash $1,110; credit Sales $1,080; credit Cash Over and Short $30.
Jervis accepts all major bank credit cards, including those issued by Northern Bank (NB), which assesses a 3.5% charge on sales for using its card. On June 28, Jervis had $4,600 in NB Card credit sales. What entry should Jervis make on June 28 to record the deposit?
Debit Cash $4,439.00; debit Credit Card Expense $161.00; credit Sales $4,600 Credit card fee expense: $4,600 × 3.5% = $161.00 Cash received: $4,600 − $161.00 = $4,439.00
Jasper makes a $47,000, 90-day, 7.5% cash loan to Clayborn Co. Jasper's entry to record the collection of the note and interest at maturity should be: (Use 360 days a year.)
Debit Cash $47,881.25; credit Interest Revenue $881.25; credit Notes Receivable $47,000.
Brinker accepts all major bank credit cards, including First Savings Bank's, which assesses a 4.5% charge on sales for using its card. On May 26, Brinker had $5,600 in First Savings Bank Card credit sales. What entry should Brinker make on May 26 to record the deposit?
Debit Cash $5,348; debit Credit Card Expense $252; credit Sales $5,600. Credit card fee expense: $5,600 × 0.045 = $252 Cash received: $5,600 − $252 = $5,348
A company had $65 missing from petty cash that was not accounted for by petty cash receipts. The correct procedure is to:
Debit Cash Over and Short for $65.
Giorgio Italian Market bought $11,300 worth of merchandise from Food Suppliers and signed a 120-day, 6% promissory note for the $11,300. Food Supplier's journal entry to record the sales transaction is:
Debit Notes Receivable $11,300; credit Sales $11,300.
Jax Recording Studio purchased $7,000 in electronic components from Music World. Jax signed a 150-day, 6% promissory note for $7,000. Music World's journal entry to record the sales transaction is:
Debit Notes Receivable $7,000; credit Sales $7,000
A company wants to decrease its $200.00 petty cash fund to $125.00. The entry to reduce the fund is:
Debit to Cash $75.00; credit Petty Cash $75.00.
Havermill Co. establishes a $500 petty cash fund on September 1. On September 30, the fund is replenished. The accumulated receipts on that date represent $98 for Office Supplies, $187 for merchandise inventory, and $47 for miscellaneous expenses. The fund has a balance of $168. On October 1, the accountant determines that the fund should be increased by $100. The journal entry to record the reimbursement of the fund on September 30 includes a:
Debit to Office Supplies for $98.
During the month of July, Clanton Industries issued a check in the amount of $745 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:
Deduct the check amount from the bank balance.
A total asset turnover ratio of 3.4 indicates that:
For every $1 in assets, the firm produced $3.4 in net sales during the period.
If a check correctly written and paid by the bank for $302 is incorrectly recorded in the company's books for $254, how should this error be treated on the bank reconciliation?
Subtract $48 from the book balance. $302 − $254 = $48 not enough deducted from the company's cash account balance that must be subtracted from cash.
After the petty cash fund is established, the Petty Cash account is not debited or credited again unless the amount of the fund is changed.
True
If the Cash Over and Short account has a credit balance at the end of the period, the amount is commonly reported as miscellaneous revenue.
True
Cash equivalents are short-term highly liquid investment assets that are readily converted to a known cash amount, and have maturities of one year.
false
The Petty Cash account is a separate bank account used for small amounts.
false
