Chapter 5 Accounting Questions (Regent University 2019)

Jefferson Company made a loan of $6,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of cash flow from operating activities that Jefferson would report in Year 1 and Year 2, respectively would be

$0, and $360.

On September 1, Year 1 Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's Year 2 financial statements would be

$1,200 interest revenue and $1,800 cash inflow from operating activities.

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 ending balance in the allowance for doubtful accounts account (balance after expense recognition) is

$1,640.

he following information was drawn from the inventory records of Alpha Company as of December 31, Year 2. Beginning inventory (purchased in Year 1) 200 Units @ $ 5 each Purchases made in Year 2 800 Units @ $ 8 each Units Sold 900 Units @ $ 12 each Which of the following is the amount of the gross margin assuming Alpha uses a FIFO cost flow method?

$4,200 The amount of sales revenue is $10,800 (900 units x $12 per unit). The cost of goods sold is $6,600. There are 1,000 units available for sale (200 units purchased in Year 1 + 800 units purchased in Year 2). Given that there were 900 units sold you must determine which of the 1,000 units available for sale were considered to have been sold. The 200 units in beginning inventory represents the first items coming into the business and under FIFO will be the first items charged to cost of goods sold. The remaining 700 units (900 sold − 200 from beginning inventory) would have been drawn from the units purchased in Year 2. The specific computation is shown below: Beginning inventory (purchased in Year 1) 200 Units @ $ 5 each = $ 1,000 Purchases made in Year 2 700 Units @ $ 8 each = 5,600 Cost of goods sold $ 6,600 The gross margin is $4,200 ($10,800 Sales revenue − $6,600 Cost of goods sold).

On September 1, Year 1 Western Company loaned $36,000 cash to Eastern Company. The one-year note carried a 5% rate of interest. The amount of interest revenue on the income statement and the amount of cash flow from operating activities shown on Western's December 31, Year 1 financial statements would be

$600 interest revenue and zero cash flow from operating activities.

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

1700

DeKalb Company made a loan of $6,000 to one of the company's employees on April 1, Year 1. The one-year note carried a 6% rate of interest. The amount of interest revenue that DeKalb would report in Year 1 and Year 2, respectively would be

270 and 90

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the LIFO cost flow method, the balance in the inventory account after the sales transaction will be

30

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

41000

The following information was drawn from the inventory records of Preston Company. Beginning inventory (purchased in Year 1) 100 Units @ $ 10 each 1st Purchase made in Year 2 400 Units @ $ 12 each 2nd Purchase made in Year 2 500 Units @ $ 14 each Units Sold 950 Units @ $ 15 each Based on this information, which of the following represents the amount of ending inventory appearing on the balance sheet assuming a LIFO cost flow?

500

Weiss Company purchased two identical inventory items. The first purchase cost $30 and the second cost $32. The Company sold one of the items for $40. If the Company uses the weighted average cost flow method, the amount of gross margin shown on the income statement will be

9

Return to question Item 10 Item 10 Part 2 of 6 10 points Required information On August 1, Year 1 Hernandez Company loaned $48,000 cash to Acosta Company. The one-year note carried a 5% rate of interest. Which of the following shows how the December 31, Year 1 recognition of accrued interest will effect Hernandez's financial statements? Balance sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. A. 1,400 = NA + 1,400 1,400 − NA = 1,400 1,400 OA B. 1,400 = NA + 1,400 1,400 − NA = 1,400 NA C. 1,000 = NA + 1,000 1,000 − NA = 1,000 1,000 OA D. 1,000 = NA + 1,000 1,000 − NA = 1,000 NA

D

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

False

Which of the following cost flow methods would provide the lowest amount of net income in an inflationary environment?

LIFO

Baltimore Company accepts a credit card as payment for $950 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the event would affect Baltimore's financial statements

Option A is correct

On December 31, Year 1, Kardashian Company recorded an adjusting entry to recognize $5,470 of uncollectible accounts expense. Which of the following shows how this entry will affect Kardashian's financial statements? Balance sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. A. (5,470) = NA + (5,470) NA − 5,470 = (5,470) (5,470) OA B. (5,470) = NA + (5,470) NA − 5,470 = (5,470) NA C. (5,470) = NA + (5,470) NA − 5,470 = (5,470) (5,470) FA D. (5,470) = (5,470) + NA NA − 5,470 = (5,470) NA

Option B

Westover Company accepts a credit card as payment for $1,000 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the event would affect Westover's financial statements. Total Assets Net Income Cash flow from Operating Activities A. $1,000 $960 NA B. $960 $960 NA C. $960 $1,000 $1,000 OA D. $960 $960 $960 OA

Option B is correct

Beacon Company accepts a credit card as payment for $2,000 of services provided to a customer. The credit card company charges a 3% handling charge for its collection services. Select the answer that shows how the collection of cash from the credit card company will affect Beacon's financial statements. Balance sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. A. NA = NA + NA NA − NA = NA 1,940 FA B. NA = NA + NA NA − NA = NA 1,940 OA C. 2,000 = NA + 2,000 NA − NA = NA 2,000 OA D. 1,960 = NA + 1,960 NA − NA = NA 1,960 OA

Option B is correct.

Assuming Alpha company uses the percent of receivables method to determine the amount of uncollectible expense, which of the following shows how the recognition of the expense will affect Alpha's financial statements? Balance sheet Income Statement Statement of Cash Flows Assets = Liab. + Equity Rev. − Exp. = Net Inc. A. − = NA + − NA − + = − + OA B. + = NA + + NA − + = − − OA C. + = NA + + + − NA = + NA D. − = NA + − NA − + = − NA

Option D

A company will earn more profit from a cash sale than from a credit card sale.

True

Cash revenue generated from notes receivable appears in the operating activities section of the statement of cash flows but as a non-operating item on the income statement.

True

Many retail companies are motivated to incur credit costs because many customers are emotional buyers and offering credit generally leads to increases in sales revenue. This statement is

True

The cash flow associated with buying and selling inventory is not affected by the inventory cost flow method. This statement is

True