Accounting
A fully depreciated plant asset is removed from the accounting records even though it is still being used by the business.
False
Revenue Expenditure
expenses incurred to maintain the asset in working order
Companies that follow GAAP are required to use the direct write−off method for uncollectible accounts receivable.
false
Capital Expenditure
increase the assets capacity, efficiency, or extend the assets useful life
For a company with significant uncollectible receivables, the direct write−off method is unsuitable because ________ for the current year.
it may overstate assets on the balance sheet
For a company with significant uncollectible receivables, the direct write−off method is unsuitable because ________.
it violates the matching principle
Recording depreciation for a plant asset conforms to which accounting principle/assumption?
matching principles
In the direct write−off method, if a customer decides to make a payment after an account has been written off, the company _____________.
must reverse the earlier write−off
A copy machine cost $34,000 when new and has accumulated depreciation of $28,000. Suppose Kinko sold the machine for $6,000. What is the result of this disposal transaction?
no gain or loss
The two methods of accounting for uncollectible accounts receivable are ________.
the allowance method and the direct write−off method
maturity date
the date when a note is due
debtor
the party to a transaction who takes on an obligation/payable
accounts receivable
the right to receive cash in the future from customers for goods sold or for services provided
Once an accounts receivable is written off _________.
the customer's accounts receivable is removed from the books
A delivery truck has an original cost of $30,000 and is depreciated $4,000 annually. After 3 full years of depreciation the truck's book value is $18,000.
true
All depreciation methods will record the same amount of total depreciation over an asset's useful life.
true
Land is a plant asset account that is not subject to depreciation.
true
Smart Touch Learning paid $300 to have its hot water heater repaired in its office building. This expenditure would be considered a revenue expenditure recorded on the income statement.
true
The allowance method for recording uncollectibles is allowed by Generally Accepted Accounting Principles. T/F?
true
The "Loss on Disposal" account has a normal debit balance, while the "Gain on Disposal" account has a normal credit balance.
true
When a fully depreciated plant asset is discarded, and no cash is received in return on the disposal, neither a gain nor a loss is recorded on the disposal.
true
When computing depreciation using the double-declining balance method, residual value is ignored in the calculation of annual depreciation until the final year of the asset's useful life.
true
pledging receivables
using receivables as security (collateral) for a loan
Capital or Revenue: 1. Purchase Price 2. Ordinary recurring repairs to keep the machinery in good working order. 3. Lubrication before machinery is placed in service. 4. Periodic lubrication after machinery is placed in service. 5. Major overhaul to extend useful life by three years. 6. Sales tax paid on the purchase price. 7. Transportation and insurance while machinery is in transit from seller to buyer. 8. Installation. 9. Training of personnel for initial operation of the machinery.
1. Capital 2. Revenue 3. Cap 4. Rev 5. Cap 6. Cap 7. Cap 8. Cap 9. Cap
On January 1, 2017 Smart Touch Learning purchased equipment for $140,000 with an estimated useful life of 20 years and a residual value of $6,000. Under the straight-line depreciation method, what is the annual depreciation expense for theequipment?
6,700; subtract 6,000 from 140,000 and then divide by 20
Which of the following needs to be done when recording the disposal of a plant asset?
A. Depreciation needs to be updated to the date of disposal This is the correct answer. B. A determination whether there was a gain or loss on disposal of the plant asset Your answer is correct. C. The cost of the disposed of asset and its related accumulated depreciation needs to be removed from the balance sheet
Which of the following are true regarding the allowance method for recording uncollectibles? A. Bad debts expense is recorded when a customer's account is written off B. Bad debts expense for the period is estimated by recording an adjusting entry at the end of the period C. A contra asset account related to accounts receivable is used to hold the estimated amount of uncollectible accounts D. Customer accounts are never written off because the direct write-off method is not being used
B and C
Which of the following is not one of the three most common ways to estimate bad debts expense using the allowance method A. Percent-of-Receivables Method B. Aging-of-Sales Method C. Percent-of-Sales Method D. Aging-of Receivables Method
B. aging-of-sales method
Uptown, Inc. has determined that an account receivable of $125 is uncollectible. The company uses the direct write−off method. Which of the following entries is required to record the write−off?
Bad Debts Expense 125 Accounts Receivable 125
Control Procedures
Component of internal control that helps ensure business goals are achieved.
Under the allowance method, businesses estimate their bad debts expense by considering A. The state of the economy B. Its past history of uncollectible accounts C. The industry it operates in D. All of the above
D. all of the above
The process by which businesses spread the allocation of a plant asset's cost over its useful life is called
Depreciation
The units-of-production depreciation method
Does a better job matching revenues with expenses compared to the straight-line depreciation method Will have a varying amount of depreciation each year based on the asset's usage
audits
Examination of a company's financial statements and accounting system by a trained accounting professional.
separation of duties
Example: The person who opens the bank statement should not also be the person who is reconciling cash.
risk assessment
Identification of uncertainties that may arise due to a company's products, services or operations.
A capital expenditure
Increases the capacity or efficiency of a plant asset or extends its useful life
Which of the following statements is true of the direct write−off method?
It is only suitable for small companies that have very few uncollectible receivables.
Which of the following factors need to be known in order to calculate depreciation for a plant asset?
Its estimated residual value Its capitalized cost Its estimated useful life
firewalls
Limits access to a local network.
The net amount a business expects to collect from its accounts receivable is called the
Net Realizable Value
Smart Touch Learning accidently recorded a $600 charge for replacing tires on its vehicle as a capital expenditure rather than a revenue expenditure. Which of the following are true?
Net income is overstated Assets are overstated
operational efficiency
Part of internal control that ensures resources are not wasted.
The net realizable value of accounts receivable after a customer's account is written of is the same dollar amount before the customer's account was written off.
True
encryption
Rearranges data by a mathematical process.
Sarbanes-Oxley Act
Requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.
documents
Should be prenumbered to prevent theft and inefficiency.
Depreciation is a process by which businesses
Spread the allocation of a plant asset's cost over its useful life
A company with significant amounts of accounts receivable experiences uncollectible accounts from time to time. If the company uses the direct write−off method, the effect of writing off an uncollectible receivable will be ________.
a reduction in net income
internal control
The organizational plan and all related measures that safeguard assets, encourage employees to follow company policies, promote operational efficiency, and ensure accurate and reliable accounting data.
How is a lump-sum purchase accounted for?
The total cost of the multiple assets purchased is divided among the assets according to their relative market values
environment
To establish an effective one, a company's CEO and top managers must behave honorably to set a good example for employees.
collusion
Two or more people working together to overcome internal controls.
information system
Without a sufficient one of these, information cannot properly be gathered and summarized.
receivable
a monetary claim against a business or an individual
factoring receivables
selling receivables to a finance company or bank