Accounting Practice Exam 4

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 book value of the asset at the end of the first year of its useful life using the double-declining-balance method?

$2,720 Explanation $3,400 × (2 × 10%) = $680 $3,400 − $680 = $2,720

A company has $101,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts. Experience suggests that 3% of outstanding receivables are uncollectible. The current balance (before adjustments) in the allowance for doubtful accounts is an $910 debit. The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:

$3,940 $ 101,000 × 0.03 =$3,030+910 debit = $ 3,940 credit

A company purchased a weaving machine for $358,800. The machine has a useful life of 8 years and a salvage value of $20,000. It is estimated that the machine could produce 770,000 bolts of woven fabric over its useful life. In the first year, 115,000 bolts were produced. In the second year, production increased to 119,000 units. Using the units-of-production method, what is the amount of depreciation expense that should be recorded for the second year?

$52,360 Explanation ($358,800 − $20,000)/770,000 units = $.44 per unit $.44 × 119,000 = $52,360

Peavey Enterprises purchased a depreciable asset for $30,000 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 $3,600, Peavey Enterprises should recognize depreciation expense in Year 2 in the amount of:

$6,600.00 Explanation Depreciation Expense = (Cost − Salvage Value)/Estimated Useful LifeDepreciation Expense = ($30,000 − $3,600)/4 = $6,600

On December 1, Victoria Company signed a 90-day, 8% note payable, with a face value of $13,800. What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.)

$92 Explanation $13,800 × 0.08 × 30/360; Interest Expense = $92

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 $ 355,000 debit Net Sales 800,000 credit All sales are made on credit. Based on past experience, the company estimates 0.6% of net sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense?

Debit Bad Debts Expense $4,800; credit Allowance for Doubtful Accounts $4,800. Explanation $800,000 × 0.006 = $4,800

Sustainable Supplies prepares the following aging of receivables analysis: Prepare the adjusting entry to record bad debts expense assuming the unadjusted balance in the Allowance for Doubtful Accounts is a $500 credit.

Debit Bad Debts Expense $840; credit Allowance for Doubtful Accounts $840. Explanation Current:$ 40,000 × 0.01 =$ 400 1 to 30: 9,000 × 0.03 =270 31 to 60: 3,600 × 0.05 =180 61 to 90: 2,000 × 0.08 =160 Over 90: 3,000 × 0.11 =330 $ 1,340 credit

The interest accrued on $7,900 at 6% for 60 days is: (Use 360 days a year.)

Explanation $7,900 × 0.06 × 60/360 = $79

Warner Company's year-end unadjusted trial balance shows accounts receivable of $99,000, allowance for doubtful accounts of $600 (credit), and sales of $280,000. Uncollectibles are estimated to be 1.5% of accounts receivable. Prepare the December 31 year-end adjusting entry for uncollectibles. What amount would have been used in the year-end adjusting entry if the allowance account had a year-end unadjusted debit balance of $300?

Explanation Desired balance in allowance = $99,000 × 1.5% = $1,485 credit Adjustment required = $1,485 − $600 credit = $885 Desired balance in allowance = $1,485 (part 1) Adjustment required = $1,485 credit + $300 debit = $1,785

On December 1, Home Store sells a mower (that costs $160) for $460 cash with a one-year warranty that covers parts. Warranty expense is estimated at 12% of sales. On January 24 of the following year, the mower is brought in for repairs covered under the warranty requiring $32 in materials taken from the Parts Inventory. Prepare the December 1 entry to record the mower sale (and cost of sale), the December 31 adjusting entry for estimated warranty liability, and the January 24 entry to record the warranty repairs. Note: Round your answers to 2 decimal places.

Explanation Estimated warranty liability = $460 × 12% = $55.20. Ticket revenue = Sales

To capitalize an expenditure is to:

Increase an asset account.

The maturity date of a note receivable:

Is the day the note must be repaid

Depreciation:

Is the process of allocating the cost of a plant asset to expense while it is in use.