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On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.

$1,000 Reason: This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.

Daley Co. owns a mineral deposit with an estimated 600,000 tons of available ore. It was purchased for $300,000 and has no salvage value. During the current period, Daley mined and sold 40,000 tons of ore. Depletion expense for the period will be how much?

$20,000

Wen Co. purchased a building for $200,000. Wen paid $20,000 in lawyer and title fees. Wen also paid an additional $15,000 to modify the building in order to accommodate his business needs. Wen should record the cost of the building at:

$235,000

PT Co. purchased land and an existing building for $200,000. In addition, PT paid real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:

$250,000

Alin Co. purchases a building for $300,000 and pays an additional $30,000 for title fees and lawyer fees. Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:

$350,000.

Lani Co. uses the allowance method to account for bad debts. At the end of the year, their unadjusted trial balance shows an accounts receivable balance of $400,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,200,000. Based on history, Lani estimates that bad debts will be 1% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$4,400 Reason: $400,000 x 1% = 4,000 + 400 debit balance = $4,400

Yates Co. uses the allowance method to account for bad debts. At the end of the period, Yate's unadjusted trial balance shows an accounts receivable balance of $10,000; allowance for doubtful accounts balance of $400 (credit); and sales of $500,000. Based on history, Yates estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of:

$5,000 Reason: Since this is based on a percentage of sales, you should simply multiply $500,000 x .01 = $5,000.

Seven Co. owns a coal mine with an estimated 1,000,000 tons of available coal. It was purchased for $300,000 and has $50,000 salvage value. During the current period, Seven mined and sold 200,000 tons of coal. Depletion expense for the period will be how much?

$50,000

straight line method

(cost - salvage value) / useful life salvage=depreciable cost

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

Depreciation

(n.) a lessening in value; a belittling (A cost allocation method)

Revision of Depreciation

1. obtain the book value of the asset at the date of the revision of depreciation 2. compute depreciation expense using the revised amounts for book value, useful life, and/or residual value

A company acquires a patent for $20,000 to manufacture and sell an item. The company intends to hold the patent for 5 years. Amortization for the first year will be recorded with a debit to Amortization Expense for $___________

4000

Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 for taxes and lawyer fees. Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at $_____________

495000

Review the statements below and choose the one that correctly describes a control account.

A control account appears in the general ledger and is supported by a subsidiary ledger.

Which of the following situations will result in recognizing a gain on sale of a plant asset?

A fully depreciated asset is sold for $1,000.

The two most common receivables are _____________________receivables and _____________________receivables.

Accounts Notes

On March 14, Zest Co. accepted a 120-day, 6% note in the amount of $5,000 from AZC Co., a customer. On the due date of the note, AZC dishonors the note and fails to pay. The journal entry that Zest would make to record the failure to pay this note on the due date would include a debit to:

Accounts Receivable - AZC for $5,100

To record a sale on account, the company should debit:

Accounts Receivable.

A company has $150,000 of credit sales during the year and estimates that $1,000 of its accounts receivable will be uncollectible. The adjusting entry will include a credit to:

Allowance for Doubtful Accounts

write-offs and what happens

Allowance for doubtful accounts

A 60-day note is signed on February 15 (and it's not leap year). The due date of the note is:

April 16 Reason: February 28th - February 15th = 13 days + 31 days for March = 44 days; 60 total days - 44 days = 16; therefore, April 16.

Plant assets should be recorded at cost, including all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. This would include which of the following costs? (Check all that apply.)

Assembling Testing Shipping charges

_________ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.

Betterments

Which of the following items are plant assets? (Check all that apply.)

Building being used for operations Equipment being used in operations

Extraordinary Repairs

Capital Expenditures that will extend the useful life of a particular (ex: new engine in vehicle)

On January 1, JC Co. accepted a 60-day, 6%, note in the amount of $10,000 from a customer. On March 2, the due date of the note, the customer honors the note and pays in full. The journal entry that JC would make to record the receipt of payment of this note would include a debit to:

Cash in the amount of $10,100

Which of the following factors determine depreciation? (Check all that apply.)

Cost of asset Salvage value Useful life

A company estimates that $1,000 of its accounts receivable is uncollectible at the end of the period and will make the following adjusting entry: (Check all that apply).

Credit to Allowance for Doubtful Accounts Debit to Bad Debts Expense for $1,000

interest accrued

Debit Interest Recievable and credit interest revenue

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

Depreciation

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

Depreciation

A plant asset is (depreciated/discarded/obsolete)______________ when it is no longer useful to the company, and it has no market value.

Discarded

True or false: The allowance method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts.

False

True or false: The cost of plant assets should include all of the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use, including repairs to damages incurred after installation

False

True or false: The direct write-off method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

False

Explain what a control account is by completing the following sentence. A control account appears in the ____________________(general/subsidiary) ledger and is supported by information in a separate ____________________(general/subsidiary) ledger.

General Subsidiary

Betterments

Improvements adding to value of realty, done by local government and paid for by gainers of value; sidewalks, streets, etc. Results in a special assessment

land improvements

Improvements to land such as paving, lighting, and landscaping that, unlike land itself, are subject to depreciation

_______ are nonphysical assets used in operations that give companies long-term rights, or competitive advantages.

Intangible assets

On March 14, Teal Co. accepted a 120-day, 6% note in the amount of $10,000 from AZC Co., a customer. On the due date of the note, AZC honors the note and pays in full. The journal entry that Teal would make to record payment of this note would include a credit to:

Interest Revenue for $200.

A 90-day note is signed on October 21. The due date of the note is:

January 19 Reason: 90 days = 31-21=10 days in October + 30 days in November + 31 days in December + 19 days in January. Always start with the number of days in the first month and subtract the date of the note. (October: 31-21 = 10).

On December 31, Briar Co. disposed of a piece of equipment that cost $6,000 with accumulated depreciation of $4,500. The entry to record this disposal would include a debit to which account and for how much?

Loss on Disposal of Equipment for $1,500

Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the _________ account.

Machinery

The (maker/payee)_____________ of the note is the one that signed the note and promised to pay at maturity. The (maker/payee)_________________ of the note is the person to whom the note is payable.

Maker Payee

DonCo, Inc. sold merchandise on January 14, and accepted a 90-day, 5% promissory note in the amount of $5,000. On January 14, the entry to record this transaction would include a debit to:

Notes Receivable in the amount of $5,000

Determine which of the following expenses are considered revenue expenditures related to a company vehicle. (Check all that apply.)

Oil change Dent repair Car wash

Which of the following expenses would not be considered an ordinary repair?

Replacing an engine

Maturity date

The date on which an investment becomes due for payment.

True or false: The two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them.

True

goodwill

When a company acquires another company and the net asset is less than purchase price

% of sales method

When an estimate accounts for the uncollectable, allowed to used this method. Percentage given * type sale =

The ________ is a measure of both the quality and liquidity of accounts receivable; it indicates how often, on average, receivables are received and collected during the period.

accounts receivable turnover

The _________________ of accounts receivable method uses several percentages to estimate the allowance.

aging

The __________ method of estimating bad debts uses both past and current receivables information to estimate the allowance amount. Specifically, each receivable is classified by how long it is past its due date.

aging of receivables

Copyrights, trademarks, and other intangible assets are expensed over their useful lives through the process of:

amortization

Plant Assets

assets that will be used for a number of years in the operation of a business

Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):

betterment

When a company revises an estimate used to record depreciation expense, the company should revise depreciation by using the formula (_______ - revised salvage value)/revised remaining useful life.

book value

In September, DK Company sells merchandise to Lions Company on credit. In October, Lions Company pays the balance in full. The entry to record the collection of cash by DK Company in October will include a (debit/credit)___________________ to Accounts Receivable.

credit

On January 1, Franz Co. accepted a 30-day, 6% note in the amount of $5,000 from Bria Co., a customer. On January 31, the due date of the note, Bria honors the note and pays in full. The journal entry that Franz would make to record payment of this note would include a: (Check all that apply.)

credit to Note Receivable for $5,000. credit to Interest Revenue for $25. debit to Cash for $5,025.

On March 14, Ian Co. accepted a 180-day, 5% note in the amount of $1,000 from Ali Co., a customer. On the due date of the note, Ali dishonors the note. The journal entry that Ian would record on the due date would include a: (Check all that apply.)

credit to Notes Receivable for $1,000. credit to Interest Revenue for $25. debit to Accounts Receivable - Ali for $1,025.

aging of A/r

debit interest receivable and credit interest revenue principal*interest rate*time(from sign date to end of accounting period)

Zion Company sells merchandise on credit to BRC, Inc. in the amount of $1,200. The entry to record this sale would include a: (Check all that apply.)

debit to Accounts Receivable. credit to Sales.

On November 1, Eli Co. received a $6,000, 60-day, 6% note from a customer as payment on his $6,000 account. Eli's journal entry to record this transaction on November 1, would include a: (Check all that apply.)

debit to Notes Receivable for $6,000. credit to Accounts Receivable for $6,000.

A company owns an asset that is fully depreciated. The asset is no longer being used in operations and has no market value. The company has decided to ________ the asset by recording an entry to remove it from the balance sheet.

discard

Capital Expenditures

expenditures that get added/debited to the asset account, because they either are extraordinary repairs that extend the useful life, or they are what is called betterments. (ex: adding another terminal to airport to increase operating capacity)

Land ____________ are assets that are additions to land and have limited useful lives, such as walkways and fences.

improvements

Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called:

land improvements

The purchase of a group of plant assets for one price is called a ______ purchase.

lump-sum

Brice Co. purchases land in order to drill oil. This oil field would be classified as a(n) _______ on the balance sheet.

natural resource

Accounts receivable turnover is calculated using the following formula:

net sales/average accounts receivable, net

(Plant/Current)_______ assets purchased as a group in a single transaction for a lump-sum price are allocated the purchase price based on their relative market values.

plant

A _________________ is an amount due from another party.

receivable

(Revenue/Capital)__________________ expenditures are additional costs of plant assets that do not materially increase the asset's life or capabilities.

revenue

Straight-line depreciation is calculated by taking cost minus (salvage/market)_______________ value divided by useful life.

salvage

Companies sometimes convert receivables to cash before they are due by selling them or using them as security for a loan. The reasons that a company may convert receivables before their due date include: (Check all that apply.)

the company needs cash. the company does not want to deal with collecting receivables.

Leo Co. uses the allowance method to account for bad debts. At the end of the year, Leo Co.'s accounts receivable balance is $25,000; allowance for doubtful accounts balance of $100 (credit); and sales of $500,000. Based on history, Leo estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$400 Reason: $25,000 x 2% = $500 desired ending balance in the allowance account. Subtract the beginning credit balance to determine the amount of the adjusting entry. $500 - $100 = $400.

In July, Lane Co. sells merchandise to Avery Co. on account. In August, Avery pays the balance in full. The entry that Lane will make to record the receipt of cash will include a credit to the _______ account.

Accounts Receivable

To calculate depletion expense, first determine the depletion per unit. Depletion per unit can be calculated by taking (cost ______)/total units of capacity.

Minus salvage value

______ are assets that are physically consumed when used, such as mineral deposits and oil and gas fields.

Natural resources

_______ are expenditures that keep an asset in good operating condition. They are necessary if an asset is to perform to expectations over its useful life.

Ordinary repairs

A _______ is an exclusive right granted to its owner to manufacture and sell an item or use a process for 20 years.

Patent

Which of the following assets are amortized? (Check all that apply.)

Patent Copyright

___________________assets are assets used in a company's operations that have a useful life of more than one accounting period.

Plant

The cost at which a company records purchases of machinery and equipment should include which of the following? (Check all that apply.)

Shipping fees Taxes Purchase price Installation

loss on disposal

When the proceeds from the sale are less than the book value of the asset disposed of.

The process of allocating the cost of a natural resource to a period when it is consumed requires a debit entry to the _______________, ___________________account.

depletion, expense

On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.

$1,400 Reason: (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation The partial year depreciation should be recorded for seven months (June 1- December 31).

Tops Co. purchases equipment for $12,000 and has been using straight-line depreciation, estimating a 5-year life and $500 salvage value. At the beginning of the third year, Tops decides to use the equipment for a total of 6-years with no salvage value. Compute the revised depreciation for the third year.

$1,850 Reason: (12,000-500)/5=2,300 per year. $2,300 x 2 years = $4,600 depreciation taken. Book value at beginning of year 3 = $12,000-4,600= $7,400/4 = $1,850.

Ion Co. purchased land for $190,000. Ion also paid $5,000 in real estate commissions, $1,000 in legal fees, and $500 in title insurance fees. Ion should record the cost of this land at:

$196,500

Flash Co. uses the allowance method to account for bad debts. At the end of the year, Flash Co.'s unadjusted trial balance shows an accounts receivable balance of $45,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,500,000. Based on history, Flash estimates that bad debts will be 0.5% of sales. The entry to record estimated bad debts will include an debit to Bad Debts Expense in the amount of:

$7,500 Reason: When allowance method is based on sales, do not take into account previous balance in the allowance account. $1,500,000x.005=$7,500.

The advantages of using the allowance method to account for bad debts include which of the following? (Check all that apply.)

Reports accounts receivable balance at the estimated amount to be collected Matches expenses in the same period with the related sales

Salvage Value

Residual value of the asset that is being depreciated

The factors necessary to compute depreciation include (cost/selling price/market value)________________________, salvage value and useful life.

cost