Ch 7 and 8 HW

Beta Company purchased a truck on January 1, Year 1. Sigma Company also purchased a truck on the same date. The trucks were identical in every respect. Even so, Beta decided to depreciate its truck using straight-line depreciation while Sigma decided to use the double-declining-balance method. All other things being equal,

Beta Company will show a greater amount of total assets on its Year 1 balance sheet than Sigma will show.

Which of the following intangible assets has an indefinite useful life?

Goodwill

When is it acceptable to use the direct write-off method of accounting for uncollectible accounts?

If the uncollectible accounts are not material.

What term is used to describe the situation where the value of an intangible asset may be significantly diminished?

Impairment

The MACRS method of determining depreciation expense has been established by the

Internal Revenue Service.

The acronym MACRS stands for which of the following?

Modified Accelerated Cost Recovery System (MACRS)

What is the difference between the allowance method and the direct write-off method of accounting for uncollectible accounts?

The allowance method recognizes an estimate amount of the uncollectible accounts of expense and the direct write-off method recognizes uncollectible accounts expense, when accounts are determined to be uncollectible, regardless of the period that the sale occurred.

On January 1, Year 1, Dinwiddie Company purchased a car that cost $45,000. The car has an expected useful life of 5 years and a $10,000 salvage value. Which of the following statements is true?

The amount of depreciation expense recognized in Year 4 would be greater if Dinwiddie depreciates the car under the straight-line method than if the double-declining-balance method is used.

What is the most common format for reporting accounts receivable on the balance sheet? Why is this more informative than reporting accounts receivable at their gross amount (face value)?

The most common format for reporting accounts receivable is subtracting allowance for doubtful accounts from accounts receivable to get net realizable value of receivables. The net realizable calue, more closely measures the cash that will ultimately be collected than does the face value.

An operating cycle is the length of time it takes to convert inventory to accounts receivable plus the time it takes to convert the account receivable back to cash. This statement is

True

Which of the following terms is used to describe the process of expense recognition for property, plant and equipment?

depreciation

The accounts receivable turnover ratio is calculated by

dividing the amount of credit sales by the average balance of accounts receivable.

All costs associated with a machine after it is operational are expensed in the period they are incurred. This statement is

false

The use of estimates and revision of estimates are uncommon in financial reporting.

false

Depletion is the term used to recognize expense associated with

natural resources.

Wild company purchased an asset on December 1, Year 1. Based on the Modified Accelerated Cost Recovery System (MACRS), Wild can deduct

one half of one full year of depreciation on its Year 1 tax return.

Which method of depreciation is used by most U.S. companies for financial reporting purposes?

straight-line

Which of the following normally has an associated contra account?

tangible long-term assets

All other things being equal, a company using double-declining balance depreciation will show higher depreciation expense in the first year of an asset's useful life than a company using straight-line depreciation. This statement is

true

Goodwill is recognized only when it is purchased. This statement is

true

It is legal for a company to use one method of depreciation for tax reporting purposes and a different method for financial reporting purposes. This statement is

true

Land is different from other tangible assets in that its utility is not diminished by its use. This statement is

true

Two companies that experience identical accounting events may still report different amounts of net income. This statement is

true

At the end of Year 5, the equipment was still owned by Jing Company. What is the book value of the office equipment using the straight-line method and double-declining-balance method, respectively?

$12,000 and $12,000.

Corazon Company purchased an asset with a list price of $14,000. Corazon paid $500 of transportation in cost, $800 to train an employee to operate the equipment, and $200 to insure the asset against theft after it has been setup in the factory. The asset was purchased under terms 1/20/n30 and Corazon paid for the asset within the discount period. Based on this information, Corazon would capitalize the asset on its books at

$15,160

Tyler Company purchased equipment that cost $260,000 cash on January 1, Year 1. The equipment had an expected useful life of five years and an estimated salvage value of $10,000. Tyler depreciates its assets under the straight-line method. What is the amount of depreciation expense appearing on the Year 1 income statement?

$50,000

Senath Company's annual report reveals net credit sales of $240,000 and average accounts receivable of $20,000. The report also shows an average inventory balance of $10,000 and cost of goods of $200,000. Based on this information,the accounts receivable turnover is

12 times per year.

Senath Company's annual report reveals net credit sales of $240,000 and average accounts receivable of $20,000. The report also shows an average inventory balance of $10,000 and cost of goods of $200,000. Based on this information, the number of days to collect accounts receivable is (treat any partial day as a whole day)

31 days.

Madison Company owned an asset that had cost $44,000. The company sold the asset for $16,000. Accumulated depreciation on the day of sale amounted to $32,000. Which of the following statements is true?

A $16,000 cash inflow in the investing activities section of the cash flow statement.

What is the difference between accounts receivable and notes receivable?

Account receivable is an asset account of cash receipts expected to be paid later within a short period of time. Notes receivable specify the evidence of maturity date, rate of interest, and credit terms to receive the cash in the future.

What is an "aging of accounts receivable" schedule? How is it used in estimating uncollectible accounts receivable?

An aging of accounts receivable schedule is used to develop an estimate of the amount of the allowance for doubtful accounts. To estimate the uncollectible expense amount, the higher uncollectible percentage estimates are applied to older receivables.