Exam 3

By comparing the number of days to collect with the length of the credit policy, companies can infer that customers _____ If the days to collect is high.

-Are more likely to default -May be dissatisfied with the product or service

What are the potential drawbacks of speeding up collections of receivables?

-Customers may get annoyed and take their business elsewhere. -Hounding customers to pay if their receivables are past due is time-consuming and costly

On March 1st, Scents, Inc. lent $1,000 to an employee at a rate of 6% for 3 months. Scents' entry to record the loan of $1,000 to its employee includes a ?

-Debit to notes receivable of $1,000 -Credit to cash$1,000

The adjusting entry to record depreciation debits (BLANK) and credits (BLANK).

-Depreciation Expense -Accumulated Depreciation

The days to collect ratio provides what kind of information? (Check all that apply).

-The average number of days from sale on account to collection -That a higher number of days means a longer (worse) time for collection.

A sale on account is recorded with a debit to (BLANK) and a credit to (BLANK).

-Accounts Receivable -Sales Revenue

Sunny Sky paid $30,000 cash for a piece of land to be used for a new corporate headquarters building. The journal entry to record this transaction will include a $30,000 ____.

-debit to land -credit to cash

Anudu, Inc. sold equipment and received more cash than the equipment's book value. the effect of this sale on the accounting equation includes a

-increase to assets -increase to stockholders' equity

The book (or carrying) value of equipment equals Equipment

Minus accumulated depreciation

(Cost - (blank) value) x ((Blank) production this period/ estimated total production) in the formula for calculating units-of-production depreciation.

Residual actual

Which of the following entries will result in a decrease in total assets and stockholders' equity?

The adjusting entry to record the depreciation of long-live assets

The adjusting entry to record the estimated amount of bad credit sales is a debit to Bad Debt Expense and a credit to

Allowance for doubtful accounts

The (BLANK) write-off method is not allowed under GAAP.

Direct write-off method

Failing to record bad debt expenses in the same period at the related revenue violates which principle?

Expense recognition (matching) principle

Deferred Income Tax is recorded when

a company reported more depreciation (and less income tax) on its tax return than on its income statement prepared under the GAAP

If the adjusting entry to accrue interest of $1,000 on a note receivable is omitted, then

assets, net income, and stockholders' equity are understated by $1000.

The Old Metropolitan Theater, which had been unused for years, was purchased for $1, renovated at a cost of $3.5 million, and then reopened for business. The renovation cost should be:

capitalized as part of the cost of the theater

Ace Electronics bought a new cash register for 2500. Ace plans to use the cash register for 4 years, and then sell it for 200. After 4 years, Ace had recorded 2,300 of depreciation. If Ace continues to use the cash register, still planning to sell it eventually for $200, then Ace should record

no additional depreciation

Which statement about depreciation is true? A company

may use different depreciation methods for different classes of assets is used consistently

The primary objective of income taxes is to ____.

raise enough revenue to pay for expenditures and to encourage certain social and economic behaviors

Collection of a previously written-off account is called a(n) (BLANK).

recovery

sales made on account are recorded with a debit to Accounts Receivable and a credit to Sales Revenue for the price times the quantity. Management knows that some of those accounts will not be collected but is unsure what specific customers it will be. Thus, management estimates the amount and records an adjusting entry. Later, when the specific non-paying customer is identified, it writes off the account. The effect of the write off on the accounting equation is to ______

reduces assets and stockholders' equity when the adjusting entry is recorded

The straight-line depreciation method _______.

reports an equal amount of depreciation expense each year

The estimated amount a long-lived asset is expected to be sold for at the end of its useful life is the ____ value.

residual

The formula for fixed asset turnover ratio equals net _____ divided by average net fixed assets

sales

A gain on the disposal of an asset occurs when the

selling price is greater than the asset's book value

(Cost-residual value)x(1/useful life) is the formula for calculating the:

straight-line method of depreciation.

The "least and latest rule" is

that a taxpayer should pay the least amount of taxes at the latest date allowed

the entry to record an equipment's impairment includes ________

-credit to equipment -debit to impairment loss

The list price of a computer was $100,000. The sales tax on the computer was 5%. The delivery cost was $1,000. The cost to assemble the computer was $500. The Equipment account should be debited for a total of

106,500

On January 1, Ace Electronics bought a new cash register for $2500 and estimates a useful of 4 years and $0 residual value. For tax purposes, the TOTAL depreciation expense that Ace can record over the cash register's useful life is:

2,500

The Allowance for doubtful Accounts T-account will have the (BLANK) on the credit side.

estimated bad debts from the adjusting entry

If the proceeds from selling an asset is greater than the asset's book value, then a __________.

gain on disposal will be credited

On January 1, 2018, Busy Beaver bought a new industrial lathe for $210,000. It expects to use the lathe for 10,000 hours over the next 5 years and then sell it for $10,000. Busy beaver used the lathe for 2,000 hours in its 1st year and 2,500 hours in its 2nd year. Using the units-of-production, depreciation expense will be ____

greater in the 2nd year since lathe was used more

Vango, Inc. bought a new delivery van during the year. Which of these costs should be expensed as ordinary repairs and maintenance?

-$100 oil change on van -$900 for cleaning the van during the year

If the Allowance for Doubtful Accounts on January 1st equals $10,000 and during the year $9,000 of specific customers' accounts were written off, then its Allowance for Doubtful Accounts will have an unadjusted balance of ?

$1,000 credit

If the allowance for doubtful accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts, then it must mean that (BLANK).

$1,000 more accounts receivables were written off than were estimated back when the prior period's adjusting entry for bad debts was recorded

Management estimates that 1% of the $100,000 of credit sales will be uncollectible. The allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the adjusting entry is recorded, Bad Debt Expense on the income statement will be (BLANK) the allowance for Doubtful accounts on the balance sheet.

$100 less than

Using the aging approach management estimates that 10% of the $10,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the bad debt adjusting entry is recorded, Bad Debt expense on the income statement will be (BLANK) the Allowance for Doubtful Accounts on the balance sheet.

$100 less than

Accounts receivable has a $2,300 balance, and the Allowance for Doubtful Accounts has a $200 credit balance. An $80 account receivable is written-off. Net receivables (net realizable value) after the write-off equals ?

$2,100 Process to solve: (2,300-200)-(200-80)= 2,100

On January 1, Busy Beaver bought a new industrial lathe for $210,000. It expects to use the lathe for 10,000 hours over the next 5 years and then sell it for $10,000. Busy Beaver used the lathe for 2,000 hours in its 1st year and 2,500 hours in its 2nd year. Accumulated Depreciation at December 31 of the 2nd year, using units-of-production, equals

$90,000

Which of the following financial statement totals are reduced by the adjusting entry to record amortization?

- net income on the income statement - total assets on the balance sheet - total stockholder's equity on the balance sheet

Match the entry that would be recorded for the 4 key events related to issuing an interest-bearing note.

- The issuance of a note: debit Notes Receivable and credit Cash -The adjusting entry to record interest owed: debit Interest Receivable and credit Interest revenue -The receipt of an Interest payment: debit Cash and credit Interest Receivable -The receipt of the principal payment: debit Cash and credit Notes Receivable

Six years ago, on January 1, Ace Electronics purchased a $310,000 machine with an estimated useful life of 10 years and a residual value of $10,000. Ace used the machine for 6 years and recorded straight-lien deprecation each year. Ace found that the machine no longer had any future economic value because the product it makes is obsolete. Ace still owns the machine but should make a journal entry that includes a _____.

-$130,000 debit to Loss on -Impairment$130,000 credit to Machinery

Dew Drop Inn sold 10 beds that had originally cost $500 each for a total of $800 cash. The depreciation recorded on the beds at the time of the sale equals $4,000. The entry to record the sale includes a:

-$5,000 credit to furniture -$4,000 debit to accumulated depreciation -$200 debit to lost on disposal -$800 debit to cash

X-it Company bought a new delivery truck. The manufacturer says that the truck should last for ten years and 120,000 miles. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. What is the useful life of the truck for depreciation purposes?

-4 years -50,000 miles

A higher residual value will result in a(n) (BLANK) depreciation expense per year and a(n) (BLANK) higher net income.

-Lower -Higher

The allowance method requires that (BLANK). Check all that apply.

-Allowance for doubtful accounts be netter against accounts receivable -Bad debt expense be recorded in the same period as the related credit sales

Which of the following accounts are temporary accounts closed (zeroed out) at the end of the accounting period into Retained Earnings? (Check all that apply.)

-Bad Debt Expense -Depreciation Expense -Sales Revenue

ABC, Inc.'s unadjusted trial balance included Accounts Receivable $80,000 debit; Allowance for Doubtful Accounts $750 credit; and credit sales $400,000 credit. ABC uses the aging-of-receivables method and estimates that $8,000 of its receivables will be uncollectible. After the adjusting entry is made, ABC's financial statements will report:

-Bad Debt Expense of $7250 on the income statement -Allowance for Doubtful Accounts of $8000 on the balance shee

Which of these assets are depreciated?

-Cash -Inventory -land

IFRS and GAAP rules to account for long-lived asset values differ in that

-IFRS allow development costs to be capitalized -IFRS allow asset values to be increased to fair values

Which of the following costs associated with long-lived assets are expensed, not capitalized?

-Immaterial repairs and maintenance -Ordinary repairs and maintenance

The 3 variables needed to calculate interest are

-Principle -yearly interest rate -time period covered in the interest calculation

Busy Beaver, Inc. signed a $315,000, 5-year note payable to buy a new $315,000 industrial veneer cutter. Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs. What is the overall effect of this transaction on the accounting equation?

-Total liabilities increase $315,000 -Machinery, an asset, increases $320,750 -Total assets increase $315,000

Which of these are intangible assets?

-Trademarks -Brand names -Patents

The asset's book value (or cost minus accumulated depreciation) must equal its residual value at the end of its useful life using which depreciation methods?

-Units-of-production -Straight-line -Double-declining-balance

Which of the following result in an increase to intangible assets?

-a company purchased a franchise for $100,000 -a company purchased another company for $10,000 more than its net assets -$10,000 was spent to purchase a patent

Allowance for Doubtful Accounts is a(n) (BLANK)- asset account and has a normal (BLANK) balance.

-contra -credit

Bad Debt Expense (BLANK). (Check all that apply.)

-is a cost of extending credit to customers -is an estimate

Amortization

-is an accordance with the expense recognition (matching) principle -is calculated using the straight-line method -spreads the cost of intangible assets to expense over their useful lives

what is the effect of an impairment loss on the accounting equation?

-it decreases total stockholders equity -it decreases total assets

Notes receivable are used for. (Check all that apply.)

-lending money to individuals or businesses -extending payment periods -selling large-value items

If an intangible asset is being self-constructed or internally developed its cost are generally debited to (BLANK) and (BLANK) expense.

-research -development expense

Why might a company dispose of a long-lived tangible asset?

-the asset was seriously damaged -the asset is replaced with a newer, more efficient model -the asset has reached the end of its useful life -the company doesn't need the asset anymore

On January 1, X-it company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. Depreciation expense for the fourth year of use using the double-declining-balance equals `

0

Place the events in proper sequence putting the first step on top for a 2-year note established in November that pays interest annually.

1 Debit notes receivable and credit cash 2 debit interest receivable and credit interest revenue 3 debit cash and credit interest receivable (or Interest Revenue if not previously recorded) 4 debit cash and credit notes receivable , interest revenue and interest receivables

Which of the following is the typical sequence of accounting for sales made on account using the allowance method? Place in the order of occurrence from top to bottom.

1. Accounts Receivable are debited in the period the revenue is recognized 2. bad debt expense is estimated and recorded with an adjusting entry 3. specific customer balances are written off

Which of the following are advantages of using national credit cards?

1. Avoid lengthy cash collection periods 2. Reduction of bad debts expense

Rank companies A-C based on how favorable their receivables turnover ratio is (from most favorable on to to least favorable):

1. Company B: 5.6 times 2. Company A: 3.4 times 3. Company C: 2.4 Times

Match each description. 1.Straight-line depreciation 2.Units-of-production depreciation 3.Declining balance depreciation

1. Does the best job for matching the expense with the related revenue when an asset is evenly used over its useful life 2.Is the best method to use when the amount of an asset's use varies significantly from one accounting period to the other 3.Is the best method to use when an asset is productive its earliest years but quickly loses its usefulness

On which financial statement are the line items reported? 1.Depreciation Expense 2. Accumulated Depreciation

1. Income statement 2. Balance sheet

Ace Electronics bought a new cash register for 2,500. Ace plans to use the cash register for 4 years and then sell it for $200. The cash register's decipherable cost equals

2300

Net sales revenue is $730,000. Beginning and ending net accounts receivable are $62,000 and $58,000, respectively. Calculate the days to collect.

30 days Process: Average Net receivables: (Beginning Net Receivables +Ending Net Receivables)/ 2 (62,000+58,000)/2= 60,000 Receivable Turnover Ratio: Net Sales Revenue/ Average net Receivable 730,000/60,000=12.17 Days to collect: 365/receivable turnover ratio 365/12.17=30

On June 1, 2018, Ace Electronics bought a new cash register for $2,500. Ace plans to use the cash register for 4 years and then sell it for $100. If Ace uses straight line depreciation, what is depreciation expense for the year ended December 31, 2018

350

On September 1, 2020 Acme, Inc., sold its sales managers company car. The car was purchased in 2015 and was not yet fully depreciated. How many months of depreciation expense should Acme record on the car in 2018?

8

Vicious Cycle built a new building. Which of the following costs should be expensed?

A party to celebrate grand opening

(BLANK) Receivable arise from making sales to customers on account and are non-interest bearing. (BLANK) Receivable are formal written contracts that are interest bearing.

Accounts Notes

The formula for calculating double-declining-balance equals (Cost - (Blank) x 2/useful life

Accumulated Depreciation

Although there are some clear disadvantages associated with extending credit to customers, such as bad debt costs, most managers believe a particular advantage outweighs the costs. To which primary advantages do they refer?

Additional sales revenue

Murphy's Paw Inc. has credit sales of $100,000 for the month ended May 31. The accounts Receivable balance is 8,000. Management estimates that !% of its credit sales will be uncollectible. This adjusting entry includes a debit to ?

Bad Debt Expense and credit to Allowance for Doubtful Accounts for $1,000

Another term for long-lived tangible assets is ___________ assets and is found on the financial statement called the ________________.

Fixed assets balance sheet

Which of the following will result in the recording of goodwill?

Company A purchases company B and pays more than the fair market value of company B assets and liabilities

Which depreciation method does not include the residual value in its formula and thus must be reviewed to be sure the asset's net book value does not fall below the residual value?

Declining balance

(BLANK) is the allocation of the cost of a long-lived asset over its useful life creating an expense on the income statement that is matched against the revenue generated by using the asset.

Depreciation

Straight-line, units-of-production, and declining-balance are commonly used ____ methods.

Depreciation

On November 1, 2020, Lendem, Inc., loaned an employee $100,000 at 6% with both the interest and principal due in 1 year. The adjusting entry to record the interest earned but not received as of December 31, 2015 includes a ______.

Interest Receivable of $1,000

A productive asset

Is used to produce goods or services that will be sold to customers

Why would a company debit Interest Receivable?

It generated interest on its notes receivable which will be collected in a later accounting period

Match each account with the proper description.

Notes receivable: the principal amount Interest receivable: the amount of interest earned but not yet collected Interest revenue: the amount of interest earned

Match the following methods for estimating bad debts with their description.

Percentage of credit sales Estimates bad debt expense based on the historical percentage of sales that lead to bad debt losses Aging of accounts receivable Estimates the allowance for doubtful accounts based on the age of each account receivable

What effect does the collection of a note receivable, excluding interest, have on the accounting equation?

Total assets remain the same

Disposal of intangible assets results in gains (or losses) if the amounts received on disposal are greater than (or less than) their book values

True

T/F: Depreciation is not intended to report an asset at its current value

True

During the year, ABC Corp. realizes that a particular customer will never pay. What action should ABC take?

Write off the uncollected account and its corresponding allowance from the accounting records

Similar to depreciation, _____ is the expensing of intangible asset's usefulness used during the accounting period.

amortization

Recording an asset impairment requires netting the

asset with its accumulated depreciation and then reducing the assets carrying value to its lower fair market value

Why is allowance for doubtful accounts credited, instead of Accounts receivable, when recording the adjusting entry for bad debts?

accounts receivable consists of many customer accounts and thus cannot be credited unless it is known which specific customer is not going to pay

A(n) _________ of accounts receivables method is based on the amount of days the receivables have been unpaid. When determining the desired amount of the Allowance for Doubtful Accounts, the older receivables are assigned a higher percent then the newer ones.

aging

If a cost is capitalized it is recorded as an _________, not an expense

asset

Keeping 2 sets of accounting records, one for financial reporting and one for income tax reporting is ____

common

Decipherable cost equals an asset's

cost minus its residual (or salvage) value

True or false: Assets are reviewed for impairment at least annually.

debit

Allowance for Doubtful Accounts a contra-asset account, is (BLANK) when specific uncollectible accounts are written-off.

debited

The allowance method is a method of accounting that (BLANK) for estimated bad debts.

decreases net accounts receivable

Morris Lest, Inc. sold its delivery truck fro $500 more than its book value. The sale will result in a(n)

increase in Net Income on the Income statement

Morris Lest, Inc. sold its delivery truck for 500 more than its book value. The sale will result in an:

increase in Net Income on the income statement

Acme, Inc. bought land and a factory building for $80,000. The land was appraised at $25,000 and the building at $75,000. Using the basket purchase allocation, Acme would record the _____.

land at $20,000 and the building at $60,000

The employee who records the entry to write off uncollectible accounts should:

not be the same person who receives collections from customers

Partial year modifications are not necessary for:

unit-of-production

When does impairment occur?

when circumstances interfere with the ability to recover the value of the asset through future operations