accounting 3 exam

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, what is the Depreciation Expense for Year 4?

$0 Under DDB the asset is fully depreciated in Year 3 even though it has a useful life of four years. Once an asset is fully depreciated, meaning the book value (asset account minus A.D.) equals the salvage value, it should not be depreciated further. This is true even if the asset has additional useful life or if the useful life has passed and the asset remains in operation.

On December 31, Year 3, Alpha Company had an ending balance of $200,000 in its Accounts Receivable account and an unadjusted (current) balance in its Bad Debt Allowance account of $300. Alpha estimates Bad Debt Expense to be 1% of receivables. Based on this information, the amount of Bad Debt Expense shown on the Year 3 income statement is:

$1,700. A/R 200000 x UAE% .01 = New Allowance Balance 2000 New Allowance Balance 2000 - Current Allowance Balance 300 = 1700

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of Depreciation Expense recognized on the Year 2 Income Statement is:

$10,000. (Purchase Price 48000 - Salvage Value 8000) / Useful Life 4 = Depreciation Expense 10000

Walter Company's multistep Income Statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information the sales revenue amounted to:

$102,000 Gross Margin 42000 + COGS 60000 = Revenue 10200

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, what is the Depreciation Expense for Year 2?

$12,000 Asset 48000 - A.D. 24000 = Book Value 24000 Book Value 24000 x double straight-line rate 50% = 12000

At the beginning of Year 1, Metal Manufacturing purchased a new computerized drill press for $75,000. It is expected to have a five year life and a $15,000 salvage value. What is the annual depreciation expense assuming the company uses straight line depreciation?

$12,000 Purchase Price 75000 -Salvage Value 15000 /Useful Life 5 =Depreciation Expense 12000

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 n/30 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. Purchase Price 14000 - 1% Discount 140 + Freight In 500 + Training 800 = Total Cost of asset 15160

On January 1, Year 1, Raven Limo Service, Inc. paid $64,000 cash to purchase a limousine. The limo was expected to have a six year useful life and a $10,000 salvage value. On January 1, Year 5 the limo was sold for $30,000 cash. Assuming Raven uses straight-line depreciation, the Company would recognize a

$2,000 gain. Depreciation each year = (64000 - 10000) / 6 = 9000 Purchase Price 64000 - A.D. Year 4 36000 = Book Value 28000 Selling Price 30000 - Book Value 28000 = Gain 2000

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,500,000 cash to purchase the rights to extract raw stone from a surface pit estimated to hold 50,000 tons of useable material. GMC extracted 10,000 tons of stone in Year 1, 20,000 tons of stone in Year 2, and 25,000 tons of stone in Year 3. The rights to the surface pit were expected to have a $500,000 salvage value at the end of Year 3. What is the depletion expense per ton (unit depletion)?

$200 (Purchase Price 10500000 - Salvage 500000) / Estimated total tons 50000 = $200 per ton

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, what is the Depreciation Expense for Year 1?

$24,000. Asset 48000 x straight line rate 100/4 x double 2 = Year 1 depreciation 24000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the straight-line method, the amount of book value shown on the Year 2 Balance Sheet is

$28,000. Purchase Price 48000 - A.D. 20000 = Book Value 28000

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method, what is the Depreciation Expense for Year 3?

$4,000 Book Value 12000 x double straight-line rate 50% = 6000 $6,000 Depreciation Expense would bring the book value to $6,000, however that would be $2,000 lower than the $8,000 salvage value. Therefore, you can recognize only $4,000 of the 6000 calculated.

At the end of the accounting period Anderson Company had $4,500 in Accounts Receivable and $500 in its Bad Debt Allowance account. Based on this information the Net Realizable Value of Accounts Receivable is

$4,000. AR 4500 - Allowance 500 = NRV AR 4000

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,500,000 cash to purchase the rights to extract raw stone from a surface pit estimated to hold 50,000 tons of useable material. GMC extracted 10,000 tons of stone in Year 1, 20,000 tons of stone in Year 2, and 25,000 tons of stone in Year 3. The rights to the surface pit were expected to have a $500,000 salvage value at the end of Year 3. What is the value of the Stone Pit asset on the Year 2 Balance Sheet?

$4,500,000. Purchase Price 10,500,000 - Year 1 Depletion 2,000,000 - Year 2 Depletion 4,000,000 = Stone Pit Ending $4,500,000

Which A/R amount is used to estimate uncollectible accounts in the percent of receivables method?

$69,650 The current balance in A/R is used to estimate uncollectible accounts

What is the value of the plant asset account at the end of the first accounting period?

$75,000 The balance in the plant asset account remains at the purchase price until the asset is sold.

Escrow Company's multistep Income Statement shows cost of goods sold of $60,000, a gross margin of $42,000, operating income of $12,000 and a $20,000 loss on the sale of land. Based on this information, the net income or (net loss) amounted to:

($8,000) Operating Income 12000 - Loss 20000 = Net Loss 8000

SAR Inc. provided the following services on account during January Year 1: Long $100 Moore $150 Nelson $400 4) In February Year 1, Long purchased $75 on account. In March Year 1, SAR Inc. received the following payments: 5) Long paid his bills in full6) Moore paid $1007) Nelson paid $150 8) In April Year 1, Moore paid $25. 9) In May Year 1, Nelson paid $80. How much does Long owe at the end of Year 1?

0 Purchase #1 100 + Purchase #2 71 - Payment 175 = Balance due 0

What is Dynamo's Operating Loss for Year 2?

10000 Revenue 0 - Amortization Expense 10000 = Operating Loss 10000

What is the value of the mine at the end of Year 2?

105000 Purchase Price 600000 - Year 1 Depletion 225000 - Year 2 Depletion 270000 = Mine Year 2 end 105000

The following information is available for Market, Inc. and Supply, Inc. at December 31: AccountMarket IncSupply IncAccounts Receivable$56,200$75,400Allowance for Doubtful Accounts2,248 2,256Sales Revenue606,690 867,100 What is the Accounts Receivable turnover for Market Inc? Round to one decimal place.

11.3 Sales 606690 / Net AR (56200-2248) = AR Turnover 11.3

What is the Accounts Receivable turnover for Supply Inc? Round to one decimal place.

11.9 Sales 867100 / NRV A/R (75400-2256) = A/R Turnover 11.9

How much money will the credit card company pay Ultra Day Spa?

114000 CC Sales 120000 - CC Fee 6000 = CC Reimbursement 114000

What is the amount of Cash Flow from Operating Activities reported on the Statement of Cash Flows?

114000 Cash collected from the credit card company amounted to $114,000.

What is the amount of Net Income earned during the year?

114000 Revenue 120000 - Credit Card Expense 6000 = Net Income 114000

What is the amount of Total Assets at the end of the accounting period?

114000 The only asset is Cash at a value of $114,000.

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. Credit Sales 240000 / Avg AR 20000 = 12 times

What is the amount of Revenue reported on the Income Statement?

120000 The full value of the credit card sales.

Colorado Mining was started with the issue of $800,000 common stock. During Year 1, Colorado Mining paid $600,000 to acquire a mine with 40,000 tons of coal reserves. The company extracted 15,000 tons of coal in Year 1 and 18,000 tons in Year 2. What is the depletion charge per ton?

15 Mine 600000 / tons 40000 = $15 per ton.

What is Dynamo's Net Loss for Year 2?

15000 Revenue 0 - Patent Amortization Expense 10000 - Goodwill Impairment Loss 5000 = Net Loss 15000

What is the true cash balance?

15210 Unadjusted Bank Balance 19500 + Deposits in Transit 2400 - Outstanding Checks 6690 = True Cash Balance 15210 Unadjusted Book Balance 15200 + Interest 30 - Service Fee 20 = True Cash Balance 15210

What is the Net Realizable Value of Accounts Receivable?

16807 A/R 19000 - ADA 2193 = NRV 16807

How much does Nelson owe at the end of Year 1?

170 Purchase 400 - Payment #1 150 - Payment #2 80 = Balance due 170

By how much must the Cash account be credited for the following mistake: $75 check written to OfficeMax for office supplies was recorded in the general journal as $57?

18 Check Amount 75 - Journal Amount 57 = Correction 18

Vulcan Service Co. experienced the following transactions for Year 1, its first year of operations: Provided $91,000 of services on account. Collected $72,000 cash for Accounts Receivable. Paid $36,000 of salaries expense for the year. Adjusted the accounts using the following information from an Accounts Receivable aging schedule: Number of Days Past DueAmount% Likely UncollectibleCurrent$7,800.010-304,500.0531-602,000.1061-902,200.20Over 90 days2,500.50 What is the ending balance of Accounts Receivable?

19000 Service on account 91000 - Collections 72000 = A/R End 19000

What is the ending balance of Accounts Receivable

195 Jan Purchases on account 650 + Feb Purchases on account 75 - Mar Payments 425 - April Payment 25 - May Payment 80 = A/R End 195 Also, Moore balance due 25 + Nelson balance due 170 = A/R End 195

Golden Manufacturing Company started operations by acquiring $150,000 cash from the issue of common stock. On January 1, Year 1, the company purchased equipment that cost $120,000 cash, had an expected useful life of five years, and had an estimated salvage value of $4,000. Golden Manufacturing earned $72,000 and $83,000 of cash revenue during Year 1 and Year 2, respectively. Golden Manufacturing uses double-declining-balance depreciation. What is Golden's straight line rate?

20% 100% / 5 years = 20%

According to the aging schedule, what is the value of Accounts Receivable that is likely to be uncollectible?

2193 Current 7800 x .01 +0-30 4500 x .05 +31-60 2000 x .1 +61-90 2200 x .2 +>90 2500 x .5 = ADA 2193

What is the Depletion Expense for Year 1?

225000 15000 tons x $15 per ton = $225000

What is Net Income for Year 1?

24000 Revenue 72000 - Depreciation Expense 48000 = Net Income 24000

How much does Moore owe at the end of Year 1?

25 Purchase 150 - Payment #1 100 - Payment #2 25 = Balance due 25

What is the Depletion Expense for Year 2?

270000 18000 tons mined x $15 per ton = $270000

What is the Depreciation Expense for Year 2?

28800 Asset Value 120000 - Accumulated Depreciation 48000 = Book Value 72000 Book Value 72000 x Double Straight Line Rate .4 = 28800

Assuming both companies use the percent of receivables allowance method, what is the estimated percentage of uncollectible accounts for Supply?

3% Allowance 2256 / AR 75400 = 3%

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 Sold of $200,000. Based on this information, the number of days to collect Accounts Receivable is (round to the nearest whole day)

30 days. 365 / AR Turnover 12 = 30

What i the ending balance in the Goodwill account?

30000 Purchase Price 35000 - Impairment Loss 5000 = Ending Balance 30000

What is the ending balance in the Patent account?

30000 Purchase Price 40000 - Amortization Expense 10000 = Ending Balance 30000

What is the average days to collect receivables for Supply?

31 365 / AR Turnover 11.9 = 31 days to collect receivables

Assuming both companies use the percent of receivables allowance method, what is the estimated percentage of uncollectible accounts for Market?

4% Allowance for Doubtful Accounts 2248 / AR 56200 = 4%

What is the amount of gain or loss on the disposal?

4000 Sales Price 10000 -Book Value 6000 =Gain 4000

What is the book value of the equipment at the end of Year 2?

43200 Asset value 120000 - Accumulated Depreciation 76800 = Book Value 43200

What is the Depreciation Expense for Year 1?

48000 Book Value 120000 x Double Straight Line Rate .4 = Depreciation Expense 48000

What is Vulcan's Net Income for Year 1?

52807 Revenue 91000 - Salaries Expense 36000 - Uncollectible Accounts Expense 2193 = Net Income 52807

What is Net Income for Year 2?

54200 Revenue 83000 - Depreciation Expense 28800 = Net Income 54200

Ultra Day Spa provided $120,000 of services during Year 1. All customers paid for the services with credit cards. Ultra submitted the credit card receipts to the credit card company immediately. The credit card company charged Ultra 5% service charge. What is the dollar value of the service charge for these sales?

6000 CC Sales 120000 x CC% .05 = CC Fee 6000

A plant asset with a cost of $50,000 and accumulated depreciation of $44,000 is sold for $10,000. What is the book value of the asset at the time of sale? Do not enter dollar signs or commas in your answers

60000 Purchase Price 50000 -Accumulated Depreciation 44000 =Book Value 60000

Quality Book Sales began Year 2 with $78,500 Accounts Receivable and $4,710 Allowance for Doubtful Accounts. During the year, Quality experienced the following transactions: Sales on Account $550,000 Collection on Accounts Receivable $556,000 After several collection attempts, wrote off $2,850 of accounts that could not be collected. Estimated 4% of receivables are uncollectible. What is the balance in Accounts Receivable immediately after the write-off in #3 above?

69650 Beginning Balance 78500 + Sales on Account 550000 - Collections 556000 - Writeoff 2850

What are the Cash Flows from Operating Activities for Year 1?

72000 Revenue is the only cash transaction resulting from operating activities.

What is the value of Total Assets at the end of Year 1?

725 Cash 530 + A/R 195 = Total Assets 725

What is SAR's Revenue for Year 1?

725 Jan Sales 650 + Feb Sales 75 = Revenue 725

What are the Cash Flows from Operating Activities for Year 2?

83000 Only the revenue affects cash flows from operations.

What is the unadjusted book balance?

8510 True Cash Balance 8550+ Check Correction 90+ Service Charge 20+ Service Charge 40+ NSF Check - Note Collected by Bank 500= Unadjusted Book Balance 8510

The following data apply to Pro Beauty Supply Inc. for May Year 1: Balance per the bank on May 31: $9,150. Deposits in transit not recorded by the bank: $1,510. Bank error; check written by Best Beauty Supply was charged to Pro Beauty Supply's account: $560. The following checks written and recorded by Pro Beauty Supply were not included in the bank statement: #3010 $510 #3054 $640 #3056 $1,520 Note collected by the bank: $500. Service charge for collection of note: $20. The bookkeeper recorded a check written for $320 to pay for May utilities expense as $230 in the cash disbursements journal. Bank service charge in addition to the note collection fee: $40. Customer checks returned by the bank as NSF: $310. What is the true cash balance?

8550 Unadjusted Bank Balance 9150+ Deposits in Transit 1510- Outstanding Checks 2670+ Bank Error 560= True Cash 8550

What is the Uncollectible Accounts Expense for Year 2?

926 A/R Current Balance 69650 x .04 = Total Allowance 2786 - ADA Current Balance 1860 = Expense 926

On December 31, Year 1, Kardashian Company recorded an adjusting entry to recognize Bad Debt Expense. Kardashian had credit sales of $547,000 and estimates Bad Debt Expense to be one percent of credit sales. Which one of the following journal entries shows how this event would be recorded under the allowance method?

Account Titles Debit Credit Bad Debt Expense 5,470 Bad Debt Allowance 5,470 The adjusting entry increases the expense (debit) as well as the contra-asset Bad Debt Allowance (credit).

Which one of the following journal entries would be required to reinstate a $500 Account Receivable that was previously written-off? (Ignore the recognition of the cash receipt.)

Account Titles Debit Credit Accounts Receivable. 500 Bad Debt Allowance 500 Accounts Receivable would have to be increased to reverse the effects of the write-off. Allowance for Doubtful Accounts would also need to be reversed because if this customer didn't default, another customer is likely to do so given our estimation of bad debts.

Which journal entry would be used to record the credit card sales?

Accounts Receivable 114,000 Credit Card Expense6,000 Revenue 120,000 revenue is increased (credited) for the full amount of the sales. The Credit Card Expense is recognized (debited) at the time of sale because we know the credit card company will be deducting their fee from our reimbursement. Accounts Receivable is increased (debited) by the amount of the sale less the credit card fee.

If you need to know how much money a specific customer owes your business, where would you find this information?

Accounts Receivable subsidiary ledger An A/R subsidiary ledger will have an account for each customer who has a sale on account. The subsidiary ledger shows the customer's purchases on account, payments on account and current balance.

Beacon Company accepts a credit card as payment for $2,000 of services provided to a customer. The credit card company charges a 3% handling charge for its collection services. Select the answer that shows how the collection of cash from the credit card company will affect Beacon's financial statements.

Accounts Receivable was increased for the expected payment at the time of sale, so when the credit card company pays the balance due, A/R is reduced and Cash is increased. Since both are asset accounts, Total Assets remain unchanged. The Cash received is a payment for services provided so the cash flow is an operating activity.

Which account is credited when we record Depreciation Expense?

Accumulated Depreciation Depreciation reduces the book value of an asset. We don't reduce the asset account directly, instead we increase (credit) the contra asset Accumulated Depreciation.

As of June 30, Year 1, the bank statement showed an ending balance of $19,500. The unadjusted Cash account balance was $15,200. The following information is available: Deposit in transit: $2,400. Credit memo in bank statement for interest earned in June: $30. Outstanding check: $6,690. Debit memo for service charge: $20. What should you do with the deposits in transit when you are completing a bank reconciliation?

Add 2400 to the bank balance.

What should you do with the interest income when you are completing a bank reconciliation?

Add 30 to the book balance.

Barron Company accepts a credit card as payment for $1,200 of services provided to a customer. The credit card company charges a 5% handling fee for its collection services. Select the answer that shows how the entry to recognize the event would affect Barron's financial statements.

Assets will increase by $1,140. Revenue will increase by $1,200. Expenses will increase by $60.

Which of the following is a cost of selling merchandise on account?

Bad Debt Expense Record keeping and collection costs Determining customers credit worthiness

A subsidiary ledger provides details about certain accounts that appear on the:

Balance Sheet. A subsidiary ledger provides details about an asset or liability account. For example, the general ledger account for Inventory will display the total value of all inventory while the subsidiary ledger will break the inventory down into products or product groups and provide values for each product or group.

The following table shows the operating cycle of four companies. Company Name Smith Jones Brown Green OperatingCycle 48 days. 42 days. 51 days. 46 days All other things being equal, the cost of borrowing money to purchase and hold inventory will be greater for:

Brown. Since Brown's operating cycle is longest, if all four companies borrowed money to purchase inventory, Brown would incur the most interest since it would take Brown longer to earn the cash necessary to repay the loan.

Hope Company determined that an $8,000 Account Receivable was uncollectible. Which one of the following shows how the write-off of this receivable will affect Hope's financial statements assuming the write-off was not in excess of the Bad Debt Allowance?

Cash FlowAssets=Liability+Equity(+Revenue -Expense) The write-off amount would be removed from the asset Accounts Receivable as well as the contra asset Bad Debt Allowance leaving Total Assets unchanged.

Assuming Alpha Company uses the percent of receivables method to determine the amount of Bad Debt Expense, which of the following shows how the recognition of the expense will affect Alpha's financial statements?

Cash FlowAssets=Liability+Equity(+Revenue-Expense) - - + Recognition of the expense will increase the Bad Debt Expense as well as the contra asset Bad Debt Allowance.

On December 31, Year 1, Kardashian Company recorded an adjusting entry to recognize Bad Debt Expense. Kardashian had credit sales of $547,000 and estimates Bad Debt Expense to be one percent of credit sales. Which one of the following shows how this entry will affect Kardashian's financial statements?

Cash FlowAssets=Liability+Equity(+Revenue-Expense). (5470). (5470). 5470 The adjusting entry will increase Bad Debt Allowance which is a contra asset. Contra assets reduce Total Assets. The adjusting entry also recognizes Bad Debt Expense which reduces Retained Earnings. This expense is a non-cash expense since no cash changes hands.

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the straight-line method, which of the following shows how the adjusting entry to recognize depreciation expense at the end of Year 3 will affect the Company's financial statements?

Cashflow Assets -A.D.= Liability +Equity (+Revenue- Expense)10,000 10,000. (10,000) In Year 3, $10,000 of Depreciation Expense is recognized. This reduces Retained Earnings and increases Accumulated Depreciation by that amount.

Which of the following is an intangible asset?

Copyright A copyright is a right to use intellectual property. A right is not a physical item so we classify it as an intangible asset.

Which of the following conveys an exclusive right to produce and sell the content contained in a textbook?

Copyright A copyright protects intellectual property.

Which of the following is an intangible asset?

Copyright Patent Trademark

All adjustments to the book balance require an entry in the accounting records to bring the ending Cash balance to the true cash balance. Is Interest Revenue debited or credit to recognize the interest earned?

Credit A credit increases a Revenue account.

How does a write-off affect the Accounts Receivable balance?

Decrease When an account is written off, it must be removed from Accounts Receivable because we no longer expect to receive this money; it is no longer a resources.

What should you do with the service when you are completing a bank reconciliation?

Deduct 20 from the book balance.

What should you do with the outstanding checks when you are completing a bank reconciliation?

Deduct 6690 from the bank balance.

When using an aging schedule to estimate bad debts requires two steps. Step two is:

Deduct the existing Allowance balance from the balance calculated in Step 1. The difference between the estimate calculated with the aging schedule and the Allowance balance is the amount of the current periods Bad Debt Expense. This difference must be added to the Bad Debt Allowance to bring its balance up to the estimated uncollectible balance.

On January 1, Year 1, Gemstone Mining Company (GMC) paid $10,500,000 cash to purchase a stone pit estimated to hold 50,000 tons of useable material. GMC extracted 10,000 tons of stone in Year 1. The rights to the surface pit were expected to have a $500,000 salvage value at the end of Year 3. Based on this information, the journal entry necessary to recognize Depletion Expense for Year 1 is:

Depletion Expense 2,000,000 Stone Pit 2,000,000 Unit Depletion 200 x Units Mined 10,000 tones = $2,000,000 This amount increases expenses and reduces the value of the stone pit.

Which journal entry would be used to record the extraction of 18,000 tons of coal in Year 2?

Depletion Expense270,000 Mine/Coal Reserves 270,000 Depletion Expense is increased/debited for the 18,000 tons mined in Year 2 multiplied by the $15 per ton depletion charge. The Mine asset (also known as Coal Reserves) is reduced by this same amount.

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the straight-line method, which of the following shows the adjusting entry to recognize Depreciation Expense at the end of Year 2?

Depreciation Expense 10,000 Accumulated Depreciation. 10,000 $10,000 of Depreciation Expense is recognized each year of the asset's useful life. This amount is added to A.D. each period.

double-declining-balance depreciation.

Double-declining-balance is an accelerated depreciation method that recognizes more expense at the beginning of the assets useful life. Since Brown earned more revenue in the earlier years, DDB would more accurately match revenues and expenses.

Point Company paid $4,000 cash to purchase a new machine. The company also paid $500 cash for an initial training cost that was necessary to teach an employee how to operate the machine. Which of the following represents the journal entry that would be necessary to record all capitalized costs related to the purchase of the machine?

Equipment 4,500 Cash 4,500 The Equipment account is increased for the purchase price and the training cost while Cash is reduced for the same amount.

McDonald's fast food restaurant will recognize a gain if it generates an amount of revenue that is higher than its operating expenses. This statement is:

False Revenue in excess of all operating expenses contributes to operating income. Gains come from non-operating activities.

An aging schedule is used to improve the estimate used in the percent of revenue method of determining the Bad Debt Expense. This statement is

False An aging schedule improves the estimate of the percent of RECEIVABLES method because it gives a higher probability of non-payment to accounts that have been outstanding longer, which more accurately reflects reality.

The amount of depletion expense is accumulated in a contra asset account at the end of each accounting period. This statement is

False Unlike other tangible assets, natural resources are physically used up as they are mined; therefore, depletion reduces the asset account directly rather than accumulating in a contra-asset account.

Most companies expect to collect the full balance of all of their accounts receivable. This statement is

False Companies extend credit to encourage customers to spend more. These additional sales are offset by the fact that some customers do not pay their bills. Therefore, companies routinely estimate the value of these uncollectible accounts and count this as an expense against the revenue earned

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

Goodwill Goodwill retains its value unless something happens to permanently impair it.

How does the adjusting entry to record estimated doubtful collections affect the Accounts Receivable balance?

Has no affect on A/R. When you estimate doubtful accounts, you increase a contra asset called Allowance for Doubtful Accounts as well as the Uncollectable Accounts Expense.

To account for the permanent impairment of Goodwill, which account is debited?

Impairment Loss If the value of Goodwill is permanently reduced, a loss is recognized.

How would the sale affect the amount of total assets shown on the Balance Sheet?

Increase The company gave up an asset depreciated to $6,000 and received $10,000 cash. Therefore, total assets increased $4,000.

How would the event affect the Statement of Cash Flows?

Inflow This event would appear as a $10,000 inflow from Investing Activities.

When purchasing a plant asset, in addition to the purchase price, which of the following costs can also be capitalized as part of the cost of the asset?

Insurance costs during transportation in. Costs of training employees to use the asset. Costs paid to someone to setup the asset. Costs to setup the asset. Transportation costs to acquire the asset, FOB shipping point

Which of the following events experienced by a department store would be presented in the operating section of a multistep Income Statement?

Inventory sold for less than its cost The sale of inventory, either for a profit or loss, is considered operating activities and would appear in the operating section of the multistep Income Statement.

What is the ending balance of the Cash account?

March collections 425 + April collection 25 + May collection 80 = Cash 530

What is Iowa Co's Return-on-Assets ratio?

Net Income 10000 / Total Assets 151000 = .066

What is Maine Co's Return-on-Assets ratio?

Net Income 41000 / Total Assets 695000 = .059

Which of the following formulas yields the return on assets ratio?

Net Income divided by total assets. Net Income represents the return and both long and short-term assets are used in the denominator.

Baltimore Company accepts a credit card as payment for $950 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Select the answer that shows how the entry to record the event would affect Baltimore's financial statements

Revenue increases by the total amount of the sale 950. Revenue is offset by the Credit Card Expense for the credit card fee 38. Retained Earnings is increased by the difference between these two 912. Baltimore eventually expects to collect $912 in cash so this amount is added to A/R.

Westover Company accepts a credit card as payment for $1,000 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Select the journal entry that shows how recognizing the service revenue would be recorded.

Service Revenue is credited (increased) for the entire amount of the sale. Credit Card Expense is debited (increased) for the value of the credit card fee. Accounts Receivable is debited (increased) for the difference.

Assume four companies have the following return on assets ratios: Alpha Company = 8% Beta Company = 9% Gamma Company = 7% Sigma Company = 10% All other things being equal, which company appears to conduct the most efficient use of its assets?

Sigma Company The higher return on assets ratio suggests the most efficient use of assets.

On January 1, Year 1, Marino Moving Company paid $48,000 cash to purchase a truck. The truck was expected to have a four year useful life and an $8,000 salvage value. If Marino uses the double-declining-balance method of depreciation what is "doubled"?

Straight-line Rate The straight-line rate is 100% divided by the useful life. This percentage is the percent of the depreciable value of the asset (purchase price - salvage value) that is expensed each year. When using the double-declining-balance method of depreciation, we begin by doubling this straight-line rate. We then multiply the doubled straight-line rate by the current book value of the asset. Since the useful life is 4 years, the straight-line rate is 25% (100 / 4). Double the straight-line rate would be 50% (25 x 2).

Which company does a better job of collections?

Supply Market turns its credit sales into cash more frequently, it collects A/R one day quicker than Market, and only 3% of its A/R is likely to be uncollected.

South Company purchased North Company. South Company paid $550,000 cash and assumed all of North Company's liabilities. On the date of purchase, North's books showed tangible assets of $500,000, liabilities of $20,000, and equity of $480,000. An appraiser assessed the fair market value of the tangible assets at $530,000 on the acquisition date. Which of the following journal entries would be required to record the purchase of North Company on South Company's books?

Tangible Assets 530,000 Goodwill 40,000 Liabilities. 20,000 Cash 550,000 Assets are recorded at fair market value. Liabilities are deducted from the fair market value of the assets to determine net assets. Any amount paid in excess of net assets is recorded as goodwill.

Which of the following normally has an associated contra account?

Tangible long-term assets The contra asset Accumulated Depreciation is associated with long-term tangible assets except land and natural resources

Which event appears on the Statement of Cash Flows?

The purchase of the asset. Since the asset was purchased with cash, this transaction must appear on the Statement of Cash Flows.

Which of the following is not an intangible asset?

Timber Timber is a natural resource. Natural resources are tangible.

A franchise is an intangible asset that provides privileges related to other intangible assets. This statement is

True A franchise is a right to use the name, images and methods of a specific business, so a franchise provides a right involving intellectual property.

The aging method of estimating uncollectible accounts method is based on the assumption that the longer an account receivable remains outstanding, the less likely it is to be collected. This statement is

True Customers are more likely to pay for current purchases than older purchases. The more time that passes between the sale and the current date, the less likely a company is to collect that account.

Many retail companies are motivated to incur credit costs because many customers are emotional buyers and offering credit generally leads to increases in sales revenue. This statement is

True Customers often buy more if they can buy on credit.

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

True Goodwill will appear in the accounting records only when a company has been purchased for a value greater than the fair market value of net assets.

The term amortization is used to identify the expense recognition for intangible assets. This statement is

True Intangible assets, except for Goodwill, are amortized over time.

A company will earn more profit from a cash sale than from a credit card sale.

True When a customer uses a credit card to pay for purchases, the credit card company charges the business a fee. This fee is not present for sales in which customers pay with cash.

The Net Realizable Value of Accounts Receivable represents an estimate of the amount of the Accounts Receivable that a company realistically expects to collect. This statement is

True Net Realizable Value of A/R equals A/R (total sales on account) minus the allowance (estimate of uncollectible accounts).

The balance in the Bad Debt Allowance provides an estimate of the amount of the accounts receivable that is expected to be uncollectible. This statement is

True The purpose of the allowance is to provide an estimate of accounts that will not be collected

If we need to write-off an account receivable but no allowance remains, which account is debited?

Uncollectable Accounts Expense If the write-off exceeds the allowance, additional expense must be incurred.

Which one of the following methods is usually employed for expensing natural resources?

Units-of-Production Units-of-Production depletion expenses natural resources according to the quantity mined during the period. This most closely matches the actual using up of the natural resources.

Westover Company accepts a credit card as payment for $1,000 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Select the journal entry that shows how collecting the Account Receivable from the credit card company would be recorded.

Westover receives cash equivalent to the sales price minus the credit card fee. This amount increases Cash and decreases A/R.

Wong Company received the January Year 1 bank statement which included the following item: Four checks totaling $810 written during the month of January were not included with the January bank statement. Does Wong need to adjust the Cash account to reflect this item? If so, in which direction?

Wong does not need to adjust the Cash account. These outstanding checks have not been recorded by the bank, but they were deducted from the Cash account when they were written by Wong.

Wong Company received the January Year 1 bank statement which included the following item: The bank charged a $250 check drawn on Wing Restaurant to Wong's account. The check was included in Wong's bank statement. Does Wong need to adjust the Cash account to reflect this item? If so, in which direction?

Wong does not need to adjust the Cash account. This is a bank error. The entry never appeared in Wong's accounting records so no adjustment needs to be made.

Wong Company received the January Year 1 bank statement which included the following item: Wong recorded $900 of receipts on January 31, Year 1, which were deposited in the night depository of the bank. These deposits were not included in the bank statement. Does Wong need to adjust the Cash account to reflect this item? If so, in which direction?

Wong has recorded these deposits. The deposits were in transit at the time the bank statement was produced but the deposits will be recorded by the bank. Wong's books are correct so no adjustment needs to be made. Wong does not need to adjust the Cash account.

Wong Company received the January Year 1 bank statement which included the following item: A check of $62 was returned to the bank because of insufficient funds and was noted on the bank statement. Wong received the check from a customer and thought it was good when it was deposited into the account. Does Wong need to adjust the Cash account to reflect this item? If so, in which direction?

Wong needs to credit the Cash account. This check was previously added to the Cash account when the check was originally received. Now that the bank has determined the check is bad, it needs to be deduced, or credited, to the Cash account.

Wong Company received the January Year 1 bank statement which included the following item: Service charges of $50 for the month of January were listed on the bank statement. Does Wong need to adjust the Cash account to reflect this item? If so, in which direction?

Wong needs to credit the Cash account. Wong must reduce the cash account with a credit because the bank has deducted the service charge from Wong's bank account.

Wong Company received the January Year 1 bank statement which included the following item: The bank statement indicated that the bank had collected $450 from customers for Wong. Does Wong need to adjust the Cash account to reflect this item? If so, in which direction?

Wong needs to debit the Cash account. Since the bank collected this money, Wong learns of the collections from the bank statement so Wong must debit the Cash account to recognize the increase.

Which transaction generates a debit to the contra asset Allowance for Doubtful Accounts?

Writing off an uncollectible account. A debit to a contra asset reduces its balance. ADA holds the estimate of uncollectible accounts. When an account is written off, it is removed from the estimate total.

Which of the following transactions results in a credit to Accounts Receivable? Check all that apply.

Wrote off an uncollectible account equivalent to allowance adjustment. Collected cash from customers paying their accounts.

Zane Enterprises accepts a credit card as payment for $500 of services provided to a customer. The credit card company charges a 4% handling charge for its collection services. Based on this information

Zane will collect $480 cash from the credit card company. Sales 500 - CC Fee (500 x .04) = Cash collected 480

Amrico Company sold land that had cost $25,000 for $26,500. Based on this information, the company's year-end financial statements would show:

a cash inflow from investing activities of $26,500 on the Statement of Cash Flows. This is an investing activity because it involves the sale of a plant asset. The entire amount of cash received must be shown on the Statement of Cash Flows.

bank reconciliation, which would need to be added to the unadjusted book balance to determine the true cash balance?

accounts receivable collected by bank interest revenue

The cost of acquiring plant assets is:

capitalized as an asset. Plant assets provide benefit for many future accounting periods, therefore, the cost to acquire plant assets is capitalized rather than expensed. In addition to the purchase price, acquisition costs include any costs incurred to get the asset ready for operation.

Is the Bank Service Charge Expense account debited or credited for the bank fee?

debit A debit to an expense account increases the expense to reflect the cost incurred.

The accounts receivable turnover ratio is calculated by

dividing the amount of credit sales by the average balance of Accounts Receivable.

Which one of the following is an intangible asset?

franchise

Dynamo Manufacturing began Year 2 with $90,000 Cash and Retained Earnings. On Jan 1, Year 2, Dynamo Manufacturing paid cash to acquire the assets of an existing company. Among the assets acquired were the following items: $40,000 for patent with four remaining years of legal life $35,000 for goodwill Before the end of Year 2, Dynamo determined that Goodwill had been permanently impaired. It estimated this impairment to be $5,000. Which one of the following accounts is debited for the impairment of the goodwill?

impairment Loss - Goodwill Impairment of Goodwill is considered a loss. Debits increase loss accounts.

How would this sale affect Net Income?

increase The gain on this sale increases Net Income $4,000.

When using an aging schedule to estimate bad debts requires two steps. Step one is:

multiply the account balance in each aging category by that category's percentage likelihood of non-payment, then total these amounts. We will apply different percentages to accounts in different age categories. When we total these numbers, we have an estimated allowance for all of A/R.

Depletion is the term used to recognize expense associated with

natural resources. We depreciate man-made tangible assets but we deplete natural resources, except for land which is never expensed.

The recovery and collection of an Account Receivable that had previously been written off will

not affect total assets. The write-off has two parts. First the write-off must be reversed. This increases the asset A/R and the contra asset Bad Debt Allowance by the same amount. Second, the cash must be recorded. This increases the Cash account by the same amount the A/R account is decreased. These are both assets which means that Total assets are unchanged.

Which one of the following is not an intangible asset?

office building

Tangier Company paid cash to purchase a long-term operational asset. The cost of the asset will be expensed (depreciated)

over the useful life of the asset. When we purchase the asset, we estimate how long we will be able to use it and what it will be worth at the end of that useful life. The asset cost less the salvage value is expensed as Depreciation Expense over the useful life of the asset.

If a plant asset is purchased and the buyer incurs other acquisition costs such as transportation, if a quick payment discount is available, which costs are discounted?

purchase price only Only the purchase price is discounted. Other acquisition costs are likely paid to different vendors, ie., a transportation company, insurance company, training company.

If you receive a payment for an account that has been previously written off, before you record the collection, you must first:

reverse the write off. An account that has been written off has been taken off the books. You must first reinstate the account by reversing the write-off. This means increasing A/R and ADA. Once A/R has been increased, you can record the payment; which reduces A/R. ADA is increased because, if this account isn't the delinquent account, another is likely to be delinquent.

The percent of receivables allowance estimation method is a two step process. The first step calculates:

the ending balance of the Allowance account The first step is to determine the new balance of the Allowance account. The second step compares this new balance with the existing balance to determine the value that needs to badded to the Allowance account as well as the Uncollectible Accounts Expense for the period.

Which one of the following statements is true? All other things being equal

the higher the number of days to collect receivables, the greater the chance of lost income. The further you get from the date of sale, the greater the likelihood of non-payment. Therefore, the more longer it takes to collect receivables, the higher the changes of incurring collection expense thereby reducing income.

How would this sale affect Operating Income?

the sale would not affect Operating Income. The $4,000 gain on the sale of a plant asset would appear on the Income Statement but it would come after the Operating Income calculation.

Zack's Inc. sold land that cost $85,000 for $70,000 cash. As a result of this event:

total assets decreased. Since the land was sold for less than its purchase price, Zack's total assets decreased and Zack must recognize a loss.

Goodwill is the mix of variables that are unique to a particular company that enables it to produce above average profits. This statement is

true

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

true land is not depreciated

An operating cycle is the length of time it takes to:

turn inventory into cash. An operating cycle is the number of days to sell inventory plus the number of days to collect Accounts Receivable.