Accounting Test 3
Which of the following result in an increase to intangible assets?
$10,000 was spent to purchase a patent, a company purchased another company for $10,000 more than its net assets, a company purchased a franchise for $100,000
Which of the following result in an increase in intangible assets?
$10,000 was spent to purchase a patent; a company purchased another company for $10,000 more than its net assets; a company purchased a franchise for $100,000
Management estimates that 1% of the $100,000 of credit sales will be uncollectable. The allowance for Doubtful accounts has a $100 unadjusted credit balance. After the adjusting entry is recorded, Bad Debt expense on the income statement wil be ___ 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 uncollectable. 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 ____ the allowance for doubtful accounts on the balance sheet
$100 less than
Bitter, Inc's income statement included $100,000 of revenues; $60,000 of cost of goods sold; $20,000 of other operating expenses (which includes $10,000 of depreciation); $1,000 of interest expense; and $6,000 of income tax expense. EBITDA equals
$30,000
Which of the following accounts are temporary accounts closed at the end of the accounting period into retained earnings?
Bad debt expense, depreciation expense, sales revenue
On January 1, 2018, Whittle, Inc. purchased timber rights for $2,000,000, which are expected to produce a total of 2,000,000 cords of wood over 4 years, after which it will be sold for $500,000. The cords of wood cut were 200,000 in 2018 and 280,000 in 2019. Depletion for 2018 equals
150,000
The three little pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house: $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be
80,000; recorded value $80k, or (100,000/(40,000+60,000+100,000))*160,000
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- Bad debt expense is estimated and recorded with an adjusting entry; specific customer balances are written off; accounts receivable are debited in the period the revenue is recognized
Accounts Receivable are debited in the period the revenue is recognized, bad debt expense is estimated and recorded with an adjusting entry, specific customer balances are written off
___ receivable arise from making sales to customers on account and are non interest bearing. ___ receivable are formal written contracts that are interest bearing
Accounts; notes
An ___ 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 assignned a higher percent than newer ones
Aging
Tresses Inc, which as a December 31 year end, lent $1000 on December 1 to an employees at 6% due in 6 months. When will tresses record interest revenue? It will record
An adjusting entry on December 31 with a debit to interest receivable and credit to interest revenue for the interest generated in December
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 accounts receivable method and estimates that $8,000 of its receivables will be uncollectable. 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 sheet
Vango Inc sold its van for $6000 cash. The van's original cost was $40,000, and its accumulated depreciation was $32000. When recording the sale, Vango should record a
Loss of disposal of $2,000
On Jan 1, 2018, Whittle, Inc purchased timber rights for $2,000,000 which is expected to produce a total of 2,000,000 cords of wood over 4 years, after which it will be sold for $500,000. The cords of wood cut were 200,000 in 2018. The effect of recording the 2018 depletion (not the sale of wood) on the accounting equation is
The asset, timber inventory, is increased; assets are decreased by increasing the contra-account, accumulated depletion
Which of the following si recorded with a debit to cash and a credit to notes receivable
The receipt of the principal payment
Put in order for typical sequence of accounting for sales made on account using the alance method- Accounts recievable are debited in the period the revenue is recognized, specific customer balances are written off, bad debt expense is estimated and recorded with an adjusting entry
accounts receivable are debited in the period the revenue is recognized; bad debt expense is estimated and recorded with an adjusting entry; specific customer balances are written off
At the end of the asset's useful life, its
accumulated depreciation will equal the asset's depreciable cost; book (or carrying) value will equal the asset's residual value
The direct write-off method does not require the ____ account
allowance for doubtful accounts
Using its aging of accounts receivable, Age Old, Inc. estimates that $90,000 of its $4,000,000 of accounts receivable will be uncollectable. Prior to making its adjusting entry, the unadjusted Allowance for Doubtful Accounts has a credit balance of $1,000 after the adjustment
allowance for doubtful accounts will have a $90,000 credit balance
Why should the employee recording the write-offs be a different employee than the one who receives cash from the collections of credit sales?
an employee could cover up a theft by debiting allowance for doubtful accounts and crediting the customer's accounts receivable
On which financial statement is accumulated depreciation on
balance sheet
The difference between the equipment account and its accumulated depreciation is called the ___ value
book
Using the aging approach, management estimates that $1000 of accounts receivable will be uncollected. The allowance for doubtful accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a
credit to allowance for doubtful accounts of $900; debit to Bad debt expense of $900
Using the aging approach, mangement estimates that $1,000 of accounts receivable will be uncollectable. The allowance for doubtful accounts has a $100 unadjusted credit balance. THe adjusting entry to record estimated bad debts includes a
credit to allowance for doubtful accounts of $900; debit to bad debt expense of $900
Company A and Company B both purchased a $100,000 machine with an estimated useful life of 10 years. Company A uses straight-line and Company B uses double-declining balance. At the end of the third year, both sell the machines for the exact same amount. Since different depreciation methods were used, the entry to record the disposal will result in different amounts of
debits to the accumulated depreciation accounts; gains or losses
___ is the allocation of the cost and long-lived, tangible asset over its useful like creating an expense on the income statement that is matched against the revenue generated by using the asset
depreciation
The ___ write-off method is not allowed under GAAP
direct
If the allowance for doubtful accounts has a credit balance prior to recording the adjusting entry for the current period's uncullective accounts, then the
estimated amounts of uncollectables was greater than the amounts actually written off
T/F: allowance for doubtful accounts is used for accounts receivable but not notes receivable
false
The declining- balance depreciation method assigns ____ depreciation expense to the early years of asset ownership
higher
What are the potential drawbacks of speeding up collections of receivables
hounding customers to pay if their receivables are past due is time-consuming and costly; customers may get annoyed and take their business elsewhere
The entry to record the purchases of $10,000 of equipment by signing an $8000 note and paying the rest with cash causes total assets to
increase by $8000
On November 1, 2018, Lendem Inc loaned an employee $100,000 at 6% with both the interest and principle due in 1 year. The adjusting entry to record the interest generated but not received as of December 31, 2018 includes a debit to
interest receivable of $1,000
A subsidiary account
is kept for each customer's account receivable and the total of all its customers' accounts receivable is reported on the balance sheet
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
may be dissatisfied with the product or service; are more likely to default
Notes receivable
principle amount
Notes recievable are used for
selling large dollar-value items; extending payment periods; lending money to individuals or businesses
The estimated amount of credit sales that customers will likely fail to pay is recorded as bad debt expense in which period
the same period as credit sales
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
Acme, Inc.'s balance sheet shows equipment at a cost of $5,000,000. Accumulated depreciation is $2,000,000. Acme's income statement shows depreciation expense of $200,000 for the year. Which of the following statements is true
4% of the equipment's economic benefit was used up this year
On June 22, 2018, Ace Electronics sold an office building, which was not yet fully depreciated. How many months of depreciation expense should ace record on the building for 2018?
6
Delectable, Inc.'s unadjusted trial balance includes accounts receivable of $10,000; allowance for doubtful accounts of $50 credit balance; and credit sales of $100,000; allowance for doubtful accounts of $50 credit balance, and credit sales of $100,000. Based on aging of its receivable, management estimates that $1,000 of receivables will be uncollectable. Delectable's financial statements will show
Allowance for doubtful accounts of $1000; bad debt expense of $950
If a company is debiting Interest Receivable and crediting Interest revenue, what must be the case?
It is the end of the accounting period and it is adjusting entry for interest generated but not yet collected
Why is the bad debt expense on the income statement less than the Allowance for Doubtful accounts on the balance sheet?
The allowance for doubtful accounts had an unadjusted credit balance
The entry to record annual straight-line depreciation will increase a company's ____ and ______
Total expenses; accumulated depreciation
During the year, ABC Corp realizes that a particular customer will never pay. What action should ABC take?
Write off the uncollectable account and its corresponding allowance from the accounting records
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 adjusting entry to record the estimated amount of bad credit sales is debit to _____ and a credit to allowance to doubtful accounts
bad debt expense
The allowance method requires that
bad debt expense be recorded in the same period as the related credit sales; allowance for doubtful accounts be netted against accounts receivable
Extraordinary repairs to long lived assets are___ because they are large expenditures and increase the useful life of the asset
capitalized
The old metropolitan theater, which has 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 theater
Allowance for Doubtful Accounts is a ____ - asset account and has a normal ___ balance
contra; credit
The journal for the direct write-offs method includes a
credit to accounts receivable; debit to bad debt expense
The receipt of an interest payment
debit cash and credit interest receivable
The adjusting entry to record the interest owed
debit interest receivable and credit interest revenue
Place the events in proper sequence putting the first step on top for a 2-year note established in november that pays interest annually- debit notes recievable and credit cash; debit cash and credit interest receivable; debit cash and credit notes receivable, interest revenue and interest recceivable; debit interest receivable and credit interest revenue
debit notes receivable and credit cash; debit interest receivable and credit interest revenue; debit cash and credit interest receivable; debit cash and credit ntoes receivable, interest revenue and interest receivable
When using the allowance method, the adjusting entry to record estimated bad debt expense includes
debit to Bad Debt Expense; Credit to Allowance for Doubtful accountantsAllow
The entry to record a write-off of a specific customer's account requires a
debit to allowance for doubtful accounts; credit to accounts receivable
The entry to record the write-off of a specific customer's account requires a
debit to allowance for doubtful accounts; credit to accounts receivable
Using the aging approach, management estimates that 10% of the $10,000 of accounts receivable will be uncollectable. The allowance for doubtful accounts has a $100 unadjusted debit balance. The adjusting entry to record estimated bad debts includes a
debit to bad debt expense of $1,100; credit to Allowance for doubtful accounts of $1,100
ABC Corp received a 2 month, 8% per year, $1500 note receivable on December 1. The adjusting entry on December 31 will includes a
debit to interest receivable of $10
The allowance for doubtful accounts, a contra-asset account, is ___ when specific uncollectable accounts are written off
debited
Expenditures of a US pharmaceutical company would NOT be capitalized
development costs related to new untested drugs; research cost
The asset's book value (or cost minus accumulated depreciation) must equial its residual value at the end of its useful life using which depreciation methods
double declining balance; units of production; straight line
When the allowance method is used, the entry to record the write-offs of an uncollectable account
has no effect on net income
On which financial statement is depreciation expense on
income statement
Bad debt expense
is a cost of extending credit to customers; is an estimate
If a company is debiting interest receivable and crediting interest revenue, what must be the case
it is the end of the accounting period and it s adjusting entry for interest generated but not yet collected
The 2 steps required using the allowance method, are to
later write-off specific customer balances when they are known to be uncollectable; first make an end of period adjustment to record the estimated bad debts
using the aging of receivables method, an unadjusted allowance for doubtful accounts will have a credit balance when the amount of write offs recorded during the period is ____ the amount allowed in the prior accounting period
less than
The receivables turnover ratio is computer as
net sales revenue divided by the average net accounts receivable
When accounting for accounts receivable, a primary objective is to
not overstate assets and stockholder's equity by the estimated amount of bad debt
An intangible asset may be recorded only if
purchased
Collection of a previously written off account is called a
recovery
The objectives when accounting for accounts receivable and bad debts are to
report accounts receivable net of the amount the company expects to collect; match the cost of bad debts to the accounting period in which the related credit sales are made
The formula for the fixed asset turnover ratio equals net ____ divided by average net fixed assets
sales
Interest receivable
the amount of interest earned but not yet collected
Why are partial-year modifications not necessary for units-of-production depreciation?
the capacity used during the period already reflects its proportion of the asset's total productive capacity
