Accounting test #3 Review

A company purchased land for $100,000 cash. Accrued real estate taxes on the land, $2,000, and real estate taxes on the land for the current year, $3,000, were also paid in cash. Real estate brokers' commission was $8,000 and $10,000 was spent on demolishing the building that was on the property before construction of a new building could begin. The company was able to sell some of the salvaged materials from the demolished building for $2,000 cash. Under the historical cost principle, the cost of the land would be recorded at

$118,000

Erin Danielle Company purchased equipment and incurred the following costs: Cash price: $24,000 Sales taxes: 1,200 Insurance during transit: 200 Installation and testing: 400 Total costs: $25,800 What amount should be recorded as the cost of the equipment?

$25,800

Voight Company's account balances at December 31 for Accounts Receivable and Allowance for Doubtful Accounts were $1,400,000 and $70,000 (Cr.), respectively. An aging of accounts receivable indicated that $128,000 are expected to become uncollectible. The amount of the adjusting entry for bad debts at December 31 is

$58,000

Bailey Company purchases a new delivery truck for $35,000. The sales taxes are $2,000. The logo of the company is painted on the side of the truck for $1,200. The truck license is $120. The truck undergoes safety testing for $220. What does Bailey record as the cost of the new truck?

38,420

Writing off an uncollectible account under the allowance method requires a debit to

Allowance for doubtful accounts

Companies report accounts receivable on the balance sheet at

Cash (Net) realizable value

A petty cash fund of $200 is replenished when the fund contains $5 in cash and receipts of $190. The entry to replenish the fund would

Debit Cash Over and Short for $5.

In a bank reconciliation, a bank service charge is

Deducted from the book balance

2.) Accounts receivable are the result of cash and credit sales. a. True Or False?

False

4.) Under the allowance method, bad debts expense is debited when an account is deemed uncollectible and must be written off. a. True or False?

False

5.) Using the units-of-activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight line method had been used. a. True or false?

False

6.) The petty cash fund eliminates the need for a bank checking account. a. True or false?

False

7.) The three primary accounting problems with accounts receivable are: (1) recognizing, (2) depreciating, and (3) disposing. a. True or false?

False

8.) The book value of a plant asset is always equal to its fair market value. a. True or false?

False

9.) The book value of a plant asset is the amount originally paid for the asset less anticipated salvage value. a. True or false?

False

1.) Chapter 8 - Aging of receivables two methods. a. Either a credit or debit in the allowance account. Subtract credit from amount in the box, add debit to the amount in the box. Make appropriate journal entries. Debit bad debt expense, credit allowance for doubtful accounts. b. Aging of receivables. Multiply the given amounts by given percentages and add all the numbers given. "This is the amount in the box". c. Percentage of credit sales method - just multiply the percentage given in the question by the total credit sales. Debit bad debt expense and credit allowance for doubtful accounts. Remember the "Banana peel".

Journal entries are: Bad debt expense Allowance for doubtful accounts

3.) Depreciation methods. a. Straight line. b. Unit of activity method. c. Double declining method.

Journal entries are: Depreciation expense Accumulated depreciation

The existing balance in Allowance for Doubtful Accounts is considered in computing bad debt expense in the

Percentage of Receivables Basis

Cash equivalents include each of the following except

Petty cash.

Allowance for Doubtful Accounts is

The contra asset account for accounts receivable.

1.) Other receivables include nontrade receivables such as loans to company officers. a. True or false?

True

3.) Allowance for doubtful accounts is a contra asset account. a. True or false?

True

Cash (net) realizable value is the net amount the company expects to receive in cash. True Or False?

True

Companies use a petty cash fund to pay relatively small amounts. True Or False?

True

The two methods of accounting for uncollectible accounts are (a) percentage of sales and (b) percentage of receivables. a. True or false?

True

13.) Under the allowance method, writing off an uncollectible account a. Affects only balance sheet accounts. b. Affects both balance sheet and income statement accounts. c. Affects only income statement accounts. d. Is not acceptable practice.

a. Affects only balance sheet accounts.

The net amount expected to be received in cash from receivables is termed the? a. Cash realizable value b. Cash good value c. Gross cash value d. Cash equivalent value

a. Cash realizable value

23.) The percentage of sales basis of estimating expected uncollectibles a. Emphasizes the matching of expenses with revenues b. Emphasizes balance sheet relationships c. Emphasizes cash realizable value. d. Is not generally accepted as a basis for estimating bad debts.

a. Emphasizes the matching of expenses with revenues

21.) The units of activity method is generally not suitable for a. Airplanes b. Buildings c. Delivery equipment d. Factory machinery

b. Buildings

The entry to replenish a petty cash fund includes a credit to a. Petty cash b. Cash c. Freight in d. Postage expense.

b. Cash

15.) If a company fails to record estimated bad debts expense, a. Cash realizable value is understated b. Expenses are understated c. Revenues are understated d. Receivables are understated

b. Expenses are understated

25.) A debit balance in the allowance for doubtful accounts a. Is the normal balance for that account. b. Indicates that actual bad debt write-offs have exceeded previous provisions for bad debts. c. Indicates that actual bad debt write-offs have been less than what was estimated. d. Cannot occur if the percentage of sales method of estimating bad debts is used.

b.) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts

26.) Bad debts expense is considered a. An avoidable cost in doing business on a credit basis. b. An internal control weakness. c. A necessary risk of doing business on a credit basis. d. Avoidable unless there is a recession.

c. A necessary risk of doing business on a credit basis.

Depreciation is the process of allocating the cost of a plant asset over its service life in, a. An equal and equitable manner. b. An accelerated and accurate manner c. A systematic and rational manner d. A conservative market-based manner.

c. A systematic and rational manner

In computing depreciation, salvage value is a. The fair market value of a plant asset on the date of acquisition. b. Subtracted from accumulated depreciation to determine the plant assets depreciation cost. c. An estimate of a plant asset's value at the end of its useful life, d. Ignored in all the depreciation methods

c. An estimate of a plant asset's value at the end of its useful life,

Depreciation is a process of, a. Asset devaluation b. Cost accumulation c. Cost allocation d. Asset valuation

c. Cost allocation

A petty cash fund of $100 is replenished when the fund contains $4 in cash and receipts for $93. The entry to replenish the fund would? a. Credit cash over and short for $3. b. Credit miscellaneous revenue for $3. c. Debit cash over and short for $3. d. Debit miscellaneous Expense for $3.

c. Debit cash over and short for $3.

An aging company's accounts receivable indicates that $9,000 are estimated to be uncollectible. If allowance for doubtful accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a a. Debit to Bad Debts Expense for $9,000. b. Debit to allowance for doubtful accounts for $7,900. c. Debit to bad debts expense for $7,900. d. Credit to allowance for doubtful accounts for $9,000.

c. Debit to bad debts expense for $7,900.

A debit balance in cash over and short is reported as a a. Contra asset. b. Miscellaneous asset c. Miscellaneous expense d. Miscellaneous revenue.

c. Miscellaneous expense

12.) Three accounting issues associated with accounts receivable are? a. Depreciating, returns and valuing b. Depreciating, valuing and collecting c. Recognizing valuing and disposing d. Accrual, bad debts and disposing

c. Recognizing valuing and disposing

If employees are bonded a. It means that they are not allowed to handle cash. b. They have worked for the company for at least 10 years. c. They have been insured against misappropriation for assets. d. It is impossible for them to steal from the company.

c. They have been insured against misappropriation for assets.

Which of the following methods of computing depreciation is production based? a. Straight line. b. Declining balance c. Units-of-activity d. None of these

c. Units-of-activity

The balance in the accumulated depreciation account represents the, a. Cash fund to be used to replace plant assets. b. Amount to be deducted from the cost of the plant asset to arrive at it's fair market value. c. Amount charged to expense in the current period d. Amount charged to expense since the acquisition of the plant asset.

d. Amount charged to expense since the acquisition of the plant asset.

The book value of an asset is equal to the a. Assets market value less it's historical cost. b. Blue book value relied on by secondary markets. c. Replacement cost of the asset. d. Assets cost less accumulated depreciation.

d. Assets cost less accumulated depreciation.

22.) The collection of an account that had been previously written off under the allowance method of accounting for uncollectibles a. Will increase income in the period it is collected. b. Will decrease income in the period it is collected. c. Requires a correcting entry for the period in which the account was written off. d. Does not affect the income in the period it is collected.

d. Does not affect the income in the period it is collected.

A petty cash fund is generally established in order to a. Pay for all merchandise purchased on account. b. Pay employees wages. c. Make loans internally to employees. d. Pay relatively small expenditures.

d. Pay relatively small expenditures.

A company writes a check to replenish a $100 petty cash fund when the fund contains receipts of $94 and $3 in cash. In recording the check, the company should

debit Cash Over and Short for $3.

On a bank reconciliation, outstanding checks are

deducted from the bank balance.

All of the following are intangible assets except

research and development costs

A credit memorandum notifies the depositor that the bank has deposited funds into the depositor's account; an example is the collection of a note receivable by the bank for the depositor. A bank may issue a credit memorandum for

the collection of a note receivable by the bank for the depositor.

Goodwill is the excess of cost over the fair value of the net assets acquired.

true