ACCT 301 Final Exam

The following accounts were abstracted from Emmeline Co.'s unadjusted trial balance at December 31, 2018: accounts receivable debit $850000 Allowance for uncollectable accounts debit $12,000 net credit sales credit $3,200,000 The company estimates that 5% of the gross accounts receivable will become uncollectible. What will be the allowance for uncollectible accounts credit balance after the 12/31/15 adjustment?

$42500 Find 5% of the gross accounts receivable. $850,000 x 0.05 = $42,500

NRV formula

AR- allowance of doubtful accounts

Identifiable asset

Arises from a contractual or legal right, or if it is separable.

Which of the following is NOT included in the calculation of free cash flow? a) dividends b) net cash provided by operating activities c) average total liabilities d) capital expenditures

c) average total liabilities

Similar to many retail stores, Wallace Shoe Stores has an account to record Sales Revenue. As part of this account, they have a related account that records the company's Sales Returns and Allowances, which decreases the value of the Sales Revenue account. The Sales Returns and Allowances account would be considered a(n) ________ account

contra

Which of the following is used to show a direct relationship between an asset and a liability on the balance sheet?

cross reference

If common stock was issued to acquire an $8,000 machine, how would the transaction appear on the statement of cash flows? a. It would depend on whether you are using the direct or the indirect method. b. It would be a positive $8,000 in the financing section and a negative $8,000 in the investing section. c. It would be a negative $8,000 in the financing section and a positive $8,000 in the investing section. d. It would not appear on the statement of cash flows but rather on a schedule of noncash investing and financing activities.

d

In a statement of cash flows, proceeds from issuing equity instruments should be classified as cash inflows from a. lending activities. b. operating activities. c. investing activities. d. financing activities.

d

Preparing the statement of cash flows involves all of the following except determining the a. cash provided by operations. b. cash provided by or used in investing and financing activities. c. change in cash during the period. d. cash collections from customers during the period.

d

Recording annual bad debt expense by ___ violates the expense recognition concept.

direct write-off

A contingency that is reported in the notes to the financial statements is best exemplified by

estimated loss from an ongoing lawsuit

financial instruments are measured in

fair value

what measures are based on market prices

fair value -expected cash flows of an asset or liability

In preparing a statement of cash flows, sale of treasury stock at an amount greater than cost would be classified as a(n) a. operating activity. b. financing activity. c. extraordinary activity. d. investing activity.

financing activities

Sales-COGS=

gross profit

Butler Resources currently has $700 million in assets. Of these assets, $450 million are in cash or can be readily converted to cash. This is an example of

high liquidity

wholesalers

intermediaries who buy from producers or from other wholesalers and sell to retailers

Making and collecting loans and disposing of property, plant, and equipment are a. operating activities. b. investing activities. c. financing activities. d. liquidity activities.

investing activities

revenue test

its reported revenues are 10% or more of the combined revenues of all the company's operating segments

Which of the following is the current cash debt coverage often used to assess?

liquidity

operating cycles are

longer than service of a company

Pensions and other post retirement benefits

measuring service cost components of employers post retirement benefits expense and post retirement benefits obligation

inventories are reported at

net realizable value

An accrued expense can best be described as an amount

not paid and currently matched with earnings.

How can companies induce prompt payment?

offer cash discounts

A prepaid expense can best be described as an amount

paid and not currently matched with earnings.

Which of the following is an example of an accrued liability?

property taxes incurred during the year, to be paid in the first quarter of the subsequent year

Harrington Textiles reports on their balance sheet the fact that they use the FIFO method of inventory pricing. This is an example of a

significant accounting policy.

operating profit (loss) test

split profit and losses up

Time Value of Money (TVM)

the concept that money available today is worth more than the same amount tomorrow

Which of the following items is reflected on the balance sheet but not on the adjusted trial balance?

the ending retained earnings balance

The statement of cash flows helps users to evaluate financial flexibility. Financial flexibility is

the firm's ability to respond and adapt to financial adversity and unexpected needs and opportunities

cost of good sold

the total cost of merchandise sold during the period. What we paid for it

notes

valuing noncurrent receivables and payables that carry no stated interest rate or a lower than market interest rate

Why is the allowance method preferable to the direct write-off method?

The allowance method recognizes the expense of a bad debt in the same period as the sale.

Which of the following accounts is classified as a short-term liability? a) most pension obligations b) long-term liabilities that mature within the operating cycle and will be paid from a sinking fund. c) obligations payable at some date beyond the operating cycle. d) income taxes payable.

d) income taxes payable

Cash consists of

from checking accounting, savings and on hand

merchandising companies

purchase inventories that are primarily in finished form for resale to customers -no service performed

source of revenue

sale merchandise, ref to sales rev or sales

A ____ would be properly classified as cash.

savings account

What is the net change in the fair value of a receivable from one period to another, exclusive of interest revenue?

unrealized holding gain or loss

leases

valuing assets and obligations to be capitalized under long-term leases and measuring the amount of the lease payments and annual leasehold amortization

Miles Corporation sold land to South Ridge Inc. for $200,000 cash and a zero interest-bearing note with a face amount of $600,000. The fair value of the land at the date of sale was $690,000. What value should be assigned to the note receivable by South Ridge?

$490000 The land has a fair value of $690,000 so the cash plus note must equal that amount. $690,000 - $200,000 = $490,000

Which of the following best describes the difference in the accounting cycle performed by a merchandising company compared to the accounting cycle performed by a service company?

There is no difference in the way the accounting cycle is performed by the merchandising company and the service company.

T/F? If significant financing and investing activities do not affect cash flow, then they do not have to be reported in the statement of cash flows.

False

What would cause the average collection period to increase?

Increasing the customer repayment period

Which of the following statements best describes the purpose of closing entries?

They reduce the balances of revenue and expense accounts to zero so that the accounts can be used to accumulate the revenues and expenses of the next period.

Accounts receivable from officers, employees, or affiliated companies should be presented on the balance sheet

as assets but separately from other receivables.

What is one difference between a trading security and a held-to-maturity security?

An equity security can be classified as a trading security but not as a held-to-maturity security.

Which of the following is the denominator when determining the current cash debt coverage ratio?

average current liabilities

In a statement of cash flows, payments to acquire debt instruments of other entities (other than cash equivalents) should be classified as cash outflows for a. operating activities. b. investing activities. c. financing activities. d. lending activities.

b

retailers

businesses that sell directly to final consumers

Harding Corporation reports the following information: Net income $500,000 Depreciation expense 140,000 Increase in accounts receivable 60,000 Harding should report cash provided by operating activities of a. $300,000. b. $420,000. c. $580,000. d. $700,000.

c

Purchased a 1-year insurance policy on June 1 for $1,080 cash. Adjust end of year

June is included 7/12 x 1080

As it relates to selling receivables, recourse is defined as:

The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay.

When may a company choose the fair value option? Select all that apply

1. at the time the financial instrument is officially recognized. 2. when a new basis of accounting is triggered

Gandalf & Sons receives a 5-year, $20,000 zero interest-bearing note, the present value of which is $11,348.60. What is the implicit interest rate that equates the total cash to be received to the present value of the future cash flows?

12% $20,000/$11348.6 = 1.7623 Raise 1.7623 to the power of 1/the number of periods and then subtract 1. 1.7623(1/5) - 1 = 11.999

Hat Trick Manufacturing sold equipment to Puck & Co., taking in exchange a zero interest bearing note. The equipment had a fair market value of $36,000 and the face amount of the note was $40,000. How should Hat Trick Manufacturing present the note in a balance sheet prepared immediately after receipt of the note?

At face amount less implicit interest.

Holden Company purchased 150 acres of land on the outer edge of a growing city. Holden expects the value of this land to appreciate by 500% over the next three years. How would you expect Holden to report the value of this land on their balance sheet?

At historical cost.

Where are financing and investing activities reported when they do not impact cash?

At the bottom of the statement of cash flows.

Which of the following describes a similarity between an income statement and a statement of cash flows?

Both statements summarize activities that took place during an accounting period.

Maxwell Foods purchased raw materials from a local farm and also redeemed bonds that they issued eight years ago. How do these transactions compare when reported in the statement of cash flows?

Both transactions result in cash outflow, but the purchase of raw materials is an operating activity and the redemption of bonds is a financing activity.

Unitex sold its accounts receivable outright to Hyperion Enterprises which is a financing company that normally buys accounts receivable of other companies without recourse. What has happened to the accounts receivable?

They have been factored.

Which of the following events will appear in the cash flows from financing activities section of the statement of cash flows? a. Cash purchases of equipment. b. Cash purchases of bonds issued by another company. c. Cash received as repayment for funds loaned. d. Cash purchase of treasury stock.

Cash purchase of treasury stock

long term assets

Evaluating alternative long-term investments by discounting future cash flows. Determining the value of assets acquired under deferred payment contracts. Measuring impairments of assets.

In addition to being a short-term, highly liquid investment that is readily convertible into known amounts of cash, which of the following is also true of cash equivalents?

It is likely they will be recorded as temporary investments in the future.

What is the expected result of an accounts receivable that the company expects to collect in 10 months?

It would be classified as a current receivable because the current year or operating cycle includes the next 10 months.

Gross Profit-op expenses

Net income or loss

What is the expected result if Northern Pine Company pays $16,750 for a zero-interest-bearing, three-year note with a face value of $20,000?

Northern Pine can determine the yearly interest by amortizing the difference between the future value and the present value over the life of the note.

If expenses are greater than revenues, the Income Summary account will be closed by a debit to

Retained Earnings and a credit to Income Summary.

Why do companies often use the gross method of recording cash discounts if the net method is theoretically more correct?

The gross method requires less bookkeeping.

Which of the following best describes the difference between the financial statements for a merchandising company compared to those for a service company?

The merchandising company's statements must account for gross profit on sales, while the service company's statements do not.

Which of the following is most like the SEC definition for a compensating balance?

The portion of any demand deposit, time deposit, or certificate of deposit maintained by a corporation which constitutes support for existing borrowing arrangements of the corporation with the lending institution

If the transfer of receivables with recourse is to be accounted for as a sale then which of the following is not true?

The transferor is obligated to make a genuine effort to identify those receivables that are uncollectible

Changes in a firm's income statement ______ have an effect on the firm's retained earnings statement.

Usually

During 2010 the DLD Company had a net income of $50,000. In addition, selected accounts showed the following changes: Accounts Receivable $3,000 increase Accounts Payable 1,000 increase Building 4,000 decrease Depreciation Expense 1,500 increase Bonds Payable 8,000 increase What was the amount of cash provided by operating activities? a. $49,500 b. $50,000 c. $51,500 d. $59,500

a

In a statement of cash flows, interest payments to lenders and other creditors should be classified as cash outflows for a. operating activities. b. borrowing activities. c. lending activities. d. financing activities.

a

In preparing a statement of cash flows, which of the following transactions would be considered an investing activity? a. Sale of equipment at book value b. Sale of merchandise on credit c. Declaration of a cash dividend d. Issuance of bonds payable at a discount

a

When a customer purchases merchandise inventory from a business organization, the customer may be given a discount which is designed to induce prompt payment. What is the term for this type of discount?

a cash discount

Days to collect accounts receivable is calculated by dividing

accounts receivable turnover by 365 days

Which phrases fill in the following blanks? Orion Industries calculated the ________ to assess how successful they were at collecting outstanding receivables and the ________ to assess the effectiveness of their credit and collection policies.

accounts receivable turnover; days outstanding

For the month of May 2017, Ceres Corporation, which uses the direct write-off method in accounting for uncollectible accounts receivable, has the following information: Cash sales $40,000 Cash received on accounts receivable 32,000 Accounts receivable, May 1, 2017 $105,000 Accounts receivable, May 31, 2017 $92,000 Accounts receivable written off as uncollectible $2,000 What are the gross sales for May 2017?

$61,000 = 40000+32000-13000+2000 Find the difference between the beginning and ending accounts receivable. $105,000 - $92,000 = $13,000 Subtract this from the cash received on accounts receivable to find the amount of credit sales. $32,000 -$13,000 = $19,000 Add this to the cash sales. $19,000 + $40,000 = $59,000 Adjust for the direct write offs. $59,000 + $2,000 = $61,000

Receivables are reported by which of the following general rules?

1. Disclose any loss contingencies that exist on the receivables. 2. Indicate the receivables classified as current and noncurrent. 3. Disclose any receivables designated or pledged as collateral.

Which of the following statements are true regarding the classification of accounts and notes receivable?

1. Segregation of the different types of receivables is required if they are material. 2. Disclose any loss contingencies that exist on the receivables. 4. Valuation accounts should be appropriately offset against the proper receivable accounts.

Which of the following statements are true regarding uncollectible accounts receivable? (Select all that apply.) 1. The direct write-off method records the bad debt in the year that it is determined that a specific receivable cannot be collected. 2. The allowance method is based on the assumption that the percentage of receivables that will not be collected can be predicted from past experiences, present market conditions, and an analysis of outstanding balances. 3. The direct write-off method will provide for a proper matching of costs with revenues of the period when the average monthly accounts receivable balance is consistent throughout the year. 4. An uncollectible account receivable is a loss of revenue that requires, through proper entry in the accounts, a decrease in the asset accounts receivable and a related decrease in income and stockholders' equity.

1. The direct write-off method records the bad debt in the year that it is determined that a specific receivable cannot be collected. 2. The allowance method is based on the assumption that the percentage of receivables that will not be collected can be predicted from past experiences, present market conditions, and an analysis of outstanding balances. 4. An uncollectible account receivable is a loss of revenue that requires, through proper entry in the accounts, a decrease in the asset accounts receivable and a related decrease in income and stockholders' equity.

Which of the following conditions are required if the transfer of receivables with recourse is to be accounted for as a sale?

2. The transferor surrenders control of the future economic benefits of the receivables. 3. The transferee cannot require the transferor to repurchase the receivables. 4. The transferor's obligation under the recourse provisions can be reasonably estimated.

Paid $6,450 on August 31 for 5 months' rent in advance. Adjust for Dec

5 months in advance( ignore August) 4/5 x 6450

Titanium Inc. received a seven-year zero-interest-bearing note on March 2, 2018, in exchange for property it sold to Xenon Tech. There was no established exchange price for this property and the note has no ready market. The prevailing rate of interest for a note of this type was 9% on March 2, 2018, 9.5% on December 31, 2018, 9.7% on February 22, 2019, and 10% on December 31, 2019. The company should use ___ as the interest rate to calculate the interest revenue from this transaction for 2018and ___ as the interest rate to calculate the interest revenue from this transaction for 2019.

9% , 9%

How is the accounts receivable turnover ratio computed?

By dividing net sales by average net receivables

Which of the following accounts will contain a zero balance after the post-closing trial balance is completed?

Dividends

net relizable value

How much can be realistically collect -AR- ALLOW D/A

Ransdell Corporation has determined that it has $15,000 in uncollectible accounts to record during this accounting period. Where will these bad debts be reflected in Ransdell's financial statements?

They will be reflected on Ransdell's income statement.

Caitlyn is working on some free cash flow calculations, but she is missing one component. She has capital expenditures, dividends, and the free cash flow, but she is missing the net cash provided by operating activities. Can she determine this with the information she has?

Yes, she can add the capital expenditures and the dividends to the free cash flow in order to determine the net cash provided by operating activities.

T/F? Free cash flow is a more sophisticated way to examine a company's financial flexibility.

true

How should Trinitron Inc. report an IOU from Julius Corporation?

As a receivable

In a statement of cash flows, receipts from sales of property, plant, and equipment and other productive assets should generally be classified as cash inflows from a. operating activities. b. financing activities. c. investing activities. d. selling activities.

c

Which of the following journal entries is appropriate when a company receives payment in advance for goods or services?

Debit cash and credit a liability account or a revenue account.

Bauer Securities decided to purchase a 15% non-controlling interest in a small private company that produces software necessary to run their specialized analytical programs. Because the company is private, the market value of the stocks is not consistent. When this information is disclosed on Bauer's financial statements, the fair value of the stocks should be considered a ________ fair value measure.

Level 3 Level 3 is the most subjective measure of fair value for financial instruments. Because the company is privately owned, no public market information is available and the value of the stock will have to be estimated based on the company's own financial information. This makes the fair value measurement a Level 3 measure

In preparing a statement of cash flows, cash flows from operating activities a. are always equal to accrual accounting income. b. are calculated as the difference between revenues and expenses. c. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do not affect cash. d. can be calculated by appropriately adding to or deducting from net income those items in the income statement that do affect cash.

c

Sauder Corporation reports the following information: Net income $250,000 Depreciation expense 70,000 Increase in accounts receivable 30,000 Sauder should report cash provided by operating activities of a. $150,000. b. $210,000. c. $290,000. d. $350,000.

c