Subunit 5

Sap Co. purchased from Azalea Co. a $20,000, 8%, 5-year note that required five equal annual year-end payments of $5,009.

$5,560

Halen, Inc., received from a customer a 1-year, $500,000 note bearing annual interest of 8%.

$504,000

Hilltop Co.'s monthly bank statement shows a balance of $54,200.

$53,050

The following accounts were abstracted from Pika Co.'s unadjusted trial balance at December 31:

$60,000

On April 1, Aloe, Inc., factored $80,000 of its accounts receivable without recourse.

$68,000

An analysis and aging of Hom Company's accounts receivables at December 31 disclosed the following:

$786,000

A service company's working capital at the beginning of May of the current year was $70,000. The following transactions occurred during May: Performed services on account $30,000

$80,500

The Brown Company received a 2-year, $190,000 note on January 1, Year 1 in exchange for property it sold to Gray Company.

12% and 12%

Jayne Corp. discounted its own $50,000, 1-year note at a bank, at a discount rate of 12%, when the prime rate was 10%

13.6%

The objective of a petty cash system is to

Facilitate office payment of small, miscellaneous items

In accounting for the transfer of financial assets, which of the following is the approach underlying the accounting prescribed by GAAP?

Financial-components approach

Questions 24 and 25 are based on the following information: ECG Company recorded two sales on March 1

Gross Method: $49,400 Net Method: $48,500

What are the gross sales for the month of March?

Gross Method: $50,000 Net Method: $48,500

The following transactions occurred during a company's first year of operations: I. Purchased a delivery van for cash II. Borrowed money by issuance of short-term debt III. Purchased treasury stock Which of the items above caused a change in the amount of working capital?

I and III only.

When the allowance method or recognizing uncollectible accounts is used, the entries at the time of collection of a small account previously written off

Increase the allowance for uncollectible accounts.

If a transfer of an entire financial asset meets the criteria for recognition as a sale, the transferor should

Initially measure at fair value any assets obtained and liabilities incurred

On August 15, Benet Co. sold goods for which it received a note bearing the market rate of interest on that date.

Interest receivable

Which of the following items enter into the determination of working capital?

Inventory of finished products that as of the balance sheet date has been held by a manufactureer for 1 year of a 3-year aging cycle.

Milton Co. pledged some of its accounts receivable to Good Neighbor Financing Corporation in return for loan. Which of the following statements is correct?

Milton will retain control of the receivables.

When may an asset valuation allowance, such as the allowance for uncollectible accounts, be shown on the credit side of the balance sheet?

Never.

On January 1, a company establishes petty cash account and designates one employee as petty cash custodian.

Office supplies expense $127 Postage expense $83 Entertainment expense $84 Cash over and short $10 Cash $304

United Refinery Company, a refiner of peanut oil, lent $500,000 to James Barter, a peanut farmer, interest free for 5 years.

A discount equal to the expected value of the price concession granted.

On January 1, Davis College assigned $500,000 of accounts receivable to the Scholastic Finance Company.

A/R Assigned: $80,000 Notes Payable: $74,750

A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on

Aging the receivables.

Bank reconciliations are usually prepared on a monthly basis upon receipt of the bank statement to identify either bank errors or items that need to be adjusted on the depositor's books. The adjustments should be made for

All items except deposits in transit, outstanding checks, and bank errors

Which method of recording uncollectible accounts expense is consistent with accrual accounting?

Allowance: Yes Direct Write-off: No

Lender Bank made a large loan to a major borrower and then transferred a participating interest in this loan to Student Union Bank.

Does not allow Student Union to sell its participating interest

The operating cycle of a business is the span of time that

Runs from cash disbursement for items of inventory through their sale to the realization of cash from sale.

Which of the following statements is not valid in determining balance sheet disclosure of accounts receivable?

That portion of installment accounts receivable from customers coming due more than 12 months from the balance sheet date usually would be excluded from current assets.

The following information relates to Soward Co.'s accounts receivables for the year just ended:

$1,735,000

Henry Stores, Inc., had sales of $2,000,000 during December.

$1,800,000

The following information is shown in the accounting records of a company: Balances as of January 1, Year 1

$149,000

Holder Co. has an 8% note receivable dated June 30, Year 1, in the original amount of $300,000.

$16,000

The following information pertains to Eire Co.'s accounts receivables at December 31, Year 2:

$18,000

Clarion, Inc., sells to wholesalers on terms of 2/15, net 30. Clarion has no cash sales, but 50% of Clarion's customers take advantage of the discount.

$2,000

Monte Company's usual sales terms are net 60 days, FOB shipping point.

$2,330,000

Comparative balance sheets for a company are presented below: Assets 12/31/YR2 12/31/YR1 Cash $35,000 $30,000

$20,000

On the last day of its fiscal year, Originator Co. transferred noncurrent loans to Transferee Co. in a transaction appropriately accounted for as a sale and retained a servicing asset.

$20,000

Turner Co. estimates its uncollectibles accounts expense to be 2% of credit sales.

$20,000

On November 1, Year 1, Love Co. discounted with recourse at 10% a 1-year, non interest bearing, $20,500 note receivable maturing on January 31, Year 2.

$20,500

Nefertiti Corporation had the following transactions in its first year of operations:

$210,000

An entity is reconciling its bank statement with interal records. The cash balance per the bank statement is $20,000, while the cash balance per the entity's books is $18,000. There are $2,000 of bank charges not yet recored, $3,000 outstanding checks, $5,000 of deposits in transit, and $6,000 of bank credits and collections not yet recorded in the entity's books. If there are no bank or book errors, what is the entity's actual cash balance?

$22,000

Punn Co. has been forced into bankruptcy and liquidated.

$22,000

William Co. determined that the net realizable value (NRV) of its accounts receivable at December 31, based on an aging of receivables, was $650,000. Additional information is as follows:

$22,000

The following is Azzura Corp.'s June 30, Year 1, trial balance:

$225,000

A company shows a cash balance of $35,000 on its bank statement dated November 1. As of November 1, there are $11,000 of outstanding checks and $7,500 of deposits in transit. The cash balance on the company books as of November 1 is

$31,500

Athens Corporation sold an 80% pro rata interest in a $2,000,000 note receivable to Sparta Company for $1,920,000.

$320,000

Ayn, Inc., accepted from a customer an $80,000 90-day, 12% interest-bearing note dated August 31.

$340

In preparing its bank reconciliation at December 31, Year 1, Rhein Company has available the following data:

$36,125

On January 1, the Fulmar Company sold personal property to the Austin Company.

$44,000

Seller Co. transfered entire loans to Buyer Co. in a sale transaction. It did not retain a servicing interest.

$45

On August 1, Year 1, Beethoven Corp.'s $500,000 1-year, noninterest-bearing note due July 31, Year 2, was discounted at Gray Bank at 10.8%.

$468,500

Piquet Corp.'s checkbook balance on December 31, Year 1, was $5,000.

$5,100

On a balance sheet, what is the preferable presentation of notes receivable or accounts receivable from officers, employees, or affiliated companies?

As assets but separately from other receivables

How should unearned discounts, finance charges, and unearned interest included in the face amount of notes receivables be presented in the balance sheet?

As deductions from the related receivables

Which of the following is a method to generate cash from accounts receivable?

Assignment: Yes Factoring: Yes

Usually, if the petty cash fund is not reimbursed just prior to year end and an appropriate adjusting entry is not made,

Cash will be overstated and expenses understated

A characteristic of all assets and liabilities included in working capital is that they are

Current.

Griffin Corp. declared a $50,000 cash dividend on May 19, Year 1, to shareholders of recored on May 30, Year 1, payable on June 9, Year 1. As a result of this cash dividend, working capital

Decreased on May 19

When the allowance method of recognizing uncolletible accounts is used, the entry to record the write-off of a specific account

Decreases both accounts receivable and the allowance for uncollectible accounts.

A 90-day, 15% interest-bearing note receivable is sold to a bank after being held for 30 days. The proceeds are calculated using an 18% interest rate. The note receivable has been

Discounted: Yes Pledged: No

On Geo's April 30, Year 3, balance sheet,

Principle is due June 30, Year 4, and interest is due June 30, Year 3 and Year 4.

Puddie Company maintains two checking accounts.

Reconcile to $10,000

Current liabilities are best defined as those obligations

The liquidation of which is reasonably expected to require the use of current assets or the creation of other current liabilities within the next operating cycle of 1 year, whichever is longer

At October 31, Dingo, Inc., had cash accounts at three different banks.

The segregated account should be reported as a noncurrent asset, the regular account should be reported as a current asset, and the overdraft should be reported as a current liability.

A transfer of financial assets may be treated as a sale if the transferor surrenders control of the assets. Which of the following is one of the criteria that must be met before control is deemed to be surrendered?

The transferor is not a party to an agreement that both entitles and obligates it to repurchase or redeem the securities prior to maturity