Accounting Chapters 6, 7, 8

Overstate, understate, understate, zero.

At the beginning of 2016, Gannon Company received a three-year zero-interest-bearing $1,000 trade note. The market rate for equivalent notes was 8% at that time. Gannon reported this note as a $1,000 trade note receivable on its 2016 year-end statement of financial position and $1,000 as sales revenue for 2016. What effect did this accounting for the note have on Gannon's net earnings for 2016, 2017, 2018, and its retained earnings at the end of 2018, respectively?

is debited when the petty cash fund proves out short.

A Cash Over and Short account?

is so near its maturity that it presents insignificant risk of changes in interest rates.

A cash equivalent is a short-term, highly liquid investment that is readily convertible into known amounts of cash and..?

($172,000 × .10) - $3,040 = $14,160.

A trial balance before adjustments included the following: Sales $1,700,000 (credit) Sales returns and allowance $56,000 (debit) Accounts receivable 172,000 (debit) Allowance for doubtful accounts 3,040 (credit) If the estimate of uncollectibles accounts is made by taking 10% of gross account receivables, the amount of the adjustment is?

Debit Accounts Receivable for $25,000.

AG Inc. made a $25,000 sale on account with the following terms: 1/15, n/30. If the company uses the gross method to record sales made on credit, what is/are the debit(s) in the journal entry to record the sale?

Allowance for Doubtful Acct. balance $102,000 + $15,000 - $69,000 = $48,000 (before bad debt expense) $975,000 - $900,000 - $48,000 = $27,000 (bad debt expense).

Ace Co. prepared an aging of its accounts receivable at December 31, 2017 and determined that the net realizable value of the receivables was $900,000. Additional information is available as follows: Allowance for uncollectible accounts at 1/1/17—credit balance $102,000 Accounts written off as uncollectible during 2017 69,000 Accounts receivable at 12/31/17 975,000 Uncollectible accounts recovered during 2017 15,000 For the year ended December 31, 2017, Ace's bad debt expense would be?

2% for 32 periods.

An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at?

($900,000 × .90) = $810,000

Assume Royal Palm Corp., an equipment distributor, sells a piece of machinery with a list price of $900,000 to Arch Inc. Arch Inc. will pay $975,000 in one year. Royal Palm Corp. normally sells this type of equipment for 90% of list price. How much should be recorded as revenue?

$1,620,000 + ($270,000 - $120,000) = $1,770,000.

At the close of its first year of operations, December 31, 2017, Ming Company had accounts receivable of $1,620,000, after deducting the related allowance for doubtful accounts. During 2017, the company had charges to bad debt expense of $270,000 and wrote off, as uncollectible, accounts receivable of $120,000. What should the company report on its balance sheet at December 31, 2017, as accounts receivable before the allowance for doubtful accounts?

$1,000,000 - [($1,000,000 × .03) =$970,000

Becky had net sales (all on account) in 2017 of $800,000. At December 31, 2016, before adjusting entries, the balances in selected accounts were: accounts receivable $1,000,000 debit, and allowance for doubtful accounts $2,000 debit. Becky estimates that 3% of its accounts receivable will prove to be uncollectible. What is the net realizable value of the receivables reported on the financial statements at December 31, 2017?

$1,500,000 - $125,000 = $1,375,000.

Before year-end adjusting entries, Dunn Company's account balances at December 31, 2017, for accounts receivable and the related allowance for uncollectible accounts were $1,500,000 and $90,000, respectively. An aging of accounts receivable indicated that $125,000 of the December 31 receivables are expected to be uncollectible. The net realizable value of accounts receivable after adjustment is

$780,000 + $60,000 + $90,000 = $930,000.

Bell Inc. took a physical inventory at the end of the year and determined that $780,000 of goods were on hand. In addition, Bell, Inc. determined that $60,000 of goods that were in transit that were shipped f.o.b. shipping point were actually received two days after the inventory count and that the company had $90,000 of goods out on consignment. What amount should Bell report as inventory at the end of the year?

Included in the inventory of the buyer

Goods in transit which are shipped f.o.b. shipping point should be?

$300,000 + $1,800,000 - $349,500 = $1,750,500 COGS $3,000,000 - $1,750,500 = $1,249,500.

Hay Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end prices was $379,500, and the price index was 110. What is Hay Company's gross profit?

Changing the percentage of receivables recorded as bad debt expense.

How can accounting for bad debts be used for earnings management?

a deduction from sales in the income statement.

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as?

the present value of the annuity due is greater than the present value of the ordinary annuity.

If an annuity due and an ordinary annuity have the same number of equal payments and the same interest rates, then?

FIFO

In a period of rising prices, the inventory method which tends to give the highest reported net income is?

$102,420 + $15,000 - $15,600 = $101,820.

In preparing its bank reconciliation for the month of April 2017, Henke, Inc. has the following information available. Balance per bank statement, 4/30/17 $102,420 NSF check returned with 4/30/17 bank statement 1,350 Deposits in transit, 4/30/17 15,000 Outstanding checks, 4/30/17 15,600 Bank service charges for April 60 What should be the correct balance of cash at April 30, 2017?

The LIFO value of an increase in the inventory for a given year.

In the context of dollar-value LIFO, what is a LIFO layer?

Receivables

In which account are post-dated checks received classified?

6% and 6%.

Lester Company received a seven-year zero-interest-bearing note on February 22, 2017, in exchange for property it sold to Porter Company. 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 6% on February 22, 2017, 6.5% on December 31, 2017, 6.7% on February 22, 2018, and 7% on December 31, 2018. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2017 and 2018, respectively?

[(1,050 - 900) × ($9 - $6)] = $450.

Milford Company had 600 units of "Tank" in its inventory at a cost of $6 each. It purchased 900 more units of "Tank" at a cost of $9 each. Milford then sold 1,050 units at a selling price of $15 each. The LIFO liquidation overstated normal gross profit by

$3,000,000 - [$3,000,000 × (.04 + .08)] = $2,640,000.

Moon Inc. factors $3,000,000 of its accounts receivables without recourse for a finance charge of 4%. The finance company retains an amount equal to 8% of the accounts receivable for possible adjustments. Moon estimates the fair value of the recourse liability at $300,000. What would be the debit to Cash in the journal entry to record this transaction?

(400 × $2.10) + (120 × $2.20) = $1,104.

Niles Co. has the following data related to an item of inventory: Inventory, March 1 400 units @ $2.10 Purchase, March 7 1,400 units @ $2.20 Purchase, March 16 280 units @ $2.25 Inventory, March 31 520 units The value assigned to ending inventory if Niles uses LIFO is?

$430,080 ÷ 1.12 = $384,000 - $300,000 = $84,000. $300,000 + ($84,000 × 1.12) = $394,080.

RF Company had January 1 inventory of $300,000 when it adopted dollar-value LIFO. During the year, purchases were $1,800,000 and sales were $3,000,000. December 31 inventory at year-end prices was $430,080, and the price index was 112. What is RF Company's ending inventory?

($6,000,000 × .03) + $300,000 = $480,000.

Sun Inc. factors $6,000,000 of its accounts receivables with recourse for a finance charge of 3%. The finance company retains an amount equal to 10% of the accounts receivable for possible adjustments. Sun estimates the fair value of the recourse liability at $300,000. What would be recorded as a gain (loss) on the transfer of receivables?

$85,000 + $1,880 - $640 - $180 + $36 = $86,096.

The cash account shows a balance of $85,000 before reconciliation. The bank statement does not include a deposit of $4,600 made on the last day of the month. The bank statement shows a collection by the bank of $1,880 and a customer's check for $640 was returned because it was NSF. A customer's check for $900 was recorded on the books as $1,080, and a check written for $158 was recorded as $194. The correct balance in the cash account was?

an understatement of liabilities and an overstatement of owners' equity

The failure to record a purchase of merchandise on account even though the goods are properly included in the physical inventory results in?

Weighted-average

The pricing of issues from inventory must be deferred until the end of the accounting period under the following method of inventory valuation:

When it can reasonably estimate the amount of returns

Under what circumstances should a company with high rate of return on sales consider the inventory sold?

($1,270,000 × .02) = $25,400.

Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is also a debit balance of $6,000 in the allowance for doubtful accounts. If the company estimates that 2% of its accounts receivable will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

$6,000,000 × .08 =480,000

Wellington Corp. has outstanding accounts receivable totaling $6 million as of December 31 and sales on credit during the year of $30 million. There is also a debit balance of $24,000 in the allowance for doubtful accounts. If the company estimates that 8% of its outstanding receivables will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense?

($6,500,000 × .06) - $12,000 =$378,000

Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit balance of $12,000 in the allowance for doubtful accounts. If the company estimates that 6% of its outstanding receivables will be uncollectible, what will be the amount of bad debt expense recognized for the year?

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

What is "recourse" as it relates to selling receivables?

Assets

What is not a variable that is considered in interest computations?

No effect

What is the effect of a $50,000 overstatement of last year's inventory on current years ending retained earning balance?

Debit Allowance for Doubtful Accounts, credit Accounts Receivable.

What is the normal journal entry when writing-off an account as uncollectible under the allowance method?

offset the overdraft against cash account.

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will:

Not on the balance sheet

Where should goods in transit that were recently purchased f.o.b. destination be included on the balance sheet?

Ending inventory: FIFO Cost of goods sold: LIFO

Which inventory costing method most closely approximates current cost for each of the following: Ending Inventory and Cost of goods sold

A percentage of accounts receivable adjusted for the balance in the allowance.

Which of the following is a generally accepted method of determining the amount of the adjustment to bad debt expense?

Prepaid insurance.

Which of the following situations does not base an accounting measure on present values?

A capital lease is entered into with the initial lease payment due upon the signing of the lease agreement.

Which of the following transactions would require the use of the present value of an annuity due concept in order to calculate the present value of the asset obtained or liability owed at the date of incurrence?

Present value of an ordinary annuity of 1.

Which table would you use to determine how much must be deposited now in order to provide for 5 annual withdrawals at the beginning of each year, starting one year from the first deposit?

To accelerate access to amounts collected.

Why would a company sell receivables to another company?