Accouting #2

The interest charged on a $200,000 note payable, at the rate of 6%, for a year would be..

$12,000

Net credit sales for the month are $4,000,000 for Marx Clothiers. Its accounts receivable balance is $160,000. The allowance is calculated as 7.5% of the receivables balance using the percentage of receivables basis. The Allowance for Doubtful Accounts has a credit balance of $5,000 before adjustment. How much is the balance of the allowance account after adjustment?

$12,000 (Because the estimate is based on a percentage of receivables, the $800 balance in the Allowance accounts must be considered. The amount by which the allowance account will be increased is 7.5% times $160,000, which is $12,000. Since there is already a balance of $5,000 in the allowance account, the difference of $7,000 should be added, giving a balance of $12,000.)

A company has the following asset account balances: Buildings and equipment $9,200,000 Accumulated depreciation 1,200,000 Patents 750,000 Land Improvements 1,000,000 Land 5,000,000 How much will be reported on the balance sheet under property, plant, & equipment?

$14,000,000 (Buildings and equipment, land improvements, and land, less accumulated depreciation are included for a total of $14,000,000)

The interest charged on a $200,000 note payable, at the rate of 6%, on a 60-day note would be..

$2,000.

How much accrued interest should be reported on the payee's December 31 balance sheet ona $5,000, 8%, 9-month note receivable issued on June 1?

$233 (Interest earned is calculated by multiplying the principal times the interest rate times the portion of the year that has passed since the note was issued.)

Corristan Company purchased equipment and incurred these costs: Cash price $24,000 Sales taxes 1,200 Insurance during transit 200 Annual maintenance costs 400 Total costs $25,800 What amount should be recorded as the cost of the equipment?

$25,400 (All costs necessary to get the asset ready to use should be included as part of the cost of the equipment because these are the costs that are necessary to acquire, safely transport, and prepare it for its intended use. The annual maintenance costs are expensed, not capitalized. $24,000 + $1,200 + $200 = $25,400)

An analysis and aging of the accounts receivable of Raja Company at December 31 reveal these data: Accounts receivable $800,000 Allowance for doubtful accounts per books before adjustment (credit) 12,000 Amounts expected to become uncollectible 65,000 How much is the cash realizable value of the accounts receivable at December 31, after adjustment?

$735,000 (The cash realizable value of the accounts receivable is accounts receivable less the ending balance in the Allowance for Doubtful Accounts. In this case, accounts receivable is $800,000 and the ending balance in Allowance for Doubtful Accounts is $65,000. This results in cash realizable value of $800,000 less $65,000, or $735,000.)

A company purchased land for $72,000 cash. Real estate brokers' commission was $5,000 and $7,000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building was $1,200. Under the cost principle, the cost of land would be recorded at

$82,800.

Coronado Company purchased land for $80,000. The company also paid $12,000 in accrued taxes on the property, incurred $5,000 to remove an old building, and received $2,000 from the salvage of the old building. At what amount will the land be recorded in the accounting records?

$95,000 (All costs necessary to get the land ready to use should be capitalized as part of the cost of the land. Coronado should include the purchase price of $80,000, the accrued taxes of $12,000, the cost of razing the old building of $5,000 less the payment received for the salvaged materials in the amount of $2,000. This results in an acquisition cost of $95,000.)

At the end of 2011, Tatham Co. has accounts receivable of $666,316 and an allowance for doubtful accounts of $34,957. On January 24, 2012, it is learned that the company's receivable from Nardin Inc. is not collectible and therefore management authorizes a write-off of $4,443. On March 4, 2012, Tatham Co. receives payment of $4,443 in full from Nardin Inc. Prepare the journal entries to record the payment...

...

On June 15, Kersee Company sold merchandise on account to Eng Co. for $1,000, terms 2/10, n/30. On June 20, Eng Co. returns merchandise worth $300 to Kersee Company. On June 24, payment is received from Eng Co. for the balance due. What is the amount of cash received on June 24?

686 (The amount received on June 24 is $686. Because payment is made within the discount period of 10 days, the amount received is $700 ($1,000 - return of $300) minus the discount of $14 ($700 × 2%), for a cash amount of $686.)

What is depreciation?

A cash accumulation approach

Which of the following is a threat of nonpayment from a single customer or class of customers that could adversely affect the financial health of a company?

A concentration of credit risk

What type of receivable is evidenced by a formal instrument and normally requires the payment of interest?

A note receivable (A note receivable represent claims for which formal instruments of credit are issued as evidence of the debt. The note normally requires the payment of the principal and interest on a specific date.)

Which of the following is not properly classified as property, plant, and equipment? A truck held for resale by an automobile dealership. Building used as a factory. Land improvement, such as parking lots and fences. Land used in ordinary business operations.

A truck held for resale by an automobile dealership.

Which one of the following is the correct presentation of Accounts Receivable and its contra account on the balance sheet? Accounts Receivable $642,000 Less: Allowance for Doutful Accounts 2,000 $644,000 Accounts Receivable $642,000 Less: Bad Debt Expense (17,000) $625,000 Accounts Receivable $642,000 Less: Bad Debt Expense (17,000) Less: Allowance for Doubtful Accounts (2,000) $623,000 Accounts Receivable $642,000 Less: Allowance for Doutful Accounts (2,000) $640,000

Accounts Receivable $642,000 Less: Allowance for Doutful Accounts (2,000) $640,000 (The contra asset account is deducted from Accounts Receivable to result in the cash (net) realizable value)

When an uncollectible account is recovered after it has been written off, which of the following accounts will be credited in the process?

Accounts Receivable and Allowance for Doubtful Accounts (When an uncollectible account is recovered after its has been written off, Allowance for Doubtful Accounts will be credited and Accounts Receivable will be debited in the first entry. The second entry requires a credit to Accounts Receivable and a debit to Cash.)

Obama Company has identified that Bill Clinton's receivable account of $100 is uncollectible. What is the journal entry needed to write off the account under the allowance method?

Allowance for Doubtful Accounts 100 Accounts Receivable 100 (he proper journal entry debits Allowance for Doubtful Accounts and credits Accounts Receivable. Bad debt expense is recognized only when doubtful accounts are estimated, not when they are written off.)

Which statement is true about reporting receivables on the balance sheet? Bad Debts Expense and Allowance for Doubtful Accounts are shown as a deduction from Accounts Receivable on the balance sheet. Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet. Bad Debts Expense is is shown as a deduction from Accounts Receivable on the balance sheet. Bad Debts Expense is subtracted from Accounts Receivable and is then shown as a deduction from Accounts Receivable on the balance sheet.

Allowance for Doubtful Accounts is shown as a deduction from Accounts Receivable on the balance sheet. (Allowance for Doubtful Accounts is a contra asset account that is shown as a deduction from Accounts Receivble on the balance sheet in the current asset section.)

Which one of the following costs will not be included in the cost of equipment? Annual insurance Testing Freight Installation

Annual insurance (Because annual insurance costs are ongoing and do not benefit multiple periods, they are expensed in the year incurred. Insurance costs incurred while the equipment is in transit can be appropriately included in the cost of the equipment)

RyTronics uses the percentage of receivables method for estimating bad debts expense. The Accounts Receivable balance is $100,000 at year-end and the total credit sales were $800,000. Management estimates that 4% of receivables will be uncollectible. What adjusting entry will be recorded if the Allowance for Doubtful Accounts has a credit balance of $800 before adjustment?

Bad Debts Expense 3,200 Allowance for Doubtful Accounts 3,200 (Allowance for Doubtful Accounts needs an ending credit balance of 4% of $100,000 or $4,000. To increase the current credit balance of $800 to the required amount of $4,000, the account requires a credit of $3,200. The entry to estimate bad debts is a debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts for $3,200.)

Which one of the following statements is true? Bad Debts Expense is a real account and remains open at the end of the fiscal period, while Allowance for Doubtful Accounts is a nominal account and is closed at the end of the fiscal period. Bad Debts Expense and Allowance for Doubtful Accounts are both nominal accounts and are closed at the end of the fiscal period. Bad Debts Expense is a nominal account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period. Bad Debts Expense and Allowance for Doubtful Accounts are both real accounts and neither are closed at the end of the fiscal period.

Bad Debts Expense is a nominal account and is closed at the end of the fiscal period, while Allowance for Doubtful Accounts is a real account and remains open at the end of the fiscal period.

Good Stuff Retailers accepted $50,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. Which of the following is/are the debit entry(ies) required to record this transaction by Good Stuff Retailers?

Cash $48,000 and Service Charge Expense $2,000 (The entry includes a credit to Sales for $50,000, a $48,000 debit to Cash, and a debit to Service Charge Expense for $2,000)

Schleis Co. holds Murphy Inc.'s $10,000, 120-day, 9% note. What is the entry to be made by Schleis Co. when the note is collected, assuming no interest has previously been accrued?

Cash 10,300 Notes Receivable 10,000 Interest Revenue 300 (When Schleis receives payment, it will increase cash, reduce the note account, and recognize ot interest earned for the term of the note. Interest = $10,000 × 9% × 120/360 = $300)

West County Bank agrees to lend Drake Builders Company $100,000 on January 1. Drake Builders Company signs a $100,000, 6%, 6-month note. The entry made by Drake Builders Company on January 1 to record the proceeds and issuance of the note is...

Cash 100,000 Notes Payable 100,000

Gipson Furniture factors $400,000 of receivables to Kwik Factors, Inc. Kwik Factors assesses a 3% service charge on the amount of receivables sold. Gipson Furniture factors its receivables regularly with Kwik Factors. What journal entry does Gipson make when factoring these receivables?

Cash 388,000 Service Charge Expense 12,000 Accounts Receivable 400,000

Moss County Bank agrees to lend the Sadowski Brick Company $400,000 on January 1. Sadowski Brick Company signs a $400,000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is....

Cash 400,000 Notes Payable 400,000

Which depreciation method calculates annual depreciation expense based on book value at the beginning of each year?

Declining-balance (All declining-balance methods are affected by the beginning of the year book value.)

To be classified as a current liability, how or when must a debt be expected to be paid?

Either out of existing current assets or by creating other current liabilities (Current liabilites are those that are expected to be paid out of existing current assets or by creating other current liabilities)

Depreciation expense and accumulated depreciation are reported on the income statement. t or f

False

Depreciation is a process of asset valuation, not cost allocation. t or f

False

Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset. t or f

False

he contra account to property, plant and equipment is accumulated amortization. t or f

False (The contra account in the property, plant, and equipment section of the balance sheet is accumulated depreciation)

West County Bank agrees to lend Drake Builders Company $100,000 on January 1. Drake Builders Company signs a $100,000, 6%, 6-month note. What is the adjusting entry required if Drake Builders Company prepares financial statements on March 30?

Interest Expense 1,500 Interest Payable 1,500

Moss County Bank agrees to lend the Sadowski Brick Company $400,000 on January 1. Sadowski Brick Company signs a $400,000, 6%, 9-month note. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30?

Interest Expense 12,000 Interest Payable 12,000

Butte Co. loaned $25,000 to Beavis Co. on June 1, at 12% interest for 3 months. What adjusting entry will Butte Co. have to make on June 30 before preparing the financial statements on June 30?

Interest Receivable 250 Interest Revenue 250 (Interest earned is calculated by multiplying the principal times the interest rate times the portion of the year that has passed since the note was issued. $25,000 × 12% × 1/12 = $250)

Which of the following should be classified as an "other" receivable?

Interest receivable (Trade, accounts, and notes receivables are financial instruments typically accepted from customers for the value of a transaction. Interest receivable results because of the time value of money.)

Which of the following is not a depreciable asset?

Land (Land is not a depreciable asset. Land improvements, equipment, and buildings are depreciated to allocate their costs to the fiscal periods in which they render a benefit.)

At what value are accounts receivable reported on the balance sheet?

Net cash realizable value (Accounts receivable are reported at net realizable value. This value is the total amount due less an estimate for doubtful accounts.)

What is the receivables turnover ratio?

Net credit sales divided by average net receivables

West County Bank agrees to lend Drake Builders Company $100,000 on January 1. Drake Builders Company signs a $100,000, 6%, 6-month note. What entry will Drake Builders Company make to pay off the note and interest at maturity assuming that interest has been accrued to June 30?

Notes Payable 100,000 Interest Payable 3,000 Cash 103,000

Moss County Bank agrees to lend the Sadowski Brick Company $400,000 on January 1. Sadowski Brick Company signs a $400,000, 6%, 9-month note. What entry will Sadowski Brick Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?

Notes Payable 400,000 Interest Payable 18,000 Cash 418,000

On October 1, Sam's Painting Service borrows $80,000 from National Bank on a 3-month, $80,000, 4% note. The entry by Sam's Painting Service to record payment of the note and accrued interest on January 1 is...

Notes Payable 80,000 Interest Payable 800 Cash 80,800

Which of the following costs should not be included in the cost of a building? Remodeling of office space prior to use Broker's commission Parking lot repaving Closing costs

Parking lot repaving (Parking lot repaving costs are considered to be land improvements and are capitalized in an account separate from buildings)

Which of the following accounts is debited when a company factors its accounts receivable?

Service Charge Expense (Service Charge Expense and Cash are the two accounts debited when accounts receivable are factored)

What type of receivables result from sales transactions?

Trade receivables (Accounts receivable and notes receivable resulting from sales transactions are called trade receivables.)

Depreciation provides for the proper matching of expenses with revenues. t or f

True

Closing costs incurred to purchase a tract of land are included in the cost of the land. t or f

True (Closing costs paid in the purchase of a piece of land are considered part of the cost of the land)

Book value and market value are synonymous terms as they relate to plant assets. t or f

True (Market value represents a value at which an asset can be sold. Book value is the net amount at which an asset appears on a company's balance sheet. It is equal to acquisition cost less accumulated depreciation)

Land improvements are depreciable assets.t or f

True (Improvements to land are structural additions made to land, such as driveways, parking lots, fences, landscaping, and sprinklers. Land improvements are depreciated to allocate the cost to periods that benefit from the land improvements.)

The direct write-off method violates the matching principle. t or f

True (The direct write-off method waits until a receivable has declined in value and is determined to be uncollectible before it is written off. This usually occurs after the end of the fiscal period of the related sale, which violates the matching principle.)

Under the allowance method, the write off of an account receivable leaves the net realizable value of the receivables unchanged. t or f

True (When an account is written off, the entry is a debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable. This reduces the accounts receivable and the allowance for doubtful accounts by the same amount, so that the difference between the two,orthe net realizable value, does not change.)

Which receivables accounting and reporting issue is not essentially the same for IFRS and GAAP? the use of allowance accounts and the allowance method. how to record discounts. how to record factoring. all of the above are essentially the same for IFRS and GAAP.

all of the above are essentially the same for IFRS and GAAP.

Receivables are..

claims that are expected to be collected in cash

When there is a change in estimated depreciation...

current and future years' depreciation should be revised (When estimated depreciation changes, the changes should be reflected in the current and future years, not in prior years.)

Depreciation applies to three classes of plant assets: land, buildings, and equipment. t or f

false

Depreciation does not apply to a building because its usefulness and revenue producing ability generally remain intact over time. t or f

false

Four factors affect the computation of depreciation: cost, useful life, salvage value, and residual value. t or f

false

The book value of a plant asset should approximate its fair value. t or f

false

The time period for classifying a liability as current is one year or the operating cycle, whichever is...

longer (Liabilities are classified as current if they will be paid with current assets within one year or the current operating cycle, whichever is longer, because some companies have operating cycles that are longer than one year.)

The receivable that is usually evidenced by a formal instrument of credit is a(n)..

note receivable

Interest is usually associated with...

notes receivable

The balance in accumulated depreciation represents the total cost that has been charged to expense. t or f

true

The revenue-producing ability of a depreciable asset will decline due to wear and tear and to obsolescence. t or f

true

A characteristic of a plant asset is that it is...

used in the operations of a business.