Exam 3 Accounting

Based on an aging of accounts receivables, management assigned 1% to the $100,000 of receivables 0-30 days outstanding, 5% to the $10,000 receivables 31-60 days and 20% to the $1,000 of receivables over 60 days. After making the adjusting entry the balance in the Allowance for Doubtful Accounts will equal .

$1,700,

The unadjusted Allowance for Doubtful Accounts has a $100 credit balance. The aging of accounts receivable is as follows: Customer:0-30 days30-60 days60-90 daysover 90 daysSue Age $2,000Tom Mato $400 Ima Rich$ 5,000 All others not shown to save space15,000$10,000600 Total Accounts Receivable$20,000$10,000$1,000$2,000Management estimates that 1% of receivables under 30 days, 5% of 30-60 days receivables, 10% of 60-90 days receivables and 50% over 90 days receivables will be uncollectible. Using the aging of accounts receivable method, the debit to Bad Debt Expense and credit to Allowance for Doubtful Accounts equals .(Unadjusted Allowance for Doubtful Accounts has a $100 credit balance).

$1,700,

Using the aging approach, management estimates that 10% of the $10,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. After the bad debt adjusting entry is recorded, Bad Debt Expense on the income statement will be ______ the Allowance for Doubtful Accounts on the balance sheet.

$100 less than

Six years ago, on January 1, Ace Electronics purchased a $310,000 machine with an estimated useful life of 10 years and a residual value of $10,000. Ace used the machine for 6 years and recorded straight-line depreciation each year. At the end of the 6th year, after depreciation expense had been recorded for the year, Ace found that the machine no longer had any future economic value because the product it makes is obsolete. Ace still owns the machine, but should make a journal entry that includes a ______. (Check all that apply.)

$130,000 credit to Machinery, $130,000 debit to Loss on Impairment

On January 1, Ace Electronics bought a new cash register for $2,500 and estimates a useful of 4 years and $0 residual value. For tax purposes, the TOTAL depreciation expense that Ace can record over the cash register's useful life is ______.

$2,500

Assuming straight-line is used, which of the following is the formula for calculating revised annual depreciation?

(Book value-new residual value) x (1/remaining Useful life)

On June 22, Ace Electronics sold an office building, which was not yet fully depreciated. How many months of depreciation expense should Ace record on the building for that year?

6

On September 1, 2020, Acme, Inc., sold its sales manager's company car. The car was purchased in 2015 and was not yet fully depreciated. How many months of depreciation expense should Acme record on the car in 2020?

8

Which of the following statements are true? (Check all that apply.)At the end of the asset's useful life, its ______.

Accumulated Depreciation will equal the asset's depreciable cost, book (or carrying) value will equal the asset's residual value

Delectable, Inc.'s unadjusted trial balance includes Accounts Receivable of $10,000; Allowance for Doubtful Accounts of $50 credit balance; and credit sales of $100,000. Based on an aging of its receivable, management estimates that $1,000 of receivables will be uncollectible. Delectable's financial statements will show ______. (Select all that apply.)

Allowance for Doubtful Accounts of $1,000, Bad Debt Expense of $950

Which of the following statements are true? (Check all that apply.)

An increased inventory balance is undesirable if it is a result of an accumulation of unsaleable inventory., An increased inventory balance is desirable if management is building up stock in anticipation of higher sales.

Question

Answer(s)

When a company receives the interest payment for a note that was issued in mid-November of the prior accounting period, the entry includes a debit to ______.

Cash and credit to Interest Receivable and Interest Revenue

What are the potential drawbacks of speeding up collections of receivables?

Customers may get annoyed and take their business elsewhere., Hounding customers to pay if their receivables are past due is time-consuming and costly.

Why is the straight-line method of depreciation called "straight-line"?

Depreciation expense is a constant amount each year, so a graph of depreciation expense over time is a straight line.

repairs to long-lived assets are capitalized because they are large expenditures and increase the useful life of the asset. (Enter one word per blank.)

Extraordinary

True or false: Allowance for Doubtful Accounts is used for Accounts Receivable but not Notes Receivable.

False

True or false: Companies are required to use the same depreciation method for both financial accounting and federal income tax reporting.

False

True or false: It is important for companies to use the services of a collection agency as soon as a customer is late in paying.

False

Which of these are major types of long-lived assets? (Check all that apply.)

Intangible assets, Tangible assets

A company bought land and a building for $128,000. The building has a useful life of 20 years. Why should the company split the $128,000 cost between the land and the building?

Land is not depreciated, while the building will be depreciated over its 20-year useful life.

Why should a company divide up the cost of a "basket purchase" among the different assets purchased?

The different assets might be depreciated over different useful lives.

Why does the IRS allow larger depreciation amounts in the early years of an asset's life?

The government wants to encourage companies to invest in assets to promote economic renewal and growth.

Which of these are natural resources that are depleted over time? (Check all that apply.)

Timber, Natural gas wells

Which of these are intangible assets? (Check all that apply.)

Trademarks, Patents, Brand names

True or false: Land is not depreciated.

True

True or false: To ensure bad debt expense and the allowance for doubtful accounts do not become materially misstated over time, management will revise overestimates of prior period by lowering estimates in the current period.

True

Acme, Inc., bought land and a building for $150,000. Acme plans to use the building for 20 years and then sell it. What is the useful life of the land?

Unlimited

In an aging of accounts receivables, the accounts that are overdue will be assigned ______ percent than accounts that are not yet due.

a higher

A(n) of accounts receivables method is based on the amount of days the receivables have been unpaid. When determining the desired amount of the Allowance for Doubtful Accounts, the older receivables are assigned a higher percent than newer ones. (Enter one word per blank.)

aging

By comparing the number of days to collect with the length of the credit policy, companies can infer that customers ______ if the days to collect is high. (Select all that apply.)

are more likely to default, may be dissatisfied with the product or service

By comparing the number of days to collect with the length of the credit policy, companies can determine whether its customers ______.

are paying in accordance with the credit policy

Recording an asset impairment requires netting the ______.

asset with its Accumulated Depreciation and then reducing the asset's carrying value to its lower fair market value

Which of the following are advantages of using national credit cards? (Check all that apply.)

avoid lengthy cash collection periods, reduction of bad debts expense

When calculating the amount of depreciation for assets purchased or sold during a month, it is assumed the assets were purchased or sold at the ______.

beginning of the month nearest the actual date

Allowance for Doubtful Accounts is used for ______.

both Accounts Receivable and Notes Receivable

Extraordinary repairs to long-lived assets are because they are large expenditures and increase the useful life of the asset. (Enter one word per blank.)

capitalized

Which of these assets are not depreciated? (Select all that apply.)

cash, land, inventory

A stuffing scenario refers to when a company increases its credit sales by selling to less financially secure customers. (Enter one word per blank.)

channel

A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing would suggest ______.

channel stuffing

Keeping 2 sets of accounting records, one for financial reporting and one for income tax reporting is ______.

common

Depreciation Expense of a long-lived asset calculated using the straight-line depreciation method will be a ______ amount each year.

constant

The entry to record the collection of a previously written-off account needs to be reversed because a customer paid $9,600 after its accounts receivable had been written off. This entry includes a ______.

credit to Allowance for Doubtful Accounts of $9,600

On February 1, Stretchers, Inc., receives $4,000 of interest of which $3,000 was generated and recorded in the prior accounting period ended December 31. The entry to record the collection of interest on February 1 includes a ______. (Select all that apply.)

credit to Interest Receivable of $3,000, credit to Interest Revenue of $1,000, debit to Cash of $4,000

Using the aging approach, management estimates that $1,000 of Accounts Receivable will be uncollectible. The Allowance for Doubtful Accounts has a $100 unadjusted credit balance. The adjusting entry to record estimated bad debts includes a ______. (Check all that apply.)

debit to Bad Debt Expense of $900, credit to Allowance for Doubtful Accounts of $900

If the Allowance for Doubtful Accounts has a $1,000 debit balance prior to making the end-of-period adjusting entry for bad debts using the aging of accounts receivable method, then it must mean that the ______.

debit to Bad Debt Expense will be $1,000 more than the desired ending balance in the Allowance for Doubtful Accounts

An increase in a company's inventory balance from a prior year is ______.

good if the inventory turnover ratio is higher

The units-of-production depreciation method will result in ____ Depreciation Expense when the actual production is higher.

higher

There are two major types of long-lived assets: tangible and . (Enter only one word per blank.)

intangible

When may expenditures for repairs be capitalized? When the expenditure is ______.

large and significantly enhances the asset's usefulness

Intangible assets are ______.

long-lived assets with no physical substance

A category of long-lived assets that are depleted over time is ______.

natural resources

The aging of Accounts Receivable showed Total Accounts Receivable of $208,000 of which $120,000 were outstanding for under 30 days, $60,000 outstanding for over 30 but under 60 days, and the rest were over 60 days. When estimating the amount of uncollectibles, which age of receivables should be assigned a higher percentage?

over 60 days

An asset's useful life is based on the ______.

professional judgment

The primary objective of financial reporting is to ______.

provide information about a business that is useful in projecting its future cash flows

The primary objective of income tax reporting is to ______.

raise enough revenue to pay for expenditures and to encourage certain social and economic behaviors

The primary objective of income taxes is to ______.

raise enough revenue to pay for expenditures and to encourage certain social and economic behaviors

Collection of a previously written-off account is called a(n) . (Enter only one word per blank.)

recovery

At the end of a depreciable asset's useful life, its book value equals its ______.

residual value

The fees charged by major credit card companies are included in ______.

selling expenses on the income statement

Since accounting numbers, such as the allowance for doubtful accounts balance, are based on estimates, financial statements are ______.

susceptible to management manipulation.

Exclusive rights to a special name, image or slogan is a . (Enter only one word per blank.)

trademark

Most companies use one method of depreciation for financial reporting and a different method for income taxes, which requires ______ sets of accounting records.

two

Assuming straight-line depreciation, a long-lived asset's useful life ______. (Check all that apply.)

will cause Depreciation Expense to be higher if a shorter life is estimated, affects the amount of Depreciation Expense