Financial Account Chapters 6-9

Flash Co. uses the allowance method to account for bad debts. At the end of 2010, Flash Co.'s unadjusted trial balance shows an accounts receivable balance of $45,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,500,000. Based on history, Flash estimates that bad debts will be 0.5% of sales. The entry to record estimated bad debts will include an debit to Bad Debts Expense in the amount of:

$1,500,000x.005=$7,500.

Juno Co. purchased a machine for $10,000 and estimates it will use the machine for four years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.

$10,000 x (.25 x 2) = $5,000.

Leo Co. uses the allowance method to account for bad debts. At the end of the year, Leo Co.'s accounts receivable balance is $25,000; allowance for doubtful accounts balance of $100 (credit); and sales of $500,000. Based on history, Leo estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$25,000 x 2% = $500 $500 - $100 = $400

Ana Co. uses the allowance method to account for bad debts. At the end of the period, Ana's unadjusted trial balance shows an accounts receivable balance of $40,000; allowance for doubtful accounts balance of $300 (credit); and sales of $500,000. Based on history, Ana estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of:

$40,000 x 2%=800-300=$500

Lani Co. uses the allowance method to account for bad debts. At the end of the year their unadjusted trial balance shows an accounts receivable balance of $400,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,200,000. Based on history, Lani estimates that bad debts will be 1% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$400,000 x 1% = 4,000 + 400 debit balance = $4,400

Finish Co. uses the allowance method to account for bad debts. At the end of 2010, Finish Co.'s unadjusted trial balance shows an accounts receivable balance of $30,000; allowance for doubtful accounts balance of $200 (credit); and sales of $600,000. Based on history, Finish estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$600,000 x 1%=$6,000

Night deposit made on September 30 after the bank closed.

Bank Balance: Add Book Balance: N/A Reconciliation: Shown

straight line depreciation

(cost - salvage value) / useful life

A note receivable is collected by the bank for the company, but it is not yet recorded by the company.

Bank Balance: N/A Book Balance: Add, Debit Reconciliation: Shown

On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.

14000 (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation The partial year depreciation should be recorded for seven months (June 1- December 31).

On January 1, Enco Co. purchases a milling machine for $15,000. The machine is expected to last seven years and have a salvage value of $1,000. Assuming the company uses the straight-line method, depreciation expense should be $ __________ per year.

2000

Rino Co. pays $35,000 for equipment. The machine's useful life is estimated at 10 years, or 50,000 units of product with a $5,000 salvage value. During the first year, the machine produced 12,000 units of product. How much depreciation expense will Rino record this first year based on the units-of-production depreciation method?

7200 (35,000-5,000)/50,000 x 12,000

Maturity date

Day that the principal and interest must be paid

Principal

Amount that the signer agrees to pay back, not including interest

Accounts Receivable

Amounts due from customers

Notes Receivable

An asset consisting of a written promise to receive a definite sum of money on demand or on specific future dates

A 60-day note is signed on February 15 (and it's not leap year). The due date of the note is:

April 16

Checks written by another depositor but mistakenly charged against this company's account.

Bank Balance: Add Book Balance: N/A Reconciliation: Shown

The bank received an electronic funds transfer (EFT) and deposited the amount in the company's account on September 30. The company has not yet recorded this EFT.

Bank Balance: N/A Book Balance: Add, Debit Reconciliation: Shown

Bank fees for check printing are not yet recorded by the company.

Bank Balance: N/A Book Balance: Credit, Subtract Reconciliation: Shown

Checks outstanding on August 31 that cleared the bank in September.

Bank Balance: N/A Book Balance: N/A Reconciliation: Not Shown

Checks written and mailed to payees on October 2.

Bank Balance: N/A Book Balance: N/A Reconciliation: Not Shown

Deposit made on September 5 and processed by the bank on September 6.

Bank Balance: N/A Book Balance: N/A Reconciliation: Not shown

Bank service charge.

Bank Balance: N/A Book Balance: Subtract, Credit Reconciliation: Shown

NSF check from a customer is shown on the bank statement but not yet recorded by the company.

Bank Balance: N/A Book Balance: Subtract, Credit Reconciliation: Shown

Bank service charge for September is not yet recorded by the company.

Bank Balance: N/A Book Balance: Subtract, Credit Reconciliation: Shown

Outstanding checks to suppliers existed at the end of September.

Bank Balance: Subtract Book Balance: N/A Reconciliation: Shown

Identify the bank reconciliation items that would require adjustments to the book balance. (Check all that apply.)

Bank charges NSF check Interest earned Collection of note by bank

Interest

Charge from using money loaned from one entity to another

Determine which of the items below would appear in the Checks and Debits column of a bank statement and would cause a decline in the account's balance. (Check all that apply.)

Checks written by the account owner ATM withdrawals A customer's NSF check Monthly service fees charged by the bank

Recall the preparation of a bank reconciliation by selecting the correct items below. (Check all that apply.)

Compute the adjusted bank balance. Compute the adjusted book balance. Subtract any outstanding checks from the balance per bank. Add deposits in transit to the balance per bank.

Determine which of the items below would appear in the Deposits and Credits column of a bank statement and would cause an increase in the account's balance. (Check all that apply.)

Deposits made during the month A note collected by the bank on behalf of the account owner Interest paid by the bank on the bank account balance

Which of the following items related to depreciating equipment would be found on a company's income statement?

Depreciation Expense - Equipment

Determine which of the items below would show up on a monthly bank statement. (Check all that apply.)

End-of-period balance in the account Checks and other debits decreasing the account during the period Beginning-of-period balance in the account Deposits and other credits increasing the account during the period

True or false: The allowance method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts.

False

True or false: The direct write-off method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.

False

On March 14, Teal Co. accepted a 120-day, 6% note in the amount of $10,000 from AZC Co., a customer. On the due date of the note, AZC honors the note and pays in full. The journal entry that Teal would make to record payment of this note would include a credit to:

Interest Revenue for $200.

Choose the items below that would be added to the book balance on a bank reconciliation. (Check all that apply.)

Interest earned on the depositor's account Note collected by the bank for the depositor

Select the items below that would cause the bank statement balance to differ from the depositor's book balance.

NSF check, Deposit in transit, interest paid by bank

Choose the items below that would be subtracted from the book balance on a bank reconciliation. (Check all that apply.)

NSF customer check Monthly check charges assessed by the bank Monthly bank service charge

DonCo, Inc. sold merchandise on January 14, and accepted a 90-day, 5% promissory note in the amount of $5,000. On January 14, the entry to record this transaction would include a debit to:

Notes Receivable in the amount of $5,000

Maker

One who signed the note and promised to pay at maturity

Determine which of the statements below is correct regarding information reflected on a monthly bank statement.

Outstanding check - A check written by the depositor that has not yet been received by the bank for payment Deposit in transit - Deposit made and recorded by the depositor, but not yet recorded on the bank statement NSF check - A check written by a customer who does not have enough money in his account to cover the check Bank charges - Service fees charged by the bank

The advantages of using the allowance method to account for bad debts include which of the following?

Reports accounts receivable balance at net realizable value Matches expenses with related sales

Determine which of the statements below is correct regarding information reflected on a monthly bank statement.

The information on the bank statement reflects the bank's records of the depositor's account

On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.

This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.

Bina Co. purchased a vehicle on January 1st for $15,000 and estimates it will use the vehicle for eight years with a $3,000 salvage value. Using the double declining-balance depreciation method, compute the vehicle's second year depreciation expense.

This is the amount for the first year. The question asked for the second year depreciation expense. (100%/8) x 2=25%; 15,000 x 25%=3,750 for first year; Second year is (15,000-3750) x 25% =2812.50

Determine the statements below that are true regarding why a bank reconciliation is used. (Check all that apply.)

Timing differences between the bank statement and the depositor's records are reflected in the bank reconciliation. We must reconcile the balance of the bank's records and the Cash account in the general ledger and explain or account for any differences in the two. The bank reconciliation is useful in proving the accuracy of the Cash account in the general ledger.

Determine which of the statements below accurately describe services provided by a bank. (Check all that apply.)

To withdraw money from an account, the depositor can use a check. Each bank deposit is supported by a deposit ticket. A bank account is a record set up by a bank for a customer.

True or false: The two methods companies can use to convert receivables to cash before they are due includes selling them and pledging them.

True

Promissory note

Written promise to pay a specified amount of money

The _______ of accounts receivable method uses several percentages to estimate the allowance.

aging

The __________ method of estimating bad debts uses both past and current receivables information to estimate the allowance amount. Specifically, each receivable is classified by how long it is past its due date.

aging of receivables

The (allowance/direct write-off) _________method of accounting for bad debts matches the estimated loss from uncollectible accounts receivables against the sales they helped produce.

allowance

The ______________________ method of accounting for bad debts matches the estimated loss from uncollectible accounts receivables against the sales they helped produce.

allowance

Receivable

amount due from another party

The allowance method estimates

bad debt expense before an uncollectible account receivable has been determined to be uncollectible.

Accumulated depreciation is recorded on which of the following financial statements?

balance sheet

Review the items below and determine which would cause a decrease in the monthly bank statement balance.

checks written by the account owner

Accumulated depreciation is a ________ asset account (one that is linked with the plant asset account, but has an opposite normal balance) and is reported on the balance sheet.

contra

The factors necessary to compute depreciation include ________ salvage value and useful life

cost

Which of the following factors determine depreciation?

cost, useful life, salvage value

The depreciation method that determines the depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value is known as the __________ method.

declining-balance

______ is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.

depreciation

_____________ is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.

depreciation

The ____________ method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts expense.

direct write-off

Depreciation Expense is reported on which of the following financial statements?

income statement

Depreciation expense is reported as a decrease in which of the following financial statements?

income statement

Identify the item below that would be added to the book balance.

interest earned

Straight-line depreciation is calculated by taking cost minus ___________ value divided by useful life.

salvage

Payee

the person to whom the note is payable

Companies sometimes convert receivables to cash before they are due by selling them or using them as security for a loan. The reasons that a company may convert receivables before their due date include:

to reduce risk of nonpayment. to quickly generate cash.

Grand Co. owns one copier that was purchased for $10,000 three years ago. The depreciation expense taken on the copier each year has been $2,700; $1,800; and $2,200, based on the number of copies that have been made on the copier. Based on this information, the company uses the ________ depreciation method.

units-of-production

The allowance method estimates bad debts. The direct write-off method

waits until an actual accounts receivable balance is uncollectible.