Gleim Unit 6

On July 1, Lee Co. sold goods in exchange for a $200,000 8-month noninterest-bearing note receivable. At the time of the sale, the note's market rate of interest was 12%. What amount did Lee receive when the note was discounted at a bank at 10% on September 1? A. $190,000 B. $188,000 C. $186,667 D. $180,000

A ($190,000)

In its December 31 balance sheet, Butler Co. reported trade accounts receivable of $250,000 and related allowance for uncollectible accounts of $20,000. What is the total amount of risk of accounting loss related to Butler's trade accounts receivable, and what amount of that risk is off-balance-sheet risk? Risk of Off-Balance- Accounting Loss Sheet Risk A. $230,000 $0 B. $0 $0 C. $230,000 $20,000 D. $250,000 $20,000

A ($230,000 $0)

A note payable was issued in payment for services received. The services had a fair value less than the face amount of the note payable. The note payable has no stated interest rate. How should the note payable be presented in the statement of financial position? A. At the face amount minus a discount calculated at the imputed interest rate. B. At the face amount. C. At the face amount with a separate deferred asset for the discount calculated at the imputed interest rate. D. At the face amount with a separate deferred credit for the discount calculated at the imputed interest rate.

A (At the face amount minus a discount calculated at the imputed interest rate.)

Gar Co. factored its receivables without recourse with Ross Bank. Gar received cash as a result of this transaction, which is best described as a A. Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross. B. Loan from Ross collateralized by Gar's accounts receivable. C. Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts retained by Gar. D. Loan from Ross to be repaid by the proceeds from Gar's accounts receivable.

A (Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross.)

When the allowance method of recognizing bad debt expense is used, the allowance would decrease when a(n) A. Specific uncollectible account is written off. B. Account previously written off becomes collectible. C. Account previously written off is collected. D. Provision for uncollectible accounts is recorded.

A (Specific uncollectible account is written off.)

Rand, Inc., accepted from a customer a $40,000, 90-day, 12% interest-bearing note dated August 31. On September 30, Rand discounted the note at the Apex State Bank at 15%. However, the proceeds were not received until October 1. In Rand's September 30 balance sheet, the amount receivable from the bank, based on a 360-day year, includes accrued interest revenue of A. $376 B. $170 C. $462 D. $300

B ($170)

Ward Co. estimates its uncollectible accounts expense to be 2% of credit sales. Ward's credit sales for the current year were $1 million. During the year, Ward wrote off $18,000 of uncollectible accounts. Ward's allowance for uncollectible accounts had a $15,000 balance on January 1. In its December 31 income statement, what amount should Ward report as uncollectible accounts expense? A. $18,000 B. $20,000 C. $23,000 D. $17,000

B ($20,000)

On January 1, Year 3, Orr Company bought a building with an assessed value of $220,000 on the date of purchase. Orr gave as consideration a $400,000 noninterest-bearing note due on January 1, Year 6. There was no established exchange price for the building, and the note had no ready market. The prevailing rate of interest for a note of this type at January 1, Year 3, was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest expense should be included in Orr's Year 3 income statement? A. $40,000 B. $30,000 C. $22,000 D. $33,333

B ($30,000)

On January 1, the Fulmar Company sold personal property to the Austin Company. The personal property had cost Fulmar $40,000. Fulmar frequently sells similar items of property for $44,000. Austin gave Fulmar a noninterest-bearing note payable in six equal annual installments of $10,000 with the first payment due this December 31. Collection of the note is reasonably assured. A reasonable rate of interest for a note of this type is 10%. The present value of an annuity of $1 in arrears at 10% for six periods is 4.355. What amount of sales revenue from this transaction should be reported in Fulmar's income statement for the year ended December 31? A. $40,000 B. $44,000 C. $10,000 D. $43,550

B ($44,000)

On January 2, Year 3, Emme Co. sold equipment with a carrying amount of $480,000 in exchange for a $600,000 noninterest-bearing note due January 2, Year 6. There was no established exchange price for the equipment, and the market value of the note cannot be reasonably approximated. The prevailing rate of interest for a note of this type at January 2, Year 3, was 10%. The present value of 1 at 10% for three periods is 0.75. In Emme's Year 3 income statement, what amount should be reported as interest income? A. $48,000 B. $45,000 C. $60,000 D. $15,000

B ($45,000)

Frame Co. has an 8% note receivable dated June 30, Year 1, in the original amount of $150,000. Payments of $50,000 in principal plus accrued interest are due annually on July 1 for Year 2, Year 3, and Year 4. In its June 30, Year 3, balance sheet, what amount should Frame report as a current asset for interest on the note receivable? A. $0 B. $8,000 C. $12,000 D. $4,000

B ($8,000)

A method of estimating uncollectible accounts that emphasizes asset valuation rather than income measurement is the allowance method based on A. Credit sales less returns and allowances. B. Aging the receivables. C. Gross sales. D. Direct write-off.

B (Aging the receivables.)

Milton Co. pledged some of its accounts receivable to Good Neighbor Financing Corporation in return for a loan. Which of the following statements is correct? A. Good Neighbor Financing will take title to the receivables and will return title to Milton after the loan is paid. B. Milton will retain control of the receivables. C. Good Neighbor Financing cannot take title to the receivables if Milton does not repay the loan. Title can only be taken if the receivables are factored. D. Good Neighbor Financing will assume the responsibility of collecting the receivables.

B (Milton will retain control of the receivables.)

On June 1, Year 1, Yola Corp. lent Dale $500,000 on a 12% note, payable in five annual installments of $100,000 beginning January 2, Year 2. In connection with this loan, Dale was required to deposit $5,000 in a noninterest-bearing escrow account. The amount held in escrow is to be returned to Dale after all principal and interest payments have been made. Interest on the note is payable on the first day of each month beginning July 1, Year 1. Dale made timely payments through November 1, Year 1. On January 2, Year 2, Yola received payment of the first principal installment plus all interest due. At December 31, Year 1, Yola's interest receivable on the loan to Dale is A. $15,000 B. $5,000 C. $10,000 D. $0

C ($10,000)

On January 1, Year 3, Mill Co. exchanged equipment for a $200,000, noninterest-bearing note due on January 1, Year 6. The prevailing rate of interest for a note of this type at January 1, Year 3, was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in Mill's Year 4 income statement? A. $20,000 B. $0 C. $16,500 D. $15,000

C ($16,500)

The following information has been compiled by Able Manufacturing Company: Sale of company products for the period to customers with net 30-day terms amounting to $150,000. Sale of company products for the period to a customer, supported by a note for $25,000, with special terms of net 180 days. Balance of trade receivables at the end of the last period was $300,000. Collections of open trade receivables during the period was $200,000. Rental income for the period, both earned and accrued but not yet collected, from the Able Employees' Credit Union for use of company facilities was $2,000. The open trade receivables balance to be shown on the statement of financial position for the period is A. $275,000 B. $252,000 C. $250,000 D. $277,000

C ($250,000)

Under the allowance method of recognizing uncollectible accounts, the entry to write-off an uncollectible account A. Increases the allowance for uncollectible accounts. B. Decreases net income. C. Has no effect on net income. D. Has no effect on the allowance for uncollectible accounts.

C (Has no effect on net income)

During the year, Hauser Co. wrote off a customer's account receivable. Hauser used the allowance method for uncollectible accounts. What impact would the write-off have on net income and total assets? Net Income Total Assets A. Decrease Decrease B. No effect Decrease C. No effect No effect D. Decrease No effect

C (No effect No effect)

Hall Co.'s allowance for uncollectible accounts had a credit balance of $24,000 at December 31, Year 1. During Year 2, Hall wrote off uncollectible accounts of $96,000. The aging of accounts receivable indicated that a $100,000 allowance for doubtful accounts was required at December 31, Year 2. What amount of uncollectible accounts expense should Hall report for Year 2? A. $100,000 B. $120,000 C. $96,000 D. $172,000

D ($172,000)

Marr Co. had the following sales and accounts receivable balances, prior to any adjustments at year end: Credit sales $10,000,000 Accounts receivable 3,000,000 Allowance for uncollectible accounts 50,000 Marr uses 3% of accounts receivable to determine its allowance for uncollectible accounts at year end. By what amount should Marr adjust its allowance for uncollectible accounts at year end? A. $140,000 B. $90,000 C. $0 D. $40,000

D ($40,000)

Mill Co.'s allowance for uncollectible accounts was $100,000 at the end of Year 2 and $90,000 at the end of Year 1. For the year ended December 31, Year 2, Mill reported bad debt expense of $16,000 in its income statement. What amount did Mill debit to the appropriate account in Year 2 to write off actual bad debts? A. $16,000 B. $26,000 C. $10,000 D. $6,000

D ($6,000)

In its December 31, Year 3, balance sheet, Fleet Co. reported accounts receivable of $100,000 before allowance for uncollectible accounts of $10,000. Credit sales during Year 4 were $611,000, and collections from customers, excluding recoveries, totaled $591,000. During Year 4, accounts receivable of $45,000 were written off and $17,000 were recovered. Fleet estimated that $15,000 of the accounts receivable at December 31, Year 4, were uncollectible. In its December 31, Year 4, balance sheet, what amount should Fleet report as accounts receivable before allowance for uncollectible accounts? A. $67,000 B. $82,000 C. $58,000 D. $75,000

D ($75,000)

Gibbs Co. uses the allowance method for recognizing uncollectible accounts. Ignoring deferred taxes, the entry to record the write-off of a specific uncollectible account A. Decreases both net income and accounts receivable. B. Decreases both net income and working capital. C. Affects neither net income nor accounts receivable. D. Affects neither net income nor working capital.

D (Affects neither net income nor working capital)

When the allowance method of recognizing uncollectible accounts is used, the entry to record the write-off of a specific account A. Increases the allowance for uncollectible accounts and decreases net income. B. Decreases accounts receivable and increases the allowance for uncollectible accounts. C. Decreases both accounts receivable and net income. D. Decreases both accounts receivable and the allowance for uncollectible accounts.

D (Decreases both accounts receivable and the allowance for uncollectible accounts.)

After being held for 40 days, a 120-day, 12% interest-bearing note receivable was discounted at a bank at 15%. The proceeds received from the bank upon discounting is the A. Face amount minus the discount at 12%. B. Face amount plus the discount at 15%. C. Maturity amount plus the discount at 15%. D. Maturity amount minus the discount at 15%.

D (Maturity amount minus the discount at 15%.)

In its financial statements, Pulham Corp. uses the equity method of accounting for its 30% ownership of Angles Corp. At December 31, Year 4, Pulham has a receivable from Angles. How should the receivable be reported in Pulham's Year 4 financial statements? A. None of the receivable should be reported, but the entire receivable should be offset against Angles's payment to Pulham. B. The total receivable should be included as part of the investment in Angles, without separate disclosure. C. 70% of the receivable should be separately reported, with the balance offset against 30% of Angles's payment to Pulham. D. The total receivable should be disclosed separately.

D (The total receivable should be disclosed separately.)