ACC 201 Practice Exam 3 Q&A

Historical cost of the asset minus the estimated salvage value.

The depreciable cost of a plant asset equals the:

$3,110

ABC Corporation estimates that 10% of accounts receivable will eventually become uncollectible. The balance of Accounts Receivable at December 31, 2020 is $34,100. The Allowance for Doubtful Accounts prior to adjustment has a credit balance of $300. The amount of the adjusting entry for Bad Debts Expense should be for the following amount:vvvvv

Current liabilities increase and net income decreases.

At the end of the year, a company makes a journal entry to accrue the interest expense on a short-term note payable. What would be the result of this transaction? Hint: Think about the accounts that are affected by the journal entry.

$760,000.

Cameron Corporation purchased a patent for $3,800,000. The patent has a legal life of 20 years. Because of rapid technological change, this patent's useful life is expected to be 5 years and has no salvage value. The annual amortization expense for the patent is:

$21,900

Costs associated with the purchase of new equipment include: Purchase price of the equipment $20,000 Sales tax paid on the purchase of the equipment 1,000 Maintenance costs incurred after the equipment is placed into service 600 Insurance costs after the equipment is placed into service 1,500 Costs of installing the equipment 900 What is the amount recorded in the Equipment account for the new equipment?

Direct writeoff method

Following Generally Accepted Accounting Principles (GAAP), which method of estimating uncollectible accounts is NOT acceptable?

Market interest rate is higher than the contractual interest rate.

If bonds are issued at a discount (e.g., a $1,000 bond with a 5% contractual rate is issued for $980), it means that the:

Expenses will be understated and equipment will be overstated in the year of the error

In connection with a piece of equipment, if a company capitalizes a cost that should have been expensed:

Deducted from Bonds Payable.

In financial statement presentations, the Discount on Bonds Payable account is:

Debit Cash $42,000, credit Sales Revenue $40,000 and credit Sales Tax Payable $2,000

Kathy's Corner Store collects the sales price plus sales taxes on every product sale. If Kathy's made a cash sale for $40,000 and also collected sales tax of $2,000 (5%), which journal entry is needed to record the sale? (ignore Cost of Goods Sold)

$2,475

Ohio Bank lends Cincinnati Corporation $110,000 on December 1, 2020. Cincinnati Corporation signs a $110,000, 9%, 4-month note. Assume that an adjusting entry was made on December 31, 2020 to accrue the 2020 interest expense. The amount of interest expense that will appear on Cincinnati Corporation's income statement for 2021 is:

$1,800 is a current asset and $7,200 is a long-term asset

On December 31, 2019, Sandy Corporation has a Note Receivable of $9,000. The principal of the note will be collected in annual installments of $1,800 beginning on July 1, 2020 and continuing for a total of 5 years. The classification of the note on Sandy Corporation's balance sheet at December 31, 2019 is:

$46,600

On January 1, 2019, Cabelka Corporation purchased machinery for $350,000 and depreciated it on a straight-line basis over 10 years. The estimated salvage value was zero. On January 1, 2022, the corporation realized the machine will remain useful only for 5 more years and also revised the salvage value from $0 to $12,000. What is the depreciation expense for the year ended December 31, 2022?

$64,000

On January 1, 2020, Antonio Corporation issued $1,000,000 of 6% contractual rate, 5-year maturity bonds for $980,000, with contractual interest paid annually. Using the straight-line method of amortization, what is the total interest expense for the bonds for the year ended December 31, 2020?

$138,000

On January 2, 2019, Allen Corporation acquired equipment for $500,000. The estimated life of the equipment is 5 years or 20,000 hours. The estimated salvage value is $40,000. If Allen Corporation uses the units of activity (or units of production) method of depreciation, what will be the amount of depreciation expense for the year ended December 31, 2020, assuming the asset during this period was used 6,000 hours?

$272,000

On January 2, 2019, Ormsby Corporation acquired equipment for $700,000. The estimated life of the equipment is 5 years or 42,000 hours. The estimated salvage value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2020 if Ormsby Corporation uses the straight-line method of depreciation?

$576,000

On January 2, 2019, Sanders Corporation acquired equipment for $900,000. The estimated useful life of the equipment is 5 years or 40,000 hours. The estimated salvage value is $20,000. What is the balance in Accumulated Depreciation on December 31, 2020, if Sanders Corporation uses the double-declining balance method of depreciation? Hint: December 31, 2020 is the second year.

$1,000 in 2019; $2,000 in 2020

On November 1, 2019, Young Corporation loaned $100,000 to Zebra Company on a 6-month note receivable. The note has a due date of May 1, 2020 and has a 6% annual interest rate. Young properly made an adjusting entry on December 31, 2019 to accrue the interest revenue for November and December, 2019. What is the amount of interest revenue that should be shown on Young Corporation income statement for 2019 and 2020?

$501,200.

Reds Corporation issues $550,000, 10% contractual rate, 5-year maturity bonds on January 1, 2020 for $489,000 (bonds payable of $550,000 less discount of $61,000 = $489,000). Using the straight-line amortization method, what is the carrying value of the bonds one year later on January 1, 2021?

Subscription Revenue $50,000; Unearned Subscription Revenue $250,000.v

Sports Magazine sells 10,000 subscriptions for $300,000 cash in March 2019. The subscription price is $30 for six monthly issues beginning in April 2019. The journal entry in March 2019 would include a credit to Unearned Subscription Revenue for $300,000. After the adjusting journal entry on April 30, 2019, the balances for Subscription Revenue and Unearned Subscription Revenue would be:

$760,000

The balance in Accounts Receivable was $650,000 at the beginning of the year. Credit sales for the year totaled $4,130,000 and collections of accounts receivable during the year totaled $3,610,000. During the year, $410,000 customer accounts were written off. What is the ending balance of Accounts Receivable?

$763,000

The following account balances were extracted from the accounting records of Paul Corporation at the end of the year: Accounts Receivable $800,000 Allowance for Doubtful Accounts (credit) 37,000 Bad Debts Expense 60,000 What is the net realizable value of the accounts receivable?

that the market interest rate is approximately 5% (lower than the contractual rate)

This is a conceptual question, no calculations are necessary. Bonds with a face value of $200,000 and a contractual interest rate of 6% were issued by ABC Corporation for $220,000 on the open market. It is apparent:

Gain on sale of equipment for $1,500

Thompson Corporation sold equipment for $5,400 cash on October 1, 2020. The equipment cost $73,900 and had accumulated depreciation through December 31, 2019 of $62,500. Annual depreciation has been calculated each year using the straight-line method amounting to $10,000 per year. At the date of sale on October 1, 2020 and after depreciation has been recorded on October 1, 2020, the journal entry to record the sale will have:

Debit to Allowance for Doubtful Accounts and credit to Accounts Receivable for $11,600

Under the allowance method, the entry to writeoff an $11,600 uncollectible account receivable includes a:

Matching principle

Which accounting principle guides the timing of the reporting of Bad Debts Expense when using the allowance method?

Goodwill

Which intangible asset is NOT amortized on a regular, annual basis but written off (charged to expense) as the value decreases, i.e., impairment?

Depreciation allocates a plant asset's cost as an expense to each year of its useful life

Which of the following statements is true regarding the purpose of depreciation?

Intangible assets are shown on the balance sheet net of the Accumulated Amortization account.

Which of the following statements regarding the accounting for intangible assets is false?

Debit Interest Expense and credit Interest Payable for $1,100.

Wisconsin Bank lends Local Furniture Company $110,000 on November 1, 2020. Local Furniture Company signs a $110,000, 6%, 4-month note. Local Furniture's year ends on December 31, 2020. The adjusting journal entry made by Local Furniture on December 31, 2020 is: