ACC ch 7 resources

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when one company purchases less than 50% of equity securities in a second company, which of the following statements is true?

the company who securities are purchased is the investee

During 2014, the accounts receivable turnover rate for Cordner Company increased from 10 to 14 times per year. Which one of the following statements is the most likely explanation for the change?

the company's credit department has followed up with customers whose account balances are past due in order to generate quicker collections

the accounts receivable turnover ratio is used to evaluate how well a company does in collecting its accounts receivable

true

purchases and sales of cash equivalents are reported as investing activities on a statement of cash flows

false

selling on credit protects a company from the risk that some of its receivables will never be collected

false

the accounts receivable turnover ratio is computed by dividing net income by average accounts receivable

false

The comparative balance sheets for Spring Co. for 2014 and 2013 indicate that accounts receivable decreased during 2014. Spring uses the indirect method of preparing the operating activities section of its statement of cash flows. How will the decrease in accounts receivable be reported on the statement of cash flows?

it will be added to net income in the operating activities section

the equity method of accounting for an investment is used when a company purchases

more than 20% of the equity securities of a second company

a company is referred to as a parent if it owns

more than 50% of the equity securities of a second company

assuming a company uses the allowance method, the entry to recognize the write-off of the specific uncollectible accounts will act to:

not affect total assets or total equity

the alternate term for a credit card draft is an invoice

true

the maker of a note recognizes a note payable on the balance sheet and interest expense on its income statement

true

On January 1, 2014, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of credit sales. There were $400 of receivables written off as uncollectible in 2014. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. The net realizable value of receivables appearing on the 2014 balance sheet will amount to:

$14,155

Verilux Company sold merchandise to Flight Corp. on November 1, 2014, for $10,000. Verilux accepted a promissory note from Flight Corp. for $10,000. The note has a term of 5 months and a stated interest rate of 7%. Verilux's accounting period ends on December 31, 2014. What amount should Verilux recognize as interest revenue on the maturity date of the note?

$175.00

Refer to the data for Satin Corporation. IF satin uses the aging of accounts receivable approach to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?

$219,000

the total amount of interest calculated annually on a $7,000 promissory note payable for 3 years at 12% that is NOT compounded is

$2520

Refer to the data for Satin Corporation. If Satin uses 2% of net credit sales to estimate its bad debts, what will be the balance in the Allowance of Doubtful Accounts account after the adjustment for bad debts?

$31,800

On January 1, 2014, the Accounts Receivable and the Allowance for Uncollectible Accounts for Darius Company carried balances of $20,000 and $550 respectively. During the year, the company reported $70,000 of credit sales. There were $400 of receivables written off as uncollectible in 2014. Cash collections of receivables amounted to $74,700. The company estimates that it will be unable to collect 5% of the year-end accounts receivable balance. The amount of bad debts expense recognized in the 2014 income statement will be:

$595

Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What amount should Utah recognize as interest revenue on December 31, 2014 (if a 360 day year is assumed)?

$60

Router Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Router will receive at maturity is

$2,100

Refer to the data for Americana Corporation. If the aging approach is used to estimate bad debts, what is the balance in the allowance for doubtful accounts after the bad debt expense adjustment?

$9,600

significant influence of one company over another has been defined by the accounting profession as the ownership of what minimum percent of the second company's stock?

20%

Lasiter Corp. reported net credit sales of $2,000,000 and cost of goods sold of $1,400,000 for 2014. On January 1, 2014, accounts receivable was $250,000. Amounts owed by customers increased by $20,000 during 2014. Rounding to two decimal places, what is Lasiter's accounts receivable turnover rate for 2014?

7.69

Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What is the actual maturity date of the note?

March 1, 2015

Megan Farms received a promissory note from a customer on March 1, 2014. The face amount of the note is $8,000; the terms are 90 days and 9% interest. At the maturity date, the customer pays the amount due for the note and interest. What entry is required on the books of Megan Farms on the maturity date, assuming none of the interest had already been recognized?

One that increases Cash, $8,180, increases Interest Revenue, $180, and decreases Notes Receivable, $8,000.

what is the impact on the cash flow statement from an increase in notes receivable, assuming the indirect method is used?

a decrease in the cash flow from operating activities

Comfort Shoes received a promissory note from a customer on April 1, 2014. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. At the maturity date, the customer pays for the note and interest. Comfort Shoes made the proper adjustment at the end of December for interest. The effect of recognizing the transaction on the maturity date is

a decrease to notes receivable

On February 1, 2014, Shine Corp. pays $50,000 for shares of Cloud common stock and another $1,000 in commissions. Assume that Shine sells the Cloud stock on May 20, 2014, for $53,000. In this case, Shine recognizes

an increase in assets and stockholders' equity for $2,000

the entry required to recognize the bad debts expense for 2014 will act to:

decrease total assets and retained earnings

BDE is a contra account that is used to reduce accounts receivable to its net realizable value

false

Twin Cities Corp. had sales during the year of $15,000,000 and an average accounts receivable of $5,000,000. Its accounts receivable turnover ratio is 0.33 times.

false

a company invests excess cash in a certificate of deposit. At the end of an accounting period, before the CD matures, the company will recognize interest expense

false

an increase in accounts receivable is reported on the statement of cash flows under the indirect method as an addition

false

both stock and bond investments have maturity dates

false

when company A buys stock in company B, company A is referred to as the investee

false

On July 1, 2014, Tipper Corp. purchased $100,000 of 8% bonds at face value. Interest is paid annually on June 30. If the accounting year for Tipper ends at December 31, 2014, what will be reported with respect to the bonds on that date?

interest income in the amount of $4,000 will be accrued

what are the effects on the accounting equation from the purchase of a short-term investment?

no effects - assets increase and decrease by the same amount

which one of the following is an investing activity on the statement of cash flows?

purchase of long term investments

when a company discounts an interest-bearing note at a bank with recourse

the company has a contingent liability from the time the note is discounted until its maturity date

where can the amounts needed to compute the accounts receivable turnover ratio be found?

the income statement and the balance sheet

how will the payee of the promissory note record the note on its books?

the promissory note will be recorded as an asset

Baggs buys $100,000 of Vista Company bonds on January 1, 2014 at face value. The bonds pay 10% interest semiannually on June 30 and December 31. If Baggs sells the bonds at 99 on July 1, 2014, there will be a loss reported on the income statement.

true

a decrease in accounts receivable represents an increase in a company's cash flow from operating activities

true

a high accounts receivable turnover ratio could mean that the company's credit policies may be too stringent

true

under the allowance method of accounting for bad debts, the company estimates the amount of bad debts before the those debts actually occur

true

Meta Inc. pays $18,000 to buy stock in another company and an additional $350 in commissions. Three months later, Meta sells the stock for $19,000. At the time of sale, Meta will recognize a:

$650 gain

what is the impact on the cash flow statement from a decrease in accounts receivable, assuming the indirect method is used?

an increase in the cash flow from operating activities

a subsidiary is a separate legal entity that is owned or controlled by another entity

true

promissory notes are non-negotiable

false

On July 1, 2014, Falcon Company received a $20,000 promissory note from Jordyn Company. The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2015. If Falcon's fiscal year ends September 30, 2014, an adjusting entry is needed to:

increase interest receivable by $250

The comparative balance sheets of Farmore Corp. for 2014 and 2013 indicate that short-term trade notes receivable increased from $5,000 in 2013 to $75,000 in 2014. How will this change be reported on Farmore's statement of cash flows (Farmore uses the indirect method)?

it will be reported as a deduction from net income in the operating activities section

On July 1, 2014, Falcon Company received a $20,000 promissory note for services from Jordyn Company. The annual interest rate is 5%. Principal and interest are paid in cash at the maturity date of June 30, 2013. The effect on Falcon's financial statements on July 1, 2014 is as follows

assets increase; owner's equity increases

Wagner's Bookstore acquires a 6% $12,000 certificate of deposit on September 1. The term of the CD is six months. At that time, all principal and accrued interest will be paid in cash. Indicate the effect on the financial statements at December 31.

interest receivable increases $240; interest revenue increases $240

Hedron Corp. invested cash in a 6-month certificate of deposit (CD) on November 1, 2014. If Hedron Corp. has an accounting period that ends on December 31, 2014, when should Hedron recognize interest revenue from the CD?

on Dec. 31, 2014 and May 31, 2013

the equity method of accounting is used if the investor owns at least 20% of the investee and the investor is able to secure influence over the investee

true

whether investments are reported as current assets or noncurrent assets depends on the company's intent

true

Utah Co. sold merchandise to Big Sky Corp. on December 1, 2014, for $9,000, and accepted a promissory note for payment in the same amount. The note has a term of 90 days and a stated interest rate of 8%. Utah's accounting period ends on December 31. What amount should Utah recognize as interest revenue on the maturity date of the note?

$120

Refer to the data for Hui Corporation. If the aging approach is used to estimate bad debts, what should the balance be in the allowance for doubtful accounts be after the bad debts adjustment?

$13,200

Darling Enterprises' comparative balance sheets included accounts receivable of $220,300 at December 31, 2013, and $200,900 at December 31, 2014. Sales reported on Darling's 2014 income statement amounted to $2,350,000. What is the amount of cash collections that Darling will report in the Operating Activities category of its 2014 statement of cash flows assuming that the direct method is used?

$2,369,400

Refer to the data for Satin Corporation. If satin uses the aging of accounts receivable approach to estimate its bad debts, what amount will be reported as bad debt expense for 2014?

$28,000

Refer to the data for Satin Corporation. If Satin estimates its bad debts at 2% of net credit sales, what amount will be reported as bad debt expense for 2014?

$28,800

for what reason would a company buy 10% of the common stock of a second company?

the company has idl ecash and wishes to have a higher return than that available from temporary money market investments

why do businesses invest in short term investments?

they are investing excess cash to meet future business operations or investment needs

the accounts receivable turnover ratio is a measure of how well a company manages its receivables

true

which of the following statements is true regarding dividend income?

dividend income is reported on the income statement

BDE is increase and AR is decreased at the end of the period to recognize bad debts under the allowance method

false

If Apple Company had sales during the year of $10,000,000, an average accounts receivable of $2,000,000, and net income of $500,000, its accounts receivable turnover ratio would be 0.25.

false

if a company accepts a major credit car such as a VISA from a customer, then the company is responsible for the amount of the sale in a case of nonpayment from a cardholder

false

one of the problems with the use of the allowance method to account for bad debts is that it often violates the matching principle

false

the maker of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement

false

the payee of a note recognizes a note payable on the balance sheet and interest expense on its income statment

false

the percentage of net credit sales approach for recognizing bad debts considers any existing balance in allowance for doubtful accounts

false

the reason the allowances method of recognizing bad debts is used is primarily because it recognizes the maximum amount of write-off in each period

false

typically the lower the accounts receivable turnover ratio, the better

false

when a company discounts a promissory note at the bank, it receives cash at the same time it would if it held the note to maturity

false

what should a company do to improve its accounts receivable turnover rate?

give customers credit terms of 2/10, n/30 rather than 1/10, n/30

discounting a note receivable

is the process of selling a promissory note

Refer to the data for Hui Corporation. If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2014?

$11,500

Verilux Company sold merchandise to Flight Corp. on November 1, 2014, for $10,000. Verilux accepted a promissory note from Flight Corp. for $10,000. The note has a term of 5 months and a stated interest rate of 7%. Verilux's accounting period ends on December 31, 2014. What amount should Verilux recognize as interest revenue on December 31, 2014?

$116.67

Comfort Shoes received a promissory note from a customer on April 1, 2014. The face amount of the note is $2,000; the terms are 12 months and 8% annual interest. How much total interest revenue will Comfort Shoes recognize for the year ended December 31, 2014?

$120

Megan Farms received a promissory note from a customer on March 1, 2014. The face amount of the note is $8,000; the terms are 90 days and 9% interest. What is the total amount of interest that Megan Farms will receive when the note is paid?

$180

If Cable Inc. receives $23,825 from credit card collections and has an average rate of 4.7% charged by the credit card company, its credit card sales during the period were:

$25,000

Refer to the data for Hui Corporation. What is the balance of accounts receivable at 12/31/14?

$447,000

Spirit Corp. reported net sales (all on credit) of $1,600,000 and cost of goods sold of $1,100,000 for 2014. Its beginning balance of Accounts Receivable was $150,000. The accounts receivable balance decreased by $10,000 during 2014. Rounded to two decimal places, what is Spirit's accounts receivable turnover rate for 2014?

11.03

Idaho.com accepts VISA for payments of purchases made by students. The credit card drafts are deposited directly in a bank account. VISA charges a 2% collection fee. Credit card drafts totaling $12,000 are deposited during September. The effect on the accounting equation to record the sales and deposits will include

an increase in collect fee expense for $240

when are consolidated financial statements prepared?

if one company owns more than 50% of another company

Cushion Sports accepted a credit card account receivable in exchange for $5,000 of services provided to a customer. The credit card company charges a 5% service charge. Recording the transaction in the company's accounting records will have what effect on the accounting equation?

increase assets and equity by $4,750

when a note receivable has been discounted by a company

it may be shown as a contingent liability in the footnotes

the party to a promissory note agrees to repay money on the maturity date of the note is called the

maker (of the note)

On November 2, 2014, Quaint General Store concluded that a customer's $400 account receivable was uncollectible and that the account should be written off. What effect will this write-off have on Quaint's 2014 net income and balance sheet totals assuming the allowance method is used to account for bad debts?

no effect on net income; no effect on total assets

what is the distinguishing characteristic between accounts receivable and notes receivable?

notes receivable result from a written promise to pay within a specified amount of time

Tippi Corp. invested cash in a 9-month certificate of deposit (CD) on October 1, 2014. If Tippi has an accounting period which ends on December 31, 2014, when would it most likely recognize interest revenue from the CD?

on Dec. 31, 2014 and July 1, 2013

a note discounted with recourse means that if the original customer fails to pay the bank the total amount due on the maturity date of the note, the company that transferred the note to the bank is liable for the full amount

true

accounts receivable are shown on the balance sheet at their net realizable amount

true

an aging schedule typically categorizes the various accounts by the length of time each invoice is outstanding

true

because the allowance method results in better matching, accounting standards require its use rather than the direct write-off method, unless bad debts are immaterial

true

if accounts receivable turnover is faster, this means that fewer days are required to collect receivables

true

securities issued by corporations as a form of ownership in the business, such as common and preferred stock, are called equity securities

true

the payee of a note recognizes a note receivable on the balance sheet and interest revenue on its income statement

true

the use of the allowance method is an attempt by accountants to match bad debts as an expense with the revenue of the period in which a sale on credit takes place

true

when a note is discounted at a bank, it is normally done with recourse

true


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