accounting ch 7,8,9

On October​ 1, 2019,​ Westfield, Inc. sold machinery to a customer for $21,000. The customer could not pay at the time of​ sale, but agreed to pay 12 months​ later, and signed a 12−month note at 12​% interest. How much interest revenue was earned during​ 2019? Round any intermediate calculations to two decimal​ places, and your final answer to the nearest dollar.

$630 $21,000 x 0.12 x 3/12=$630

​______________ is the cost that arises when a business is unable to collect from a credit customer.

Bad debts expense

Which of the following should be included in the cost of land​ improvements? A. sprinkler system for the landscaping B. fencing C. driveways D. all of the above

D

Revenue expenditure

Do not increase the capacity of a plant asset or extend it's useful life

capitalize

Recording the acquisition of land, building, or other assets by debiting (increasing) an asset account.

pledging receivables

To assign to a bank, factor, finance company, or other lender an exclusive claim against accounts receivable as security for a debt.

Minor Company purchased land and which is being prepared for the construction of a new office building. Which of the following should be included in the cost of the​ land? A. cost of removing an old building B. cost of clearing and grading the land C. cost of the fence which surrounds the property

a & b

impairment

a permanent decline in asset value

depreciation is expense recognition

a systematic rational way to alloacate a plant assets cost over its useful life

Double−declining−balance ​depreciation: A. is an accelerated depreciation method. B. is based on the book value of the plant asset. C. ignores the residual value in computing​ depreciation, except during the last year. D. is all of the above.

all of the above

Which costs are not included in the cost of purchasing​ land?

c. Cost of installing a sprinkler system Your answer is correct. D. Cost of property taxes after acquisition

intangible asset: Definite life

have legal or contractual stipulations that limit the time of its usefulness

When compared to the other methods of​ depreciation, the double−declining−balance method of depreciation gives depreciation expense that​ is:

higher in the earlier periods

The depreciable cost of a plant asset equals​ the:

historical cost of the asset minus the estimated residual value.

The long−term asset that is not depreciated or amortized​ is:

land

Depreciation Methods

straight line, units of production, double declining balance

Amortization

the process of allocating to expense the cost of an intangible asset

Smart Touch Learning purchased​ land, paying $75,000 cash. In​ addition, Smart Touch Learning paid delinquent property taxes of $2,200​, title insurance costing $800​, $3,800 to build a​ fence, and $5,200 to clear and grade the land. What is the cost of the​ land?

$83,200 -everything but building the fence

A machine is purchased for $70,000. The transportation from the seller was $2,000​, installation costs were $1,000 and taxes on the purchase price were $400. Testing runs of the new machine cost $5,000. What is the cost of the​ machine?

78,400

allowance for bad debts

A contra asset account, related to accounts receivable, that holds the estimated amount of uncollectible accounts.

allowance method

A method of accounting for bad debts that involves estimating uncollectible accounts at the end of each period.

Relative-Market-Value Method

A method of allocating the total cost (100%) of multiple assets purchased at one time. Total cost is divided among the assets according to their relative market values.

Cost Principle

A principle that states that acquired assets and services should be recorded at their actual cost.

Which of the following statements are true regarding​ receivables?

A receivable can include a loan of money to another party Receivables involve two parties—a creditor and a debtor A receivable can be listed as either a current asset or a​ long-term asset

Smart Touch Learning paid a combined purchase price of $560,000 for land and a building. An independent appraiser values the land at $50,000 and the building at $300,000. What should Smart Touch Learning record for the cost of the land and the​ building?

A. Land $80,000​; Building 480,000

Trade marks

An asset that represents distinctive identifications of a product or service -Nike "swoosh" -slogans

intangible asset

An asset with no physical form that is valuable because of the special rights it carries.

copyright

An exclusive right to reproduce and sell a book, musical, film, or other work of art or intellectual property -includes computer programs -life of the creator + 70 years

Patent

An intangible asset that is a federal government grant conveying an exclusive 20-yr right to produce and sell a process, product, or formula

intangible asset: Indefinite life

Do NOT have and legal stipulations that limit the time of its usefulness

goodwill

Excess of the cost of an acquired company over the sum of the market values of its net assets (assets minus liabilities).

estimated residual value

Expected cash value of an asset at the end of its useful life. Also called salvage value.

special features of goodwill

It is recorded by an acquiring company when it purchases another company for more than the market value of the net assets acquired, goodwill is not amortized - a company never records goodwill for its own business

Asset Turnover Ratio

Measures how efficiently a business uses its average total assets to generate sales. Net sales / Average total assets.

license

Privilege granted by a government to use public property in performing services.

Debtor

The party to a credit transaction who takes on an​ obligation/payable.

creditor

The party who receives a receivable and will collect cash in the future.

factoring receivables

The practice of selling accounts receivable to a third party at a discount. The third party attempts to collect the accounts and keeps the money

depletion

The process by which businesses spread the allocation of a natural resource's cost over its usage.

How is a​ lump-sum purchase accounted​ for?

The total cost of the multiple assets purchased is divided among the assets according to their relative market values

natural resources

an asset that comes from the earth and is consumed

The process by which businesses spread the allocation of a plant​ asset's cost over its useful life is called

depreciation

Which of the following depreciation methods best applies to those assets that generate greater revenue earlier in their useful​ lives?

double declining method

The direct​ write-off method is mainly used by large public companies to account for uncollectible accounts.

false

extraordinary repair

generates a capital expenditure because it extends the assets life past the normal expected life

Half-Month Convention

if an asset is purchased on or before the 15th of the month, it is depreciated for the whole month -if it is purchased after the 15th it is recorded the following month

An impairment loss is recorded

in the period the decline is identified

capital expenditures

increase the asset's capacity or efficiency of a plant asset or extends the asset's useful life

Major Company purchased equipment to be used in its distribution center. All of the following should be included in the cost of the equipment EXCEPT​ for: A. employee training costs before the equipment is placed in service. B. insurance costs after the equipment is up and running. Your answer is correct. C. insurance while in transit. D. wages of workers who test the equipment before it is placed in service.

insurance costs after the equipment is up and running.

The entity that signs the promissory note and promises to pay the required amount is the​ ________.

maker of the note

Recording depreciation for a plant asset conforms to which accounting​ principle/assumption?

matching principle

Franchise

privilege granted by a business to sell a product or service under specified conditions -mcdonalds locations

Revenue Recognition Principle

requires companies to record revenue when it has been earned.

A depreciation method in which an equal amount of depreciation expense is assigned to each year of the​ asset's use is​ the

straight line method

A limitation of the direct​ write-off method is that it violates the matching principle by not recording the bad debts expense in the same fiscal period as the related revenue.

true

A receivable is a monetary claim against a business or an individual.

true

The allowance method for recording uncollectibles is allowed by Generally Accepted Accounting Principles.

true

The​ days' sales in receivables indicates the number of days it takes to collect the average level of accounts receivable.

true

obsolete

when a newer asset can preform the job more effieciently

A company reports net accounts receivable of​ $152,000 on its December​ 31, 2019 balance sheet. The Allowance for Bad Debts has a credit balance of​ $19,000. What is the balance of Accounts​ Receivable?

​$171,000

The Allowance for Bad Debts has a credit balance of​ $8,000 before the adjusting entry for bad debts expense. After analyzing the accounts in the accounts receivable subsidiary ledger using the​ aging-of-receivables method, the​ company's management estimates that uncollectible accounts will be​ $17,000. What will be the amount of Bad Debts Expense reported on the income​ statement?

​$9,000 $17,000-$8,000=9,000