Accounting Exam 3

On December 1, Year One, a company sells a service for 10,000 scoobies (the currency of the country where the sale was made) to be collected in six months. On that same day, the company pays 10,000 scoobies in cash for some inventory. This inventory was still held at year-end. On December 1, Year One, one scoobie is worth $0.61. By December 31, Year One, one scoobie is worth $0.73. The company is located in Ohio and is preparing to produce financial statements for Year One in terms of U.S. dollars. Which of the following will be reported on its balance sheet? Accounts receivable will be reported at $6,100, and inventory will also be reported as $6,100. Accounts receivable will be reported at $7,300, but inventory will be reported as $6,100. Accounts receivable will be reported at $6,100, but inventory will be reported as $7,300. Accounts receivable will be reported at $7,300, and inventory will also be reported as $7,300.

b

On the first day of Year Two, the Raleigh Corporation holds accounts receivable of $500,000 and an allowance for doubtful accounts of $25,000 for a net realizable value of $475,000. During the year, credit sales were $520,000, and cash collections amounted to $440,000. In addition, $28,000 in receivables were written off as uncollectible. If 8 percent of sales is estimated as uncollectible each year, what is the net accounts receivable balance reported at the end of Year Two on Raleigh's balance sheet?

b

The New Orleans Company has more current assets than current liabilities. Near the end of the current year, the company pays off its rent payable for $5,000. What is the impact of this payment on the company current ratio? No change occurs in the current ratio Current ratio goes up Current ratio goes down The impact on the current ratio cannot be determined based on the information provided.

b

A company ends the current year with sales of $600,000, accounts receivable of $100,000, and an allowance for doubtful accounts with a $1,000 credit balance. Uncollectible accounts at the end of the year are estimated to be 6 percent of receivables. Bad debt expense will be reported on the income statement as $5,000.

true

A company ends the current year with sales of $600,000, accounts receivable of $100,000, and an allowance for doubtful accounts with a $1,000 debit balance. Uncollectible accounts at the end of the year are estimated to be 6 percent of receivables. Bad debt expense will be reported on the income statement as $7,000.

true

A company has been in business for several years. In the current year, prior to preparing adjusting entries so that financial statements can be prepared, the bad expense T-account should report a zero balance.

true

Companies use two separate T-accounts in order to monitor and report accounts receivable at its net realizable value.

true

On a set of financial statements, the amount of bad debt expense and the ending balance in the allowance for doubtful accounts will frequently differ.

true

Bad debt expense should be reported in the same period as revenue regardless of when the collectible is to be collected

True

A company ends Year Three with accounts receivable of $300,000, an allowance for doubtful accounts of $15,000, sales of $900,000, and bad debt expense of $27,000. In Year Four, sales of $1 million more are made. Cash collections are $800,000 and an additional $13,000 in receivables are written off as uncollectible. The company always estimates that 3 percent of its sales each year will eventually prove to be bad. On December 31, Year Four, company officials find another $6,000 in receivables that might well be uncollectible. However, after further review, these receivables were not written off at this time. By how much did that decision not to write off these accounts change reported net income for Year Four? Reported net income was not affected. The decision made reported net income $300 higher. The decision made reported net income $5,700 higher. The decision made reported net income $6,000 higher.

a

Company A made sales this year of $400,000 and has ending accounts receivable of $120,000. Company Z made sales this year of $900,000 and has ending accounts receivable of $280,000. Which of the following is true? It takes Company Z approximately 4 days longer to collect its accounts receivable than it takes Company A. It takes Company A approximately 4 days longer to collect its accounts receivable than it takes Company Z. It takes Company Z approximately 13 days longer to collect its accounts receivable than it takes Company A. It takes Company A approximately 13 days longer to collect its accounts receivable than it takes Company Z.

a

Which accounting principle guides the timing of the reporting of bad debt expense? Matching principle Going concern principle Cost/benefit analysis Measurement principle

a

Which of the following would not be used to help a company determine the net realizable value of its accounts receivable? Industry averages and trends The company's ability to pay its own debts Current economic conditions Efficiency of the company's collection procedures

b

A company ends Year Three with accounts receivable of $300,000, an allowance for doubtful accounts of $15,000, sales of $900,000, and bad debt expense of $27,000. In Year Four, sales of $1 million more are made. Cash collections are $800,000, and an additional $13,000 in receivables are written off as uncollectible. The company always estimates that 5 percent of its ending accounts receivable will prove to be bad. On December 31, Year Four, company officials find another $6,000 in receivables that might well be uncollectible. However, after further review, these receivables were not written off at this time. By how much did that decision not to write off these accounts change reported net income for Year Four? Reported net income was not affected. The decision made reported net income $300 higher. The decision made reported net income $5,700 higher. The decision made reported net income $6,000 higher.

c

Darlene Corporation has $300,000 in assets, 30 percent of which are current, and $100,000 in liabilities, 40 percent of which are current. Which of the following is true? Darlene's current ratio is 3 to 1. Darlene's working capital is $200,000. Darlene's working capital is $50,000. The current ratio and working capital are measures of a company's profitability.

c

Fifer Inc. began the current year with $450,000 in accounts receivable and ended the year with $590,000 in accounts receivable and $4 million in sales. Last year Fifer's age of ending receivables was forty-six days and its receivables turnover was six times. Which of the following is not true? Fifer's age of ending receivables is 54 days. Fifer's receivables turnover is 7.69 times. Fifer's age of ending receivables is less than it was last year. External decision makers monitor the time it takes a company to collect its receivables.

c

In Year One, the Simon Company wrote off a $14,000 receivable as uncollectible. However, on May 17, Year Two, the customer returned and paid Simon the entire amount. Which of the following is correct as a result of this payment? Accounts receivable goes down, but the allowance-for-doubtful-accounts account is not changed. Accounts receivable goes down, and the allowance-for-doubtful-accounts account also goes down. Accounts receivable stays the same, but the allowance for doubtful accounts goes up. Accounts receivable stays the same, and the allowance for doubtful accounts also stays the same.

c

On the first day of Year Two, the Richmond Corporation holds accounts receivable of $400,000 and an allowance for doubtful accounts of $23,000 for a net realizable value of $377,000. During the year, credit sales were $450,000 and cash collections amounted to $380,000. In addition, $25,000 in receivables were written off as uncollectible. If 6 percent of ending accounts receivable is estimated as uncollectible, what bad debt expense is reported for Year Two on Richmond's income statement?

c

A U.S. company (with the U.S. dollar as its functional currency) buys inventory and immediately sells it to a customer in France on November 28, Year One, for 10,000 euros. The inventory had cost 6,000 euros several days before, an amount which had been paid on the day of purchase. This merchandise is sold on account with the money to be paid by the customer on January 19, Year Two. On November 28, Year One, 1 euro was worth $2.00 whereas on December 31, Year One, 1 euro is worth $1.90. What is the impact on net income of the change in the exchange rate? $600 gain $600 loss $1,000 gain $1,000 loss

d

A company ends Year Two with bad debt expense of $29,000 and an allowance for doubtful accounts of $27,000. On April 8, Year Three, a $1,900 receivable is written off as uncollectible. Net income is reduced by $1,900 on that date.

false

A company ends Year Two with bad debt expense of $35,000 and an allowance for doubtful accounts of $34,000. On April 12, Year Three, a $2,300 receivable is written off as uncollectible. The net amount reported for accounts receivable is reduced by $2,300 on that date.

false

A company ends the current year with sales of $600,000, accounts receivable of $100,000, and an allowance for doubtful accounts with a $1,000 debit balance. Bad debts are estimated to be 3 percent of sales. On financial statements, the allowance for doubtful accounts will be reported as having an $18,000 credit balance.

false

A company has a current ratio of 3.0:1.0. An account receivable of $3,800 is collected. That transaction will cause an increase in the current ratio.

false

A company has been in business for several years. At the end of the current year, prior to any adjusting entries being prepared, the allowance for doubtful accounts holds a credit balance of $5,000. The previous year estimation of uncollectible accounts was too low.

false

A company makes sales of $730,000 in Year Three. At the end of Year Three, the receivable balance is $48,000. The average customer at that time is taking 27 days to make payment to the company.

false

According to U.S. GAAP, all companies are required to perform their estimation of uncollectible accounts in the same manner.

false

Bad debt expense is reported on a balance sheet as a contra account

false

A company ends the current year with sales of $600,000, accounts receivable of $100,000, and an allowance for doubtful accounts with a $1,000 credit balance. Bad debts are estimated to be 3 percent of sales. On financial statements, bad debt expense will be reported as having an $18,000 debit balance.

true