Accounting Exam Ch 7-9
Omega estimates uncollectible accounts to be 4% of receivables. Based on this information, the amount of net realizable value of receivables shown on the Year 3 balance sheet is
$39,360 41,000 - 1,640 = 39,360
At the end of the accounting period Anderson Company had $4,500 in accounts receivable and $500 in its allowance for doubtful accounts account. Based on this information the net realizable value of accounts receivable is
$4,000
At the beginning of Year 3 Omega Company had a $52,000 balance in its accounts receivable account and a $1,400 balance in allowance for doubtful accounts. During Year 3, Omega experienced the following events. (1) Omega earned $220,000 of revenue on account (2) Collected $230,000 cash from accounts receivable (3) Wrote-off $1,000 of accounts receivable as uncollectible. Omega estimates uncollectible accounts to be 4% of receivables. The December 31, Year 3 unadjusted (current) balance in the allowance for doubtful accounts account (balance before expense recognition) is
$400 1,400 - 1,000 = $400
At the beginning of Year 3 Omega Company had a $52,000 balance in its accounts receivable account and a $1,400 balance in allowance for doubtful accounts. During Year 3, Omega experienced the following events. (1) Omega earned $220,000 of revenue on account. (2) Collected $230,000 cash from accounts receivable. (3) Wrote-off $1,000 of accounts receivable as uncollectible. Omega estimates uncollectible accounts to be 4% of receivables. Based on this information, the December 31, Year 3 balance in the accounts receivable account is
$41,000 52,000 + 220,000 - 230,000 - 1,000 = $41,000
Medicare Rate
1.5% on all earnings
Average # of Days to Collect Accounts Receivable
365/Turnover ratio
Federal Unemployment Tax Rate
6% of first $7,000 5.4%= state 0.6%= federal
Social Security Rate
6% on the first $110,000 of income
Which of the following statements is true concerning the modified accelerated cost recovery system (MACRS) for the recognition of depreciation expense, for tax purposes?
7-year property will be depreciated more rapidly than 10-year property under the MACRS depreciation method. MACRS is used for the determination of depreciation expense that is reported on an income tax return Under MACRS more depreciation will be recorded in the second accounting period than in the first accounting period because of the half-year convention.
Ending Balance for Doubtful accounts
= beginning balance for doubtful accounts + uncollectible accounts expense (unknown) - write-offs 5000 = 3150 + x - 5,700 5000 - 3150 + 5700 = $7,550
Which of the following terms is used to identify the expense recognition associated with intangible assets?
Amortization
Which financial statement reports the amount of accumulated depreciation?
Balance Sheet
Balance in Accounts Receivable
Beginning Accounts Receivable balance + Revenue earned on account - Collections of accounts receivable - Write-off of accounts receivable = Ending Accounts Receivable balance
Collection of Accounts Receivable
Beginning Balance + Revenue on account - Write off - Ending balance = Collection of Accounts Receivable
Which of the following should be the main determinant for selection of the allocation method for long-term operational assets?
Best matches asset use
Unit depletion Charge
Cost / profitable
Which of the following is considered an accelerated depreciation method?
Double-Declining and MACRS
Net Pay
Employees gross pay less all deductions
net realizable value of accounts receivable
Ending Accounts Receivable - Ending Allowance for doubtful accounts balance
Tangible Assets
Equipment, machinery, natural resources, land
What does the accounts receivable turnover ratio measure?
How quickly accounts receivable turn into cash
When is it acceptable to use the direct write-off method?
If the dollar amount of uncollectible accounts is not material.
Which of the following terms is used to describe long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses?
Intangible Assets
What is the current ratio used to evaluate?
Liquidity
Cost of Machine
List Price - Cash Discount + Freight Costs +Installation Costs
Which of the following would most likely not be expensed using the straight-line method?
Natural Resources
What is the term used to describe the amount of accounts receivable that is actually expected to be collected?
Net Realizable Value
The recovery and collection of an account receivable that had previously been written off will
Not affect total assets
Interest Expense Formula
Principal x Interest Rate x Time Outstanding
Allocation to furniture
Purchase price x (office / total market price)
Accounts Receivable Turnover
Sales/Net Realizable Value
Which of the following statements is true?
The primary advantage of using the direct write-off method of recognizing the uncollectible accounts expense is simplicity.
What is the purpose of the Federal W-4 form?
To allow an employee to choose the number of withholding allowances for calculating federal withholding tax
Intangible Assets
long-term assets (e.g., patents, trademarks, copyrights) that have no real physical form but do have value
book value
original cost - accumulated depreciation
Depletion Expense
unit depletion charge x number sold
Under the direct write-off method, uncollectible accounts expense is recognized
when an account is determined to be uncollectible.
Omega estimates uncollectible accounts to be 4% of receivables. The December 31, Year 3 ending balance in the allowance for doubtful accounts account (balance after expense recognition) is
$1,640 52,000 + 220,000 - 230,000 - 1,000 = 41,000 41,000 x 0.04 = $1,640
On December 31, Year 3, Alpha Company had an ending balance of $200,000 in its accounts receivable account and an unadjusted (current) balance in its allowance for doubtful accounts account of $300. Alpha estimates uncollectible accounts expense to be 1% of receivables. Based on this information, the amount of uncollectible accounts expense shown on the Year 3 income statement is
$1,700 $2000 (200,000 x 0.01) - 300 = $1,700
Annual Depreciation Expense
(cost - salvage value) / useful life
Straight-line Depreciation
(cost - salvage value) / useful life
Double-Declining Balance Depreciation
1. Determine straight-line rate - 1/useful life 2. Determine doubt-declining rate - 2 x straight-line rate 3. Determine depreciation expense - double declining rate x book value (at beginning of year)
Book Value of Patent
Cost of patent - amortization to date $200,000 - ($40,000 x 3 for year 3) = $120,000 200,000 - 120,000 = $80,000
Amortization Expense
Cost of patent / expected useful life $200,000 / 5 = $40,000
Ending Balance in the Allowance for Doubtful Accounts
Ending Accounts Receivable x Estimate of Uncollectible accounts
Uncollectible Accounts Expense
Ending Balance in Allowance Account - Unadjusted (current) balance in in allowance account = Estimated Uncollectible Accounts Expense
Payroll Tax Expense
FICA- Social Security Payable FICA- Medicare Payable Federal Unemployment Tax Payable State Unemployment Tax Payable
An aging schedule is used to improve the estimate used in the percent of revenue method of determining the uncollectible accounts expense. This statement is
False
Most companies expect to collect the full balance of all of their accounts receivable. This statement is
False
Which of the following is not an item deducted from salary expense to arrive at net pay
Federal Unemployment Tax
Which of the following is an asset that has an identifiable useful life?
Patents
Accrued interest revenue will appear on the income statement but not on the statement of cash flows. This statement is
True
The aging method of estimating uncollectible accounts is based on the assumption that the longer an account receivable remains outstanding, the less likely it is to be collected. This statement is
True
The balance in the allowance for doubtful accounts provides an estimate of the amount of the accounts receivable that is expected to be uncollectible. This statement is
True
The net realizable value of accounts receivable represents an estimate of the amount of the accounts receivable that a company realistically expects to collect. This statement is
True
Goodwill may be recorded in which of the following circumstances?
When one business acquires another business
Depreciable cost
cost - salvage value
The net realizable value of receivables is not shown on the balance sheet of a company using the
direct write-off method.
FICA Tax including both employer and employee
employee portion of FICA tax MATCHED ( x 2)
