Acct. 280 Chapter 7 + 8

PT Co. purchased land and an existing building for $200,000. In addition, PT paid real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:

$250,000 Reason: 200,000+15,000+35,000=250,000

Leo Co. uses the allowance method to account for bad debts. At the end of the year, Leo Co.'s accounts receivable balance is $25,000; allowance for doubtful accounts balance of $100 (credit); and sales of $500,000. Based on history, Leo estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$400

On June 30, Nance Company receives a $5,000, 90-day, 4% note from a customer as payment on her account. How much interest will be due on the note's maturity date?

$50

Ana Co. uses the allowance method to account for bad debts. At the end of the period, Ana's unadjusted trial balance shows an accounts receivable balance of $40,000; allowance for doubtful accounts balance of $300 (credit); and sales of $500,000. Based on history, Ana estimates that bad debts will be 2% of accounts receivable. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of:

$500

Flash Co. uses the allowance method to account for bad debts. At the end of the year, Flash Co.'s unadjusted trial balance shows an accounts receivable balance of $45,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,500,000. Based on history, Flash estimates that bad debts will be 0.5% of sales. The entry to record estimated bad debts will include an debit to Bad Debts Expense in the amount of:

$7,500

Which of the following asset(s) are not considered intangible assets? (Check all that apply.)

- Copy machine - Mineral deposit

Which of the following factors determine depreciation? (Check all that apply.)

- Cost of asset - Salvage value - Useful life

A company estimates that $1,000 of its accounts receivable is uncollectible at the end of the period and will make the following adjusting entry: (Check all that apply.)

- Credit to Allowance for Doubtful Accounts - Debit to Bad Debts Expense for $1,000

An accounts receivable ledger: (Check all that apply.)

- is a supplementary record to maintain an account for each customer. - records journal entries that affect accounts receivable.

Review the statements below and choose the one that correctly describes a control account.

A control account appears in the general ledger and is supported by a subsidiary ledger.

Which of the following situations will result in recognizing a gain on sale of a plant asset?

A fully depreciated asset is sold for $1,000.

To record a sale on account, the company should debit:

Accounts Receivable

A company has $150,000 of credit sales during the year and estimates that $1,000 of its accounts receivable will be uncollectible. The adjusting entry will include a credit to:

Allowance for Doubtful Accounts

Accumulated depreciation is recorded on which of the following financial statements?

Balance sheet

Accumulated depreciation is reported on which of the following financial statements?

Balance sheet

(Bad/Invalid)(collectible/debts) are accounts of customers who do not pay what they have promised to pay. It's considered an expense of selling on credit.

Blank 1: Bad Blank 2: Debts

A company sells merchandise to a customer on credit. The journal entry to record this transaction would include a debit to the Accounts __ account.

Blank 1: Receivable

In September, DK Company sells merchandise to Lions Company on credit. In October, Lions Company pays the balance in full. The entry to record the collection of cash by DK Company in October will include a (debit/credit) to Accounts Receivable.

Blank 1: credit

Iron Company collects cash in full from a customer who purchased merchandise last month on credit. To record the receipt of cash, Iron Company should make the following entries in the general journal. (Check all that apply.)

Credit to Accounts Receivable Debit to Cash

When the maker of a note pays at maturity, the note is said to be dishonored.

False

The cost of plant assets should include all of the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use, including repairs to damages incurred after installation

False Reason: Costs should not include repairs to damages or errors incurred after installation.

A 90-day note is signed on October 21. The due date of the note is:

January 19

DonCo, Inc. sold merchandise on January 14, and accepted a 90-day, 5% promissory note in the amount of $5,000. On January 14, the entry to record this transaction would include a debit to:

Notes Receivable in the amount of $5,000

______ are expenditures that keep an asset in good operating condition. They are necessary if an asset is to perform to expectations over its useful life.

Ordinary repairs

Which of the following expenses would not be considered an ordinary repair?

Replacing an engine

A(n)______ is a supplementary record created to maintain a separate account for each customer.

accounts receivable ledger

The (aging/percent) of accounts receivable method uses several percentages, based on long an account is past due, to estimate the allowance.

aging

The (allowance/direct write-off) method of accounting for bad debts records estimated bad debts expense in the period when the related sales are recorded.

allowance

Copyrights, trademarks, and other intangible assets are expensed over their useful lives through the process of:

amortization

If an intangible asset has a limited life, its cost is systematically allocated to expense over its useful life through the process of:

amortization

The allowance for doubtful accounts is a(n) (current/contra/opposite) asset account and has a normal credit balance.

contra

The ______ method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts expense.

direct write-off

The principal and interest of a note are due on its maturity date. If the maker of the note pays the note in full, the maker is said to have (honored/dishonored) the note.

honored

Land (improvements/additions) are assets that are additions to land and have limited useful lives, such as walkways and fences. Need help? Review these concept resources.

improvements

If an intangible asset has an (limited/indefinite) life, it is recorded as an intangible asset, but is not amortized.

indefinite

If an intangible asset has a(n)Blank______ is not amortized.

indefinite life

Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called:

land improvements

The ______ constraint is permitted under GAAP when its results approximate those under the allowance method.

materiality

Bilos Co. purchased a patent on a newly developed technology. They will recognize the cost of this patent:

over the asset's life using amortization expense

A ______ is an exclusive right granted to its owner to manufacture and sell an item or use a process for 20 years.

patent

Straight-line depreciation is calculated by taking cost minus (salvage/market) value divided by useful life.

salvage

The allowance for doubtful accounts is a contra asset account that equals:

total uncollectible accounts

Grand Co. owns one copier that was purchased for $10,000 three years ago. The depreciation expense taken on the copier each year has been $2,700; $1,800; and $2,200, based on the number of copies that have been made on the copier. Based on this information, the company uses the

units-of-production

The method of depreciation that charges a varying amount to depreciation expense for each period depending on its usage is called the

units-of-production

The advantages of using the allowance method to account for bad debts include which of the following? (Check all that apply.)

- Matches expenses in the same period with the related sales - Reports accounts receivable balance at the estimated amount to be collected

Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 for taxes and lawyer fees. Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at $___.

495000 or 495,000

A 60-day note is signed on February 15 (and it's not leap year). The due date of the note is:

April 16

______ are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.

Betterments

A note is honored when it is paid in full.

True

The ______ method of estimating bad debts uses both past and current receivables information to estimate the allowance amount. Specifically, each receivable is classified by how long it is past its due date.

aging of receivables

Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):

betterment.

The factors necessary to compute depreciation include all of the following, except:

book value Reason: The factors that determine depreciation are cost, salvage value, and useful life.

Accumulated depreciation is a asset account (one that is linked with the plant asset account, but has an opposite normal balance) and is reported on the balance sheet.

contra

Yates Co. uses the allowance method to account for bad debts. At the end of the period, Yate's unadjusted trial balance shows an accounts receivable balance of $10,000; allowance for doubtful accounts balance of $400 (credit); and sales of $500,000. Based on history, Yates estimates that bad debts will be 1% of sales. The entry to record estimated bad debts will include a debit to bad debts expense in the amount of:

$5,000

At the beginning of the year, Jobs Co. owned one piece of office equipment, a copier. The copier was purchased two years ago for $12,000. At the beginning of the year, the balance in accumulated depreciation was $4,000. Jobs uses straight-line depreciation of $2,000 per year with a zero salvage value. How much is accumulated depreciation at the end of the year?

$6,000 Reason: 4,000 + 2,000 = 6,000

Which of the following items are plant assets? (Check all that apply.)

- Equipment used in operations - Building used for operations

When considering the sale of a plant asset, match the following outcomes to the appropriate situations.

Book value is greater than the selling price - Loss on sale of asset Book value is less than the selling price - Gain on sale of asset Book value is equal to the selling price - No gain or loss recognized

The allowance method of accounting for bad debts records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts. True false question.

False

Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the _____ account.

Machinery

____assets are assets used in a company's operations that have a useful life of more than one accounting period.

Plant or Fixed

Match the following terms to the appropriate definitions.

Promissory note - Written promise to pay a specified amount of money Principal - Amount that the signer agrees to pay back, not including interest Interest - Charge from using money loaned from one entity to another Maker - One who signed the note and promised to pay at maturity Payee - The person to whom the note is payable Maturity date - Day that the principal and interest must be paid

A plant asset is (depreciated/discarded/obsolete) when it is no longer useful to the company, and it has no market value.

discarded

On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.

$1,000 Reason: This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.

On August 21, Alix Company receives a $2,000, 60-day, 6% note from a customer as payment on her account. How much interest will be due on October 20, the due date?

$20

Which of the following assets are amortized? (Check all that apply.)

- Patent - Copyright

Plant assets should be recorded at cost, including all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. This would include which of the following costs? (Check all that apply.)

- Shipping charges - Assembling - Testing

The cost at which a company records purchases of machinery and equipment should include which of the following? (Check all that apply.)

- Shipping fees - Purchase price - Installation - Taxes

Bad debts are: (Check all that apply.)

- accounts of customers who do not pay. - also called uncollectible accounts. - an expense of selling on credit.

Lina Co. uses the allowance method to account for bad debts. On January 28, Lina determines that a $200 balance from ZRT, Inc. is uncollectible and writes the balance off. The journal entry to write this balance off will include a: (Check all that apply.)

- credit to Accounts Receivable - ZRT. - debit to Allowance for Doubtful Accounts.

Zion Company sells merchandise on credit to BRC, Inc. in the amount of $1,200. The entry to record this sale would include a: (Check all that apply.)

- credit to Sales. - debit to Accounts Receivable.

The two most common receivables are __ receivables and __ receivables.

Blank 1: accounts or account Blank 2: notes or note

The direct write-off method records bad debts expense only when an account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the __ __ principle.

Blank 1: expense or matching Blank 2: recognition

The (maker/payee) of the note is the one that signed the note and promised to pay at maturity. The (maker/payee) of the note is the person to whom the note is payable.

Blank 1: maker Blank 2: payee

To compute interest due on a maturity date, multiply (principal/note) times (interest/dividends) times time expressed in fraction of year.

Blank 1: principal or principle Blank 2: interest rate or interest

Explain what a control account is by completing the following sentence. A control account appears in the general ledger and is supported by information in a separate (general/subsidiary) ledger.

Blank 1: subsidiary

______ is the process of allocating the cost of a plant asset to expense while it is in use.

Depreciation

A company owns an asset that is fully depreciated. The asset is no longer being used in operations and has no market value. The company has decided to ______ the asset by recording an entry to remove it from the balance sheet.

discard

When a note's maker does not pay at maturity, the note is considered (honored/dishonored) .

dishonored

The direct write-off method records bad debts expense only when a specific account becomes uncollectible, which is not always in the same period as the sale. For this reason, the direct write-off method violates the

expense recognition

To compute interest due on a maturity date, use the formula:

principal x interest rate x time expressed in fraction of year

A __ is an amount due from another party.

receivable

On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.

$1,400 Reason: (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation.

Ion Co. purchased land for $190,000. Ion also paid $5,000 in real estate commissions, $1,000 in legal fees, and $500 in title insurance fees. Ion should record the cost of this land at:

$196,500 Reason: 190,000+5,000+1,000+500=196,500

Wen Co. purchased a building for $200,000. Wen paid $20,000 in lawyer and title fees. Wen also paid an additional $15,000 to modify the building in order to accommodate his business needs. Wen should record the cost of the building at:

$235,000

Alin Co. purchases a building for $300,000 and pays an additional $30,000 for title fees and lawyer fees. Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:

$350,000.

Lani Co. uses the allowance method to account for bad debts. At the end of the year, their unadjusted trial balance shows an accounts receivable balance of $400,000; allowance for doubtful accounts balance of $400 (debit); and sales of $1,200,000. Based on history, Lani estimates that bad debts will be 1% of accounts receivable. The entry to record estimated bad debts will include a debit to Bad Debts Expense in the amount of:

$4,400

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

On November 1, Alice Co. accepted a 90-day, 6%, $2,000 note due January 30. On December 31, the appropriate adjusting entry was made. On January 30 of the next year, the note was honored and paid in full. The entry to record receipt of payment on January 30 would include a credit to: (Check all that apply.)

- Interest Receivable for $20. - Notes Receivable for $2,000 - Interest Revenue for $10.

On December 1, Christy Co. accepted a 60-day, 6%, $1,000 note due January 30. On December 31, the appropriate year-end adjusting entry was made. On January 30, the note was honored and paid in full. The entry to record receipt of payment on January 30 (assuming no reversing entry was made) would include a credit to: (Check all that apply.)

- Interest Receivable for $5. - Notes Receivable for $1,000. - Interest Revenue for $5.

Determine which of the following expenses are considered revenue expenditures related to a company vehicle.

- Oil change - Car wash - Dent repair

On November 1, Eli Co. received a $6,000, 60-day, 6% note from a customer as payment on his $6,000 overdue account. Eli's journal entry to record this transaction on November 1, would include a: (Check all that apply.)

- debit to Notes Receivable for $6,000. - credit to Accounts Receivable for $6,000.

Ring Co. owns a delivery van that was purchased two years ago for $25,000. Ring has depreciated the van for two years at a straight-line amount of $4,000 per year. The book value of this van at the end of the second year would be $____.

17000

Avia Company determines that a customer balance of $400 from Allia, Inc. is uncollectible. Avia uses the allowance method to account for bad debts. The entry to write off the uncollectible balance will include a debit to:

Allowance for Doubtful Accounts

Depreciation expense is reported as a decrease on which of the following financial statements?

Income statement

______ are nonphysical assets used in operations that give companies long-term rights, or competitive advantages.

Intangible assets

Kaiven Company accepted a $12,000, 60-day, 6% note on December 21 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 would include a debit to:

Interest Receivable for $20.

Lion Company accepted a $15,000, 30-day, 6% note on December 16 from Diaz Co, granting a time extension on his past-due account receivable. The adjusting entry on December 31 for Lion Company would include a credit to:

Interest Revenue for $37.50.

On December 31, Briar Co. disposed of a piece of equipment that cost $6,000 with accumulated depreciation of $4,500. The entry to record this disposal would include a debit to which account and for how much?

Loss on Disposal of Equipment for $1,500

(Revenue/Capital) expenditures are additional costs of plant assets that do not materially increase the asset's life or capabilities.

Revenue

The process of allocating the cost of a plant asset to expense while it is in use is called (depreciation/salvage)

depreciation