TRUE/ FALS E. Write 'T' if the statement is true and 'F' if the statement is false.
1) A debtor is a party to a credit transaction who will receive the cash for the transaction at a later date. 1) _______
2) The terms of payment for a note receivable are generally longer than that of an account receivable. 2) _______
3) The use of the allowance method to record bad debts expense violates the matching principle. 3) _______
4) The interest period extends from the original date of the note to the maturity date. 4) _______
5) The higher the acid-test ratio, the less able the business is to pay its current liabilities. 5) _______
6) Capitalizing a cost involves crediting the asset account. 6) _______
7) Depreciation is the allocation of a plant asset's cost to expense over its useful life. 7) _______
8) The double-declining-balance method is an accelerated method of depreciation. 8) _______
9) Estimated residual value can be zero if the company does not expect to receive anything when disposing of the asset. 9) _______
10) Amortization is the process by which businesses spread the allocation of an intangible asset's cost over its useful life. 10) ______
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
11) For a promissory note, the entity to whom the promise of future payment is made is the ________. 11) ______
A) endorser of the note B) payee of the note
C) banker of the note D) maker of the note
12) Which of the following statements is true? 12) ______
A) Accounts receivable are liabilities.
B) Notes receivable usually have longer collection terms than accounts receivable.
C) Accounts receivable are more liquid than cash.
D) Notes receivable are always classified as current assets.
13) Charms, Inc. has determined that an account receivable of $125 is uncollectible. The company uses the direct write-off method. Which of the following entries is required to record the write-off?
13) ______
A)
|
Cash
|
125
|
|
|
Accounts Receivable
|
|
125
|
B)
|
Bad Debts Expense
|
125
|
|
|
Accounts Receivable
|
|
125
|
c)
|
Allowance for Bad Debts
|
125
|
|
|
Accounts Receivable
|
|
125
|
D)
|
Accounts Receivable
|
125
|
|
|
Bad Debts Expense
|
|
125
|
14) On January 1, A Plus Services has the following balances:
Accounts Receivable $25,000 (debit)
Bad Debts Expense $0
A Plus Services has the following transactions during January: Credit sales of $140,000, collections of credit sales of
$90,000, and write-offs of $16,000. A Plus Services uses the direct write-off method. At the end of January, the balance of Accounts Receivable is ________. 14) ______
A) $59,000 B) $10,286 C) $24,889 D) $75,000
15) A newly created design business, Rhodes Art, is finishing its first year of operations. During the year, credit sales were
$45,000 and collections of credit sales were $33,000. One account for $675 was written off. Smart Art uses the aging-of- receivables method to account for bad debts expense. It has estimated $200 as uncollectible at year-end. What is the amount of the Bad Debts Expense for the first year of operations?15) ______
A) $675 B) $875 C) $11,125 D) $200
16) The following information is from the 2017 records of Albert Book Shop:
|
Accounts receivable, December 31, 2017
|
$47,000 (debit)
|
|
Allowance for Bad Debts, December 31, 2017 prior to adjustment
|
1,900 (debit)
|
|
Net credit sales for 2017
|
180,000
|
|
Accounts written off as uncollectible during 2017
|
17,000
|
|
Cash sales during 2017
|
28,000
|
Bad debts expense is estimated by the aging-of-receivables method. Management estimates that $5,500 of accounts receivable will be uncollectible. Calculate the amount of bad debts expense for 2017. 16) ______
A) $5,750 B) $5,500 C) $3,600 D) $7,400
17) The two methods of accounting for uncollectible receivables are ________. 17) ______
A) the allowance method and the direct write-off method
B) the direct write-off method and the liability method
C) the asset method and the sales method
D) the allowance method and the liability method
18) On December 1, 2017, Going Places, Inc. sold machinery to a customer for $20,000. The customer could not pay at the time of sale but agreed to pay 9 months later and signed an 9 -month note at 10% interest. What was the total amount of cash collected by Going Places on the maturity of the note? (Round any intermediate calculations to two decimal places,
and your final answer to the nearest dollar.) 18) ______
A) $21,500 B) $22,000 C) $1,500 D) $18,500
19) Use the following to calculate the acid-test ratio. (Round your answer to two decimal places.)
|
Cash
|
$100,000
|
|
Short-term investments
|
17,000
|
|
Net current receivables
|
250,000
|
|
Inventory
|
330,000
|
|
Total current liabilities
|
760,000
|
19) ______
A) 0.79 B) 0.48 C) 0.92 D) 5.88
20) Acer, Inc. plans to develop a shopping center. In the first quarter, the following amounts were spent:
|
Acquisition of land
|
$17,000
|
|
Surveys and legal fees
|
600
|
|
Land clearing
|
800
|
|
Fencing
|
5,000
|
|
Install lighting and signage
|
1,560
|
What amount should be recorded as the cost of the land in the corporation's books? 20) ______
A) $22,800 B) $19,960 C) $18,400 D) $23,400
21) On January 1, 2017, Anodel, Inc. acquired a machine for $1,010,000. The estimated useful life of the asset is five years. Residual value at the end of five years is estimated to be $62,000. Calculate the depreciation expense per year using the straight-line method. 21) ______
A) $189,600 B) $252,500 C) $202,000 D) $251,600
22) Businesses record goodwill ________. 22) ______
A) if they acquire another company at an amount higher than the market value of its net assets
B) if their market value has increased significantly in the recent years
C) when they continue the business of an acquired corporation
D) when they enjoy an outstanding reputation and loyalty with customers
ESSAY. Write your answer in the space provide d or on a separate sheet of paper.
23) Tanglewood Clothing Store reported the following selected items at June 30, 2017 (last year - 2016 - amounts are also given as needed):
|
Cash
|
$ 80,000
|
|
Accounts Receivable, net:
June 30, 2017
June 30, 2016
|
125,000
153,000
|
|
Accounts Payable
|
45,000
|
|
Cost of Goods Sold
|
475,000
|
|
Merchandise Inventory June 30, 2017
|
|
|
June 30, 2016
|
320,000
280,000
|
|
Net Credit Sales Revenue
|
1,200,000
|
|
Long-Term Assets
|
520,000
|
|
Long-Term Liabilities
|
140,000
|
|
Other Current Assets
|
150,000
|
|
Other Current Liabilities
|
130,000
|
|
Short-term Investments
|
200,000
|
Compute Tanglewood's days' sales in receivables for 2017. Show your computations.
24) Smart Calendars is a new business. During its first year of operations, credit sales were $40,000, and collections of credit sales were $36,000. One account, $650, was written off. Using the aging-of-receivables method, management calculates $200 as its estimate of uncollectible amounts at year end. Prepare the journal entry to record bad debts expense.
25) Equipment was purchased for $24,000 on January 1, 2016. The equipment's estimated useful life was five years, and its residual value was $4,000. The straight-line method of depreciation was used. Calculate the gain or loss on sale if the equipment is sold for $18,000 on December 31, 2016, the end of the accounting period. Prepare the journal entry to record the sale of equipment.
26) Cobbe Sales sold 400 units of product to a customer on account. The selling price was $28 per unit, and the cost, according to the company's inventory records, was $14 per unit. Provide the journal entry to record the cost of goods sold. (Assume a perpetual inventory system.)
27) The following information is available for Ashland Company for the month ending June 30, 2017.
- Balance as per the bank statement is $11,240.
- Balance as per books is $10,200.
- Check #506 for $1,200 and check #510 for $900 were not shown on the June 30 bank statement.
- A deposit in transit of $3,110 had not been received by the bank when the bank statement was generated.
- A bank debit memo indicated an NSF check for $85 written by Maddie Wolfe to Ashland Company on June 13.
- A bank credit memo indicated a note collected by the bank of $2,100 and interest revenue of $55 on June 20.
- The bank statement indicated service charges of $20.
Prepare bank reconciliation for Ashland Company for June 30, 2017.