Accounting Receivables and Notes Quiz
48 Questions
100 Views

Choose a study mode

Play Quiz
Study Flashcards
Spaced Repetition
Chat to lesson

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

Receivables are classified as accounts, notes, or other.

True

Financing charges added to a customer's credit card balance with a retailer are debited to Accounts Receivable and credited to Interest Revenue.

True

The allowance method for uncollectible accounts violates the expense recognition principle.

False

An aging schedule shows a required balance in Allowance for Doubtful Accounts of $8,600. If there is a credit balance in the allowance account of $2,000 prior to adjustment, the adjustment amount is $6,600.

<p>True</p> Signup and view all the answers

Sale of receivables to a factor may result in a debit to Service Charge Expense at the time of sale.

<p>True</p> Signup and view all the answers

The maturity date of a 60-day note dated December 1 is January 31.

<p>False</p> Signup and view all the answers

The interest due at maturity of a two-month, 8%, $800 note is computed by multiplying $800 x 0.08 x 2/12.

<p>True</p> Signup and view all the answers

The maturity value of a $5,000 note is $5,300. If $180 of the interest has been accrued prior to maturity, the entry to record the honoring of the note at maturity should include a credit to Interest Revenue for $120.

<p>True</p> Signup and view all the answers

The principal amount of a 9%, 3-year note receivable is $300,000 and is dated January 1, 2014. The interest revenue to be recognized on December 31, 2014, is $9,000.

<p>False</p> Signup and view all the answers

Short-term receivables are reported in the balance sheet immediately below cash.

<p>False</p> Signup and view all the answers

The sale of merchandise by a company on its own credit card may result in a:

<p>Credit to Interest Revenue</p> Signup and view all the answers

A company has net credit sales of $600,000 for the year and it estimates that uncollectible accounts will be 2% of sales. If Allowance for Doubtful Accounts has a credit balance of $1,000 prior to adjustment, its balance after adjustment will be a credit of:

<p>$13,000</p> Signup and view all the answers

Under the allowance method, the entry to write off an uncollectible account results in a debit to:

<p>Allowance for Doubtful Accounts and a credit to Accounts Receivable</p> Signup and view all the answers

A company sells $400,000 of accounts receivable to a factor for cash less a 2% service charge. The entry to record the sale should not include:

<p>Debit to Interest Expense for $8,000</p> Signup and view all the answers

When an interest-bearing note is dishonored at maturity and ultimate collection is expected, the entry for the dishonoring should include:

<p>A credit to Notes Receivable and Interest Revenue</p> Signup and view all the answers

Erin Danielle Company purchased equipment and incurred the following costs. Cash Price $24,000, Sales Taxes $1,200, Insurance during Transit $200, Installation and Testing $400. Total costs $25,800. What amounts should be recorded as the cost of the equipment?

<p>$25,800</p> Signup and view all the answers

Additions to plant assets are:

<p>Capital Expenditures</p> Signup and view all the answers

Depreciation is the process of:

<p>Cost Allocation</p> Signup and view all the answers

Micah Barlett Company purchased equipment on January 1, 2016, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. The amount of accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used, is:

<p>$156,000</p> Signup and view all the answers

Ann Torbert purchased a truck for $11,000 on January 1, 2016. The truck will have an estimated salvage value of $1,000 at the end of 5 years. Using the units-of-activity method, the balance in accumulated depreciation at December 31, 2017, can be computed by the following formula:

<p>($11,000 / Total Estimated Activity) x Units of Activity for 2016 and 2017</p> Signup and view all the answers

Jefferson Company purchased a piece of equipment on January 1, 2017. The equipment cost $60,000 and has an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2018 under the double-declining balance method?

<p>$11,250</p> Signup and view all the answers

When there is a change in estimated depreciation:

<p>Current and future year's depreciation should be revised</p> Signup and view all the answers

Able Towing Company purchased a tow truck for $60,000 on January 1, 2015. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $12,000. On December 31, 2017, the company decided to change the remaining estimated life to 4 years and the salvage value to $2,000. What was the depreciation expense for 2017?

<p>$12,100</p> Signup and view all the answers

Bennie Razor Company has decided to sell its old manufacturing machine purchased for $80,000 on January 1, 2013, and depreciated straight-line for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of sale?

<p>$18,000</p> Signup and view all the answers

Maggie Sharrer Company expects to extract 20 million tons of coal from a mine that cost $12 million. If no salvage value is expected and 2 million tons are mined in the first year, the entry to record depletion will include a:

<p>Debit to Inventory of $1,200,000</p> Signup and view all the answers

Which one of the following statements is false?

<p>Research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.</p> Signup and view all the answers

Martha Beyerlein Company incurred $150,000 of research and development costs to develop a patent granted on January 2, 2017. On July 31, 2017, she paid $35,000 for legal fees for a successful defense of the patent. The total amount debited to Patents through July 31, 2017, should be:

<p>$35,000</p> Signup and view all the answers

The cost of equipment consists of the cash purchase price plus certain related costs such as sales taxes and freight charges.

<p>True</p> Signup and view all the answers

Cost to construct a plant includes the contract price, architect's fees, building fees, excavation costs, but not interest costs incurred to finance the project.

<p>False</p> Signup and view all the answers

The book value of an asset equals its cost less accumulated depreciation.

<p>True</p> Signup and view all the answers

Under the declining-balance method of depreciation, an asset may not be depreciated below its estimated salvage value.

<p>True</p> Signup and view all the answers

Ordinary repairs are expenditures to increase the operating efficiency, productive capacity, or expected useful life of a plant asset.

<p>False</p> Signup and view all the answers

The useful life of a copyright is generally shorter than its legal life.

<p>True</p> Signup and view all the answers

Unlike other assets that can be sold individually in the marketplace, goodwill can be identified only with the business as a whole.

<p>True</p> Signup and view all the answers

The process of allocating the cost of natural resources to expense is called amortization.

<p>False</p> Signup and view all the answers

The cost of a factory machine includes all of the following costs except:

<p>Three-year insurance policy on the machine</p> Signup and view all the answers

On January 1, a machine with a useful life of 5 years and a salvage value of $8,000 was purchased for $160,000. What is the depreciation expense in Year 2 under the double-declining balance method?

<p>$38,400</p> Signup and view all the answers

The exclusive right to reproduce and sell an artistic or published work is called a:

<p>Copyright</p> Signup and view all the answers

An asset that cost $80,000 and has accumulated depreciation of $60,000 is sold for $12,000. The journal entry would include:

<p>Debit to Loss on Disposal of Plant Assets of $8,000</p> Signup and view all the answers

The allocation of the cost of a natural resource to expense in a rational and systematic manner is called?

<p>Depletion</p> Signup and view all the answers

Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance are known as?

<p>Intangible Assets</p> Signup and view all the answers

An exclusive right granted by the federal government to reproduce and sell an artistic or published work is called?

<p>Copyrights</p> Signup and view all the answers

A right to sell certain products or services or to use certain trademarks or trade names within a designated geographic area is called?

<p>Franchise</p> Signup and view all the answers

Costs incurred by a company that often lead to patents or new products must be expensed as incurred are called?

<p>Research and Development Costs</p> Signup and view all the answers

Which of the following approaches for bad debts is best described as a balance sheet method?

<p>Percentage-of-receivables method</p> Signup and view all the answers

Which of the following statements about Visa credit card sales is incorrect?

<p>Two parties are involved.</p> Signup and view all the answers

One of the following statements about promissory notes is incorrect. The incorrect statement is:

<p>A promissory note is not a negotiable instrument.</p> Signup and view all the answers

Accounts and notes receivables are reported in the current assets section in the balance sheet at:

<p>Cash (net) realizable value</p> Signup and view all the answers

Study Notes

Receivables and Allowance Methods

  • Receivables can be classified into accounts, notes, or other categories.
  • Financing charges added to retail credit card balances debit Accounts Receivable and credit Interest Revenue.
  • The allowance method for uncollectible accounts adheres to the expense recognition principle.
  • Aging schedules help determine required balances in Allowance for Doubtful Accounts; adjustments reflect outstanding balances.

Notes and Maturity

  • For a 60-day note dated December 1, the maturity date is actually January 30, not January 31.
  • Interest on notes is calculated on the principal amount and the term of the note.
  • The maturity value of a note equals its principal plus accrued interest; any prior interest accruals affect journal entries on maturity.

Sales and Receivables

  • Selling receivables to a factor incurs Service Charge Expense at the time of sale.
  • The sale of merchandise on credit can result in a credit to Interest Revenue.
  • Companies calculate balances in Allowance for Doubtful Accounts based on net credit sales.

Depreciation and Asset Management

  • Capital Expenditures are capitalized as additions to plant assets rather than treated as ordinary repairs.
  • Depreciation represents the cost allocation of tangible assets over their useful lives.
  • Different methods (straight-line, double-declining balance, units-of-activity) determine depreciation expenses across asset lifespans.

Intangible Assets and Cost Allocations

  • The cost of acquiring equipment includes the purchase price plus direct additional costs (sales taxes, transportation, installation).
  • Research and development costs are expensed unless they lead to a successful patent, at which point costs for legal defense can be capitalized.
  • Goodwill is an intangible asset tied to business value and cannot be sold separately.

Disposal and Gain/Loss Recognition

  • Sale of plant assets involves recognizing gains or losses based on the difference between sale proceeds and book value (cost less accumulated depreciation).
  • If an asset is sold for less than its book value, the difference is recorded as a loss.

Other Key Concepts

  • Depletion relates to the cost allocation of natural resources to expense, akin to depreciation for physical assets.
  • Intangible assets include rights and privileges without physical substance, while amortization applies to finite-lived assets.
  • The percentage-of-receivables method estimates bad debts based on outstanding accounts, contrasting with the direct write-off method.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Quiz Team

Description

Test your knowledge on receivables, allowance methods, and maturity of notes. This quiz covers key concepts such as financing charges, uncollectible accounts, and interest calculations. Challenge yourself with questions related to sales and receivables.

More Like This

Accounting for Receivables
12 questions

Accounting for Receivables

ChivalrousSard7112 avatar
ChivalrousSard7112
Accounting Receivables Quiz
15 questions
Use Quizgecko on...
Browser
Browser