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.
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Sale of receivables to a factor may result in a debit to Service Charge Expense at the time of sale.
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The maturity date of a 60-day note dated December 1 is January 31.
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The interest due at maturity of a two-month, 8%, $800 note is computed by multiplying $800 x 0.08 x 2/12.
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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.
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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.
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Short-term receivables are reported in the balance sheet immediately below cash.
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The sale of merchandise by a company on its own credit card may result in a:
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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:
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Under the allowance method, the entry to write off an uncollectible account results in a debit to:
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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:
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When an interest-bearing note is dishonored at maturity and ultimate collection is expected, the entry for the dishonoring should include:
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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?
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Additions to plant assets are:
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Depreciation is the process of:
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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:
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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:
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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?
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When there is a change in estimated depreciation:
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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?
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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?
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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:
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Which one of the following statements is false?
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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:
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The cost of equipment consists of the cash purchase price plus certain related costs such as sales taxes and freight charges.
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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.
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The book value of an asset equals its cost less accumulated depreciation.
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Under the declining-balance method of depreciation, an asset may not be depreciated below its estimated salvage value.
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Ordinary repairs are expenditures to increase the operating efficiency, productive capacity, or expected useful life of a plant asset.
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The useful life of a copyright is generally shorter than its legal life.
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Unlike other assets that can be sold individually in the marketplace, goodwill can be identified only with the business as a whole.
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The process of allocating the cost of natural resources to expense is called amortization.
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The cost of a factory machine includes all of the following costs except:
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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?
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The exclusive right to reproduce and sell an artistic or published work is called a:
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An asset that cost $80,000 and has accumulated depreciation of $60,000 is sold for $12,000. The journal entry would include:
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The allocation of the cost of a natural resource to expense in a rational and systematic manner is called?
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Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance are known as?
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An exclusive right granted by the federal government to reproduce and sell an artistic or published work is called?
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A right to sell certain products or services or to use certain trademarks or trade names within a designated geographic area is called?
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Costs incurred by a company that often lead to patents or new products must be expensed as incurred are called?
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Which of the following approaches for bad debts is best described as a balance sheet method?
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Which of the following statements about Visa credit card sales is incorrect?
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One of the following statements about promissory notes is incorrect. The incorrect statement is:
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Accounts and notes receivables are reported in the current assets section in the balance sheet at:
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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.
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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.
