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Questions and Answers
What was the incorrect service revenue recorded for the client?
What was the incorrect service revenue recorded for the client?
Which account was incorrectly credited in the telephone charges transaction?
Which account was incorrectly credited in the telephone charges transaction?
What was the error in the total for the unearned rent account?
What was the error in the total for the unearned rent account?
How much would the debit and credit totals of the trial balance differ due to errors?
How much would the debit and credit totals of the trial balance differ due to errors?
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What is an example of a nominal and a contra account?
What is an example of a nominal and a contra account?
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In preparing a 10-column worksheet, how is the ending inventory recorded?
In preparing a 10-column worksheet, how is the ending inventory recorded?
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What is not considered a book of original entry?
What is not considered a book of original entry?
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What is the total of the credit column in the trial balance prepared on March 31 for GH Services?
What is the total of the credit column in the trial balance prepared on March 31 for GH Services?
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What should be the net income for Che Che Company for 2013, considering the given adjustments?
What should be the net income for Che Che Company for 2013, considering the given adjustments?
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Which error could potentially overstate both current assets and stockholders' equity?
Which error could potentially overstate both current assets and stockholders' equity?
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How should the effect of uncollectible accounts from previous periods be treated in the retained earnings statement?
How should the effect of uncollectible accounts from previous periods be treated in the retained earnings statement?
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What impact does the misclassification of holiday pay expense have on financial statements?
What impact does the misclassification of holiday pay expense have on financial statements?
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What is the effect of the prepaid insurance premium being charged in full in 2012?
What is the effect of the prepaid insurance premium being charged in full in 2012?
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When should the sale of fully depreciated machinery for cash be recorded?
When should the sale of fully depreciated machinery for cash be recorded?
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What is indicated by an understatement of ending inventory?
What is indicated by an understatement of ending inventory?
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Which of the following is true about total profit under cash basis compared to accrual basis?
Which of the following is true about total profit under cash basis compared to accrual basis?
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What is the effect of erroneously excluding goods from ending inventory and not recording their purchase on net income, working capital, and retained earnings?
What is the effect of erroneously excluding goods from ending inventory and not recording their purchase on net income, working capital, and retained earnings?
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What type of entry is necessary if an owner's withdrawal is incorrectly recorded as a salaries expense?
What type of entry is necessary if an owner's withdrawal is incorrectly recorded as a salaries expense?
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How much are the reported retained earnings overstated due to the audit findings at Angelina Company?
How much are the reported retained earnings overstated due to the audit findings at Angelina Company?
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What amount should Colasissi Corporation report as prior period adjustments in 20Y2?
What amount should Colasissi Corporation report as prior period adjustments in 20Y2?
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What is the consequence of incorrectly recording a collection of notes receivable as a debit to cash?
What is the consequence of incorrectly recording a collection of notes receivable as a debit to cash?
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What correcting entry is required for a sale of merchandise that was recorded incorrectly as P2,300 instead of P3,200?
What correcting entry is required for a sale of merchandise that was recorded incorrectly as P2,300 instead of P3,200?
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What was the reported net income for Hershey Company for the year ended December 31, 20Y1?
What was the reported net income for Hershey Company for the year ended December 31, 20Y1?
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How much is the reported profit for the year ending December 31, 20Y2 overstated due to the errors discovered?
How much is the reported profit for the year ending December 31, 20Y2 overstated due to the errors discovered?
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Which statement regarding the concept of capital maintenance is incorrect?
Which statement regarding the concept of capital maintenance is incorrect?
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Which of the following statements related to financial capital maintenance is incorrect?
Which of the following statements related to financial capital maintenance is incorrect?
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What is the physical capital maintenance concept's required measurement basis?
What is the physical capital maintenance concept's required measurement basis?
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Which statement is not necessary when an entity changes its reporting period?
Which statement is not necessary when an entity changes its reporting period?
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Which aspect of fair presentation is incorrect?
Which aspect of fair presentation is incorrect?
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Under the premise of capital maintenance, how is profit defined?
Under the premise of capital maintenance, how is profit defined?
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Which statement about the selection of capital maintenance concepts is incorrect?
Which statement about the selection of capital maintenance concepts is incorrect?
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What distinguishes the financial capital maintenance concept from the physical capital maintenance concept?
What distinguishes the financial capital maintenance concept from the physical capital maintenance concept?
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What is the maturity period of the note from Hart Corp.?
What is the maturity period of the note from Hart Corp.?
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At what annual interest rate is the interest on both notes calculated?
At what annual interest rate is the interest on both notes calculated?
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What is the present value of P1 due in five years at an interest rate of 8%?
What is the present value of P1 due in five years at an interest rate of 8%?
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How much cash operating costs is the machine expected to reduce in its third year?
How much cash operating costs is the machine expected to reduce in its third year?
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How should supplies inventory increase be treated when converting from accrual basis to cash basis net income?
How should supplies inventory increase be treated when converting from accrual basis to cash basis net income?
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Which of the following transactions will not be recognized under cash basis accounting?
Which of the following transactions will not be recognized under cash basis accounting?
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What is the total present value of the expected savings from the machine over its three-year life using a 14% cost of capital?
What is the total present value of the expected savings from the machine over its three-year life using a 14% cost of capital?
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What characteristic is associated with an incomplete accounting record using only cash books?
What characteristic is associated with an incomplete accounting record using only cash books?
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What amount should Timex report as note receivable on its December 31, 2017 balance sheet?
What amount should Timex report as note receivable on its December 31, 2017 balance sheet?
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What amount should Chang Co. report as note receivable on its December 31, 2017 balance sheet?
What amount should Chang Co. report as note receivable on its December 31, 2017 balance sheet?
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How much interest expense should be included in Parke's 2017 income statement?
How much interest expense should be included in Parke's 2017 income statement?
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What interest income should Emme Co. report in its 2017 income statement?
What interest income should Emme Co. report in its 2017 income statement?
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What was the imputed interest rate for Parke Company's noninterest-bearing note?
What was the imputed interest rate for Parke Company's noninterest-bearing note?
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What is the present value of P1 at an interest rate of 8% for 10 periods?
What is the present value of P1 at an interest rate of 8% for 10 periods?
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How many annual payments did Door Co. agree to make for the noninterest-bearing note?
How many annual payments did Door Co. agree to make for the noninterest-bearing note?
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What present value factor is used for an ordinary annuity of P1 at 8% for 9 periods?
What present value factor is used for an ordinary annuity of P1 at 8% for 9 periods?
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Study Notes
Note Receivable Valuation
- Non-interest bearing notes are valued by discounting future cash flows using the market interest rate.
- The present value of the note is calculated using provided present value factors.
- The value of a note receivable is determined by the present value of its future payments.
- Timex and Chang should report P62,500 as note receivable on their December 31, 2017 balance sheets.
Interest Expense Calculation
- Imputed interest rates are used to value non-interest bearing notes.
- Present values represent the current worth of future cash flows.
- Parke's 2017 interest expense is P30,600.
Interest Income Recognition
- Emme Co. sold equipment for a non-interest bearing note.
- Interest income is calculated based on the difference between the note's face value and its present value.
- Emme should report P45,000 as interest income in their 2017 income statement.
Note Receivable Reporting
- Notes receivable are valued using the market interest rate to discount future cash flows.
- The value is recorded in the balance sheet.
- The notes from Hart Corp. and Maxx, Inc. should be reported. at P10,000 and P7,883, respectively, in Jet Co.'s balance sheet.
Present Value of Future Savings
- Future savings are discounted to their present value using the cost of capital.
- The present value of Maricar Co.'s future savings is P62,900.
Cash Basis vs. Accrual Basis Accounting
- Supplies Inventory: Deducted from accrual basis net income to arrive at cash basis net income.
- Office salaries payable: Added to accrual basis net income to calculate cash basis net income.
- Accrual accounting understates income relative to cash accounting due to unpaid accrued expenses.
- Unsold inventory is not recognized in cash-basis accounting.
- A single entry system uses only a cash book.
- Cash receipts and disbursements may occur before or after revenue and expenses are recognized—under accrual accounting. The timing does not always match.
- Regardless of method (cash or accrual) the entity's total accumulated profit will eventually be the same.
2013 Net Income Calculation
- Assuming only net income and dividends impacted retained earnings, 2013 net income is P2,000,000.
Prior Period Errors
- Misclassifying holiday pay as manufacturing overhead can overstate current assets and equity.
- Overstating ending inventory in one year causes overstatement of assets and equity in subsequent years. The 2010 statement is not affected by the 2004 inventory error.
- Correcting errors in previous accounting periods should be reflected in retained earnings adjustments.
- Prior period errors are adjusted in the current period.
- Errors in ending inventory, depreciation expense, and prepaid insurance impact the prior period financial statements in 2012 and 2013.
Error Correction in Cost and Accounting Records
- Errors in recording goods and purchases, will affect the net income, working capital, and retained earnings.
- A correcting entry is not necessary if an owner's withdrawal is erroneously recorded as a salaries expense after all temporary accounts were already closed in the capital account.
Error Impact on Retained Earnings and Net Income
- Errors like understated inventory in 20Y1, overstated inventory in 20Y2, understated depreciation in 20Y1, and understated accrued expenses in 20Y2 cause retained earnings to be overstated by P32,000 and net income to be overstated by P65,000 (for 20Y2).
Prior Period Adjustments
- Colasissi Corporation's prior period adjustments for 20Y2 should reflect warranty cost accrual (P50,000) and depreciation method change (P30,000) adjustments.
Note Receivable Collection Error
- Incorrectly recording the collection of notes receivable will understate assets and revenue by the difference in the incorrect amount.
Sales on Account Error
- Erroneous recording of a sale on account requires a correcting journal entry affecting accounts receivable.
Incorrect Financial Statement Entries
- Errors in accounting entries impact various accounts: Accounts receivable, service revenue, office expense, cash, unearned rent, purchases, and interest income, impacting income statement balances.
- Correct debit/credit column totals should be P582,000 not P37,000.
Nominal and Contra Accounts
- An example of a nominal and a contra account is sales returns.
Year-End Adjusting Entries
- Year-end adjusting entries related to prepayments can potentially be reversed.
Worksheet Preparation
- In a 10-column worksheet, the ending inventory is extended as a debit in the statement of financial position column and a credit in the income statement column.
- Worksheets lead to a summary of adjusted balances for financial statement preparation. The total of debit and credit columns in the worksheet need to be equal.
Accounting Process Phase
- Journalizing is performed in the recording phase of the accounting process.
Capital Maintenance Concepts
- Capital maintenance concepts should be based on the entity's needs and financial statements.
- Only outflows of assets needed to maintain capital can be considered profit.
- Capital maintenance selection depends on the type of capital the entity seeks to sustain.
- An increase in asset value is not necessarily a profit under all capital maintenance concepts.
- Physical capital maintenance uses the physical productive capacity of assets.
- Physical capital maintenance uses current cost measurements.
Fair Presentation
- Entities can change accounting policies, either by disclosure or through notes or explanatory material.
Reporting Period Change
- Changing the reporting period from 12 months to 15 months does not require referencing other entities.
Trial Balance Errors
- Omitting an inventory balance, incorrect recording of prepaid insurance, and misclassifying an expense cause a difference in the debit and credit balances of a trial balance. The difference will be P2,250.
Trial Balance Credits
- The total of the credit column in a trial balance reflects all credit balances of accounts within a particular ledger.
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Description
This quiz covers the valuation and reporting of note receivables, including the calculation of present value and interest expenses. It also addresses the recognition of interest income from non-interest bearing notes and the required financial reporting. Test your knowledge on the principles of accounting related to these topics.
