accounting
Mr.Q
exam_3_.pdf
Exam 3 Name___________________________________
Attention: please write all of your answers to the answer sheet at the end. 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 w ho w ill 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 allow ance 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 w hen disposing of the asset.
9) _______
10) Amortization is the process by w hich businesses spread the allocation of an intangible asset's cost over its useful life.
10) ______
MULTIP LE CHOICE. Choose the one alternative that best completes the statement or answers the question. 11) For a promissory note, the entity to w hom 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) W hich of the follow ing 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 alw ay s classified as current assets.
13) Charms, Inc. has determined that an account receivable of $125 is uncollectible. The company uses the direct w rite -off
method. W hich of the follow ing entries is required to record the w rite-off?
13) ______ A)
Cash 125
Accounts Receivable 125
B)
Bad Debts Expense 125
Accounts Receivable 125
C)
Allow ance for Bad Debts 125
Accounts Receivable 125
D)
Accounts Receivable 125
Bad Debts Expense 125
14) On January 1, A Plus Services has the follow ing balances:
Accounts Receivable $25,000 (debit)
Bad Debts Expense $0
A Plus Services has the follow ing transactions during January: Credit sales of $140,000, collections of credit sales of
$90,000, and w rite-offs of $16,000. A Plus Services uses the direct w rite-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 new ly created design business, Rhodes Art, is finishin g its first year of operations. During the year, credit sales w ere
$45,000 and collections of credit sales w ere $33,000. One account for $675 w as w ritten off. Smart Art uses the aging -of-
receivables method to account for bad debts expense. It has estimated $200 as uncollectible at year -end. W hat 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 follow ing information is from the 2017 records of Albert Book Shop:
Accounts receivab le, December 31, 2017 $47,000 (debit)
Allow ance for Bad Debts, December 31, 2017
prior to adjustment 1,900 (debit)
Net credit sales for 2017 180,000
Accounts w ritten 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 w ill 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 tw o methods of accounting for uncollectible receivables are ________. 17) ______ A) the allow ance method and the direct w rite-off method
B) the direct w rite-off method and the liability method
C) the asset method and the sales method
D) the allow ance 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. W hat w as the total amount of
cash collected by Going Places on the maturity of the note? (Round any intermediate calculations to tw o decimal places,
and your final answ er to the nearest dollar.) 18) ______ A) $21,500 B) $22,000 C) $1,500 D) $18,500
19) Use the follow ing to calculate the acid-test ratio. (Round your answ er to tw o 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 follow ing amounts w ere spent:
Acquisition of land $17,000
Surveys and legal fees 600
Land clearing 800
Fencing 5,000
Install lighting and signage 1,560
W hat 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 goodw ill ________. 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) w hen they continue the business of an acquired corporation
D) w hen they enjoy an outstanding reputation and loyalty w ith customers
ESSAY. Write your answer in the space provide d or on a separate sheet of paper. 23) Tanglew ood Clothing Store reported the follow ing 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 Tanglew ood'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 w ere $40,000, and collections of
credit sales w ere $36,000. One account, $650, w as w ritten 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 w as purchased for $2 4,000 on January 1, 2016. The equipment's estimated useful life w as five years, and its
residual value w as $4,000. The straight -line method of depreciation w as used. Calculate the gain or loss on sale if the
equipment is sold for $18,000 on December 31, 20 16, 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 w as $28 per unit, and the cost,
according to the company's inventory records, w as $14 per unit. Provide the journal entry to record the cost of
goods sold. (Assume a perpetual inventory system.)
27) The follow ing 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 w ere not show n on the June 30 bank statement.
* A deposit in transit of $3,110 had not been received by the bank w hen the bank statement w as generated.
* A bank debit memo indicated a n NSF check for $85 w ritten by Maddie W olfe 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.
Answer sheet Name
TRUE/ FALS E. Write 'T' if the statement is true and 'F' if the statement is false. (3 points/each, 30 points) 1 2 3 4 5
6 7 8 9 10
MULTIP LE CHOICE. ( 3 points/each, 36 points) 11 12 13 14 15
16 17 18 19 20
21 22
23. (5 points) 24. (5 points)
25. (10 points) 26. (5 points) 27. (9 points)
