SOLUTION: Acct 2210 Zeigler: Attendance Quiz #4 - Chp 7,8 (15 pts)
Review for Examination #4
Note: This is an open book/open note quiz. Exam #4 remains closed book / closed note.
____1. Trippodo & Butler, Inc. accepteda credit card payment of $2,000 forcomplex accounting
servicesperformed for a client. The credit card processor (i.e. VISA/Mastercard) charged
a 3 percent service fee. The required journal entry to record thisevent on the company
books would:
a. decrease assets by $1,440.
b.increase expenses by $60. (set up the journal entry to confirm)
c. decrease revenue by $1,500.
d.None of the above would occur based upon the correct journal entry for this event.
____ 2. Midhiff & LeNaitre, Inc.uses accrual accounting and issued a $6,000 note receivable
(loan) to a companyemployee on October 1, 2014. The one-year note carried a 6%
interest rate. The amount of interest income (revenue)that would be recognized in 2014
and 2015, respectively, would be:
a.$360, $0
b.$0, $360
c.$90, $270 (Accrued interest income for 2014 is $6,000 * 6% * 3/12 = $90)
d.$270,$90
____ 3. Tucker & Salata, Inc.offers 30-day credit terms and uses the Allowance Method for uncollectible accounts. During the year, the company had $2,375,500 in credit sales. If mgmt estimates that 4% of company credit sales will never be collected, what entry will the company need to recognize Uncollectible Accts (i.e. Bad Debt) Expense for the year?
a. Bad Debt Expense$95,020
Allowancefor Doubtful Accounts$95,020
b. Allowance for DoubtfulAccounts$ 7,918
Bad Debt Expense$ 7,918
c. Bad Debt Expense$ 7,918
Accounts Receivable$ 7,918
d Allowance For Doubtful Accounts$95,020
Bad Debt Expense$95,020
____ 4. What does the “Accounts Receivable turnover ratio” measure?
a.The average balance of Accounts Receivable.
b.How quickly Accounts Receivable increase.
c.How quickly Accounts Receivable turns into cash. (Sales on acct / Accts Rec)
d.How quickly Inventory turns into Accounts Receivable.
____ 5. Cox & Harris, Inc. reported the following information for the year:
Ending Accounts Receivable / 90,000Sales on Account / 355,000
Based upon the information available, determine the average number of days (possibly rounded) it takes the company to collect their accounts receivable.
a. 3.9
b.25.4
c.59.6
d.92.6 (2 steps: #1 355/90 = 3.94 A/R turnover. #2: 365 days / 3.94 = ~92 days)
e.394.4
* Use the following to answer questions 6-9 *
On December 31, 2014, Mowry & NwankwoRent-A-Car, Inc. estimated that 3% of annual credit sales of $215,000 would be uncollectible. The company uses the allowance method of accounting for bad debts. On March 2, 2015, a customer declared bankruptcy, failed to pay their $2,500 balance owed and the account was written off. On April 9, 2015 (today!), O’Connor,the CEO, was pleasantly surprised to see the same customer appear at corporate officesto paywith $2,500 cash!
Note: CreateJournal Entries and/or T-Accts to analyze the fact pattern presented to confirm your understanding. See Chp7 for further discussion and examples.
____6. Which of the following answers correctly shows the net effect of the December 31, 2014 adjusting entry for Bad Debts Expense on the company financial statements?
Total Assets / = / Total Liab / + / Total EquityA) / (6,450) / 6,450 / n/a
B) / 6,450 / (6,450) / n/a
C) / 6,450 / n/a / 6,450
D) / (6,450) / n/a / (6,450)
____7. Which of the following answers correctly state the net effect of thewrite-off entry on March 2, 2015?
Total Assets / = / Total Liab / + / Total EquityA) / (2,500) / n/a / (2,500)
B) / n/a / n/a / n/a
C) / n/a / 2,500 / (2,500)
D) / 2,500 / n/a / 2,500
____ 8. Which of the following answers correctly state the net effect of recording the reestablishment of the receivable, prior to payment, on April 9, 2015?
Total Assets / = / Total Liab / + / Total EquityA) / (2,500) / 2,500 / n/a
B) / 2,500 / n/a / 2,500
C) / n/a / n/a / n/a
D) / (2,500) / n/a / (2,500)
____ 9. Which of the following answers correctly state the net effect of recording the $2,500 cash payment collected (from the reestablished receivable) on April 9, 2015?
Total Assets / = / Total Liab / + / Total EquityA) / 2,500 / n/a / 2,500
B) / n/a / n/a / n/a
C) / (2,500) / n/a / (2,500)
D) / n/a / (2,500) / 2,500
____ 10.Olmstead & Barker, Inc. paid $375,000 for a “basket purchase”of assets (see pg 419) that included office furniture, a building and some land. A professional appraiser, Kissell, provided the following estimates of the market values of the assets as if they had been purchased separately: Office furniture: $75,000; Building: $320,000, Land: $36,000. Based on this information the amount of cost that would be allocated to office furniture is:
a.$31,323.
b.$65,255. (375/431*75000) allocation based on Relative FMV method(per pg 397)
c.$75,000.
d.$278,422.
e. $309,745
____ 11. Depreciation is the process of:
a. attempting to properly value an asset at its “fair market value”.
b. accounting for the estimated change in market value each period.
c. allocating the cost of an asset to expense over the period of its useful life.
d. evaluating the usefulness of an asset during each accounting period.
____ 12. The “Accumulated Depreciation” account is a:
a. retained earnings equity account.
b. contra-liability account.
c. contra-expense account.
d.contra-asset account. (i.e. a normal credit balance for this account)
____ 13. Hughes & Mills Company purchased equipment for $154,000. The equipment has an estimated useful life of 8 years and a salvage value of $6,000. What is the annual deprecation that will be taken on this equipment using the straight-line method?
a.$18,500([$154,000 - $6,000 salvage]/8 yrs = $18,500)
b.$19,250
c.$20,000
d.$29,600
e. $6,000
____ 14. Adebayo, Inc. purchased equipment for $154,000. The equipment has an estimated useful life of 8 years and a salvage value of $6,000. What is the second year depreciation expense to be recognized on this equipment using the Double-Declining Balance method?
a.$18,500
b.$28,875 Yr1=($154,000 * (1/8 * 200%)) = $38,500. Yr 2: 154,000-38,500 * 25%
c.$37,000
d.$38,500
e. $ 6,000
____ 15.Sutton & Ritchie Co. owned an asset that originally cost $24,000. The company
sold the asset on October 1, 2014 for $8,000 cash. Accumulated depreciation on the day
of sale amounted to $18,000. Based on this information, which of the following is true?
a.The company would recognize a $2,000 cash outflow in the operating activities
section of the Statement of Cash Flows.
b. The sale would result in a decrease in total net assets.
c. The sale will have no effect on the company’stotal net assets.
d. The sale would result in a $2,000 loss on the income statement.
e. The company would record an $8,000 cash inflow in the investing activities
section of the Statement of Cash Flows.
(For any asset sale, “build” your DR/CR journal entry to confirm the result)
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NOTE: Questions 16-21 are OPTIONAL (no points), but all questions presentedwithin this AQ#4 represent potential examination material.
____ 16. Zeigler Enterprises purchased a machine with an acquisition cost of $94,000 and a salvage value of $5,000. Assuming a five-year expected useful life, and the use of straight-line depreciation, what is the machine’s “depreciable”cost?
a.$99,000
b.$94,000
c.$90,000
d.$89,000
____ 17. Falcon Company purchased a machine for $92,000 that it plans to depreciate using the “Units of Production” method. The machine has a salvage value of $2,000 and a useful life of 5 years. Over the course of its estimated useful life, the machine is expected to produce 550,000 units of product. During Year 1, the machine produces 125,000 units of product. What is the annual depreciation expense for Year 1?
a.$20,909
b.$20,455($92,000-$2000) / 550,000units = .1636/unit *125,000units = $20,455
c.$18,010
d.$17,606
e. None of the above is within $100 of the correct answer.
____ 18. Freddie,Inc. purchased a machine on January 1, 2013 for $22,000 with $2,000 salvage value. Depreciation expense was determined to be $2,000 a year using straight-line. The machine was sold after three full years,on 12/31/15,for $17,000. The amount of the gain or loss reported on the companies’ 2015income statement would be:
a.$3,000 loss
b.$1,000 loss
c.$3,000 gain
d.$1,000 gain (Cost 22K - A/D $6K=$16K BV; $17K - 16K = $1K GAIN)
e. $17,000 gain
____ 19.If Frieda, Inc.owns a piece of equipment that cost $85,000, expects a salvage value of $4,000 and has total accumulated depreciation to date of $37,250, what is the Book Value (i.e. “Carry Value” or “Net Asset”) of the equipment?
a. $85,000
b. $51,750
c $47,750
d.$43,750
e. None of the above.
Salvage value is not a consideration when determining Book Value. In other words, what is the net asset as shown on the Balance Sheet? In more “other words”, what is the undepreciated (unallocated) amount of the asset? All answers would support choice “c”.
____ 20. Taxman, Inc. purchased office machinery on January 1, 2014 for $35,000.
The equipment has a 10-yearuseful life and a zero salvage value. The company uses
straight-line depreciation for financial accounting, but MACRS(5-year property class)
depreciation for taxaccounting purposes. Based on this information, which is true?
a.In the early years of the asset’s life, higher depreciation expense will be shown on the financial accounting income statement than on the tax return.
b.Taxes due per the tax return will be lower in the early years of the asset’s life because of the different depreciation charges. (See MACRS Handout & per class discussion)
c.Taxes due per the tax return will be higher in the early years of the asset’s life because of the different depreciation charges.
d.None of the above could ever occur, because the use of two different depreciation methods for the same asset is never allowed. (Yes it is!)
____ 21. Which of the following statements about goodwill is true?
a.The amount of goodwill is measured by subtracting the amount paid for identifiable assets from their fair market value on the purchase date.
b.The amount of goodwill is recorded as an asset.
c.Recording any “impairment” of goodwill reduces both the asset and the amount of net income. (See P8-35A posted solution)
d.All of the above.