Q&A Hero

Q: Tax accounting and financial accounting use the same depreciation calculations and there are no differences in the results between the two accounting systems.

Q: If a company produces the same number of units per period over an asset's useful life, each periods depreciation expense using the straight-line method will be the same as that recorded using the units-of-production method.

Q: Assuming no additions, replacements, or extraordinary repairs, the book value of a long-lived asset declines over time.

Q: The useful life of an asset is always measured in units of time, such as years or months.

Q: Accumulated Depreciation is classified as an expense.

Q: Depreciation is an allocation method, not a valuation method.

Q: Extraordinary repairs, replacements, and additions are added to the appropriate asset accounts rather than being recorded as expenses.

Q: When assets are purchased as a group, the total cost must be divided up and allocated to each asset in proportion to the market value of the assets as a whole.

Q: Long-lived assets found on a companys balance sheet may include some assets that have no physical substance.

Q: Choose the appropriate letter of the explanation to match the term. Not all explanations will be used. Term 1. _____ Long-lived assets 2. _____ Average net fixed assets 3. _____ Capitalization of cost 4. _____ Units-of-production method 5. _____ Carrying value 6. _____ Asset impairment loss 7. _____ Depreciation 8. _____ Net sales revenue 9. _____ Declining-balance method Explanation A. The average proportion of a company's total assets that is long-lived. B. A depreciation method that produces higher amounts of depreciation expense in the early years of an asset's life and lower amounts in the later years. C. The cost of financing an asset. D. Also known as book value. E. Assets that have physical substance. F. The denominator of the fixed asset turnover ratio. G. How expenses are reported in the income statement. H. A depreciation method that spreads asset cost by use rather than time. I. Assets that will be used for more than a year. J. The process of transferring the cost of long-lived tangible assets to expenses. K. When a company writes down the value of an asset when estimated future cash flows fall below the original level estimated. L. The numerator of the fixed asset turnover ratio. M. When costs are recorded as assets rather than expenses. N. When a company writes down the value of an asset because estimated future cash flows fall below the book value.

Q: Choose the letter of the appropriate definition to match the term. Not all definitions will be used. Term 1. _____ Amortization 2. _____ Useful life 3. _____ Licensing right 4. _____ Least and latest rule 5. _____ Component allocation 6. _____ Fixed asset turnover ratio 7. _____ Depreciable cost 9. _____ Depreciation schedule 10. _____ Revenue expenditures Definition A. Allocating the cost of tangible assets over their limited useful life. B. Costs that are recorded as revenues. C. Asset cost minus residual value. D. Net income divided by average total assets. E. Allocating the cost of intangible assets over their limited useful life. F. Asset cost minus accumulated depreciation. G. Costs that are expensed in the period incurred. H. Grants the exclusive right to sell or use a creative work. I. A cumulative record of depreciation expense, accumulated depreciation and book value. J. An estimate of how long a company will use a particular asset. K. Net sales revenue divided by average net fixed assets. L. The principle that companies wish to pay the lowest possible tax at the last possible time. M. A contractual agreement that allows limited permission for use of a property. N. An estimate of how long a tangible asset will last before it physically wears out. O. The method whereby different parts of an asset may be depreciated over different useful lives under IFRS. Answer:

Q: Choose the letter to of the appropriate definition to match each term. Not all definitions will be used. Term 1. _____ Accelerated depreciation 2. _____ Goodwill 3. _____ Patent 4. _____ EBITDA 5. _____ Net book value 6. _____ Fixed assets 7. _____ Straight-line depreciation 8. _____ Residual value 9. _____ Trademark Definition A. Names or images that appear with a or TM. B. A tax law dealing with how companies can depreciate their assets. C. An intangible asset that represents the value of unidentifiable assets acquired. D. Assets whose values do not change over time. E. When a company expenses the cost of a long-lived asset by a constant annual amount. F. The acquisition cost of an asset minus its accumulated depreciation. G. The estimated total use a company expects to receive from an asset. H. Net income plus interest, taxes, depreciation and amortization expenses. I. What a company expects to receive when an asset is disposed of at the end of its useful life. J. When a company expenses the entire cost of a long-lived asset in the first year of use. K. Tangible long-lived assets. L. When a company receives free publicity in return for charitable contributions. M. When a company allocates the cost of a long-lived asset at a higher rate in the first years of use. N. The exclusive right to sell or use a product or process that is granted to encourage innovation.

Q: Choose the letter of the appropriate category to match each asset described. Asset 1. ______ Warehouse 2. ______ Licensing rights 3. ______ Supplies 4. ______ Patents 5. ______ Production equipment 6. ______ Goodwill 7. ______ Land 8. ______ Office computer Category T Tangible long-lived asset I Intangible long-lived asset N Not a long-lived asset

Q: On January 1, 2016, Trueblood, Inc. purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of three years and a residual value of $3,000. Assume that units produced by the machine will total 16,000 during 2016, 23,000 during 2017, and 21,000 during 2018. Required: Part a. Use this information to complete the following table. Depreciation Expense Book Value at End of Year Method 2016 2017 2018 2016 2017 2018 Straight-line Units-of production Double- declining-balance Part b. On January 1, 2017, the machine was rebuilt at a cost of $7,000. After it was rebuilt, the total estimated life of the machine was increased to five years (from the original estimate of three years) and the residual value to $6,000 (from $3,000). Assume that the company chose the straight-line method for depreciation. Compute the annual depreciation expense after the change in estimates. Part c. Prepare the adjusting entry to record the depreciation expense for the year ended December 31, 2017. Part d. On December 31, 2018, the machine was sold for $7,500. Compute the book value on that date. Part e. Prepare the journal entry to record the sale.

Q: On January 1, 2016, Morris Minerals paid $300,000 for a mineral deposit in Morris, Illinois, and then spent $45,000 to develop the deposit for exploitation. It was estimated that 690,000 total cubic yards could be extracted economically. During 2016, 69,000 cubic yards of minerals were extracted; the minerals have not yet been sold. Required: Part a. Compute the amount of depletion expense for 2016. Part b. Prepare the journal entry to record the 2016 depletion.

Q: At December 31, 2017 and 2016, respectively, Tyler Industries reported land, buildings, and equipment totaling $5,655,000 and $2,152,000 along with Accumulated Depreciation of $1,000,000 and $600,000 on its balance sheets. Revenues amounted to $38,227,000 and $12,113,000 for 2017 and 2016, respectively. Required: Part a. Compute Tylers fixed asset turnover ratio for the year ended December 31, 2017. Part b. Assume that Tylers fixed asset turnover ratio increased from 2016 to 2017. How might an analyst interpret an increasing ratio? Part c. Alternatively, assume that Tylers fixed asset turnover rate decreased. Does a declining ratio always indicate a negative trend?

Q: During 2016, Ambiance Company reported net revenue of $3,600,000. The company reported net fixed assets of $710,000 on January 1, 2016 and net fixed assets of $890,000 on December 31, 2016. Required: Part a. Calculate the fixed asset turnover ratio. Part b. Assume the 2016 fixed asset turnover ratio was lower than the 2015 ratio. Explain how an analyst might interpret this change. Part c. Describe at least one circumstance that might have caused the fixed asset turnover ratio to decline and be consistent with bad news. Part d. Describe at least one circumstance that might have caused the fixed asset turnover ratio to decline and yet be consistent with good news.

Q: Martinez, Inc. acquired a patent on January 1, 2016 for $40,000 cash. The patent was estimated to have a useful life of 10 years with no residual value. On December 31, 2017, before any adjustments were recorded for the year, management determined that the remaining useful life was 6 years (with that new estimate being effective as of January 1, 2017). On June 30, 2018, the patent was sold for $25,000. Required: Part a. Prepare the journal entry to record the acquisition of the patent on January 1, 2016. Part b. Prepare the journal entry to record the annual amortization for 2016. Part c. Compute the amount of amortization that would be recorded in 2017. Part d. Determine the gain (loss) on sale on June 30, 2018. Part e. Prepare the journal entry to record the sale of the patent on June 30, 2018.

Q: The machine was originally purchased on January 1, 2016 for $40,000. The machine was estimated to have a useful life of 5 years and no residual value. The company uses straight-line depreciation. On December 31, 2017, the machine was sold for $25,000. Required: Part a. Determine the gain (loss) on disposal, if any. Part a. Prepare the journal entry to record the sale. Part b. Assuming that the company had used the double-declining balance method instead of the straight-line method, explain how this would this have affected the gain (or loss) on the sale. (Do not include any calculations.)

Q: During 2010, a company paid $1,200,000 to acquire a roller coaster. The estimated useful life of the roller coaster was estimated at ten years and its residual value was expected to be $200,000. As of December 31, 2015, Accumulated Depreciation in the amount of $500,000 had been recorded on the roller coaster. Management estimates that other amusement parks and scrap dealers would currently pay $600,000 for the roller coaster. Required: Part a. Determine the asset impairment loss, if any, on the roller coaster at December 31, 2015. Part b. Prepare the journal entry to record the asset impairment loss on this roller coaster as of December 31, 2015.

Q: A company paid $17,000 for a vehicle that had an estimated useful life of 4 years, total capacity of 100,000 miles, and a residual value of $1,000. After 2 full years of using the vehicle (20,000 miles in Year 1 and 27,000 miles in Year 2), the company sold the vehicle for $6,000 and reported a loss on disposal of $3,480. Required: Determine the method of depreciation that was used by the company. (Show your work using all three methods.)

Q: Sketches Inc. purchased a machine on January 1, 2016. The cost of the machine was $17,000. Its estimated residual value was $5,000 at the end of an estimated 5-year life. The company expects to produce a total of 20,000 units. The company produced 2,500 units in 2016 and 3,200 units in 2017.

Q: At the beginning of 2015, your company buys a $30,000 piece of equipment that it expects to use for 4 years. The equipment has an estimated residual value of $2,000. The company expects to produce a total of 200,000 units. Actual production is as follows: 44,000 units in 2015, 53,000 units in 2016, 51,000 units in 2017, and 52,000 units in 2018. Required: Part a. Determine the depreciable cost. Part b. Calculate the depreciation expense per year under the straight-line method. Part c. Use the straight-line method to prepare a depreciation schedule (that shows the Depreciation Expense, Accumulated Depreciation, and Net Book Value by year). Part d. Calculate the depreciation rate per unit under the units-of-production method. Part e. Use the units-of-production method to prepare a depreciation schedule (that shows the Depreciation Expense, Accumulated Depreciation, and Net Book Value by year).

Q: A company purchases property that includes land, buildings and equipment for $5.5 million. The company pays $180,000 in legal fees, $220,000 in commissions, and $100,000 in appraisal fees. The land is estimated at 25%, the buildings are at 40%, and the equipment at 35% of the property value. Required: Part a. Determine the total acquisition cost of this basket purchase. Part b. Allocate the total acquisition cost to the individual assets acquired. Part c. Prepare the journal entry to record the purchase assuming that the company paid 50% of the amounts using cash and signed a note (due in five years) for the remainder.

Q: On January 1, 2016, Coopers Industries bought a parcel of land for use in its operations by paying the seller $400,000 in cash and signing a five year, 12% note payable in the amount of $100,000. In connection with the purchase of the land, Coopers incurred legal fees of $19,000, a real estate agent sales commission of $25,000, surveying fees of $1,000, and an appraisal fee of $5,000. Required: Part a. Compute the total acquisition cost of the parcel of land. Part b. Prepare the journal entry to record the purchase of the parcel of the land.

Q: Complete the table below by placing Xs in the correct columns to identify the: (1) type of asset and (2) appropriate method of allocating the existing costs that were already recorded. Answer:

Q: A company made the following expenditures in connection with the construction of its new building: Architects fees for the new building $ 12,000 Cash paid for land and run-down building on the land 300,000 Removal of old building 18,000 Salvage from sale of old building materials 4,000 Construction survey to site the new building 1,500 Legal fees for title search 3,000 Excavation for basement construction 25,000 Machinery purchased for operations 100,000 Freight on machinery purchased 1,600 Construction costs of new building 1,000,000 Landscaping 20,000 Installation of machinery 2,500 Required: Prepare a schedule showing the amounts to be recorded as land, buildings, and machinery.

Q: A machine had an estimated useful life of 5 years, but after 3 years, it was decided that the original estimate of useful life should have been 10 years. At that point, the remaining cost to be depreciated should be allocated over the remaining: A) 2 years. B) 5 years. C) 7 years. D) 10 years.

Q: When estimated useful life of an asset is revised: A) depreciation will continue at the current rate. B) depreciation expense reported in previous years would be changed retroactively. C) the depreciation expense in subsequent years will be changed but previous calculations will not be changed. D) generally accepted accounting principles have been violated.

Q: Once the depreciation expense for a long-lived asset is calculated: A) it cannot be changed because of the cost principle. B) it may be revised based on new information. C) any changes are not recognized until the date the asset is sold. D) it cannot be changed due to the consistency principle.

Q: If net sales revenue rises 5% while the average book value of fixed assets falls 5%, the: A) fixed asset turnover ratio will rise. B) fixed asset turnover ratio will fall. C) fixed asset turnover ratio will stay the same. D) impact on the fixed asset turnover ratio cannot be determined since the beginning values are unknown.

Q: When a company records depletion on natural resources, it will have which of the following effects? A) Expenses increase B) Net income decreases C) Inventory increases D) Cash flow decreases

Q: The allocation method used for natural resources is similar to which of the following depreciation methods? A) Straight-line B) Units-of-production C) Double-declining balance D) MACRS

Q: A company purchased land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The residual value of the land is estimated to be $250,000. What is the amount of depletion per ton of ore? A) $0.75 B) $0.875 C) $1.14 D) $0.625

Q: EBITDA is equal to which of the following? A) Net income Interest expense Income tax expense Depreciation expense Amortization expense B) Net income + Interest expense + Income tax expense + Depreciation expense + Amortization Expense C) Operating income Interest expense Income tax expense D) Operating income + Depreciation expense + Amortization expense

Q: Company A uses an accelerated depreciation method while Company B uses the straight-line method. All other things being equal, during the first few years of the asset's use, Company B will show which of the following compared to Company A? A) A smaller fixed asset turnover ratio and a smaller gain on asset disposal B) A larger fixed asset turnover ratio and a larger gain on asset disposal C) A smaller fixed asset turnover ratio and a larger gain on asset disposal D) A larger fixed asset turnover ratio and a smaller gain on asset disposal

Q: Companies with the same asset may report different amounts of depreciation in a given year for all of the following reasons, except: A) They use different residual values. B) They use different estimated useful lives. C) They use different depreciation methods. D) They are in different industries.

Q: Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life. Other things being equal, which of the following is correct? A) Company A will have higher net income in the early years, but Company B will have higher net income towards the end of the asset's useful life. B) Company A will consistently have the larger net income until residual value is reached. C) Company B will have higher net income in the early years, but Company A will have higher net income towards the end of the asset's useful life. D) Company B will consistently have the larger net income until residual value is reached.

Q: Company A uses an accelerated depreciation method while Company B uses the straight-line method for an asset of the same cost and useful life. Which of the following statements is correct? A) Company A will have higher depreciation expense in the early years, but Company B will have the higher expense towards the end of the asset's useful life. B) Company A will consistently have higher depreciation expense until residual value is reached. C) Company B will have higher depreciation expense in the early years, but Company A will have the higher expense towards the end of the asset's useful life. D) Company B will consistently have higher depreciation expense until residual value is reached.

Q: Company A uses an accelerated depreciation method while Company B uses the straight-line method. All other things being equal, during the first few years of the asset's use, Company A will show which of the following compared to Company B? A) Higher asset values and higher net income B) Lower asset values and higher net income C) Higher asset values and lower net income D) Lower asset values and lower net income

Q: Assuming two companies use the same accounting methods, other things being equal, the company with a higher fixed asset turnover ratio: A) has a greater amount invested in fixed assets than a company with a lower fixed asset turnover ratio. B) has less invested in fixed assets than a company with a lower fixed asset turnover ratio. C) generates less sales revenue than a company with a lower fixed asset turnover ratio. D) makes better use of its fixed assets to generate revenues than a company with a lower fixed asset turnover ratio.

Q: A fixed asset turnover ratio of 4.3 indicates that for every: A) $1 in sales revenue, the firm acquired $4.30 of assets. B) $1 in fixed assets, the firm earned $4.30 of net income. C) $1 in assets, the firm paid $4.30 of expenses. D) $1 in fixed assets, the firm generated $4.30 of net sales.

Q: If net sales revenue and the average book value of fixed assets both rise 5%: A) the fixed asset turnover ratio will rise. B) the fixed asset turnover ratio will fall. C) the fixed asset turnover ratio will stay the same. D) the impact on the fixed asset turnover ratio cannot be determined since the beginning values are unknown.

Q: Assume that, prior to preparing adjusting entries at the end of the year, Caterpillar Corporation has a fixed asset turnover ratio of 3.4 based on average net fixed assets of $500,000,000. Which of the following year-end adjustments would cause Caterpillar's fixed asset turnover ratio to increase? A) Caterpillar accrues and capitalizes $50,000 for self-constructed assets. B) Caterpillar accrues a liability for ordinary repair costs in the amount of $50,000. C) Caterpillar writes down an impaired piece of equipment by $50,000. D) Caterpillar increases the sales returns & allowances by $50,000.

Q: Factoring refers to an arrangement in which a company sells its receivables to another company and receives cash immediately.

Q: If the receivables turnover ratio rises significantly, the increase may be a signal that the company is extending credit to high-risk borrowers or allowing an overly generous repayment schedule.

Q: The receivables turnover ratio is calculated using the total net receivables.

Q: The allowance method for uncollectible accounts is used for accounts receivable, but not for notes receivable.

Q: Interest revenue from notes receivable is typically reported on a multiple step income statement as a part of Income from Operations.

Q: Interest on a two-month, 7%, $1,000 note would be calculated as $1,000 0.07 2.

Q: The direct write-off method for uncollectible accounts is not allowed by either GAAP or IFRS, but is required by the Internal Revenue Service (IRS) for tax purposes.

Q: The direct write-off method for uncollectible accounts is not allowed by GAAP because it overstates the net realizable value of accounts receivable and violates the expense recognition principle.

Q: Because it is easier to use, the direct write-off method for uncollectible accounts is typically used instead of the allowance method.

Q: The aging of accounts receivable method is based upon the principle that the longer an account is overdue, the higher the risk of nonpayment.

Q: The percentage of credit sales method focuses on estimating the ending balance to be reported in the Allowance for Doubtful Account, whereas the aging of accounts receivable method focuses on estimating Bad Debt Expense for the period.

Q: Under the allowance method for uncollectible accounts, the write-off of a specific account will not affect total assets.

Q: The accounts receivable account for each customer is called a subsidiary account.

Q: The Allowance for Doubtful Accounts account is a temporary account which is closed to Retained Earnings at the end of the accounting period.

Q: The allowance method for uncollectible accounts conforms to the expense recognition principle.

Q: Notes receivable are typically only used when a company sells large dollar value items (such as cars).

Q: The decision to sell to extend credit to customers will decrease wage costs.

Q: When a company routinely sells on credit, it is inevitable that some of its customers will not pay the amount owed.

Q: Match the term and its definition. There are more definitions than terms. Terms ____ 1. Net Sales Revenue ____ 2. Allowance Method ____ 3. Notes Receivable ____ 4. Accounts Receivable ____ 5. Average Net Receivables ____ 6. Subsidiary Account ____ 7. Historical Percentage of Bad Debt Losses ____ 8. Annual Interest Rate Definitions A. The amount of interest a lender receives during a year. B. A system used by companies to allocate their budgets over the different operating expenses. C. The numerator of the receivables turnover ratio. D. A separate record for each accounts receivable customer. E. Used by the percentage of credit sales method to estimate bad debts. F. Another name for a company's total revenue, which is calculated by multiplying the quantity sold by the average price. G. The costs of maintaining accounts with customers who have not made recent purchases. H. The interest that a company receives during the year divided by the principal of the loan. I. The rate at which a company pays off its liabilities or debts. J. The total amount of money loaned through notes that the lender has not yet collected. K. The denominator of the receivables turnover ratio. L. The average level of net sales revenue the firm earns each month. M. An accounting method which involves estimating bad debts. N. The portion of past credit sales that have not yet been collected.

Q: Match the term and its definition. There are more definitions than terms. Terms ____ 1. Promissory Note ____ 2. Net Accounts Receivable ____ 3. Bad Debt Expense ____ 4. Maturity Date ____ 5. Days to Collect ____ 6. Accounts Receivable ____ 7. Allowance For Doubtful Accounts ____ 8. Receivables Turnover Definitions A. The time at which a loan must be repaid. B. A financial statement that shows the calculation of Bad Debt Expense for a company. C. Total money owed the company for sales made on credit. D. Net credit sales revenue divided by the net income. E. An agreement by a borrower to repay the lending company with interest during a specified time period. F. The time at which a borrower must make annual interest payments. G. A contra-asset account. H. The days of the year divided by the receivables turnover ratio. I. The portion of Accounts Receivable that the company expects to collect. J. An account that is debited for the amount of credit sales estimated as uncollectible. K. Net credit sales revenue divided by the average net receivables. L. The days of the year divided by the net sales revenue.

Q: Match the term and its definition. There are more definitions than terms. Terms ____ 1. Net Realizable Value ____ 2. Percentage of Credit Sales Method ____ 3. Allowance for Doubtful Accounts ____ 4. Principal ____ 5. Write-Off ____ 6. Aging of Accounts Receivable ____ 7. Credit Terms ____ 8. Factoring Definitions A. How much money you can expect to earn over a period of time selling your goods. B. The length of the credit period and any discounts offered for prompt payment. C. A method of estimating uncollectible debts by forecasting the probability of not collecting late accounts. D. Selling accounts receivable to another company for immediate cash. E. The account in which the estimated amount of accounts receivable expected to be uncollectible is recorded. F. Also known as net accounts receivable. G. A method of estimating uncollectible debts by looking at the historical average of credit sales not collected. H. The amount of money lent. I. Credit that a company receives when one good is exchanged for another. J. The interest earned by money over a period of time. K. When a company increases the amount of accounts receivable by adding the interest earned as accounts age without being collected. L. The process of removing specific customers accounts deemed uncollectible.

Q: Welles Company uses the direct write-off method of accounting for uncollectible accounts receivable. On December 6, 2015, Welles sold $6,300 of merchandise to the Fleming Company. On August 8, 2016, after numerous attempts to collect the account, Welles determined that the $6,300 account of the Fleming Company was uncollectible. Required: Part a. Prepare the general journal entries required to record the transactions on August 8, 2016. Part b. Assuming that the $6,300 is material, explain how the direct write-off method violates the matching principle in this case.

Q: Geisel, Inc. reported net sales revenue of $600,000 in 2015 and $500,000 in 2016. The companys average net receivables were $120,000 during 2014 and $130,000 during 2015. At December 31, 2016, the company had Accounts Receivable of $148,000 and an unadjusted debit balance in its Allowance for Doubtful Accounts account of $1,000. The company reported Bad Debt Expense of $6,000 during 2015. Required: Part a. Determine the net receivables at December 31, 2016. Part b. Calculate the receivables turnover ratio for 2015 and 2016. (Round each calculation to one decimal place). Part c. Calculate the days to collect for 2015 and 2016. (Round each calculation to one decimal place). Part d. Interpret the results of this analysis. Part e. Identify possible reasons for the changes in these two ratios from 2015 to 2016.

Q: The selected financial information set forth below was summarized from the most recent income statements and balance sheets of the Pixel Company. Year 1 Year 2 Year 3 For the year ended: Net sales revenue $201,724,000 $ 262,498,000 $ 273,472,000 Cost of goods sold 41,534,000 38,058,000 29,881,000 Net income 89,950,000 124,768,000 141,722,000 As of the end of the year : Net receivables 1,178,000 2,152,000 $5,581,000 Total assets 732,066,000 1,002,056,000 1,275,037,000 Required: Part a. Determine the companys receivables turnover during Years 2 and 3. Part b. Determine the companys days to collect during Years 2 and 3. Part c. Interpret the results of this analysis.

Q: Indicate whether each of the following items is a characteristic of the allowance method and/or the direct write-off method by placing an X in the appropriate column. If an item is a characteristic of both methods, place an X in both columns. Allowance Method Direct Write-off Method a. Conforms to the expense recognition (matching) principle. b. Not used very often for external financial reporting. c. Required for tax purposes. d. Required by IFRS. e. Reports receivables at their net realizable value. f. May overstate assets. g. Distorts net income in the period of the sale as well as in later periods when bad debts are discovered. h. Estimates amount of uncollectibles using percentage of net sales or an aging of receivables. i. Bad Debt Expense is debited when the company estimates its uncollectible accounts. j. Requires an adjusting entry that uses a contra account. k. Accounts Receivable is credited when a customer account is written off. l. Bad Debt Expense is debited when a customer account is written off. m. The write off of a customers account affects only balance sheet accounts. n. Decreases net income when an uncollectible account is written off. n. Not considered a generally accepted accounting method.

Q: Consider the scenarios listed in the table below. Required: For each scenario below, indicate related impact on revenues, expenses, and net income in the current period by answering increase, decrease, or no effect. Scenario Revenue Expenses Net Income a. A customer makes a payment on account. b. A company uses the aging of accounts receivable method to estimate Bad Debt Expense in an adjusting entry. c. A company that uses the allowance method writes off 10% more in uncollectible accounts than expected. d. A company recovers an account previously written off. e. A company receives a note from a customer to settle an unpaid accounts receivable owed by that customer. f. Interest accrues on notes receivable but payment has not yet been made. g. A company collects the interest due on a note at maturity.

Q: Consider each of the following transactions. Required: Indicate how each transaction will affect the elements of the accounting equation by answering increase, decrease, or no effect. Assets Liabilities Stockholders Equity a. The company uses the direct write-off method and writes off specific receivables that have been identified as uncollectible. b. The company uses the allowance method and records the Bad Debt Expense for the year in an adjusting entry. c. The company receives a one-year promissory note from a customer in payment of his account because he needs additional time to pay. d. The company receives a payment from a different customer on her account; the account had been previously written off as worthless. e. The company accrues interest earned on the note received in (c) in an adjusting entry.

Q: The Dubious Company operates in an industry where all sales are made on account. The company has experienced bad debt losses of 1% of credit sales in prior periods. Presented below is the company's forecast of sales and expenses over the next three years. Year 1 Year 2 Year 3 Sales Revenue $368,000 $374,000 $373,000 Bad Debt Expense Unknown Unknown Unknown Other Expenses 340,000 342,000 342,750 Net Income Unknown Unknown Unknown Required: Part a. Calculate Bad Debt Expense and net income for each of the three years, assuming uncollectible accounts are estimated as 1.0% of sales. Part b. Briefly describe the trend in net income changes from Year 1 to Year 2 and from Year 2 to Year 3. Part c. Assume that the company changes its estimate of uncollectible credit sales to 1.0% in Year 1, 2.0% in Year 2 and 1.5% in Year 3. Calculate the Bad Debt Expense and net income for each of the three years under this alternative scenario. Part d. Briefly describe the trend in net income changes determined in requirement c from Year 1 to Year 2 and Year 2 to Year 3. Part e. Explain some of the factors that might cause the estimate of uncollectible accounts to vary from year to year (as in the assumption set forth in part c above).

Q: The following summarizes the aging of accounts receivable for Johnston Supplies, Inc. as of July 31, 2016: Number of Days Unpaid Total Accounts Receivable Historical % Uncollectible Not yet due $126,500 2% 1-30 days past due 89,200 12% 31-60 days past due 53,600 18% Over 60 days past due 31,800 35% Required: Part a. The unadjusted balance of the Allowance for Doubtful Accounts of Johnston Supplies, Inc. is a credit balance in the amount of $28,947 on July 31, 2016. Prepare the required adjusting entry to record Bad Debt Expense for the year. Part b. Johnston Supplies, Inc. writes off $3,081 of uncollectible accounts during on August 15, 2016. Prepare the required adjusting entry to record the write-off. Part c. Use a T-account to determine the account balance in the Allowance for Doubtful Accounts on August 15, 2016.

Q: Cairo Co. uses the allowance method of accounting for uncollectible accounts. Cairo Co. accepted a $5,000, 12%, 3-month note dated May 16, from Alexandria Co. in exchange for its past-due account receivable. Required: Part a. Prepare the journal entry for the receipt of the note on May 16. Part b. Prepare the journal entries for (1) the receipt of interest and (2) the receipt of the principal balance at maturity on August 14. Part c. Assume that Alexandria made the interest payment but not the principal payment on August 14. On November 30, Cairo writes off the note when it becomes clear that Alexandria will never pay. Prepare the journal entry to write-off the note receivable.

Q: Samberg Inc. had the following transactions. Oct. 1 Sold $10,000 of merchandise on account, 1/10, n/30 to McCormick Industries. Nov. 1 Received a $10,000, 90-day, 10% note from McCormick Industries to settle its $10,000 unpaid balance. Dec. 31 Accrued interest on the note. (Round to the nearest whole dollar amount.) Jan. 31 Received the interest on the notes maturity date. Jan. 31 Received the principal on the notes maturity date. (Round to the nearest whole dollar amount.) Required: Prepare the required journal entries.

Q: At December 31, 2016, a companys records include the following: Net Sales (all on credit) $750,000 Accounts Receivable at December 31 225,000 Write-offs of Accounts Receivable during the year 7,100 Credit balance in Allowance for Doubtful Accounts at January 1, 2016 8,500 Required: Part a. The company estimates bad debts as 1.3% of credit sales. Prepare the required adjusting entry to record Bad Debt Expense for the year. Part b. Assume instead that the company uses the aging of receivables method. Its aging analysis reveals that the estimate of uncollectible receivables is $11,250. Prepare the required adjusting entry to record Bad Debt Expense for the year. Part c. Assume instead that the company estimates that its Bad Debt Expense for the year is $8,250. Use a T-account to determine the adjusted balance in the Allowance for Doubtful Accounts.

Q: Starseekers, Inc. began the year with a $4,800 normal balance in Accounts Receivable and a credit balance in its Allowance for Doubtful Accounts of $546. Starseekers sales were all on account and amounted to $41,800 during the year. Collections from customers amounted to $40,600 and the company wrote-off customer account balances totaling $500 during the year. Required: Part a. Using T-accounts, determine how much Starseekers customers owe the company at year-end and the unadjusted balance in its Allowance for Doubtful Accounts account. Part b. The company currently uses the percentage of credit sales method for determining its Bad Debt Expense. Historically, bad debts have approximated 3% of credit sales. Prepare the related adjusting entry and, using a T-account, determine the ending balance in the Allowance for Doubtful Accounts account. Part c. Assume instead that the company uses the aging of accounts receivable method. This method resulted in an estimate of uncollectible accounts of $1,105. Prepare the related adjusting entry and, using a T-account, determine the ending balance in the Allowance for Doubtful Accounts account.

Q: Each December 31, Davis Company prepares an aging analysis of its accounts receivable to determine the amount of its adjustment for bad debts. At the end of the current year, management estimated that $16,900 of the accounts receivable balances would be uncollectible. The Allowance for Doubtful Accounts account had a debit balance of $3,200 before any year-end adjustment for bad debts. Required: Prepare the adjusting journal entry that Davis Company should make on December 31 of the current year to estimate Bad Debt Expense.

Q: Adventure Company uses the aging of accounts receivable method to estimate Bad Debt Expense. The balance of each account receivable is aged on the basis of three categories as follows: (1) 1-30 days old, (2) 30-90 days old, and (3) more than 90 days old. Based on experience, management has estimated what portion of receivables of a specific age will not be paid as follows: (1) 1%, (2) 15%, and (3) 40%, respectively. At December 31, 2016, the unadjusted credit balance in the Allowance for Doubtful Accounts was $100. The total Accounts Receivable in each age category were: (1) 1-30 days old, $65,000, (2) 30-90 days old, $10,000, and (3) more than 90 days old, $4,000. Required: Part a. Calculate the estimate of uncollectible accounts at December 31, 2016. Part b. Prepare the appropriate adjusting entry dated December 31, 2016.

Q: A company that uses the allowance method to account for its bad debts had credit sales of $740,000 in 2015, including a $720 sale to Arbor Corporation. On December 31, 2015, the company estimated its bad debts at 1.5% of its credit sales. On June 1, 2016, the company wrote off as uncollectible the $720 account of Arbor Corporation; and on December 21, 2016, Arbor Corporation unexpectedly paid her account in full. Required: Prepare the necessary journal entries dated: (a) on December 31, 2015, to reflect the estimate of Bad Debt Expense; (b) on June 1, 2016, to write off the bad debt; and (c) on December 21, 2016, to record the unexpected collection.