Q&A Hero

Q: # Copyright 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. 7-86

Q: _______________ refers to the expected proceeds from converting an asset into cash.

Q: Felton Corporation purchased $4,000 in merchandise from Marita Co. Felton signed a 60-day, 10%, $4,000 promissory note. Marita should record the sale with a journal entry debiting ____________________ for $ ________ and crediting __________________ for $ ________.

Q: The ________________________ methods of computing uncollectible accounts use balance sheet relations to estimate bad debtsmainly the relation between accounts receivable and the allowance amount.

Q: The _________________________ method of computing uncollectible accounts uses income statement relationships to estimate bad debts and is based on the idea that a given percent of a company's credit sales for a period are uncollectible.

Q: ____________________________ are amounts owed by customers from credit sales where payment is required in periodic amounts over an extended time period.

Q: The_________________ method of accounting for bad debts records the loss from an uncollectible account receivable at the time it is determined to be uncollectible (and not before).

Q: ____________________ is the charge for using borrowed money until its due date.

Q: A ____________________ is a signed agreement to pay a specified amount of money either on demand or at a definite future date.

Q: White Company allows customers to make purchases on credit. The terms of all credit sales are 2/10, n/30, and all sales are recorded at the gross price. Other customers can use a bank credit card where the bank deducts a 4% service charge for credit card sales and credits the bank account of White immediately when credit card receipts are deposited. White uses the perpetual inventory method. Prepare journal entries to record the following selected transactions and events. June 4 Sold $12,000 of merchandise (cost $7,000) on credit to Grant. 6 Sold $17,000 of merchandise (cost $9,350) to customers who used a bank credit card, receipts were processed and deposited the same day. 8 Sold $8,500 of merchandise (cost $4,500) on credit to Emma Company. 10 Accepted a $6,700, 45-day, 6% note dated this day in granting Cory Tam a time extension on his past-due account receivable. 12 Received Grant's check in full payment of the purchase on June 4. 15 Wrote off the account of Z. Westmore against the Allowance for Doubtful Accounts. The $1,580 balance stemmed from a credit sale in January. 20 Accepted a $6,240, 30-day, 10% note dates this day in granting F. Potter a time extension on his past-due account receivable. July 17 Received the amount previously written-off from Z. Westmore. 20 F. Potter dishonored his note when presented for payment. 25 Received payment of principal plus interest from Cory Tam.

Q: At December 31, Yarrow Company reports the following results for its calendar year from the adjusted trial balance. Credit sales $2,300,000 Cash sales 1,050,000 Accounts Receivable 295,000 Allowance for doubtful accounts (credit balance) 750 a. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 1.1% of credit sales. b. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be .8% of total sales. c. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 7.0% of year-end accounts receivable.

Q: On May 31, Cray has $375,800 of accounts receivable. Cray uses the allowance method of accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of $14,250. 1)Prepare journal entries to record the following selected May transactions. The company uses the perpetual inventory system. 2)Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its May 31 balance sheet. a. Sold $415,200 of merchandise (that cost $249,000) to customers on credit. b. Received $465,800 cash in payment of accounts receivable. c. Wrote off $15,800 of uncollectible accounts receivable. d. In adjusting the accounts on May 31, its fiscal year-end, the company estimated that 4.0% of accounts receivable will be uncollectible.

Q: Bonita Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis. Days Past Due Total Current 1 to 30 31 to 60 61 to 90 Over 90 Accounts receivable $110,000 68,000 17,000 10,000 8,000 7,000 Percent uncollectible 1% 2% 5% 8% 13% a. Estimate the balance of the Allowance for Doubtful Accounts using the aging of accounts receivable method. b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $550 credit. c. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $300 debit.

Q: On September 30, Waldon Co. has $540,250 of accounts receivable. Waldon uses the allowance method of accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of $13,750. 1) Prepare journal entries to record the following selected October transactions. The company uses the perpetual inventory system. 2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its October 31 balance sheet. a. Sold $305,000 of merchandise (that cost $178,500) to customers on credit. b. Received $395,100 cash in payment of accounts receivable. c. Wrote off $15,700 of uncollectible accounts receivable. d. In adjusting the accounts on October 31, its fiscal year-end, the company estimated that 4.0% of accounts receivable will be uncollectible.

Q: On July 31, Orwell Co. has $448,800 of accounts receivable. Required: 1) Prepare journal entries to record the following selected August transactions. The company uses the perpetual inventory system. 2)Also prepare any footnotes to the August 31 financial statements that result from these transactions. 3)Calculate the balance in the Accounts Receivable account as of August 10. Aug 3 Sold $250,000 of merchandise (that cost $122,000) to customers on credit. Aug 5 Sold $300,000 of accounts receivable to Cash Solutions. Cash Solutions charges a 7% factoring fee. Aug 8 Received $165,200 from customers in payment on their accounts. Aug 9 Borrowed $50,000 cash from State Bank, pledging $65,000 of accounts receivable as security for the loan. The note is a 90-day, 9% note.

Q: The following data are taken from the comparative balance sheets of Grayling Company. Compute and interpret its accounts receivable turnover for Year 2. Competitors average a turnover of 7.5. How is the company doing in relation to its competitors? Year 2 Year 1 Accounts receivable, net 180,230 220,450 Net sales 1,500,750 1,495,600

Q: The following information is available for the Topper Company for the month of July. a. On July 31, after all transactions have been recorded, the balance in the company's Cash account has a balance of $15,244. b. The company's bank statement shows a balance on July of $16,450. c. Outstanding checks at July total $2,063. d. A credit memo included with the bank statement indicates that the bank collected $570 on a note receivable for Topper. The $570 includes $550 principle and $20 interest. e. A debit memo included with the bank statement shows a $107 NSF check from a customer, P. Flank. f. A deposit placed in the bank's night depository on July 31 totaling $1,275 did not appear on the bank statement. h. Included with the bank statement was a debit memorandum in the amount of $45 for check printing charges that have not been recorded on the company's books. Prepare the July bank reconciliation for the Topper Company.

Q: The following information is available for the Savvy Company for the month of June. a. On June 30, after all transactions have been recorded, the balance in the company's Cash account has a balance of $17,202. b. The company's bank statement shows a balance on June 30 of $19,279. c. Outstanding checks at June 30 total $2,984. d. A credit memo included with the bank statement indicates that the bank collected $770 on a noninterest-bearing note receivable for Savvy. e. A debit memo included with the bank statement shows a $67 NSF check from a customer, J. Maroon. f. A deposit placed in the bank's night depository on June 30 totaling $1,675 did not appear on the bank statement. g. Comparing the checks on the bank statement with the entries in the accounting records reveals that check #3445 for the payment of an account payable was correctly written for $2,450, but was recorded in the accounting records as $2,540. h. Included with the bank statement was a debit memorandum in the amount of $25 for bank service charges. It has not been recorded on the company's books. 1) Prepare the June bank reconciliation for the Savvy Company. 2) Prepare the general journal entries to bring the company's book balance of cash into conformity with the reconciled balance as of June 30.

Q: Given each of the following errors, indicate on the table below the amount by which the trial balance will be out of balance and which trial balance column (debit or credit) will have the larger total as a result of the error.a. $100 debit to Cash was debited to the Cash account twice.b. $1,900 credit to Sales was posted as a $190 credit.c. $5,000 debit to Office Equipment was debited to Office Supplies.d. $625 debit to Prepaid Insurance was posted as a $62.50 debit.e. $520 credit to Accounts Payable was not posted.ErrorAmount Outof Balance Column Having Larger Totala. b. c. d. e.

Q: Mary Sunny began business as Sunny Law Firm, Inc. on November 1. Record the following November transactions by making entries directly to the T-accounts provided. Then, prepare a trial balance, as of November 30.a) Mary invested $15,000 cash and a law library valued at $6,000.b) Purchased $7,500 of office equipment from John Bronx on credit.c) Completed legal work for a client and received $1,500 cash in full payment.d) Paid John Bronx. $3,500 cash in partial settlement of the amount owed.e) Completed $4,000 of legal work for a client on credit.f) The company paid $2,000 cash in dividends to the owner. (sole shareholder)g) Received $2,500 cash as partial payment for the legal work completed for the client in (e).h) Paid $2,500 cash for the legal secretary's salary.

Q: Cannon Company has the following information for the year ending December 31, 2012: Short-term debt of $18,000 was issued for cash. Cash paid for labor during 2012 amounted to $489,500. During the year, Cannon experienced a pension outflow of $14,000. Dividends of $34,000 were received. Cannon's cash balance at the beginning of 2012 was $975,000. The company made an investment of $310,000 in an affiliate company. A lease payment of $110,000 was made on November 1, 2012. During the year, Cannon collected $780,000 cash from customers. Cash paid for income taxes amounted to $56,000 for all of 2012. During 2012, Cannon discontinued its consumer electronics division resulting in a $12,000 net cash inflow. Required:

Q: The following Income Statement and Operating Cash Flow information pertain to Receivership Inc.'s operations for the year ended December 31, 2011. Required: 1. Prepare the net cash flow from operating activities section of the cash flow statement using the direct method.

Q: Additional Information for 2012: Net income was $480,000 and dividends of $400,000 were declared. Common stock was issued for cash. A Long-term investment was sold for $160,000. A new Long-term investment was acquired for $360,000. Equipment that cost $600,000 was sold for $200,000. The book value of those assets was $150,000. The following information and financial statements excerpts pertain to Liquidity Inc. a. All short term investments (securities available for sale) were purchased on 12/31/11 and sold during 2012. b. The company entered a lease agreement on 12/31/12. c. Fixed assets with a net book value of $15 were sold during the year. d. The company repaid the current portion of long-term debt during the year. e. Dividend was declared and partially paid. Required: 1. Prepare the statement of cash flows for the year 2012 using the direct method. 2. Reconcile net income and net cash flows from operating activities for the year 2012.

Q: The following information was obtained from the Warrior Corporation's financial statements for the year ending December 31, 2012: Bonds with a maturity value of $600,000 were issued for cash. The premium on bonds payable account increased $12,500 during the year. Bond interest expense was $30,500. There was $500 of amortization of premium on newly issued bonds payable. Retained earnings increased $119,300 during the year. A 5% common stock dividend resulted in 5,000 shares of $5 par value common stock being issued at a time when the market price per share was $17. Common stock was sold in exchange for cash. The common stock account increased $70,000 during the year. The additional paid-in capital account increased $210,000 during the year. Net income for the year was $217,400. Required: Determine the cash flow from financing activities for the year ending December 31, 2012.

Q: The Capitals Company has provided you the following information pertaining to the year ending December 31, 2012: Equipment costing $25,000 was acquired in exchange for common stock. Equipment with an original cost of $57,500 and a book value of $5,000 was scrapped. Equipment was purchased in exchange for cash. Equipment with a book value of $39,000 was sold resulting in a $14,000 gain. The accumulated depreciation at the time of the sale was $67,000. Required: 1. Determine the cash paid for equipment purchases during 2012. 2. Determine the depreciation expense for 2012.

Q: The Hurricane Company provided the following information for the year ended December 31, 2012: Required: 1. Determine the cash paid for interest during 2012. 2. Determine the cash paid for income taxes during 2012.

Q: The Gopher Company's transactions during 2012 included the following: Paid cash dividends totaling $1,200,000. Paid $900,000 cash toward a long-term note payable. Issued common stock in exchange for a building valued at $750,000. Issued bonds with a maturity value of $2,000,000 in exchange for $1,950,000 cash. Paid $50,000 cash for bond interest. $2,250 of bond discount amortization was recorded. Issued preferred stock for $250,000 cash. A long-term stock investment with a book value of $79,000 was sold for $123,000 cash. Sold equipment for cash; the equipment's book value at the time of sale was $90,000 and the sale resulted in a $15,000 loss. Required: 1. Determine the net cash flow from investing activities for 2012. 2. Determine the net cash flow from financing activities for 2012.

Q: The Bears Corporation has provided you the following information: The accounts receivable balance increased $50,000. Net sales was $500,000. The gross profit was 40% of net sales. The inventory account increased $45,000. The accounts payable balance decreased $17,000. $7,500 of accounts receivable were written off. The bad debt expense was $10,000. Required: 1. Determine the cash collected from customers. 2. Determine the cash paid to suppliers.

Q: The Black Corporation has provided the following information: Net income: $560,000 Increase in prepaid expenses: $14,000 Amortization of discount on bonds payable: $10,000 Decrease in accounts payable: $20,000 Increase in inventory: $21,000 Dividends declared: $39,000 Dividends paid: $36,000 Increase in accounts receivable: $30,000 Increase in wages payable: $16,000 Increase in deferred tax liability: $41,000 Required: Determine the cash flow from operating activities.

Q: During 2012, United sold equipment costing $30,000 for $12,000 and made several purchases of new equipment for cash. Under the indirect method, a loss on the sale of equipment should be A. added back to net income to arrive at cash flow from operating activities. B. subtracted from net income to arrive at cash flow from operating activities. C. a source of funds in the financing activities. D. a source of funds in the investing activities.

Q: Under the indirect method, the gain on sale of equipment should be A. added back to net income to arrive at cash flow from operating activities. B. subtracted from net income to arrive at cash flow from operating activities. C. a source of funds in the financing activities. D. a source of funds in the investing activities.

Q: For a firm using the indirect method, which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities? A. An increase in wages payable will be added to net income. B. A decrease in accrued interest payable will be deducted from net income. C. Amortization of bond discount will be added to net income. D. Patent amortization expense will be deducted from net income.

Q: Which of the following statements does not correctly describe an adjustment to net income when determining cash flows from operating activities when using the indirect method? A. A decrease in accounts receivable will be added to net income. B. An increase in inventory will be added to net income. C. An increase in accounts payable will be added to net income. D. Amortization of bond premium will be deducted from net income.

Q: The amount reported as net cash provided by financing activities is A. $25,000. B. $30,000. C. $150,000. D. $200,000.

Q: The amount reported as net cash provided by investing activities is A. $25,000. B. $50,000. C. $275,000. D. $300,000.

Q: An increase in accounts receivable of $6,000 for the year A. decreases cash flow from operations by $3,000. B. increases cash flow from operations by $3,000. C. decreases cash flow from operations by $6,000. D. increases cash flow from operations by $6,000.

Q: A decrease in prepaid expenses of $8,000 for the year A. decreases cash flow from operating activities by $8,000. B. increases cash flow from operating activities by $8,000. C. decreases cash flow from operating activities by $16,000. D. increases cash flow from operating activities by $16,000.

Q: An increase in inventory of $7,000 for the year A. decreases cash flow from operating activities by $7,000. B. increases cash from operating activities by $7,000. C. decreases cash flow from operating activities by $14,000. D. increases cash flow from operating activities by $14,000.

Q: A decrease in accounts receivable of $16,000 for the year A. decreases cash flow from operating activities by $8,000. B. increases cash flow from operating activities by $8,000. C. decreases cash flow from operating activities by $16,000. D. increases cash flow from operating activities by $16,000.

Q: Pipe Corporation reported cost of goods sold of $250,000 for 2012. It also reported an increase in inventory for the year of $30,000, and an increase in accounts payable of $24,000. Pipe would report cash paid to suppliers in 2012 under the direct method for cash flows of A. $250,000. B. $256,000. C. $280,000. D. $304,000.

Q: Bruce Company reported net income for 2012 of $100,000. The company reported depreciation expense of $17,500 and amortization of $5,000. The company also reported a loss on the sale of equipment of $2,500. Based only on this information, the company would report cash flow from operating activities of A. $117,500. B. $120,000. C. $127,500. D. $125,000.

Q: The amount reported as net cash from financing activities is A. $(25,000). B. $30,000. C. $75,000. D. $80,000.

Q: The amount reported as net cash from investing activities is A. $(175,000). B. $(150,000). C. $87,500. D. $575,000.

Q: The FASB decided that the allocation of income taxes paid to operating, financing, and investing activities would be complex and arbitrary, and relied on which one of the following justifications for its decision? A. Materiality constraint B. Historical cost C. Cost-benefit constraint D. Revenue recognition principle

Q: Analysts prefer the indirect method for the preparation of the cash flow statement because the size and direction of the items reconciling net income to net cash flow from operating activities provide a yardstick for measuring the A. current ratio. B. return on assets. C. quality of earnings. D. rate of dividends.

Q: Which one of the following items is the most common adjustment to the cash flow from operating activities under the indirect method because cash does not increase or decrease? A. Change in receivables B. Depreciation expense C. Change in fixed assets D. Change in cash

Q: The method of preparing the statement of cash flows used by the majority of firms is the A. direct method. B. indirect method. C. revenue method. D. dividend method.

Q: Which one of the following would be reported in the cash flow from operating activities section of the cash flow statement under the direct method? A. Increase in taxes payable B. Interest and dividends received C. Issuance of common stock D. Cash payments made on short-term notes

Q: The direct method and the indirect method are alternative presentations for presenting cash flows from A. investing activities. B. operating activities. C. financing activities. D. research activities.

Q: Cash flows arising from the payment of dividends are cash flows from A. investing activities. B. operating activities. C. financing activities. D. research activities.

Q: Cash flows arising from the purchase or sale of a company's own stock are cash flows from A. investing activities. B. operating activities. C. financing activities. D. research activities.

Q: Cash flows arising from the acquisitions and divestitures of other companies are cash flows from A. investing activities. B. operating activities. C. financing activities. D. research activities.

Q: Cash flows arising from the purchase or sale of marketable securities are cash flows from A. investing activities. B. operating activities. C. financing activities. D. research activities.

Q: Cash flows arising from the purchase or sale of productive assets are cash flows from A. investing activities. B. operating activities. C. financing activities. D. research activities.

Q: Cash flows that arise from transactions of a firm related to the production and delivery of goods and services to customers are cash flows from A. investing activities. B. operating activities. C. financing activities. D. research activities.

Q: GAAP mandates that firms provide a A. working capital statement. B. cash flow statement. C. statement showing inflows and outflows of current assets and current liabilities. D. statement reporting changes in current operations.

Q: Working capital is the difference between current assets and A. current liabilities. B. fixed assets. C. intangible assets. D. long-term liabilities.

Q: The IASB and the FASB jointly issued an Exposure Draft entitled "Financial Statement Presentation" calls for the statement of cash flows to be broken down into major categories that include Business, Income taxes, and Discontinued operations.

Q: IFRS rules allow firms to classify dividends paid as a component of cash flows from operating activities in order to help users to determine the ability of an entity to pay dividends out of operating cash flows.

Q: Under IFRS rules, nonfinancial firms are permitted to report interest and dividends received either as operating or investing activities and interest paid as either an operating or financing activity.

Q: Under IFRS firms are encouraged to use the direct method and are required to provide a reconciliation of net income to cash flows from operating activities.

Q: Under IFRS firms are encouraged to use the direct method. The result is that firms that follow IFRS rarely use the indirect method of presenting cash flows from operating activities.

Q: Under IFRS firms that use bank overdrafts repayable on demand as part of their normal cash management activities must include those overdrafts as part of financing activities.

Q: Delaying the payment of accrued expenses until a later period is a technique that management can use to manipulate the current year's cash flow from operating activities.

Q: Cash flow from operating activities is very comparable across firms within the same industry in the United States given that all firms must follow GAAP.

Q: From a lessee's perspective, cash flows from operating activities will be the same whether a lease is classified as a capital lease or an operating lease.

Q: An increase in cash flows from operating activities occurs when accounts payable is intentionally understated.

Q: An increase in cash flows from operating activities occurs when inventory is intentionally understated.

Q: The changes in the working capital accounts are the major sources and uses of cash flows from operating activities.

Q: The only consistently renewable source of cash is from financing activities.

Q: The FASB addressed simultaneous financing and investing activities by requiring they be ignored.

Q: An increase in cash flows from financing activities will occur when a company distributes a stock dividend.

Q: For a firm using the indirect method, a loss on the sale of equipment should be added back to net income to arrive at cash flow from operations.

Q: For a firm using the indirect method, the gain on sale of equipment should be added back to net income to arrive at cash flow from operating activities.

Q: Issuing common stock in exchange for a patent will neither be reported within the cash flow statement nor disclosed.

Q: Issuing common stock in exchange for equipment will create a cash outflow in the investing activities section of the cash flow statement and a cash inflow in the financing activities section of the cash flow statement.

Q: Issuing common stock in exchange for land will create a cash outflow in the investing activities section of the cash flow statement.

Q: Issuing common stock in exchange for a building will create a cash inflow in the financing activities section of the cash flow statement.

Q: For a firm using the indirect method, an increase in a deferred tax liability should be added back to net income to arrive at cash flow from operating activities.

Q: For a firm using the direct method, amortization of bond premium should be added back to net income when determining cash payments for interest.