Expert Answers

1. Salvage value is:
Also called residual value.
Also called scrap value.
An estimate of the asset’s value at the end of its benefit period.
A factor relevant to determining depreciation.
All of these.

2. A company had net sales of $600,000, total sales of $750,000, and an average accounts receivable of $75,000. Its accounts receivable turnover equals:
.13
.80
7.75
8.00
10.00

3. Match each of the following terms with the appropriate definition.
Potential Matches:

1 : The accounts of customers who do not pay what they have promised to pay a company.
2 : The expected proceeds from converting an asset into cash.
3 : The cost of borrowing money for a borrower, alternatively the profit from lending money for a lender.

4 : A process of classifying accounts receivable by how long it is past its due date for the purpose of estimating the amount of uncollectible accounts.

5 : A contra asset account with a balance approximating the amount of accounts receivable expected to be uncollectible.

6. A company borrowed $10,000 by signing a 180-day promissory note at 11%. The total interest due on the maturity date is.
$50
$275
$550
$825
$1,100

7. A company purchased property for a building site. The costs associated with the property were:

Purchase Price…………………………. $175,000
Real Estate Commissions…………. 15,000
Legal Fees………………………………… 800
Expenses of clearing the land…….. 2,000
Expenses to remove old building… 1,000

What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building? (show your work)
(Points : 10)

8. The percent of sales method for estimating bad debts assumes that a given percent of a company’s credit sales for the period are uncollectible.
True
False

9. A company borrowed $6,000 by signing a 4-month promissory note at 12%. The total interest on the note is $720.
True
False

10. The Allowance for Doubtful Accounts:
Is a contra asset account.
Is used instead of reducing accounts receivable directly.
Is debited when uncollectible accounts are written off.
All of these (A-C)
Is credited when bad debts expense is estimated and recorded.
11. A total asset turnover ratio of 3.5 indicates that:

For every $1 in sales, the firm acquired $3.50 in assets during the period.
For every $1 in assets, the firm produced $3.50 in net sales during the period.
For every $1 in assets, the firm earned gross profit of $3.50 during the period.
For every $1 in assets, the firm earned $3.50 in net income.
For every $1 in assets, the firm paid $3.50 in expenses during the period.

12. A company purchased a delivery van for $23,000 with a salvage value of $3,000 on September 1, Year 1. It has an estimated useful life of 5 years. Using the straight-line method, how much depreciation expense should the company recognize on December 31, Year 1?
$1,000.
$1,333.
$1,533.
$4,000.
$4,600.

13. A plant asset’s useful life might not be the same as its productive life.

True
False

14. A company purchased property for $100,000. The property included a building, a parking lot, and land. The building was appraised at $62,000; the land at $45,000, and the parking lot at $18,000. Land should be recorded in the accounting records with an allocated cost of:
$0.
$36,000.
$42,000.
$45,000.
$100,000.

15. An asset’s book value is $36,000 on January 1, Year 6. The asset is being depreciated $500 per month using the straight-line method. Assuming the asset is sold on July 1, Year 7 for $25,000, the company should record:
Neither a gain or loss is recognized on this type of transaction.
A gain on sale of $2,000.
A loss on sale of $1,000.
A gain on sale of $1,000.
A loss on sale of $2,000.
16. Once the estimated depreciation expense for an asset is calculated:

It cannot be changed due to the historical cost principle.
It may be revised based on new information.
Any changes are accumulated and recognized when the asset is sold.
The estimate itself cannot be changed; however, new information should be disclosed in financial statement footnotes.
It cannot be changed due to the consistency principle.

17. Calculate the amount of interest that would be owed on a $9,000, 60-day, 9% note receivable at maturity.

18. Explain the options a company has to convert its receivables to cash.

19. ABC Co. sold $80,000 of accounts receivable to First Bank and incurred a 2% factoring fee. Prepare the journal entry for ABC Co. to record the sale. (Points : 10)

20. A promissory note:
Is a short-term investment for the maker.
Is a written promise to pay a specified amount of money at a certain date.
Is a liability to the payee.
Is another name for an installment receivable.
Cannot be used in payment of an account receivable.