Deck 5: Accounting for Receivables and Inventory Cost Flow

Question 1

An aging of Sernett Company's accounts receivable at the end of 2012 yielded the following information about the lengths of time that the receivables had been outstanding:

Answer 1

The balance in the Allowance for Doubtful Accounts before adjustments was $310. Based on the preceding information, a)What should be the balance in the Allowance for Doubtful Accounts after the adjusting entry? b)What is the amount of uncollectible accounts expense that should be reported on the income statement?

Question 2

On September 30,2012,Falls Company collected the accrued interest revenue on a one-year note receivable dated October 1,2010.Show the effect of the collection of previously-accrued interest on Falls' financial statements.

Answer 2

Question 3

Porter Company experienced the following events during 2012:
1.Recognized $8,400 of service revenue on account
2.Wrote off as uncollectible an account receivable in the amount of $27
3.Prepared adjusting entry to recognize uncollectible accounts expense.Porter expected that 1% of service revenue would not be collected
Required:
Show how each of these events would affect the financial statements model,below.Include dollar amounts of increases and decreases.When an account is not affected by a particular event,indicate with NA.

Answer 3

Question 4

On March 31,2012,Stuart Co.wrote off a $600 account receivable of one of its customers.The $600 sale had been made in 2011.Stuart uses the allowance method to account for uncollectible accounts expense.Show how the write-off of the account would affect Stuart's financial statements.

Question 5

The Repair Shop provided $618,000 of services to customers during 2012.All customers paid for the services with credit cards.The company submitted the credit card receipts to the credit card company immediately,and the credit card company paid cash in the amount of face value less a 4 percent service charge.
Required:
Record the credit card sales and collection of the receivables in the horizontal statements model,below.Show dollar amounts of increases and decreases.For cash flows,indicate whether the item is an operating activity (OA),investing activity (IA),or financing activity (FA).Use NA to indicate that an element is not affected by an event.

Question 6

Potter Co.used the allowance method to account for uncollectible accounts expense.On June 20,2012,Potter wrote off an uncollectible account in the amount of $8,000.Show the effect of this write-off.

Question 7

The following information is available for Parsons Corporation,which uses the allowance method of accounting for uncollectible accounts.

Question 8

On December 31,2012,Stuart Co.estimated it had $8,000 of uncollectible accounts related to credit sales it made during the year.Stuart,which uses the allowance method,made the proper adjusting entry on this date.Indicate the effects of the adjusting entry.

Question 9

Hines Enterprises loaned $4,000 to Baldwin Company on October 1,2010,for one year at 8% interest.
Required:
Show the effects on the financial statements model (below)of
a)the loan to Baldwin
b)the adjusting entry at December 31,2010
c)accrual of interest and collection of the note and related interest on October 1,2011
Indicate dollar amounts of increases and decreases.For cash flows,indicate whether the item is an operating activity (OA),investing activity (IA),or financing activity (FA).If an element is not affected by an event,indicate with NA.

Question 10

Hardin Company collected a receivable due from a credit card company (from a sale to a customer who paid with a credit card).Show the effect of collection of the credit card receivable on Ulmer's financial statements.

Question 11

On November 1,2012,Hardin Company accepted a credit card as payment for $2,000 of services rendered to one of its customers.Assume the credit card fee of 3% is recorded on the date of the sale.Show the effect of the sale and credit card fee on Ulmer's financial statements.

Question 12

Green Bay Corporation used the allowance method to account for uncollectible accounts expense.On June 20,2012,Green Bay wrote off an uncollectible account in the amount of $3,000.On September 1,2012,the account was collected.How would the appropriate entries on September 1 affect the financial statements?

Question 13

Haltom Co.uses the allowance method to account for uncollectible accounts.Show how the adjusting entry to recognize uncollectible accounts expense would affect the elements of Haltom's financial statements.

Question 14

On October 1,2012,Falls Company loaned $10,000 to a customer for one year at 6% interest.Show the effect of this transaction on Falls' financial statements.

Question 15

On December 31,2012,Falls Company recognized the accrued interest revenue on a one-year note receivable dated October 1,2012.Show the effect of the accrual of interest on Falls' financial statements.

Question 16

Mohr Manufacturing,Inc.had the following sales during 2012:

Question 17

Stewart Company sold 180 units @ $320 each on October 31,2012.Cash selling and administrative expenses were $15,000.The following information is also available:

Question 18

Warden Company has the following account balances at the end of 2012:

Question 19

If Schulze Company is using LIFO,how would the accountant compute cost of goods sold when recording a sale under the perpetual inventory system?

Question 20

On September 30,2012,Falls Company collected the principal on a one-year note receivable dated October 1,2011.Show the effect of the collection of the principal on Falls' financial statements.

Question 21

The net effect of the entries to recognize the collection of a previously written-off account under the allowance method will

A) increase total assets and total equity.
B) increase total equity only.
C) decrease total assets.
D) have no effect on total assets or total equity.

Question 22

The net realizable value of accounts receivable is calculated,

A) Accounts Receivable + Uncollectible Accounts Expense
B) Accounts Receivable + Notes Receivable
C) Accounts Receivable - Allowance for Doubtful Accounts
D) 365/Accounts Receivable

Question 23

The amount of cash flow from operating activities that would appear on the 2012 statement of cash flows is:

A) $24,000.
B) $25,000.
C) $17,000.
D) $21,000.

Question 24

The amount of uncollectible accounts expense recognized on the 2012 income statement was

A) $600.
B) $900.
C) $1,350.
D) $300.

Question 25

Which of the following is not an accurate description of the Allowance for Doubtful Accounts?

A) an estimate of the amount of accounts receivable that will not be collected
B) an income statement account
C) a contra account
D) a balance sheet account

Question 26

The net realizable value of Bay's accounts receivable as of December 31,2012 was

A) $7,000.
B) $3,500.
C) $6,500.
D) $500.

Question 27

To estimate the amount of its uncollectible accounts receivable,a company might

A) consult industry publications.
B) look at its past history of uncollectible accounts.
C) take into account the current condition of the economy.
D) all of the above.

Question 28

Matsuzaka Company uses the allowance method to account for uncollectible accounts.An account that had been previously written-off as uncollectible was recovered.How would the recovery affect the company's accounting equation?

A) Increase assets and increase equity.
B) Increase assets and decrease liabilities.
C) Reduce liabilities and increase equity.
D) Have no effect on assets,liabilities,or equity.

Question 29

Which of the following reflects the effect of the year-end adjusting entry to record estimated uncollectible accounts expenses?

A) A
B) B
C) C
D) D

Question 30

The following information is for Carmen Company for 2012:
Beginning inventory,100 units @$25
Units purchased,200 units @ $28
During the year,Carmen sold 250 units for $45 each.
Required:
a)Calculate gross margin assuming Carmen uses: 1)FIFO; 2)LIFO
b)Disregarding the effect of income taxes,what would be the dollar amount of difference in net income between FIFO and LIFO?
c)Calculate the cash flow from operating activities assuming that Carmen uses 1)LIFO; 2)FIFO.Assume that all transactions during the year were for cash.

Question 31

Kentucky Supply Co.,which had no beginning balance in its Accounts Receivable and Allowance for Doubtful Accounts,earned $80,000 of revenue on account during 2012.During 2012,the company collected $64,000 of cash from its receivables accounts.Kentucky estimates that it will be unable to collect 2% of revenue on account.The amount of net realizable value of receivables on the December 31,2012 balance sheet would be:

A) $16,640.
B) $17,400.
C) $16,000.
D) $14,400.

Question 32

A company's year-end adjusting entry to recognize uncollectible accounts expense will

A) increase assets and increase equity.
B) increase liabilities and decrease equity.
C) decrease assets and decrease equity.
D) decrease liabilities and increase equity.

Question 33

The amount of accounts receivable that is actually expected to be collected is known as:

A) net realizable value.
B) uncollectible accounts expense.
C) accounts receivable turnover.
D) allowance for doubtful accounts.

Question 34

The balance in Accounts Receivable as of December 31,2012 was

A) $7,000.
B) $4,000.
C) $8,000.
D) $500.

Question 35

The amount of uncollectible accounts expense to recognize on the 2012 income statement is:

A) $80.
B) $250.
C) $480.
D) $500.

Question 36

The practice of reporting the net realizable value of receivables in the financial statements is commonly called:

A) the cash flow method of accounting for uncollectible accounts.
B) the direct write-off method of accounting for uncollectible accounts.
C) the allowance method of accounting for uncollectible accounts.
D) Both A and B are correct.

Question 37

Fairleigh Company sells home weather stations.Its beginning inventory was 50 units at $200 per unit.During the year,Fairleigh made two purchases of the station: first,a 150-unit purchase at $220 per unit,and then 100 units at $250 per unit.The ending inventory for the year was 125 units.
Required:
Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory,assuming that Fairleigh uses
a)FIFO
b)LIFO
c)Weighted average

Question 38

On January 1,2012,Howe Company's Accounts Receivable balance was $10,000 and the balance in the Allowance for Doubtful Accounts was $500.On January 5,2012,a $200 uncollectible account was written-off as uncollectible.Assuming that no other transactions related to accounts receivable had occurred,the net realizable value of accounts receivable immediately after the write-off was

A) $9,500.
B) $9,700.
C) $9,300.
D) $9,200.

Question 39

Maple Company started the year with no inventory.During the year,it purchased two identical inventory items at different times.The first unit cost $800 and the second,$700.One of the items was sold during the year.Based on this information,how much product cost would be allocated to cost of goods sold and ending inventory,assuming use of
a.LIFO
b.FIFO
c.Weighted average

Question 40

For a business,the advantage of offering credit to customers is that it:

A) increases the amount of sales.
B) increases cash flow from financing activities.
C) decreases cost of goods sold.
D) decreases the amount of inventory the company needs to carry.

Question 41

Related to this note receivable,what amount of interest income would Siebens report on its 2012 income statement?

A) $1,000
B) $1,600
C) $800
D) $933

Question 42

The net realizable value of receivables appearing on the December 31,2012 balance sheet will amount to:

A) $29,200.
B) $30,450.
C) $29,750.
D) $24,300.

Question 43

What would be the total amount of assets (related to the note receivable)reported on Muller's balance sheet dated December 31,2012?

A) $4,000
B) $4,133
C) $4,320
D) $4,187

Question 44

What would be the total amount of receivables on Siebens' December 31,2012 balance sheet?

A) $20,000
B) $21,600
C) $20,933
D) $20,800

Question 45

The entry required to recognize the uncollectible accounts expense for 2012 will

A) increase total assets and retained earnings.
B) decrease total assets and retained earnings.
C) decrease total assets and increase net income.
D) increase total assets and decrease net income.

Question 46

Which of the following answers correctly shows the effect of the December 31,2012 adjusting entry for uncollectible accounts on the financial statements of the Landon Corporation?

A) Option A
B) Option B
C) Option C
D) Option D

Question 47

What amounts will Siebens report on its 2013 statement of cash flows?

A) An operating cash inflow of $1,600 and a cash inflow of $20,000 shown as an investing activity
B) An operating cash inflow of $1,600 and a financing cash inflow of $20,000
C) An investing activity cash inflow of $20,000 and a financing cash inflow of $1,600
D) $21,600 cash inflow from financing activities

Question 48

For Engle Company,the balance in Accounts Receivable at the beginning of the period was $800.During the period $3,200 of credit sales were made to customers.If the ending balance in Accounts Receivable amounted to $400,and uncollectible accounts of $200 were written off,the amount of cash inflow from customers that would appear in the operating section of the cash statement would be:

A) $3,400.
B) $3,200.
C) $4,000.
D) $3,300.

Question 49

At the end of 2012,Duffau Company had outstanding accounts receivable of $109,760.Before recording the adjusting entry for uncollectible accounts,the balance in the Allowance for Doubtful Accounts was $350.If Duffau estimates that it will not collect 4 percent of its accounts receivable,what amount of uncollectible accounts expense should Duffau record? Round to the nearest dollar.

A) $4,040
B) $4,740
C) $4,390
D) $5,090

Question 50

The amount of net realizable value of receivables on the company's 2012 balance sheet was

A) $14,400.
B) $10,100.
C) $12,350.
D) $1,350.

Question 51

What amounts will Siebens report on its 2012 statement of cash flows?

A) $0
B) A cash outflow of $20,000 shown as an operating activity
C) A cash outflow of $20,000 and an inflow of $800 for interest
D) A cash outflow of $20,000 shown as an investing activity

Question 52

Olin Company had accounts receivable of $449,000.Before it recorded the adjusting entry for uncollectible accounts,the balance in the Allowance for Doubtful Accounts was $870.Olin estimates that it will not collect 3 percent of its accounts receivable.What amount of uncollectible accounts expense should be recorded?

A) $12,600
B) $10,860
C) $11,730
D) $13,470

Question 53

Which of the following answers correctly states the effect of recording the collection of the reinstated receivable on April 7,2013?

A) Option A
B) Option B
C) Option C
D) Option D

Question 54

What would be the amount of cash flow from operating activities (related to the note receivable)on the 2012 statement of cash flows?

A) $(4,000)
B) $187
C) $133
D) zero

Question 55

Related to this note receivable,what amount of interest income would Siebens report on its 2013 income statement?

A) $667
B) $600
C) $800
D) $0

Question 56

The entry to recognize the write-off of an uncollectible account will

A) increase total assets and total equity.
B) increase total assets and decrease total equity.
C) decrease total assets and total equity.
D) not affect total assets or total equity.

Question 57

The net effect of the entries to recognize the collection of a previously written-off account under the allowance method will

A) decrease total assets.
B) have no effect on total assets or total equity.
C) increase total equity.
D) decrease total equity.

Question 58

The amount of uncollectible accounts expense recognized in the 2012 income statement will be

A) $700.
B) $300.
C) $750.
D) $550.

Question 59

Which of the following answers correctly states the effect of Landon's write-off entry on February 15,2013?

A) Option A
B) Option B
C) Option C
D) Option D

Question 60

Which of the following answers correctly states the effect of the reinstatement of the receivable on April 7,2013?

A) Option A
B) Option B
C) Option C
D) Option D

Question 61

In an inflationary environment:

A) a company's net income will be higher if it uses LIFO than if it uses FIFO.
B) a company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO.
C) a company's net income will be the same regardless of whether LIFO or FIFO is used.
D) the amount of inventory on the company's balance sheet will be lower if it uses LIFO as opposed to FIFO cost flow.

Question 62

Howard Company accepts a credit card as payment for $950 of services provided to a customer.The credit card company charges a 4% fee for its services.Select the answer that shows how the entry to record the service revenue would affect Barlett's financial statements.

A) Option A
B) Option B
C) Option C
D) Option D

Question 63

In a period of rising prices,which inventory cost flow method will produce the lowest amount of cost of goods sold?

A) FIFO.
B) Weighted average.
C) LIFO.
D) All methods will produce the same amount of cost of goods sold.

Question 64

What total amount of cash will Siebens collect on May 31,2013?

A) $20,000
B) $20,667
C) $21,600
D) None of the above

Question 65

Which of the following correctly shows the effects of the sale on March 1? Assume that the credit card fee is recorded on the date of sale.

A) Option A
B) Option B
C) Option C
D) Option D

Question 66

The accounting principle that requires a company to provide financial statement users with information about the accounting methods it has selected (including inventory cost flow methods)is

A) the consistency principle.
B) the conservatism principle.
C) the full disclosure principle.
D) the historical cost principle.

Question 67

Which of the following answers correctly describes the effect on Ruiz's financial statements of the collection of cash from the credit card company?

A) Option A
B) Option B
C) Option C
D) Option D

Question 68

When prices are rising,which method of inventory will result in the lowest cash outflow for income taxes?

A) weighted average
B) FIFO
C) LIFO
D) None of these; inventory methods do not affect the amount of income taxes.

Question 69

Barry Company purchased two identical inventory items.The item purchased first cost $7.00 and the item purchased second cost $9.00.Barney sold one of the items for $12.00.Which of the following statements is true?

A) Ending inventory will be lower if Barney uses weighted average than it would be if FIFO were used.
B) Cost of goods sold will be higher if Barney uses FIFO than it would be if weighted average were used.
C) Ending inventory will be the same no matter which cost flow method is used.
D) Gross margin will be higher if Barney uses LIFO than if FIFO were used.

Question 70

The net realizable value of accounts receivable is the amount of its receivables a company expects to collect.

Question 71

On October 1,2012,Balkan,Inc.accepted from another corporation a 1-year note receivable in the amount of $15,000,with an interest rate of 6%.On December 31,2012,Balkan accrued the interest income earned to date.How did this accrual affect Balkan's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 72

Victorino Company accepted a credit card payment in exchange for $10,000 of services provided to a customer.The credit card company charges a 5% service charge.The collection of cash from the credit card company when it settles the account receivable balance will

A) increase assets by $9,500.
B) decrease assets and equity by $500.
C) increase assets by $10,000.
D) none of the above.

Question 73

On October 1,2012,Balkan,Inc.accepted from another corporation a 1-year note receivable in the amount of $15,000,with an interest rate of 6%.How did this transaction affect Balkan's financial statements?

A) Option A
B) Option B
C) Option C
D) Option D

Question 74

Kendall Company uses the perpetual inventory method.On January 1,2012,Kendall purchased 300 units of inventory that cost $1.00 each.On January 10,2012,the company purchased an additional 400 units of inventory that cost $1.50 each.If Kendall uses the weighted average cost flow method and sells 400 units of inventory,the amount of cost of goods sold appearing on the income statement will be:

A) $450.
B) $529.
C) $514.
D) $600.

Question 75

When prices are falling:

A) LIFO will result in lower income and a lower ending inventory than will FIFO.
B) LIFO will result in lower income and a higher ending inventory than will FIFO.
C) LIFO will result in higher income and a lower ending inventory than will FIFO.
D) LIFO will result in higher income and a higher ending inventory than will FIFO.

Question 76

Rosierre Company purchased two identical inventory items.One of the items cost $6.00 and was purchased in January.The other was purchased in February,and the company paid $7.00 for this item.One of the items was sold in March at a price of $10.00.Select the correct answer assuming that Rosierre uses a FIFO cost flow assumption.

A) The balance in ending inventory would be $7.00.
B) The amount of gross margin would be $3.00.
C) The amount of ending inventory would be $6.50.
D) The amount of ending inventory would be $6.00.

Question 77

The accounting principle that requires a company to use the same accounting methods (such as inventory cost flow methods)over a period of time is

A) the consistency principle.
B) the conservatism principle.
C) the full disclosure principle.
D) the historical cost principle.

Question 78

Which of the following is not an advantage of accepting credit cards from retail customers?

A) The acceptance of credit cards tends to increase sales.
B) There are fees charged for the privilege of accepting credit cards.
C) The credit card company performs credit worthiness assessments.
D) The credit card company assumes the cost of slow collections and write-offs.

Question 79

If prices are rising,which inventory cost flow method will produce the lowest amount for Cost of Goods Sold?

A) FIFO
B) LIFO
C) Weighted Average
D) Either B or C

Question 80

During November 2012,Hall Company purchased two identical inventory items.The item purchased first cost $12.00,and the item purchased second cost $15.00.Hall sold one of the inventory items for $20.00.Based on this information

A) the amount of gross margin would be $5.00 if Hall uses the weighted average cost flow method.
B) the amount of cost of goods sold would be $12.00 if Hall uses the weighted average cost flow method.
C) the amount of gross margin will be $5.00 if Hall uses the FIFO cost flow method.
D) the amount of ending inventory will be $12.00 if Hall uses the LIFO cost flow method.