Question 1

Tutor uses the income statement approach in estimating uncollectible accounts expense, and uncollectible accounts expense is estimated to be 3% of credit sales. What is the amount of uncollectible accounts expense recognized in Tutor's income statement for March?
A) $13,500.
B) $18,000.
C) $8,600.
D) $7,200.

Accepted Answer

The answer of Tutor uses the income statement approach in...

Question 2

In financial statements prepared on December 31, 2010, Neptune Corporation reports:
A) The asset Investments in Marketable Securities at $700,000 with footnote disclosure of the market value of $730,000.
B) The asset Investments in Marketable Securities at $730,000, and a $30,000 Unrealized Holding Gain included in total stockholders' equity.
C) The asset Investments in Marketable Securities at $730,000, and a $30,000 gain recognized in the income statement.
D) The asset Investments in Marketable Securities at $700,000, and a $30,000 Unrealized Holding Gain included in total stockholders' equity.

Accepted Answer

Option B is the best choice because it reflects both the cost of the Investment in Marketable Securities ($730,000) and the unrealized holding gain ($30,000) which is included in the total stockholders' equity. This presentation is in compliance with generally accepted accounting principles (GAAP). Option A is only disclosing the market value of the investment without including the unrealized gain. Option C is incorrect because gains on investments are not recognized in the income statement until they are realized. Option D only reports the cost of the investment and does not include the unrealized gain in stockholders' equity.

Question 3

Tutor uses the balance sheet approach in estimating uncollectible accounts expense, and aging the accounts receivable indicates the estimated uncollectible portion to be $7,400. The net realizable value of Tutor's accounts receivable in the March 31 balance sheet is:
A) $247,400.
B) $240,000.
C) $232,600.
D) $352,600.

Accepted Answer

To calculate the net realizable value of accounts receivable, we need to subtract the estimated uncollectible portion ($7,400) from the total accounts receivable ($240,000). Therefore, net realizable value = $240,000 - $7,400 = $232,600. Hence, option C is the correct answer.

Question 4

Tutor uses the income statement approach in estimating uncollectible accounts expense, and uncollectible accounts expense is estimated to be 3% of credit sales. The net realizable value of Tutor's accounts receivable in the March 31 balance sheet is:
A) $251,800.
B) $253,500.
C) $224,700.
D) $255,300.

Accepted Answer

The answer of Tutor uses the income statement approach in...

Question 5

Petty cash fund
E-Z Productions established a petty cash fund of $650 on January 1. On January 28, the fund was replenished for the payments made to date as shown by the following petty cash vouchers: postage, $145; telephone expense, $62.80; repairs, $79.20; office supplies, $67.20; and miscellaneous expense, $56. Prepare journal entries in general journal form to record the establishment of the fund on January 1 and its replenishment on January 28.

Accepted Answer

The answer of Petty cash fund
E-Z Productions established a petty...

Question 6

Internal control over cash transactions
Listed below are seven errors or problems that might occur in the processing of cash transactions. Also shown is a separate list of internal control procedures. Indicate the internal control procedure that should prevent the error or problem from occurring. If none of the control procedures would effectively prevent the error, place an X in the space provided.
Possible Error or Problem
_____ 1. A purchase invoice was paid even though the merchandise was never received.
_____ 2. An employee issued a credit memorandum for a nonexistent sales return in order to conceal his theft of the amount received in payment of an account receivable.
_____ 3. Management is unaware that blank checks are being issued for unauthorized expenditures by the official designated to sign checks.
_____ 4. A salesclerk collects the full selling price from a customer but rings up the sale at less than actual price and pockets the difference.
_____ 5. Several days' cash receipts are lost in a fire.
_____ 6. A new employee often gives customers an incorrect amount of change.
_____ 7. No one has discovered that amounts deposited in the company's bank account by the cashier over the last few years are frequently smaller than amounts forwarded to him from the mailroom or sales department.
Internal Control Procedures

Accepted Answer

The answer of Internal control over cash transactions
Listed below are...

Question 7

Watins, Inc.'s 2011 income statement reported net sales of $5,000,000. Watin's average accounts receivable during 2011 amounted to $450,000. Using 360 days to a year, Watin's:
A) Accounts receivable turnover rate is approximately 13.8 times.
B) Accounts receivable turnover rate is approximately 1.25 times.
C) Average number of days to collect an account receivable is 32 days.
D) Accounts receivable turnover rate is approximately 2 times.

Accepted Answer

The answer of Watins, Inc.'s 2011 income statement reported net...

Question 8

Dorfmann Industries has an accounts receivable turnover rate of 12. Which of the following statements is not true?
A) Dorfmann's accounts receivable are more liquid than those of a business whose accounts receivable turnover rate is 8.
B) Dorfmann waits approximately 30 days to make collections of its credit sales. (Use 365 days in a year.)
C) Dorfmann writes off accounts receivable as uncollectible if they are over 30 days old.
D) Dorfmann's net credit sales are about twelve times the amount of its average accounts receivable.

Accepted Answer

An accounts receivable turnover rate of 12 means that Dorfmann is able to collect its outstanding receivables approximately every 30 days (365 days divided by 12). Therefore, statement B is true. Statement A is also true because a higher turnover rate indicates that receivables are being collected more quickly, making them more liquid. Statement D is also true because the turnover rate is calculated by dividing net credit sales by average accounts receivable, so if the rate is 12, then net credit sales are about 12 times the amount of average accounts receivable. However, statement C is not true because a turnover rate of 12 indicates that Dorfmann is able to collect its receivables relatively quickly, so it is unlikely that it would write off accounts as uncollectible after only 30 days. Typically, businesses wait much longer before writing off accounts receivable as uncollectible.

Question 9

On November 1, Willis Corporation sold merchandise in return for a 6%, 90-day note receivable in the amount of $60,000. The proper adjusting entry at December 31 (end of Willis's fiscal year) includes a:
A) Credit to Interest Revenue of $600.
B) Debit to Cash of $600.
C) Debit to Interest Receivable of $300.
D) Credit to Notes Receivable of $900.

Accepted Answer

Since the note is for 90 days and it was issued on November 1, the maturity date would be January 30 (90 days after). Since Willis fiscal year ends on December 31, the note was outstanding for only 60 days at the end of the fiscal year. Therefore, the interest revenue to be recognized would be calculated as follows: 
$60,000 × 6% × (60/360) = $600 
Therefore, the proper adjusting entry at December 31 would be a credit to Interest Revenue for $600.

Question 10

On January 1, Wilson Company established a petty cash fund of $400. The journal entry to record the replenishment of the fund for $280 at the end of January includes:
A) A debit to Petty Cash of $280.
B) A credit to Cash of $280.
C) A debit to various expenses of $120.
D) No journal entry; an entry is needed only when the petty cash fund is created or discontinued.

Accepted Answer

When replenishing the petty cash fund, cash is credited to reflect the outflow of cash from the main account.

Question 11

As of December 31, 2011, Chippewa Company has $26,440 cash in its checking account, as well as several other items listed below: What amount should be shown in Chippewa's December 31, 2011, balance sheet as "Cash and cash equivalents"?
A) $30,040.
B) $139,640.
C) $209,640.
D) $59,640.

Accepted Answer

Cash and cash equivalents typically include cash in checking accounts, savings accounts, and short-term investments that are easily convertible to cash. The problem implies that there are additional items beyond the $26,440 in the checking account that qualify as cash equivalents, leading to the total of $139,640.

Question 12

Gold Company received a 60-day, 12% note for $8,000 on June 16. Which of the following statements is true?
A) Gold will receive $8,000 plus interest of $960 at maturity.
B) Gold should record a total receivable due of $8,080 on June 16.
C) The principal of the note plus interest is due on August 15.
D) The maturity value of this note is $8,000.

Accepted Answer

The note matures 60 days after June 16, which is August 15. The maturity value includes the principal plus interest, not just the principal.

Question 13

Accounting terminology
Listed below are nine technical accounting terms emphasized in this chapter.
Mark-to-market
Factoring
Direct write-off
Financial asset
Cash equivalent
Bank reconciliation
Allowance for doubtful accounts
Accounts receivable turnover
Uncollectible accounts expense
Each of the following statements may (or may not) describe one of these technical terms. In the space provided below each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.
____ a. A transaction in which a business sells its accounts receivables to a financial institution.
____ b. An estimate of the portion of year-end accounts receivable that ultimately will turn out to be uncollectible.
____ c. Schedule explaining any differences between cash balances appearing in the accounting records and in the monthly bank statement.
____ d. Balance sheet valuation standard applicable to investments in marketable securities.
____ e. Cash and assets convertible directly into known amounts of cash, such as marketable securities and receivables.
____ f. A ratio, computed by dividing 365 days by average receivables, that indicates the liquidity of the receivables.
____ g. Method of accounting for uncollectible receivables that fails to match revenues and expenses.

Accepted Answer

The answer of Accounting terminology
Listed below are nine technical accounting...

Question 14

Silver Company received a 60-day, 6% note for $16,000 on August 5. Which of the following statements is true?
A) Silver will receive $16,000 plus interest of $960 at maturity.
B) Silver should record a total receivable due of $16,080 on August 5.
C) The principal of the note plus interest is due on October 15.
D) The maturity value of this note is $16,000.

Accepted Answer

The note matures 60 days after August 5, which is October 4. The principal plus interest is due at maturity, not just the principal.

Question 15

Tutor uses the balance sheet approach in estimating uncollectible accounts expense, and aging the accounts receivable indicates the estimated uncollectible portion to be $8,600. What is the amount of uncollectible accounts expense recognized in Tutor's income statement for March?
A) $8,600.
B) $6,800.
C) $10,400.
D) $1,800.

Accepted Answer

The estimated uncollectible portion of $8,600 is the amount that Tutor believes will not be collected from its accounts receivable. This amount is recognized as an expense on the income statement. Therefore, the amount of uncollectible accounts expense recognized in Tutor's income statement for March is $6,800, which is calculated as follows:

Beginning accounts receivable balance + Credit sales - Collections - Write-offs = Ending accounts receivable balance 
$100,000 + $20,000 - $91,400 - $1,000 - X = $26,600 (where X represents the uncollectible accounts expense) 
Solving for X, we get: 
X = $6,800

Question 16

Assuming Neptune does not sell this investment, the financial statements prepared at December 31, 2011 will report:
A) Investments in Marketable Securities of $700,000, reduced by a $30,000 Unrealized Holding Gain on Investments, in the asset section of the balance sheet.
B) The asset Investments in Marketable Securities of $700,000 in the balance sheet, and a $25,000 Unrealized Holding Loss on Investments in the income statement.
C) The asset Investments in Marketable Securities of $725,000, and a $5,000 Unrealized Holding Loss deducted from total stockholders' equity.
D) Investment in Marketable Securities of $725,000 in the asset section of the balance sheet, with a $25,000 Unrealized Holding Gain on Investments included in the stockholders' equity section.

Accepted Answer

The investment is reported at fair value of $725,000, and the unrealized holding gain of $25,000 is included in stockholders' equity, not the income statement, as it is not realized.

Question 17

Assuming Neptune does not sell this investment, the mark-to-market adjustment necessary at December 31, 2011, includes:
A) A $5,000 debit to Unrealized Holding Gain on Investments.
B) A $25,000 credit to Unrealized Holding Gain on Investments.
C) A $5,000 debit to Investments in Marketable Securities.
D) A $725,000 debit to Investments in Marketable Securities.

Accepted Answer

The answer of Assuming Neptune does not sell this investment,...

Question 18

If a 15%, 60-day note receivable is acquired from a customer in settlement of an existing account receivable of $5,000, the accounting entry for acquisition of the note will:
A) Include a debit to Notes Receivable for $5,750.
B) Include a debit to Notes Receivable for $5,062.50.
C) Include a credit to Interest Revenue for $62.50.
D) Include a debit to Notes Receivable for $5,000 and no entry for interest.

Accepted Answer

The note receivable is recorded at its face value of $5,000, and interest is not recorded until it is earned over time.

Question 19

Assuming a 365 day year, Bush Industries calculated an average of 47 days to collect its accounts receivable in 2012. During 2012, Bush's accounts receivable turnover rate:
A) Was approximately 7.77.
B) Was equal to 47 times its average accounts receivable.
C) Was approximately 0.13.
D) Can't be determined from this information alone.

Accepted Answer

The accounts receivable turnover rate is calculated by dividing the total net credit sales by the average accounts receivable. Since the average collection period is given as 47 days, the average accounts receivable can be calculated by multiplying the average daily sales by the number of days in the collection period (365 days). So, if we assume net credit sales are equal to total sales, then the accounts receivable turnover rate would be calculated as follows:

Accounts Receivable Turnover Rate = Total Net Credit Sales / Average Accounts Receivable 
= Total Sales / (Average Daily Sales x Collection Period) 
= Total Sales / (Total Sales/365 x 47) 
= 365/47 
= 7.77

Therefore, the answer is A) approximately 7.77.

Question 20

If a 5%, 120-day note receivable is acquired from a customer in settlement of an existing account receivable of $50,000, the accounting entry for acquisition of the note will:
A) Include a debit to Notes Receivable for $50,822.
B) Include a debit to Notes Receivable for $50,208.
C) Include a credit to Interest Revenue for $822.
D) Include a debit to Notes Receivable for $50,000 and no entry for interest.

Accepted Answer

The note receivable is recorded at its face value of $50,000. Interest is not recorded at the time of acquisition but is recognized over time.

Quiz 7: Financial Assets

Tutor uses the income statement approach in estimating uncollectible accounts expense, and uncollectible accounts expense is estimated to be 3% of credit sales. What is the amount of uncollectible accounts expense recognized in Tutor's income statement for March?

In financial statements prepared on December 31, 2010, Neptune Corporation reports:

Tutor uses the balance sheet approach in estimating uncollectible accounts expense, and aging the accounts receivable indicates the estimated uncollectible portion to be $7,400. The net realizable value of Tutor's accounts receivable in the March 31 balance sheet is:

Tutor uses the income statement approach in estimating uncollectible accounts expense, and uncollectible accounts expense is estimated to be 3% of credit sales. The net realizable value of Tutor's accounts receivable in the March 31 balance sheet is:

Watins, Inc.'s 2011 income statement reported net sales of $5,000,000. Watin's average accounts receivable during 2011 amounted to $450,000. Using 360 days to a year, Watin's:

Dorfmann Industries has an accounts receivable turnover rate of 12. Which of the following statements is not true?

On November 1, Willis Corporation sold merchandise in return for a 6%, 90-day note receivable in the amount of $60,000. The proper adjusting entry at December 31 (end of Willis's fiscal year) includes a:

On January 1, Wilson Company established a petty cash fund of $400. The journal entry to record the replenishment of the fund for $280 at the end of January includes:

As of December 31, 2011, Chippewa Company has $26,440 cash in its checking account, as well as several other items listed below: What amount should be shown in Chippewa's December 31, 2011, balance sheet as "Cash and cash equivalents"?

Gold Company received a 60-day, 12% note for $8,000 on June 16. Which of the following statements is true?

Silver Company received a 60-day, 6% note for $16,000 on August 5. Which of the following statements is true?

Tutor uses the balance sheet approach in estimating uncollectible accounts expense, and aging the accounts receivable indicates the estimated uncollectible portion to be $8,600. What is the amount of uncollectible accounts expense recognized in Tutor's income statement for March?

Assuming Neptune does not sell this investment, the financial statements prepared at December 31, 2011 will report:

Assuming Neptune does not sell this investment, the mark-to-market adjustment necessary at December 31, 2011, includes:

If a 15%, 60-day note receivable is acquired from a customer in settlement of an existing account receivable of $5,000, the accounting entry for acquisition of the note will:

Assuming a 365 day year, Bush Industries calculated an average of 47 days to collect its accounts receivable in 2012. During 2012, Bush's accounts receivable turnover rate:

If a 5%, 120-day note receivable is acquired from a customer in settlement of an existing account receivable of $50,000, the accounting entry for acquisition of the note will: