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Exam 5: Accounting for Receivables and Inventory Cost Flow

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Question 61

Multiple Choice

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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.

E) B) and C)
F) A) and B)

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Question 62

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On January 1, 2014 the Accounts Receivable and the Allowance for Doubtful Accounts carried balances of $30,000 and $500, respectively. During the year the company reported $75,000 of credit sales. There were $550 of receivables written-off as uncollectible in 2014. Cash collections of receivables amounted to $74,550. The company estimates that it will be unable to collect one percent (1%) of credit sales. The entry required to recognize the uncollectible accounts expense for 2014 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.

E) A) and D)
F) B) and D)

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Question 63

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Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \text { Decrease } = \mathrm { D } \text { No Effect } = \mathrm { N }$ On September 30, 2014, 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.

The collection of an account receivable is an asset source transaction.

Loaning money to another company through a promissory note is an asset source transaction.

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad\text { Decrease } = \mathrm { D } \quad\text { No Effect } = \mathrm { N }$ 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.

The person responsible for making payment on a promissory note is referred to as the payer.

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

The following information is available for Parsons Corporation, which uses the allowance method of accounting for uncollectible accounts. $\begin{array}{l}2014 \text {, the first year of operations }\\\begin{array}{ll}\text { Sales on account } & \$ 66,000 \\\text { Collections on account } & \$ 58,000\end{array}\end{array}$ Parsons expects 1% of sales on account to be uncollectible. Required: a) What is the balance of Accounts Receivable at the end of 2014? b) What is the amount of uncollectible accounts expense for 2014? Use the financial statements model below to indicate the effect of recording uncollectible accounts expense. Include dollar amounts of increases and decreases. c) In 2015, after several attempts of collection, Parsons wrote off accounts that could not be collected in the amount of $300. Use the financial statements model that is provided to indicate the effect of the write-off on the financial statements, indicating amounts of increases and decreases. d) Later in 2015, Erin received a check for $50 from one of the customers whose account had been written off in (c) above. Use the financial statements model to indicate the effect of the collection of the $50 on the financial statements, indicating amounts of increases and decreases.

Collection of a credit card receivable is an asset source transaction.

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

Explain how a company would calculate the amount of uncollectible accounts expense using the percentage of revenue method.

The Ainlay Corporation accepted a credit card for a sale of $2,000 on December 16, 2014. The credit card company charges a fee of 4%. On January 5, 2015, Ainlay received payment from the credit card company. Indicate whether each of the following statements is true or false. 1. Ainlay should record the $2,000 revenue in 2015 when the cash is received 2. The entry on December 16, 2014 increases total expenses on the 2014 income statement 3. The collection of cash in 2015 has no effect on 2015 net income 4. Ainlay should record an account receivable of $2,000 on December 16, 2014 5. The collection of cash does not affect total assets in 2015

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

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015. What would be the total amount of receivables on Siebens' December 31, 2014 balance sheet?

Indicate whether each of the following statements is true or false. 1. A US company can use LIFO for income tax purposes only if it also uses LIFO for financial reporting purposes 2. The weighted average cost per unit is computed by dividing the total cost of goods purchased by the dollar amount of sales 3. Under the FIFO method, the cost of goods sold for each sale is computed using the cost of the most recently acquired units 4. In a period of rising inventory prices, use of FIFO allows a company to minimize its income tax expense 5. To compute cost of goods sold under the weighted average method, it is necessary to first make a computation of the weighted average cost per unit

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

On June 1, 2014, Siebens Enterprises loaned $20,000 to Tyler Company for one year at 8 percent interest. Under the terms of the promissory note, Tyler will repay the principal and pay one year's interest on May 31, 2015. What total amount of cash will Siebens collect on May 31, 2015?

Delta Company was accruing interest on a note receivable at the end of 2014. The note had principal of $10,000, an interest rate of 8%, and it had been outstanding for three months. Delta should accrue $200 of interest income for 2014.

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. $\text { Increase } = \mathrm { I } \quad\text { Decrease } = \mathrm { D } \quad\text { No Effect } = \mathrm { N }$ On December 31, 2014, Falls Company recognized the accrued interest revenue on a one-year note receivable dated October 1, 2014. Show the effect of the accrual of interest on Falls' financial statements.