ACCT EXAM 2 CH. 6 &7 – Flashcards

Which of the following tables would show the smallest value for an interest rate of 5% for six periods? A.Present value of an ordinary annuity of 1 B.Present value of 1 C .Future value of 1 D. Future value of an ordinary annuity of 1

Which table would you use to determine how much you would need to have deposited three years ago at 10% compounded annually in order to have $1,000 today? A. Present value of an ordinary annuity of 1 B. Future value of 1 or present value of 1 C. Future value of an annuity due of 1 D. Future value of an ordinary annuity of 1

Which table would show the largest factor for an interest rate of 8% for five periods? A. Future value of an ordinary annuity of 1 B. Present value of an annuity due of 1 C. Present value of an ordinary annuity of 1 D. Future value of an annuity due of 1

On June 1, 2014, Pitts Company sold some equipment to Gannon Company. The two companies entered into an installment sales contract at a rate of 8%. The contract required 8 equal annual payments with the first payment due on June 1, 2014. What type of compound interest table is appropriate for this situation? A. Future amount of an ordinary annuity of 1 table. B.Present value of an annuity due of 1 table. C.Future amount of 1 table. D. Present value of an ordinary annuity of 1 table.

Peter invests $100,000 in a 3-year certificate of deposit earning 3.5% at his local bank. Which time value concept would be used to determine the maturity value of the certificate?

If the interest rate is 10%, the factor for the future value of annuity due of 1 for n = 5, i = 10% is equal to the factor for the future value of an ordinary annuity of 1 for n = 5, i = 10% A. minus 1.10. B. multiplied by 1.10. C. divided by 1.10. D. plus 1.10

Al Darby wants to withdraw $20,000 (including principal) from an investment fund at the end of each year for five years. How should he compute his required initial investment at the beginning of the first year if the fund earns 10% compounded annually? A.$20,000 divided by the future value of a 5-year, 10% ordinary annuity of 1. B.$20,000 times the present value of a 5-year, 10% ordinary annuity of 1. C.$20,000 divided by the present value of a 5-year, 10% ordinary annuity of 1. D.$20,000 times the future value of a 5-year, 10% ordinary annuity of 1.

Charlie Corp. is purchasing new equipment with a cash cost of $250,000 for an assembly line. The manufacturer has offered to accept $57,400 payment at the end of each of the next six years. How much interest will Charlie Corp. pay over the term of the loan? A. $94,400. B. $57,400. C. $250,000. D. $307,400.

All of the following may be included under the heading of "cash" except A. savings account balance. B. money market funds. C. currency. D. checking account balance.

When a company has cash available in another account in the same bank at which an overdraft has occurred, the company will: A. report the bank overdraft amount as account payable. B. classify the bank overdraft as compensating balance. C. offset the overdraft against cash account. D.report the same in the notes to financial statement.

If a company employs the gross method of recording accounts receivable from customers, then sales discounts taken should be reported as A. a deduction from sales in the income statement. B. a deduction from accounts receivable in determining the net realizable value of accounts receivable. C. an item of "other expense" in the income statement. D. sales discounts forfeited in the cost of goods sold section of the income statement.

Which of the following concepts relates to using the allowance method in accounting for accounts receivable? A. Bad debt expense is based on the actual amounts determined to be uncollectible. B. Bad debt expense is management's determination of which accounts will be sent to the attorney for collection. C. Bad debt expense is an estimate that is based on historical and prospective information. D. Bad debt expense is an estimate that is based only on an analysis of the receivables aging.

Which of the following concepts relates to using the allowance method in accounting for accounts receivable? A. Bad debt expense is based on the actual amounts determined to be uncollectible. B. Bad debt expense is management's determination of which accounts will be sent to the attorney for collection. C. Bad debt expense is an estimate that is based on historical and prospective information. D. Bad debt expense is an estimate that is based only on an analysis of the receivables aging.

What is the normal journal entry for recording bad debt expense under the allowance method? A. Debit Allowance for Doubtful Accounts, credit Accounts Receivable. B. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense. C. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts. D. Debit Accounts Receivable, credit Allowance for Doubtful Accounts

What is the normal journal entry when writing-off an account as uncollectible under the allowance method? A. Debit Allowance for Doubtful Accounts, credit Accounts Receivable. B. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense. C. Debit Accounts Receivable, credit Allowance for Doubtful Accounts. D. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.

The advantage of relating a company's bad debt expense to its outstanding accounts receivable is that this approach A. makes estimates of uncollectible accounts unnecessary. B. best relates bad debt expense to the period of sale. C. is the only generally accepted method for valuing accounts receivable. D. gives a reasonably correct statement of receivables in the balance sheet.

Why would a company sell receivables to another company?

When should a transfer of receivables be recorded as a sale? A. The transferred assets are isolated from the transferor. B. The transferor does not maintain effective control over the transferred assets through an agreement to repurchase or redeem them prior to their maturity. C.The transferee has the right to pledge or exchange the transferred assets. D. All of these answers are correct.

What is "recourse" as it relates to selling receivables? A. The obligation of the purchaser of the receivables to pay the seller in case the debtor fails to pay. B. The obligation of the seller of the receivables to pay the purchaser in case the debtor returns the product related to the sale. C. The obligation of the purchaser of the receivables to pay the seller if all of the receivables are collected. D. The obligation of the seller of the receivables to pay the purchaser in case the debtor fails to pay.

Which of the following is true when accounts receivable are factored without recourse? A. The factor assumes the risk of collectibility and absorbs any credit losses in collecting the receivables. B. The financing cost (interest expense) should be recognized ratably over the collection period of the receivables. C. The transaction may be accounted for either as a secured borrowing or as a sale, depending upon the substance of the transaction. D. The receivables are used as collateral for a promissory note issued to the factor by the owner of the receivables.

Kennison Company has cash in bank of $15,000, restricted cash in a separate account of $3,000, and a bank overdraft in an account at another bank of $1,000. Kennison should report cash of

AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue?

On July 22, Peter sold $15,500 of inventory items on credit with the terms 2/15, net 30. Payment on $10,000 sales was received on August 1 and the remaining payment was received on August 12. Assuming Peter uses the gross method of accounting for sales discounts, which one of the following entries was made on August 1 to record the cash received? A.Cash 10,000 Accounts Receivable 10,000 B. Cash 9,800 Sales Discount 200 Accounts Receivable 10,000 C. Accounts Receivable 200 Sales Discount Forfeited 200 D. Cash 9,800 Accounts Receivable 9,800

Before year-end adjusting entries, Dunn Company's account balances at December 31, 2014, for accounts receivable and the related allowance for uncollectible accounts were $1,200,000 and $90,000, respectively. An aging of accounts receivable indicated that $125,000 of the December 31 receivables are expected to be uncollectible. The net realizable value of accounts receivable after adjustment is

Equestrain Roads sold $80,000 of goods and accepted the customer's $80,000, 10% 1-year note receivable in exchange. Assuming 10% approximates the market rate of return, what would be the debit in this journal entry to record the sale? A. Debit Notes Receivable for $72,000. B. Debit Notes Receivable for $80,000. C. Debit Accounts Receivable for $80,000. D. No journal entry until cash is collected.

Geary Co. assigned $800,000 of accounts receivable to Kwik Finance Co. as security for a loan of $670,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Geary collected $220,000 on assigned accounts after deducting $760 of discounts. Geary accepted returns worth $2,700 and wrote off assigned accounts totaling $5,960. The amount of cash Geary received from Kwik at the time of the assignment was A. $654,000. B. $656,600. C. $670,000. D. $603,000

Geary Co. assigned $800,000 of accounts receivable to Kwik Finance Co. as security for a loan of $670,000. Kwik charged a 2% commission on the amount of the loan; the interest rate on the note was 10%. During the first month, Geary collected $220,000 on assigned accounts after deducting $760 of discounts. Geary accepted returns worth $2,700 and wrote off assigned accounts totaling $5,960. Entries during the first month would include a A. debit to Bad Debt Expense of $5,960. B. debit to Cash of $220,760. C. debit to Accounts Receivable of $229,420. D. debit to Allowance for Doubtful Accounts of $5,960.

On February 1, 2014, Henson Company factored receivables with a carrying amount of $500,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February. Assume that Henson factors the receivables on a without recourse basis. The loss to be reported is A. $15,000. B. $25,000. C. $0. D. $40,000

On February 1, 2014, Henson Company factored receivables with a carrying amount of $500,000 to Agee Company. Agee Company assesses a finance charge of 3% of the receivables and retains 5% of the receivables. Relative to this transaction, you are to determine the amount of loss on sale to be reported in the income statement of Henson Company for February. Assume that Henson factors the receivables on a with recourse basis. The recourse obligation has a fair value of $2,500. The loss to be reported is A. $17,500. B. $15,000. C. $25,000. D. $42,500.

Which of the following has an impact on the dollar amount of the interest related to any financing transaction? A. Interest rate. B. All of these answer choices are correct. C. Time D. Principal.

The table that would show the smallest value for 7 periods at 5% is the: A. present value of an ordinary annuity table. B. present value of an annuity due table. C. present value of 1 table. D. future value of 1 table.

The amounts that must be deposited now at 6% interest to permit withdrawals of $10,000 at the end of each period for a specified number of periods are contained in the: A. future value of an ordinary annuity of 1 table. B. present value of 1 table. C. present value of an ordinary annuity of 1 table. D. present value of an annuity due of 1 table.

For an investment that earns 1% compounded monthly for two years, how many compounding periods are there? A. 24 B. 8 C. 2 D. 12

Future value is A. the amount that must be invested now to produce a known future value. B. always greater than the present value. C. the value now of a future amount. D. all of these answer choices are correct.

Which of the following statements related to an annuity is correct? A. An annuity can be classified as an ordinary annuity or an unordinary annuity. B. The interest must be compounded annually. C. The periodic payments must always be the same amount. D.The interval between payments need not be the same.

When an annuity is received at the end of each period, it is called a (n): A. deferred annuity. B. annuity due. C. ordinary annuity. D. annual annuity.

Wendy Brown invests $50,000 at 10% annual interest. How much money has accumulated after five years, assuming simple interest? A. $25,000. B. $80,526. C. $75,000. D. $55,000.

Which table would you use to determine how much you will have five years from now if you deposit $10,000 today at 8% compounded annually? A. Future value of an annuity due of 1 B. Future value of 1 or present value of 1 C. Future value of an ordinary annuity of 1 D. Present value of an ordinary annuity of 1

The figure 0.94232 is taken from the column marked 2% and the row marked three periods in a certain interest table. From what interest table is this figure taken? A. Present value of 1 B. Future value of 1 C. Present value of annuity of 1 D. Future value of annuity of 1

Sally Tucker wants to invest a certain sum of money at the end of each year for six years. The investment will earn 6% compounded annually. At the end of six years, she will need a total of $500,000 accumulated. How should she compute her required annual investment? A. $500,000 times the future value of a 6-year, 6% ordinary annuity of 1 factor. B. $500,000 times the present value of a 6-year, 6% ordinary annuity of 1 factor. C. $500,000 divided by the future value of a 6-year, 6% ordinary annuity of 1 factor. D. $500,000 divided by the present value of a 6-year, 6% ordinary annuity of 1 factor.

The balance sheet is useful for analyzing all of the following except A. profitability. B. liquidity. C. solvency. D.financial flexibility.

Which of the following is not one of the classifications in owners' equity? A. Noncontrolling interest. B. Retained earnings. C. Capital stock. D. Accumulated capital.

The correct order to present current assets is A.Cash, inventories, prepaid items, accounts receivable. B.Cash, inventories, accounts receivable, prepaid items. C.Cash, accounts receivable, inventories, prepaid items. D. Cash, accounts receivable, prepaid items, inventories.

Assets include all of the following subclassifications except A. Noncontrolling interest. B. Long-term investments. C. Intangibles. D. Other.

Which of the following balance sheet formats lists the assets on the left side of the page and the liabilities and stockholders' equity on the right side? A. Account form. B. Multiple step form. C. Report form. D. Single step form.

Which of the following statements shows the amount of cash used to pay dividends or purchase treasury stock? A. income statement. B. statement of stockholders' equity. C. all of these answer choices are correct. D. statement of financial position.

Activities that involve the cash effects of making and collecting loans and acquiring and disposing of property, plant, and equipment are classified as: A. operating activities. B. noncash activities. C. financing activities. D. investing activities.

The current cash debt coverage ratio is computed by dividing net cash provided by operating activities by average A. total assets. B. total liabilities. C. total long-term liabilities. D. current liabilities

Which of the following investments should always be reported as current assets? A. Held-to-maturity securities. B. Long-term investments. C. Trading securities. D. Available-for-sale securities.

Which of the following pairings of an item and a basis of valuation is incorrect? A. Cash - Fair value. B. Short-term investments - Fair value. C. Prepaid expenses - Cost. D. Receivables - Lower-of-cost-or-market.

Which of the following is included in an owners' equity section reported in the balance sheet? A. Noncontrolling interest. B. Working capital. C. Dividends. D. Accumulated capital.

Which of the following are acceptable balance sheet formats? A. Condensed form and multiple step form. B. Multiple step form and account form. C. Report form and account form. D. Condensed form and report form.

The financial statement which summarizes the operating, investing, and financing activities of an entity for a period of time is the A.income statement. B. statement of financial position. C. retained earnings statement. D. statement of cash flows.

Payment of dividends would come under which activity on the statement of cash flows? A. Financing. B. Investing. C. Operating. D. None of these.

Receipt of interest from a Note Receivable would be reported as a cash inflow in which of the following sections: A. financing activities. B. investing activities. C. operating activities. D. stock activities.