AFM131 Study Guide - Midterm Guide: Cash Flow Statement, Operating Cash Flow, Deferral

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rosemule161

27 Oct 2014

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM131

Professor

Robert Sproule

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AFM131 Full Course Notes

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Document Summary

Chapter 8 - reporting and interpreting receivables, bad debt expense and interest revenue. Allowance for doubtful accounts is a contra- asset account that reduces accounts. Methods for estimating bad debt: percentage of sales credit (income statement approach): estimates bad debt based on a percentage, simple to apply, but only accurate for small companies/companies that use little credit. Notes receivable and interest revenue: promissory note: requires another party to pay according to agreement, used for company loans, selling expensive items with extended payment, or converting ar to. Interest = principle x interest rate x time: principle = amount on nr. T= time period (12 months or 365 days: interest not recorded when a note is established; accrued over time, a= interest receivable. S/e= interest revenue: ex: on dec 31, 2011, earned 2 months interest: i= pxrxt, on oct 31, 2012, company receives cash interest.

Related Questions

Jan. 19.	Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalize the receipt of $2,120 cash in full payment of Arleneâs account.
Apr. 3.	Wrote off the $12,150 balance owed by Premier GS Co., which is bankrupt.
July 16.	Received 30% of the $21,800 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible.
Nov. 23.	Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $3,455 cash in full payment.
Dec. 31.	Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $9,135 ; Fogle Co., $2,715 ; Lake Furniture, $ 6,975 ; Melinda Shryer, $1,970.
Dec. 31.	Based on an analysis of the $1,074,100 of accounts receivable, it was estimated that $46,700 will be uncollectible. Journalize the adjusting entry.

Required:

1. Record the January 1 credit balance of $44,500 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts.

2. a. Journalize the transactions. If an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the $1,074,100 balance in accounts receivable reflects the adjustments made during the year.

Jan. 19-reinstate	Accounts Receivable-Arlene Gurley
	Allowance for Doubtful Accounts
Jan. 19-collection	Cash
	Accounts Receivable-Arlene Gurley
Apr. 3	Allowance for Doubtful Accounts
	Accounts Receivable-Premier GS Co.
July 16	Cash
	Allowance for Doubtful Accounts
	Accounts Receivable-Hayden Co.
Nov. 23-reinstate	Accounts Receivable-Harry Carr
	Allowance for Doubtful Accounts
Nov. 23-collection	Cash
	Accounts Receivable-Harry Carr
Dec. 31-write-off	Allowance for Doubtful Accounts
	Accounts Receivable-Cavey Co.
	Accounts Receivable-Fogle Co.
	Accounts Receivable-Lake Furniture
	Accounts Payable-Melinda Shryer
Dec. 31-adjusting	Bad Debt Expense
	Allowance for Doubtful Accounts

Feedback

Set up T accounts.
Recall that under the allowance method, the entry to write off an account debits Allowance for Doubtful Accounts and credits Accounts Receivable.
In such cases where an account receivable that has been written off is later collected, the account is reinstated by an entry that reverses the write-off entry. Then record the receipt of cash as payment for the account.
The amount of bad debt expense is affected by the balance in the allowance account.

Learning Objective 4.

2. b. Post each entry that affects the following T accounts and determine the new balances:

Allowance for Doubtful Accounts
Apr. 3		Jan. 1 Balance
July 16		Jan. 19
Dec. 31		Nov. 23
		Dec. 31 Unadjusted Balance
		Dec. 31 Adjusting Entry
		Dec. 31 Adjusted Balance

Bad Debt Expense

Feedback

Learning Objective 4.

3. Determine the expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).
$

4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of Â½ of 1% of the sales of $6,630,000 for the year, determine the following:

a. Bad debt expense for the year.
$

b. Balance in the allowance account after the adjustment of December 31.
$

c. Expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).
$

Feedback

scarletfly649

Entries Related to Uncollectible Accounts

The following transactions were completed by The Wild Trout Gallery during the current fiscal year ended December 31:

Jan. 19.	Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalized the receipt of $2,660 cash in full payment of Arleneâs account.
Apr. 3.	Wrote off the $15,240 balance owed by Premier GS Co., which is bankrupt.
July 16.	Received 25% of the $27,300 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible.
Nov. 23.	Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $4,335 cash in full payment.
Dec. 31.	Wrote off the following accounts as uncollectible (one entry): Cavey Co.,$11,465; Fogle Co., $3,405; Lake Furniture, $8,750; Melinda Shryer, $2,475.
Dec. 31.	Based on an analysis of the $1,350,100 of accounts receivable, it was estimated that $58,700 will be uncollectible. Journalized the adjusting entry.

Required:

1. Record the January 1 credit balance of $55,900 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts.

2. a. Journalize the transactions. For a compound transaction, if an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the $1,350,100 balance in accounts receivable reflects the adjustments made during the year.

Jan. 19-reinstate

Jan. 19-collection

Apr. 3

July 16


Nov. 23-reinstate

Nov. 23-collection

Dec. 31-write-off




Dec. 31-adjusting

2. b. Post each entry that affects the following T accounts and determine the new balances:

Allowance for Doubtful Accounts
		Jan. 1 Balance




		Dec. 31 Adjusted Balance

Bad Debt Expense

3. Determine the expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).
$

a. Bad debt expense for the year.
$

b. Balance in the allowance account after the adjustment of December 31.
$

c. Expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).
$

harlequinmanatee527

Questions for a practice study test for final. Use ABCD in youranswer instead of writing it out. Thank You!

1 of 35

Which of the following would NOT be considered part of the costof a constructed building?

	Contractor charges
	Architectural fees
	Building permit fees
	Realtor commissions

Question

2 of 35

Under the direct write-off method, to record the receipt of cashafter an account has previously being written off, you wouldfirst

	debit Bad Debt Expense.
	debit Allowance for DoubtfulAccounts.
	reinstate the customer'saccount.
	debit Cash and credit thecustomer's account.

Question

3 of 35

Which of the following would be considered a naturalresource?

	Wheat
	Corn
	Livestock
	Timber

Question

4 of 35

An asset has a cost of $50,000 with a residual value of $10,000.It has a life of 5 years and was purchased on January 1. Its fourthfull year of depreciation expense under double-declining-balancewill be

	$7,200.
	$800.
	$4,320.
	$0.

Question

5 of 35

Which would be considered part of land improvements?

	Signs
	Removing unwanted buildings fromthe land
	Fencing
	In-ground sprinkler systems

Question

6 of 35

Cesario Corporation purchases a machine for $125,000. It has anestimated salvage value of $10,000 and is expected to produce50,000 units in its lifetime. During the first year of operation,it produced 14,500 units. To the nearest dollar, the depreciationfor the first year under the units of production method will be

	$35,500.
	$33,350.
	$36,250.
	$31,250.

Question

7 of 35

When using the allowance method for uncollectible accounts, theaging method is called the

	Allowance approach.
	Income Statement approach.
	Direct write-off approach.
	Balance Sheet approach.

Question

8 of 35

Which of the following would be considered a cashequivalent?

	Time deposits
	Checks
	Currency
	Money orders

Question

9 of 35

Leo Company has a petty cash fund of $300. At the end of themonth, $42.38 remains in the fund along with $260.75 in variousreceipts for purchases. The journal entry to replenish the fundwould be

	debit various expenses, $260.75,and credit Cash for $260.75.
	debit Petty Cash for $257.62, andcredit Cash for $257.62.
	debit various expenses, $260.75;credit Cash Over for $3.13, and credit Cash for $257.62.
	debit various expenses, $254.49;debit Cash Short for $3.13, and credit Cash for $257.62.

Question

10 of 35

Gallego & Co. reported sales of $515,000; beginning netAccounts Receivable of $212,000; and ending net Accounts Receivableof $224,000. Gallego & Co.'s receivable collection period(rounded to the nearest day) is

	159.
	150.
	106.
	155.

Question

11 of 35

When companies extend credit to customers

	the likelihood of not collectingmoney from customers increases.
	sales generally decrease.
	the likelihood of not collectingmoney from customers decreases.
	the amount of business stays thesame.

Question

12 of 35

Lionworks Company has cash of $143,000; net Accounts Receivableof $89,000; short-term investments of $35,000; and prepaid expensesof $40,000. It also has $50,000 in current liabilities and $80,000in long-term liabilities. The quick ratio for Lionworks Companyis

	6.14.
	5.34.
	3.34.
	4.64.

Question

13 of 35

Which of the following is NOT true concerning NSF checks?

	NSF checks represent customerchecks that the business previously deposited but have turned outto be worthless.
	The amount of the NSF check willneed to be added to the book balance.
	NSF stands for nonsufficientfunds.
	The amount of the NSF check willneed to be subtracted from the book balance.

Question

14 of 35

Leo's Lawn Care purchased equipment on January 1. The cost was$15,000, and the equipment had a residual value of $4,000. Theequipment was given a useful life of 7 years. After the end of twoyears, it was determined that the equipment would be obsolete in 3more years, and the residual value would still be $4,000. What willbe the depreciation under the straight-line method to the nearestdollar for the third year?

	$2,619
	$7,857
	$3,142
	$1,571

Question

15 of 35

Goodwill is defined as

	liabilities minus assets.
	the acquisition costs of afranchise.
	excess of the cost of the purchaseof a business over the market value of its net assets.
	assets minus liabilities.

Question

16 of 35

During the month, Evergreen Roofing settled $300 in warrantyclaims by replacing defective flashing. Evergreen uses an estimatedwarranty account. The journal entry to record the settled claimswould have been

	debit Warranty Expense $300; creditCash $300.
	debit Estimated Warranty Payable$300; credit Inventory $300.
	debit Estimated Warranty Payable$300; credit Cash $300.
	debit Warranty Expense $300; creditEstimated Warranty Payable $300.

Question

17 of 35

TLR Productions reported Interest expense of $8,300, Income taxexpense of $26,400, and Net income of $88,700. TLR's interestcoverage ratio is (rounded to three decimals)

	0.067.
	0.072.
	14.867.
	13.867.

Question

18 of 35

The entry to record S&C, Inc. selling 1,000 shares of $12par common stock for $20 per share would be to

	debit Cash $12,000; debit Paid-InCapital in Excess of ParâCommon $8,000; credit Common Stock$20,000.
	debit Cash $12,000; credit CommonStock $12,000.
	debit Cash $20,000; credit CommonStock $20,000.
	debit Cash $20,000; credit CommonStock $12,000; credit Paid-In Capital in Excess of Par-Common Stock$8,000.

Question

19 of 35

The entry to record selling 300 shares of stated value $60common stock for $70 per share would be

	debit Cash $21,000; credit CommonStock $18,000; credit Paid-in Capital in Excess of StatedValueâ$3,000.
	debit Cash $21,000; credit CommonStock $21,000.
	debit Cash $18,000; debit Paid-inCapital in Excess of Stated Valueâ$3,000; credit Common Stock$21,000.
	debit Cash $18,000; credit CommonStock $18,000.

Question

20 of 35

Salty's Seafood has 2,000 shares of $10-par common stockoutstanding. During the current year, the company distributed a 10%stock dividend. The market value of the stock at that time was$16/share. After the distribution, Salty's total Stockholders'Equity should increase or decrease by

	$1,200.
	$2,000.
	($3,200).
	$0.

Question

21 of 35

The rate of interest that is printed on a bond is called the________ rate of interest.

	variable
	stated
	maturity
	market

Question

22 of 35

The adjusting entry to record incurred but not yet paid employeewages includes

	a debit to Cash.
	a debit to Wages Payable.
	a debit to Wages Expense.
	a debit to Wages Earned.

Question

23 of 35

At least one class of stock MUST have

	voting rights.
	liquidation rights.
	preemptive rights.
	dividend rights.

Question

24 of 35

On October 31, 2014, Aspen Inc. recorded their semiannual bondinterest expense that contained a credit to Discount on bondspayable of $1,200. The adjusting entry on December 31, 2014 willshow a credit to Discount on bonds payable of

	$400.
	$600.
	$800.
	$1,200.

Question

25 of 35

Charmed, Inc. reacquired 5,000 shares of its $15-par commonstock for $13/share. The debit to Treasury Stock will be

	$65,000.
	$75,000.
	$10,000.
	based on the last treasury stocktransaction.

Question

26 of 35

The basic unit of stock is called a(n)

	authorization.
	ownership record.
	certificate.
	share.

Question

27 of 35

Accrued liabilities, such as interest payable, would beconsidered a(n)

	unknown liability.
	known liability.
	contingent liability.
	estimated liability.

Question

28 of 35

By NOT accruing warranty expense

	reported expenses will beunderstated, and net income will be understated.
	reported expenses will beoverstated, and reported liabilities will be understated.
	reported liabilities will beunderstated, and net income will be overstated.
	reported liabilities will beoverstated, and net income will be understated.

Question

29 of 35

Which of the following would NOT be a liability?

	An obligation that is estimated inamount
	The signing of a three-yearemployment contract at a fixed annual salary
	A note payable with no specificmaturity date
	An obligation to provide goods orservices in the future

Question

30 of 35

One type of liability that is easy to overlook is a(n)

	tax liability.
	account payable.
	contingent liability.
	note payable.

Question

31 of 35

Inventory turnover measures the relationship between

	total assets and merchandiseinventory.
	cost of goods sold and totalliabilities.
	cost of goods sold and merchandiseinventory.
	merchandise inventory and currentliabilities.

Question

32 of 35

Transactions involving the purchase and sale of long-termassets, lending money, and collecting the principal on loans arecalled

	operating activities.
	investing activities.
	financing activities.
	buying and selling activities.

Question

33 of 35

The Statement of Cash Flows reports the sources and uses of cashfrom all of the following EXCEPT

	financing activities.
	managerial activities.
	operating activities.
	investing activities.

Question

34 of 35

Which of the following ratios measures the earnings of a companyon each dollar of assets invested?

	Return on equity
	Return on assets
	Return on sales
	Current ratio

Question

35 of 35

Are all decreases to cash the result of an unfavorablesituation?

	No. Cash could decrease as a resultof acquiring long-term assets the company needs to expand or staycompetitive.
	Yes. Cash could decrease as aresult of paying off long-term debt, which is an unfavorable actionto take.
	No. Cash could decrease because thecompany issued more stock.
	Yes. Decreases to cash are alwaysbad.

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AFM131 Study Guide - Midterm Guide: Cash Flow Statement, Operating Cash Flow, Deferral

AFM131 Full Course Notes

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