McGregor Co allows customers to pay with credit cards. The credit card company charges McGregor a 3% fee. When a customer uses a credit card to pay McGregor $200 for services provided, McGregor would:
Chapters 8 and 9
1. McGregor Co allows customers to pay with credit cards. The credit card company charges McGregor a 3% fee. When a customer uses a credit card to pay McGregor $200 for services provided, McGregor would:
a. Debit cash for $200
b. Credit service revenue for $194
c. Debit service fee expense for $6
d. Credit service revenue for $206.
2. A company had the following sales transactions:
a. Total debit card sales = $200,000
b. Total credit card sales = $400,000
c. Total cash sales = $800,000
d. Total check sales = $100,000
There is a 2% on all credit card transactions. Calculate total sales recorded for the year.
7. Shupe Inc. estimates uncollectible accounts based on the percentage of AR. What effect will recording the estimate (the expense) of uncollectible accounts have on EACH of the components of the accounting equation: A = L + SE. (increase, decrease, no effect)
8. At December 31, Gill Co reported AR of $238,000 and an allowance for uncollectible accounts of $600 (credit balance). An analysis of AR suggests that the allowance should be 3% of AR. Make the adjusting entry to bring the allowance to the correct level.
9. Which accounting principle does the direct write-off method violate?
10. The allowance for uncollectible accounts is:
a. an expense
b. a contra asset account
c. a contra revenue account
d. a liability account
11. Lail Inc accounts for bad debts using the allowance method. On June 1, Lail Inc wrote off Andrew Green’s $2,500 account. Based on Lail’s estimation, Mr. Green will never pay any portion of the balance in his account. What effect will this write-off have on Lail Inc’s balance sheet at the time of the write-off?
a. an increase to expense and a decrease to liabilities
b. no effect assuming that the allowance account was at least $2,500.
c. an increase to assets and an increase to expense
d. a decrease to assets and a decrease to owners’ equity
12. Sandburg Veterinarian reports the following information for the year:
Net credit sales $120,000
Average A/R 20,000
Cash Collections on credit sales 100,000
Calculate Sandburg’s receivables turnover ratio and average collection period.
13. On December 31, 2015, Smith Jones has an A/R balance of $80,000 (debit) and Allowance for uncollectible Accounts $1,100 (credit).
The company estimates uncollectible accounts based on an aging of A/R as shown below:
Amt Receivable Estimated % Uncollectible
Not yet due $48,000 5%
0-30 days past due 18,000 15%
31-90 days past due 10,000 40%
More than 90 days past due 4,000 80%
Calculate the total Allowance amount. Once that is done, make the journal entry taking into account the current balance in the Allowance account.
14. On June 1, 2016, Edwards Company made a loan to Missouri Mining in the amount of $10,000. Edwards had them sign a promissory note for the amount that included an annual interest rate of 12%. This note is due on December 31, 2016. Make the following journal entries in good form for Edwards:
A. To record the loan on June 1st.
B. To record the repayment of the loan and interest in December 31st.
T F 15. The term capitalize means to record an expenditure as an expense.
T F 16. Cash received from the sale of salvaged materials increases the total recorded cost of the land.
T F 17. Most of the costs associated with internally developed intangible assets are recorded as intangible assets on the balance sheet.
T F 18. Goodwill is recorded as an intangible asset on the balance sheet only when it is purchased as part of the acquisition cost of another company.
T F 19. Book value is equal to the original cost of the asset less the total balance in accumulated depreciation.
T F 20. Impairment is recorded when there is a permanent decline in the fair value of an asset.
21. Circle Co purchased a piece of equipment by paying $10,000 cash. There was a shipping cost of $1,200 and a renovation cost of $3,200 to the building to get the space ready for the installation. There was also an installation cost of $1,000. What should be the total cost recorded for this piece of equipment?
22. David Inc. incurred the following costs associated with the purchase of a piece of land that it will use to build an office building:
Sale price of land $500,000
Sale of salvaged material on land 20,000
Demolition of old building on land 10,000
Ground breaking ceremony refreshments 1,500
Legal fees to lawyers for the deed 7,500
What amount should David Inc. record the land for?
23. Research and development costs should be:
1. Expensed in the period incurred
2. Expensed in the period they are determined to be unsuccessful
3. Deferred pending determination of success
4. Expensed if unsuccessful, capitalized if successful
24. Northern Lights purchased the entire business of Southern Brights, including all of its assets and liabilities for $700,000. Below is information about Southern Brights:
Fair value of assets $800,000
Fair value of liabilities $300,000
How much Goodwill should be recorded by Northern Lights?
25. Which of the following intangible assets is not amortized?
D. Franchise fee
26. Western Wholesale Foods incurs several expenditures during the current fiscal year. Indicate how they should be recorded in their financial records: A.expensed or B. capitalized and depreciated?
A. Salaries for repair technicians $155,000____________
B. Remodeling of executive offices $84,000 ____________
C. Annual equipment maintenance costs $72,900_________
D. Replacement of production equipment for increased productivity $38,000__________
E. Addition of sprinkler system of Manufacturing facility $35,000 ________
27. Steven’s Co. purchased a delivery vehicle on January 1, 2012 for $46,000. The vehicle has a
life of 8 years or 250,000 miles and an estimated salvage value of $5,000. Calculate the depreciation
for 2015 (only) using the (1) straight line method; (2) double declining balance method; and (3) the
activity-based method assuming that the vehicle was driven 31,000 miles in 2015.
A. Straight Line
B. Double Declining
C. Activity Based
28. A truck that cost $15,000 and had $10,000 of accumulated depreciation was disposed of on
January 1, 2016. Make the entries in correct form to record the following:
a. Assume the truck was discarded as having no value.
b. Assume the truck was sold for $1,000 cash.
c. Assume the truck was sold for $7,500 cash.