Exam 3

Question 1

Allen Tutoring Services recognized $3,750 of service revenue earned on account during year 1.

Answer 1

Accounts Recievable - Debit for $3750
Service Revenue - Credit for $3750
Asset Source Transaction
Cash flow not affected
Increased Net Income
Revenue Recognition

Question 2

Allen Tutoring Services collected $2750 cash from accounts recievable in Year 1.

Answer 2

Cash - Debit for $2750
Accounts Receivable - Credit for $2750
Asset Exchange Transaction
Net Income is not affected - revenue was recognized in a previous transaction
Cash Flow increaes - Operating Activity
Collection of Receivables

Question 3

Allen Tutoring Services recognized uncollectible accounts expense for accounts expected to be uncollectable in the future.

Answer 3

Uncollectible Accounts Expense - Debit $75
Allowance for Doubtful Accounts - Credit $75
Net Income decrease
Cash Flow is unaffected
Recognizing Uncollectible Accounts Expense

Question 4

Allen Tutoring Services wrote off $70 of uncollectible accounts recievable

Answer 4

Allowance for Doubtful Accounts - Debit $70
Accounts Receivable - Credit $70
Asset Exhange Transaction
Net Income unaffected
Cash Flow is unaffected
Write-Off of Uncollectible accounts receivable

Question 5

Allen Tutoring Services provided $10,000 of tutoring services on account during Year 2.

Answer 5

Accounts Receivable - Debit $10,000
Service Revenue- Credit $10,000
Net Income increase
Cash Flow is unaffected
Revenue Recognition

Question 6

Allen Tutoring Services collected $8430 cash from accounts recievable.

Answer 6

Cash - Debit $8,430
Accounts Receivable- Credit $8,430
Net Income is not affected
Cash Flow increases by $8,430 Operational Acctivities
Collection of Accounts Receivable

Question 7

Allen Tutoring Services recovered a receivable that it had previously written off

Answer 7

Accounts Receivable - Debit $10
Allowance for Doubtful Accounts - Credit $10
Balance sheet: Assets after Net Realizable Value of Receviables is $0
Net Income is not affected
Accounts Receivable
Recovery of an Uncollectible Account: Reinstate Receivable

Question 8

Allen Tutoring Service recorded collection of the reinstated recievable

Answer 8

Cash - Debit $10
Accounts Receivable- Credit $10
Balance Sheet: ASSETS(cash increses and Net Realizable Value of Receivables decreases)
Net Income is not affected
Cash Flow increases by $10 - Operational Acctivities
Recovery of an Uncollectible Account: Collection of Accounts Receivable

Question 9

Using the percent of revenue method, Allen Tutoring Service recognized uncollectable accounts expense for Year 2. (2% of revenue)

Answer 9

(10,000 revenue X 0.02 = $200)
Uncollectible Accounts Expense - Debit $200
Allowance for Doubtful Acccounts- Credit $200
Balance Sheet: ASSETS( Net Realizable Value of Receivables decreases) EQUITY(Retained Earning decrease)
Net Income decrease
Cash Flow increases is not affected
Adjustment for Recognition of Uncollectible accounts Expense

Question 10

Using Write-off method: During Year 1, Allen Tutoring Service recognized $3750 of revenue on account

Answer 10

Accounts Recievable - Debit $3750
Service Revenue- Credit $3750
Balance Sheet: ASSETS( accounts receivable - increases) EQUITY(Retained Earning increase)
Net Income increases
Cash Flow is not affected

Question 11

Using write-off method: In the Year 2 accounting period, Allen Tutoring Services determined that $70 of accounts recievable were uncollectible.

Answer 11

Uncollectible Accounts Expense - Debit $70
Accounts Recevable- Credit $70
Balance Sheet: ASSETS( account recevable decreases) EQUITY(Retained Earning decrease)
Net Income decrease
Cash Flow is not affected

Question 12

Using write-off method: In Year 2 Allen Tutoring Service recovered a $10 account recievable it had previously written off.

Answer 12

Part 1:
Accounts Receivable - Debit $10
Uncollectible Accounts Expense - Credit $10
Balance Sheet: ASSETS( Accounts Recievable increases) EQUITY(Retained Earning increase)
Net Income decrease
Cash Flow is not affected
Reinstate the Recievables

Part 2:
Cash - Debit $10
Accounts Receivable - Credit $10
Balance Sheet: ASSETS(cash increases; Accounts Recievable decreases)
Net Income is not affected
Cash Flow increases - operating activity
Record collecting the reinstated account

Question 13

Allen Tutoring Service loaned $15,000 to Stanford

Answer 13

Notes Receivable - Debit $15,000
Cash - Credit $15,000
Balance Sheet: ASSETS( Cash decreases; Notes Receivables increases)
Net Income is not affected
Cash Flow decreases - Investment Activity
Loan of Money

Question 14

Allen Tutoring Service recognized $150 of intrest revenue in Year 3 although they will not collect the cash until Year 4.

Answer 14

Intrest Receivable - Debit $150
Intrest Revenue - Credit $150
Balance Sheet: ASSETS( Intrest Receivable increases; Intrest Revenue increases)
Net Income increases
Cash Flow is not affected

Question 15

Allen Tutoring Service accepts a credit card payment for $1,000 of services rendered. With a 5% fee.

Answer 15

(1,000 x 0.05 = $50)
Accounts Receivable - Debit $950
Credit Card Expense - Debit $50
Service Revenue - Credit $1,000
Balance Sheet: ASSETS( Accounts Receivable increases) EQUITY(Retained Earninn increases)
Net Income increases (1000 - 50 = 950)
Cash Flow is not affected

Recognition of Revenue and Expense on Credit Card Sales

Question 15

Allen Tutoring Service collected $15,900 cash on maturity date. The principle was $15,000 and the interest was $900.

Answer 15

Part1:
Intrest Receivable - Debit $750
Intrest Revenue - Credit $750
Balance Sheet: ASSETS( Interest Receivable increases) EQUITY(Retained Earning increases)
Net Income increases
Cash Flow is not affected

Part 2:
Cash - debit $15,900
Notes Receivable - Credit $15,000
Interest Receivable - Credit $900
Balance Sheet: ASSETS( Cash increase; Interest Receivable decreases; Notes Receivable decreases)
Net Income is not affected
Cash Flow increases 15,000 from investing activities and increases 900 from operating activities

Collection of Principal and Intrest on the Maturity Date

Question 15

Allen Tutoring Service clollects the net amount of $950 from the credit card company

Answer 15

Cash - Debit $950
Accounts Receivable - Credit $950
Balance Sheet: ASSETS( Cash increases; Accounts Receivable decreases)
Net Income increases is not affected
Cash Flow increases - operating activity

Collection of credit Card Recievable

Question 16

Dryden acquired $25,000 cash on January 1, Year, by issuing common stock.

Answer 16

Cash - Debit 25000
Common Stock - Credit 25000
Balance sheet - Assets increase and Common Stock increase
Income Statement - not affected
Statement of Cash Flow - increase - Finacial Activity

Question 17

Dryden bought the van on January 1, Year 1 using funds from the stock issue. The cost of the van was $24,000 cash.

Answer 17

Van - Debit 24000
Cash - Credit 24000
Balance sheet - Assets (decrease cash and increase book value of van) - asset exchange transaction
Income Statement - not affected
Statement of Cash Flow - decrease - investment Activity

Question 18

Dryden used the van by renting it to customers. The rent revenue each year is $8,000 cash.

Answer 18

Cash - Debit 8000
Rent Revenue - Credit 8000
Balance sheet - Assets increase and Retained Earning increase
Income Statement - revenue increase
Statement of Cash Flow - increase - Operational Activity

Question 19

The December 31, Year 1 journal entry for the $5,000 depreciation expense is recognized each year as the van is used.

Answer 19

Depreciation Expense - Debit 5000
Accumulated Depreciation- Credit 5000
Balance sheet - Asset book value of van decrease and Retained earning decrease
Income Statement - expense resported (decrease net income)
Statement of Cash Flow - not affected

Question 20

Dryden retires the van from service and sells it on January 1, Year 5 for $4,500 cash.On this date the book value is $4,000

Answer 20

Cash - Debit 45000
Accumulated Depreciation - Debit 20000
Common Stock - Credit 24000
Gain on Sale of Van - Credit 500
Balance sheet - Assets (increase cash by 4500 and increase book value of van by 4000) and Retained Earning increase by 500
Income Statement - revenue or gain increase by 500
Statement of Cash Flow - increase by 4500- Investment Activity

Question 21

McGraw Sspent $500 for routine repair costs.

Answer 21

Repairs expense - Debit $500
Cah - Credit $500
Income Staement - decrease (expense)
Statement of Cash Flow - Decrease -operating activities

Question 22

McGraw makes a major expenditure of $4,000 in the machines 5th year to improve its productive capacity,

Answer 22

Machine (Book Value of Machine) - Debit $4,000
Cash - Credit $4,000
Assset Exchande transaction
Income Statment is not affected
Statement of Cah Flow - decreases - investing activity

Question 23

McGraw makes a $4,000 expenditure that extends the useful life of the machine by 2 year.

Answer 23

Accumulated Depreciation-Machine - Debit $4,000
Cash - Credit $4,000
Asset Exchange Transaction
Income statement is not affected
Statement of Cash Flow decreases - investing activity

Question 24

(1) Assume Apex Coal Mining paid $4,000,000 cash to purchas a mine with an estimated $16,000,000 tons of coal. The unit depletion charge is?

(2) If Apex mines 360,000 tones of coal the first year, the depletion charage is:

(3) Financial statments for (1) and (2) are?

Answer 24

(1) $4,000,000 / 16,000,000 = $0.25 per ton
(2) 360,000 X $0.25 = $90,000
(3) coal mine - debit $4,000,000
cash - credit $4,000,000
Balance sheet - ASSETS (cash decreases by 4,000,000) and (coal mine increases by 4,000,000)
Income statement is not affected
Statment of cash flow decreases by $4,000,000 - investing activity
Depletion Expense - Debit $90,000
Coal Mine - Credit $90,000
Balance sheet - ASSETS (Coal Mine decreases by $90,000) and RETAINED EARNINGS (decrease by $90,000)
Income Statement - decreases (expense) by 90,000
Statement of cash Flow is not affected

Question 25

Assume a buyer agrees to purchase a restaurant by paying the owner $300,000 cash. The business’s assets have an appraised value of $280,000 and the liabilities are valued at $50,000. The fair value of net assets is (1) $230,000. (2) What is the goodwill? (3) what do the finacial statements look like?

Answer 25

(1) $280,000 - $50,000 = $230,000
(2) $300,000 - $230,000 = $70,000
(3) Restaurant Assets - debit $280,000
Goodwill - debit $70,000
Cash - credit $300,000
Liabilities - credit $50,000
Balance sheet - ASSETS (cash decrease by 300,000) (Restaurant Assets increase by 280,000) (Goodwill increases by 70,000)
LIABILITIES (increase 50,000)
Income Statment - not affected
Statement of Cash Flow - decrease
300,000 - Investing activity