Exam 4

Question 1

What is the Allowance Method of Accounts Receivable? (2)

Answer 1

1. matches bad debts expense with sales for the period
2. reports accounts receivable at estimated realizable value.

Question 2

What is the Direct Write-Off Method of Accounts Receivable?

Answer 2

records loss at the time it is determined uncollectible

Question 3

How do you journalize bad debts (multiple accts) using the allowance method?

Answer 3

debit bad debts expense
credit allowance for doubtful

Question 4

How do you journalize write offs for specific accounts receivable using the allowance method? (what is debited vs credited)

Answer 4

debit allowance for doubtful
credit specific account in the accts receivable

Question 5

How do you journalize write offs of specific accounts receivables using the direct write off method? (what is debited vs credited)

Answer 5

debit bad debts expense
credit specific account in the accts receivable

Question 6

What type of account is the Allowance for Uncollectible accounts?

Answer 6

Contra asset account

Question 7

How is the Allowance for Uncollectible accounts reported on the balance sheet? (where is it, debit or credit?)

Answer 7

it goes right below the accounts receivable section in assets, and is credited.

Question 8

How do you compute the Net Realizable Value of an item? (Formula)

Answer 8

expected selling price of item - cost of making sale

Question 9

Who is the maker of a promissory note?

Answer 9

Person who signs a note and promises to pay it at maturity

Question 10

Who is the holder of a promissory note?

Answer 10

The business who is receiving payments

Question 11

What is the face value of a promissory note?

Answer 11

Principle ammount

Question 12

What is the formula to compute interest?

Answer 12

principle x interest x (days/360)

Question 13

What is the formula for Accounts Receivable turnover?

Answer 13

Net Sales / average accts rec.

Question 14

What costs should be capitalized and where do you record them? (Capital Expenditures)

Answer 14

improvements that last more than the current period, balance sheet

Question 15

What costs should be expensed and where do you record them? (Revenue Expenditures)

Answer 15

costs that do not increase the assets life or capabilities, income statement

Question 16

What is included in the land costs?

Answer 16

land and costs necessary to make it ready for intended use

Question 17

What is included in the building costs?

Answer 17

cost of purchasing or constructing a building that is used in operations

Question 18

What is included in the equipment costs?

Answer 18

All costs necessary to prepare them for the intended use

Question 19

What is depreciation?

Answer 19

expense of using the asset within any given year

Question 20

What is the salvage value of a piece of equipment?

Answer 20

An assets expected value at the end of its useful life

Question 21

How do you compute straight line depreciation? (formula)

Answer 21

(Cost - salvage value) / years of useful life

Question 22

How do you compute the Units of Production depreciation? (2 steps)

Answer 22

1. Find Depreciation per unit (cost-salvage value)/total units
   2.Depreciation per unit x units in that year

Question 23

Why would an expenditure be capitalized vs expensed?

Answer 23

Capitalized: increases the useful life of the asset Expensed: does not increase the useful life

Question 24

How do you compute the book value of an asset? (Formula)

Answer 24

Original cost - accumulated depreciation

Question 25

How do you compute gain or loss on an asset? (what journal categories and debit vs credit)

Answer 25

Cash (debit)
Accumulated Depreciation (Debit)
Loss or gain (depends on gain or loss)
Equipment (credited)

Question 26

How do you compute good will? (Formula)

Answer 26

purchase price of a company - value of the assets and liabilities

Question 27

What kind of expense is depreciated?

Answer 27

Machinery and Equipment

Question 28

What kind of expense is amortized?

Answer 28

an intangible assets