Exam 3 Review

Sugar Time Lemonade wants to invest some of its excess funds in another company. It purchases 200 shares of common stock in another company for $15 per share. The par value of the stock is $7 per share. What is one financial statement implication of this transaction?

• A) Common Stock will increase by $3,000.

• B) Investments will increase by $3,000.

• C) Common Stock will decrease by $3,000.

• D) Treasury Stock will increase by $3,000.

An enterprise combines _________ with _________ in order to provide customers with goods and services as part of the value chain model.

• Cash, Employee Labor

• Merchandise, Cash

• Cash, Property

• Supplies, Employee Labor

Stars Magazine sells a one-year magazine subscription to a customer on July 1st for $60. Stars Magazine will deliver the magazine on the 10th day of each month. How should the transaction price be allocated?

• A) $60 of Subscription Revenue should be recorded when the one-year subscription ends.

• B) $5 of Subscription Revenue should be recorded each month when the magazine is delivered.

• C) $60 of Subscription Revenue should be recorded when the one-year subscription starts.

• D) $5 of Deferred Revenue should be recorded each month when the magazine is delivered.

On July 1st, 2024, Sally’s Baking Company lends $10,000 to Bob’s Lawn Care using a promissory note. The note bears 6% interest (compounded annually) and must be repaid on December 31st, 2024. How does this impact Sally’s Baking Company’s financial statements on July 1st?

• A) Total Assets will increase.

• B) Total Assets will decrease.

• C) Total Assets will be unchanged.

Harold’s Heating and Cooling currently has $100,000 in outstanding accounts receivable. Of this amount, 70% are current (less than 30 days old), and the remaining 30% are past due. Harold estimates that 5% of the current balance will be uncollectable, and 7% of the past due balance will be uncollectable. How much should Harold record as Bad Debt Expense in the current period?

• $2,100

• $3,500

• $4,900

• $5,600

Which of these accounts will appear on an enterprise’s Income Statement?

• Accounts receivable

• Allowance for Uncollectible Accounts

• Bad Debt Expense

• Allowance for Bad Debts

Mary’s annual salary is $78,000. Her employer withheld $9,500 for federal income taxes from her paychecks during the year, plus the employee half of Social Security and Medicare Taxes. How much did Mary receive in her paychecks during the year?

• $68,500

• $63,664

• $62,533

• $56,566

What benefit does accepting credit cards offer an enterprise over providing credit terms to their customers directly?

• Lower transaction fees

• Reduced risk of non-payment

• Better control of the credit terms

• All of the above

How does an installment note differ from a single payment promissory note?

• In an installment note, all interest is paid at the end of the loan term.

• In an installment note, each payment is comprised of both interest and principal repayment.

• Installment notes can only come from banks, not from other enterprises.

• Installment notes do not appear on an enterprise’s balance sheet.

Harold’s Heating and Cooling sells $20,000 of products to customers during the month of March. The enterprise collects 4% sales tax on the products, which it will remit to the appropriate government agency on April 5th. Which of the following will not be present on the enterprise’s March financial statements?

• Sales Revenue of $20,000

• Sales Tax Payable of $800

• Sales Tax Expense of $800

• All of the Above