Intermediate Accounting Exam 2

Which of the following is not true?

• Trade discounts are the same as cash discounts

• Trade discounts are used to quote different prices for different quantities purchased

• Trade discounts are not recorded in the accounts; rather, they are a means of computing a price

• Trade discounts are used to avoid frequent changes in catalogues

How should a company determine how to classify money market funds?

• Determine if the fund balances are greater than the normal amounts of petty cash. If they are less, then report them as cash; if they are greater, report them an investment.

• Determine if the fund has check writing privileges, because that would allow enough liquidity to be considered cash. Otherwise, the appropriate classification would be as a cash equivalent or temporary investment depending on whether any restriction on conversion to cash exists.

• Determine if the fund is a negotiable instrument, because then it would be short-term paper. Otherwise, it can be considered cash.

• Determine if the fund will be used to meet current operating expenses, because that would allow them to be considered cash. Otherwise, the appropriate classification would be as future operating income.

Which of the following would be the best reporting option for cash and cash equivalents?

• Cash $97,000

  Cash Equivalents $624,900

• Cash and cash equivalents $737,175

• Cash $109,875
  Cash equivalents $350,000

• Cash $459,875
  Cash equivalents $250,000

Answer explanation

On the balance sheet receivables from officers, employees, or affiliated companies should be presented as

• assets but separately from trade accounts receivables.

• footnotes to the balance sheet but not in current accounts receivable.

• trade notes and accounts receivable if they otherwise qualify as current assets.

• offsets to capital.

Carolina Lab Supply has an open purchase order for the scientists at Argon Labs. Any scientist can order a needed chemical and it will be added to the monthly bill. However, when Argon Labs purchased a new electron microscope, as this was a larger and unusual purchase, they signed a contract with Carolina Lab Supply detailing the exact dates of the payments. How do these two items compare?

• The chemical sales are accounts receivable, while the microscope sale is a note receivable.

• The chemical sales are trade receivables, while the microscope sale is a nontrade receivable.

• The chemical sales are noncurrent receivables, while the microscope sale is a current receivable.

• The chemical sales are notes receivable, while the microscope sale is a nontrade receivable.

What will be the uncollectible accounts expense for 2020 after year end adjustment?

• $96,000

• $78,000

• $114,000

• $54,000

Answer explanation

The write off will reduce the allowance for uncollectable accounts.
$92,000 - $56,000 = $36,000
This amount will be subtracted from the current estimate of uncollectable accounts to find bad debt expense.
$114,000 - $36,000 = $78,000

A generally accepted method of determining the amount of the adjustment to bad debt expense is by determining

• a percentage of accounts receivable not adjusted for the balance in the allowance.

• an amount derived from aging accounts receivable and not adjusted for the balance in the allowance.

• a percentage of sales not adjusted for the balance in the allowance.

• a percentage of sales adjusted for the balance in the allowance.

The normal journal entry to record the collection of accounts receivable previously written off when using the allowance method would debit ______________ and credit________________.

• Accounts Receivable; Allowance for Doubtful Accounts.

• Allowance for Doubtful Accounts; Accounts Receivable.

• Allowance for Doubtful Accounts; Bad Debt Expense.

• Bad Debt Expense; Allowance for Doubtful Accounts.

Which of the following is not a problem associated with the valuation of accounts receivable?

• allowances granted

• cash discounts under the net method

• uncollectible accounts

• returns

The normal journal entry when writing-off an account as uncollectible under the allowance method would debit _____________ and credit______________.

• Accounts Receivable; Allowance for Doubtful Accounts.

• Allowance for Doubtful Accounts; Accounts Receivable.

• Bad Debt Expense; Allowance for Doubtful Accounts.

• Allowance for Doubtful Accounts; Bad Debt Expense.