Music Corporation
The data below is for Music Corporation for 2016.
Accounts receivable—January 1, 2016 $236,000
Credit sales during 2016 820,000
Collections from credit customers during 2016 590,000
Customer accounts written off as uncollectible during 2016 8,000
Allowance for doubtful accounts—January 1, 2016 8,700
Estimated uncollectible accounts based on an aging analysis 9,600
1. Refer to the data for Music Corporation.
What is the balance of Accounts Receivable at December 31, 2016?
a. $336,000
b. $448,400
c. $458,000
d. $466,000
2. Refer to the data for Music Corporation.
If the aging approach is used to estimate bad debts, what amount should be recorded as bad debt expense for 2016?
a. $8,000
b. $8,100
c. $8,700
d. $8,900
3. Refer to the data for Music Corporation.
If the aging approach is used to estimate bad debts, what is the balance in the Allowance for Doubtful Accounts after the bad debt expense adjustment?
a. $8,000
b. $8,100
c. $8,900
d. $9,600
4. Router Inc. lends $70,000 on a 120-day, 9% promissory note. The total interest that Router will receive at maturity is
a. $6,300
b. $2,100
c. $525
d. $1,890
5. Textbooks.com accepts VISA for payments of purchases made by students. The credit card drafts are deposited directly in a bank account. VISA charges a 2% collection fee. Credit card drafts totaling $12,000 are deposited during September. The effect on the accounting equation to record the sales and deposits will include
a. An increase in Cash for $12,000
b. An increase to Sales for $11,760
c. An increase to Accounts Receivable for $11,760
d. An increase in Collection Fee Expense for $240
6. When a company discounts an interest-bearing note at a bank with recourse:
a. The company is assured payment at maturity.
b. The company will receive the full amount of the note plus interest.
c. The company has a contingent liability from the time the note is discounted until its maturity date.
d. The bank assumes the credit risk on non-payment at the maturity date.
7. Using different depreciation methods for book purposes versus tax purposes for the same asset is
a. not allowed since the amount can only be calculated one way or the other, not both.
b. the direct result of the differing goals of financial and tax accounting.
c. contrary to GAAP.
d. against the Internal Revenue Code, and as such, against the law.
8. Newco Publishing Company purchased equipment at the beginning of 2016 for $200,000. The company decided to depreciate the equipment over an 8-year period using the straight-line method. The company estimated the equipment’s residual value at $20,000. The journal entry to record depreciation expense for 2016 will
a. increase Depreciation Expense and increase Accumulated Depreciation for $25,000.
b. increase Accumulated Depreciation and decrease Equipment for $25,000.
c. increase Depreciation Expense and decrease Equipment for $22,500.
d. increase Depreciation Expense and increase Accumulated Depreciation for $22,500.
9. Delmont Fire Co. purchased identical equipment having an estimated useful life of ten years. Wind Chime uses the straight-line depreciation method and Fire Hut uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct?
a. Wind Chime’s depreciation expense will be greater in the second year than Fire Hut’s depreciation expense.
b. Fire Hut’s book value will be greater than Wind Chime’s book value at the end of year one.
c. Wind Chime’s net income will be greater than Fire Hut’s net income in year nine.
d. Fire Hut’s book value will be less than Wind Chime’s book value at the end of year two.
10. Royal Company purchased a dump truck at the beginning of 2014 at a cost of $60,000. The truck had an estimated life of 6 years and an estimated residual value of $24,000. On January 1, 2016, the company made major repairs of $20,000 to the truck that extended the life 1 year. Thus, starting with 2016, the truck has a remaining life of 5 years and a new salvage value of $8,000. Royal uses the straight-line depreciation method. What is the book value of the truck to be reported on the balance sheet at December 31, 2016?
a. $44,000
b. $50,000
c. $56,000
d. $62,000
