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acc 8&9

Notes or accounts receivables that result from sales transactions are often called
trade receivables
Three accounting issues associated with accounts receivable are
recognizing, valuing, and disposing
A customer charges a treadmill at Mike’s Sport Shop. The price is $2,000 and the financing charge is 9% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer’s account.
Under the allowance method, writing off an uncollectible account
affects only balance sheet accounts.
The net amount expected to be received in cash from receivables is termed the
cash realizable value
The existing balance in Allowance for Doubtful Accounts is considered in computing bad debts expense in the
percentage of receivables basis
When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when
management estimates the amount of uncollectibles
The percentage of sales basis of estimating expected uncollectibles
emphasizes the matching of expenses with revenues
An aging of a company’s accounts receivable indicates that $9,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,100 credit balance, the adjustment to record bad debts for the period will require a
debit to Bad Debts Expense for $7,900
Bad Debts Expense is considered
a necessary risk of doing business on a credit basis
The allowance method of accounting for uncollectible accounts is required if
bad debts are significant in amount.
Bad Debts Expense is reported on the income statement as
an operating expense
To record estimated uncollectible accounts using the allowance method, the adjusting entry would be a
debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts
Two bases for estimating uncollectible accounts are
percentage of receivables and percentage of sales
The percentage of receivables basis for estimating uncollectible accounts emphasizes
cash realizable value
Hahn Company uses the percentage of sales method for recording bad debts expense. For the year, cash sales are $500,000 and credit sales are $2,000,000. Management estimates that 1% is the sales percentage to use. What adjusting entry will Hahn Company make to record the bad debts expense?
Bad Debts Expense 20,000
Allowance for Doubtful Accounts 20,000
In reviewing the accounts receivable, the cash realizable value is $16,000 before the write-off of a $1,500 account. What is the cash realizable value after the write-off?
Newland Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Newland Retailers will include a credit to Sales of $75,000 and a debit(s) to
Cash $72,000 and Service Charge Expense $3,000.
The sale of receivables by a business
can be a quick way to generate cash for operating needs
The retailer considers Visa and MasterCard sales as
cash sales
notes receivable are recognized in the accounts at
face value
The four subdivisions for plant assets are
land, land improvements, buildings, and equipment.
The cost of land does not include
annual property taxes.
Angie’s Blooms purchased a delivery van with a list price of $30,000. The company was given a $3,000 cash discount by the dealer, and paid $1,500 sales tax. Annual insurance on the van is $750. As a result of the purchase, by how much will Angie’s Blooms increase its van account?
The balance in the Accumulated Depreciation account represents the
amount charged to expense since the acquisition of the plant asset.
Depreciation is a process of
cost allocation
Recording depreciation each period is necessary in accordance with the
expense recognition principle
the declining-balance method of depreciation produces
a decreasing depreciation expense each period.
Units-of-activity is an appropriate depreciation method to use when
the productivity of the asset varies significantly from one period to another
A change in the estimated useful life of equipment requires
that the amount of periodic depreciation be changed in the current year and in future years
Costs incurred to increase the operating efficiency or useful life of a plant asset are referred to as
capital expenditures
What is not true of ordinary repairs
they increase the productive capacity of the asset.
Additions and improvements
increase the book value of plant assets when incurred.
A gain or loss on disposal of a plant asset is determined by comparing the
book value of the asset with the proceeds received from its sale
The book value of a plant asset is the difference between the
cost of the asset and the accumulated depreciation to date
If disposal of a plant asset occurs during the year, depreciation is
recorded for the fraction of the year to the date of the disposal
If a fully depreciated plant asset is still used by a company, the
asset and the accumulated depreciation continue to be reported on the balance sheet without adjustment until the asset is retired
A loss on disposal of a plant asset is reported in the financial statements
in the Other Expenses and Losses section of the income statement
Natural resources are
physically extracted in operations and are replaceable only by an act of nature.
Depletion is
the allocation of the cost of natural resources to expense.
The entry to record patent amortization usually includes a credit to
Cost allocation of an intangible asset is referred to as
Research and development costs
must be expensed when incurred under generally accepted accounting principles

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