Which of the Following Methods of Estimating Bad Debts Is Not Allowed Under GAAP?

Exam 3 Review ANSWERS
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Gage Company uses the aging of accounts receivable method for estimating bad debts. Based on the aging, it was determined that estimated bad debts amounted to $1,500. The Allowance for Doubtful Accounts account has a $400 debit balance prior to recording the adjusting journal entry. What amount will be used in the related adjusting journal entry?
$400
$1100
$1500
$1900
Which of the following methods of estimating bad debts is not allowed under GAAP?
Aging of accounts receivable
Direct write-off method
Percentage of credit sales method
All of these methods are allowed by GAAP
Accounts receivable should be reported on the balance sheet as the amount due from customers (that is, the balance in the Accounts Receivable account):
Plus the balance in the Bad Debt Expense account
Less the balance in the Bad Debt Expense account
Less the balance in the Allowance for Doubtful Accounts account
Plus the balance in the Allowance for Doubtful Accounts account
On September 1, 2010, a business received a $25,000 note. The agreement indicated that 10% interest would be paid on the note, which is due on September 1, 2011. What is the amount of interest earned on this note during the year ended December 31, 2010?
$0
$625
$833.33
$2500
The acquisition cost of an asset less accumulated depreciation describes:
Depreciable cost
Gain or loss on sale of an asset
Net assets
Book value

Use the following information for question 6-8:

Conejo Company, which uses a calendar year, purchased a piece of equipment for $50,000 on January 3, 2010. It estimates the equipment will have an estimated useful life of 8 years and a $4,000 residual value. The equipment is used to produce 200,000 units during its useful life. The actual number of units produced were 20,000 during 2010, 33,000 during 2011, 18,000 during 2012, and 28,000 during 2013.

Using the straight-line method, what is the book value at December 31, 2012?
$17250
$18750
$28750
$32750
Using the units of production method, what is the amount of accumulated depreciation at December 31, 2013?
$22770
$22230
$24750
$25250
Using the double-declining balance method, what is depreciation expense for the year ended December 31, 2011?
$9375
$9625
$11500
$12500
A company purchased a building on January 3, 2011 and incurred the related costs during the year ended December 31, 2011: Closing agreement price for the building $1,200,000, architect fees $25,000, legal fees $31,000, repair of parking lot lights $5,000, property taxes relating to 2011 $12,000. What is the cost of the building?
$1256000
$1261000
$1268000
$1273000
Which of the following statements regarding disposal of tangible assets is NOT correct?
A disposal requires a journal entry to remove the asset from the accounts
Gain or loss on disposal is calculated as the difference between the resources received from the disposal and the accumulated depreciation of the disposed asset
Disposals may be voluntary or involuntary
A disposal requires a journal entry to update the depreciation expense and accumulated depreciation accounts
When accounting for bonds, accountants are not concerned with:
The sale of bonds at a gain or loss from one investor to another
Payments to the lender
The initial bond issuance
Additional amount owed to the lender for interest
Which of the following are terms associated with the selling price of a bond?
Issue price
Present value
Market interest rate
All of the above are terms associated with the selling price of a bond

For questions 13-14 use the following information:

On January 1,2013, a company issued a $1,000,000 face value, five-year bond at a stated rate of 5%. Because the market rate was 4%, the company received $1,044,518. (Round all calculations to two decimal places)

What is the carrying value of the bond on December 31, 2014?
$1036298.72
$1027750.67
$1044518
$1000000
What is the interest expense for the year ended December 31, 2013?
$50000
$41451.95
$41780.72
$40000
Assume that treasury stock costing $55,000 is reissued for $60,000. The journal entry to record this transaction includes a:
Debit to Treasury Stock for $55,000
Credit to Gain on Sale of Investment for $5,000
Credit to Cash for $60,000
Credit to Additional Paid-in Capital for $5,000
Dividends on preferred stock:
Cannot be paid until common shareholders are paid
Are based on the percentage of shares owned; a 6% dividend is paid to the owner of 6% of the preferred stock
Are a legal liability if not currently paid in full on a cumulative dividend preference
Can contain a current dividend preference or a cumulative dividend preference
Which of the following statements regarding stock dividends is not correct?
Small stock dividends are accounted for at the market value of the stock
A company must have positive balances in both retained earnings and cash to declare a stock dividend
A stock dividend by itself has no economic value
Each stockholder receives additional shares of stock equal to the percentage of shares held
What is the times interest earned ratio given that current liabilities was 24,000, income tax expense was 9,500, interest expense was 6,200, interest payable was 2,000, and net income was 20,500?
16 times
15.16 times
9.71 times
5.84 times
Accounts Receivable, Net, on December 31, 2009 and December 31, 2010 were $5,000 and $75,000 respectively. Net sales Revenue for the year ending December 31, 2010 was $250,000. What is the receivables turnover ratio?
3.13 times
3.33 times
6.25 times
16.00 times
Given the information from question 19, what is the amount of days to collect?
36 days
43.82 days
58.40 days
110 days