Journal Entries
What is the journal entry to establish a petty cash fund of $200?
Debit Petty Cash $200
Credit Cash $200
What are the three factors needed to calculate depreciation?
Cost, Salvage Value, Useful Life
What is the formula for interest on a note?
Principal × Rate × Time
What is the goal of internal control?
To protect assets, ensure reliable accounting, and prevent fraud
What are cash equivalents?
Short-term, highly liquid investments close to maturity
Bonus 100 points if they can name cash types of equivalents: Treasury bills (T-Bills), commercial paper, certificates of deposit, Money Market Funds, bankers acceptances, repurchase agreements (repos), cash management pools
Stocks or mutual funds or long term CD's or acct receivable aren't cash equivalents
A customer pays a previously written-off account under the DIRECT WRITE-OFF method. What are the TWO journal entries required?
Debit Accounts Receivable
Credit Bad Debts Expense
Debit Cash
Credit Accounts Receivable
Which depreciation method applies a constant rate to the declining book value?
Double Declining-balance method
What is the formula for straight-line depreciation?
(Cost − Salvage Value) ÷ Useful Life
Which law requires public companies to have documented internal controls?
Sarbanes-Oxley Act (SOX)
What is the difference between accounts receivable and notes receivable?
Notes Receivable are FORMAL written promises with interest; Accounts Receivable are INFORMAL and interest-free
(Anything about notes receivable having interest and A/R not having interest is acceptable or just stating formal and informal promises)
What is the adjusting entry to record $1,500 of estimated uncollectibles using the allowance method?
Debit Bad Debts Expense $1,500
Credit Allowance for Doubtful Accounts $1,500
If equipment costs $12,000, has a $2,000 salvage value, and a 5-year life, what is the annual straight-line depreciation?
Answer: $2,000
(Calculation: (Cost - Salvage Value) ÷ Useful Life --> ($12,000 - $2,000) ÷ 5)
What is the formula for accounts receivable turnover?
Net Credit Sales ÷ Average Accounts Receivable
Name three principles of internal control.
Establish responsibilities. Maintain adequate records. Insure assets and bond key employees. Separate recordkeeping from custody of assets. Divide responsibility for related transactions. Apply technological controls. Perform regular and independent reviews. (any of these)
What happens to net accounts receivable when a bad debt is written off under the allowance method?
It stays the same
Equipment with a $10,000 cost and $7,000 accumulated depreciation is sold for $2,000. What’s the journal entry?
Debit Cash $2,000
Debit Accumulated Depreciation $7,000
Debit Loss on Sale of Asset $1,000
Credit Equipment $10,000
A company buys a machine for $45,000. Its estimated salvage value is $5,000, and the machine is expected to produce 80,000 units over its useful life. In Year 1, the machine produces 18,000 units. What is the depreciation expense for Year 1 using the units-of-production method?
Step 1. Depreciation Per Unit = (Cost - Salvage Value) / Total Units of Production
Depreciation Per Unit = ($45,000 − $5,000) ÷ 80,000 = $0.50 per unit
Step 2. Depreciation Expense = Depreciation Per Unit x # of Units Produced in the Period
Depreciation Expense = $0.50 × 18,000
= $9,000
What is the formula for total asset turnover?
Net Sales ÷ Average Total Assets
What is the role of bonding employees in internal control?
It insures against theft by trusted employees (anything regarding theft by the employees within the company should work too)
How is a dishonored note handled in the accounting records?
It’s moved back to accounts receivable, with interest added
A $3,000, 60-day, 12% note was accepted on December 16. What is the adjusting journal entry for accrued interest at year-end (Dec 31)?
Debit Interest Receivable $15
Credit Interest Revenue $15
(Calculation: $3,000 × 12% × 15/360 days = $15)
A mineral deposit is purchased for $600,000. The estimated salvage value is $50,000, and the total expected capacity is 275,000 tons. In the first year, 100,000 tons were extracted and sold. Using the depletion method, what is the depletion expense for Year 1?
Step 1. Depletion Per Unit = (Cost – Salvage Value) ÷ Total Units of Capacity
Depletion Per Unit = ($600,000 − $50,000) ÷ 275,000 = $2.00 per ton
Step 2. Depletion Expense = Depletion Per Unit × Units Extracted and Sold
Depletion Expense = $2.00 × 100,000 = $200,000
All 3 steps for the double declining balance method
Step 1: Straight Line Rate = 100% ÷ Useful Life
Step 2: Double Declining Balance Rate = 2 x Straight Line Rate
Step 3: Depreciation Expense = Double Declining Balance Rate x Beginning Period Book Value
OR
(Beginning Period Book Value x 2) x 100% / Useful Life
Why must recordkeeping and custody of assets be separated?
It prevents a single employee from misappropriating assets and hiding it (lowering the amount of power they have over the assets is acceptable too for an answer)
When a company sells its receivables without recourse, who is responsible if the customer doesn’t pay?
The buyer of the receivables is responsible — the seller has no liability anymore after the sale.