Accounts receivable
What is an account receivable?
An amount due from a customer resulting from a credit sale.
What is a promissory note?
A written promise to pay a specified amount with interest at a set date.
What are plant assets?
Tangible assets used in operations that have long-term use.
What must be done before recording an asset’s disposal?
Update depreciation to the date of disposal.
What are the two methods of accounting for bad debts?
Direct write-off method and allowance method.
What is the formula to compute interest on a note?
Interest = Principal × Rate × Time
What three factors are needed to calculate depreciation?
Cost, salvage value, and useful life.
What happens when the selling price exceeds book value?
A gain is recorded.
Under the allowance method, what account is used to estimate uncollectible accounts?
Allowance for Doubtful Accounts.
What is the maturity date of a 90-day note issued on April 1?
June 30.
Which depreciation method results in equal expense each period?
Straight-line method.
What is goodwill?
The excess of a company’s purchase price over the fair value of its net assets.
What is the journal entry to write off an uncollectible account under the allowance method?
Debit Allowance for Doubtful Accounts, Credit Accounts Receivable.
What happens when a note is dishonored?
The note’s amount is transferred back to Accounts Receivable.
What is the formula for the double-declining-balance depreciation rate?
2 × (1 ÷ Useful Life).
What type of intangible asset gives exclusive rights to an invention for 20 years?
Patent
What is the effect of writing off a bad debt on total assets under the allowance method?
No effect; both the allowance and accounts receivable decrease equally.
What adjusting entry is needed when interest on a note has accrued but not been received?
Debit Interest Receivable, Credit Interest Revenue.
Why is land not depreciated?
Because it has an indefinite useful life.
Are research and development costs capitalized or expensed under GAAP?
Expensed when incurred.