Trade Receibables
Under the allowance method of recognizing uncollectible accounts, what is the entry to write-off an uncollectable account?
Debit allowance for uncollectable accounts
Credit Accounts Receivable
On June 1, year 2, Archer Inc. issued a purchase order to Cotton Co. for an new copier machine. The machine requires one month to produce and is shipped FOB destination on July 1, Year 2, and is received by Archer on July 15, year 2. Cotton issues a sales invoice dated July 2, year 2, for the machine. As of what date should Archer record a liability for the machine?
July 15, year 2 - when the company has legal title to the machine.
As it relates to capitalization of computer software costs to be licensed, can coding and testing costs after technological feasibility is established be capitalized?
Yes - prior to technological feasibility these would be expensed as R&D costs.
What is the appropriate treatment for goods held on consignment?
The goods should be included in the ending inventory of the consignor.
Which method of recording uncollectible accounts expense is consistent with accrual accounting? (i.e. which one, Neither, or Both)
1) Allowance Method; and/or 2) Direct write-off
Allowance method only, as it matches expenses with revenues to record the proper carrying amount.
What factor must be present to use the units-of-production method of depreciation?
Total unites to be produced can be estimated.
Bay Co. incurred legal fees in defending its patent rights. Should these legal fees should be capitalized when the follow outcome is successful, unsuccessful, Neither, or Both?
Successful - Unsuccessful costs are treated as expenses.
Which U.S. GAAP Inventory costing method would a company that wishes to maximize profits in a period of rising prices use?
FIFO - in a period of rising prices, FIFO results in the lowest COGS and highest net income.
A company entered into a loan with a lender for $100,000 and pledged $120,000 of the company's accounts receivable as collateral. The lender does not have the right to sell or repledge the accounts receivable. When the company receives the cash for the loan proceeds, what entry, if any, should be made to accounts receivable?
Green co. incurred leasehold improvement costs for it's leased property. The estimated useful life of the improvements was 15 years and the remaining term of the nonrenewable lease was 20 years. Over what period should the cost be capitalized and depreciated?
Over 15 years, or the shorter of the two usable periods, which in this case is still 15 years.
Which of these four asset types would typically be reported on a company's balance sheet as an intangible asset?
1) Cost of patent registrations; 2) Leasehold improvements; 3) derivative securities; or 4) cost of research and development.
1) Cost of patent registrations are capitalized and reported as an asset.
2) is PPE, 3) can be either assets or liabilities depending on the rights and obligations under the contract 4) R&D are expensed on Income statement
A company decided to change its inventory valuation method from FIFO to LIFO in a period of rising prices. What was the result of the change on ending inventory and net income in the year of the change?
Both ending inventory and net income would decrease
Under LIFO, ending inventory has a lower valuation that under FIFO since older, lower costs are assigned to ending inventory. Similarly, under LIFO, cost of goods sold has a higher valuation than under FIFO since recent, higher costs are assigned to goods sold. This higher costs of good sold means that net income under LIFO decreases.
During the year, Hause Co. wrote off a customer's account receivable. Hauser used the allowance method for uncollectable accounts. What impact would the write off have on net income and total assets?
The write off would not effect either. Both accounts are asset accounts and the write off would have no effect. E.g.
Debit Allowance for doubtful accounts
Credit Accounts Receivable.
A newly formed corporation, incurred expenditures related to land and building, what should be recorded to land?
1) county assessment for sewer lines; 2) Title search fees; 3) cash paid for land with a building to be demolished; 4) excavation for construction of a basement; 5) removal of the old building.
1, 2, 3, and 5 - or all costs used to acquire the land and prepare it for use. 4 would go to the building.
A company recently acquired a copyright that now has a remaining legal life of 30 years. The copyright initially had a 38-year useful life assigned to it. An analysis of market trends and consumer habits indicated that the copyrighted material will generate positive cash flows for approximately 25 years. What is the remaining useful life, if and, over which the company can amortize the copyright for accounting purposes?
25 years - or the lesser of the useful economic life or legal life.
Bren Co.'s beginning inventory at January 1, Year 3, was understated by $26,000, and its ending inventory was overstated by $53,000. What is the result on Bren's cost of goods sold for Year 3?
Cost of good sold was understated by $78,0000.