Q: Which formula correctly calculates interest on a note?

$$ \text{Interest} = \text{Principal} \times \text{Rate} \times \text{Time} $$

Question 1

Which of the following best describes how accounts receivable are created in a business?

Accepted Answer

When a company sells goods or services on credit to customers.

Question 2

A company estimates bad debts using the percentage of sales method. If total credit sales for the year are $200,000 and the company estimates 2% will be uncollectible, what is the estimated bad debt expense?

Accepted Answer

$$ \4$$,000 $

Question 3

Why is the direct write-off method for uncollectible accounts generally not acceptable under GAAP?

Accepted Answer

It violates the matching principle by recording bad debt expense only when an account is written off.

Question 4

What is the correct journal entry to record the estimate of bad debts using the allowance method?

Accepted Answer

Debit Bad Debt Expense; Credit Allowance for Doubtful Accounts

Question 5

A company recovers a previously written-off account. What is the correct sequence of journal entries?

Accepted Answer

1. Debit Allowance for Doubtful Accounts; Credit Accounts Receivable. 2. Debit Cash; Credit Accounts Receivable.

Question 6

Which formula correctly calculates interest on a note?

Accepted Answer

$$ 	ext{Interest} = 	ext{Principal} 	imes 	ext{Rate} 	imes 	ext{Time} $$

Question 7

When a company purchases a long-term asset, which costs should be capitalized?

Accepted Answer

All costs necessary to acquire the asset and prepare it for use.

Question 8

What is the correct journal entry to record annual depreciation on a fixed asset?

Accepted Answer

Debit Depreciation Expense; Credit Accumulated Depreciation

Question 9

A machine was purchased for $$50,000. After 3 years, accumulated depreciation is 18$$,000. What is the book value of the machine?

Accepted Answer

$$ \32$$,000 $

Question 10

A company sells a piece of equipment for $$10,000. The equipment originally cost 25$$,000 and has accumulated depreciation of $18,000. What is the gain or loss on the sale?

Accepted Answer

Gain of $3,000

Question 11

Which of the following is an intangible asset?

Accepted Answer

Patent

Question 12

How are the costs of natural resources allocated over time?

Accepted Answer

Through depletion

Question 13

Which of the following statements about bonds is TRUE?

Accepted Answer

Bonds can be issued at face value, at a premium, or at a discount.

Question 14

A company issues a $100,000 bond at face value. What is the correct journal entry?

Accepted Answer

Debit Cash $$100,000; Credit Bonds Payable 100$$,000

Question 15

A $$50,000 bond is issued at a discount of 2$$,000. What is the initial carrying value of the bond?

Accepted Answer

$$ \48$$,000 $

Question 16

Which of the following is a contra-asset account?

Accepted Answer

Accumulated Depreciation

Question 17

What is the normal balance for a liability account?

Accepted Answer

Credit

Question 18

A company uses the aging of accounts receivable method to estimate bad debts. If the total estimated uncollectible amount is $$5,000 and the Allowance for Doubtful Accounts has a 1$$,000 credit balance, what is the journal entry for bad debt expense?

Accepted Answer

Debit Bad Debt Expense $$4,000; Credit Allowance for Doubtful Accounts 4$$,000

Question 19

A company purchased equipment for $$60,000. It has an estimated useful life of 5 years and a residual value of 10$$,000. What is the annual depreciation expense using the straight-line method?

Accepted Answer

$$ \frac{\60$$,000 - \$$10,000}{5} = \10$$,000 $

Question 20

A $$100,000 bond is issued at a premium of 5$$,000. After one year, $1,000 of the premium has been amortized. What is the carrying value of the bond?

Accepted Answer

$$ \104$$,000 $

Financial Accounting Exam 3 Study Guide: Receivables, Plant Assets, and Long-Term Liabilities

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