Q: Which formula correctly calculates interest earned on a note receivable?

$$Interest = Principal \times Rate \times Time$$

Q: If a company estimates uncollectibles at 1% of ending accounts receivable, and ending accounts receivable is $534,000, what is the estimated bad debt expense?

$$534,000 \times 0.01 = 5,340$$

Question 1

A company issues a three-month, $10,000, 8% note receivable on June 1. What is the correct journal entry to record the interest earned at maturity?

Accepted Answer

Debit Interest Receivable $$200; Credit Interest Revenue 200$$

Question 2

On May 31, a company has Accounts Receivable of $$534,000 and an Allowance for Bad Debts of 3$$,000. If estimated uncollectibles are $1,560, what is the net realizable value (NRV) of Accounts Receivable?

Accepted Answer

$$534,000 - 3$$,000 = $531,000

Question 3

Which formula correctly calculates interest earned on a note receivable?

Accepted Answer

$$Interest = Principal 	imes Rate 	imes Time$$

Question 4

A company estimates bad debts using the allowance method. If the beginning balance in Allowance for Bad Debts is $$800, and the estimated uncollectibles for the period are 1$$,560, what is the journal entry?

Accepted Answer

Debit Bad Debt Expense $$1,560; Credit Allowance for Bad Debts 1$$,560

Question 5

Eljoys Owl Emporium issues 1,000 shares of common stock for cash at $$10 par value for 11$$,000. What is the correct journal entry?

Accepted Answer

Debit Cash $$11,000; Credit Common Stock 10$$,000; Credit Paid-in Capital in Excess of Par $1,000

Question 6

A company purchases fixtures for $$20,000 and expects to use straight-line depreciation over 5 years with a 2$$,000 salvage value. What is the annual depreciation expense?

Accepted Answer

$$Depreciation = \frac{Cost - Salvage\ Value}{Useful\ Life} = \frac{20,000 - 2,000}{5} = 3,600$$

Question 7

Trevor Company declares annual cash dividends on 15,000 shares of common stock at $$1.50 per share and 5,000 shares of preferred stock at 5% of 115 $$par value. What is the total dividend declared?

Accepted Answer

Question 8

If a company sells fixtures with a book value of $$16,000 for 8$$,000 cash, what is the correct journal entry to record the sale?

Accepted Answer

Question 9

Which of the following best describes the allowance method for uncollectible accounts?

Accepted Answer

It estimates bad debts expense at the end of each period and records it by debiting Bad Debt Expense and crediting Allowance for Bad Debts.

Question 10

A company issues 3,000 shares of preferred stock for cash at $110 per share. What is the total cash received?

Accepted Answer

$$3,000 	imes 110 = 330,000$$

Question 11

If a company estimates uncollectibles at 1% of ending accounts receivable, and ending accounts receivable is $534,000, what is the estimated bad debt expense?

Accepted Answer

$$534,000 	imes 0.01 = 5,340$$

Question 12

Which journal entry records the declaration of cash dividends on common stock?

Accepted Answer

Debit Retained Earnings; Credit Dividends Payable

Question 13

A company has a note receivable for $10,000 at 8% interest for 3 months. If the note is dishonored, what is the correct entry?

Accepted Answer

Debit Accounts Receivable $$10,200; Credit Notes Receivable 10$$,000; Credit Interest Revenue $200

Question 14

Which of the following is NOT a component of the straight-line depreciation formula?

Accepted Answer

Market value

Question 15

A company writes off an uncollectible account of $800. What is the correct journal entry?

Accepted Answer

Debit Allowance for Bad Debts $$800; Credit Accounts Receivable 800$$

Question 16

If a company issues 2,000 shares of $$2 par value common stock for 24$$,000, what is the amount credited to Paid-in Capital in Excess of Par?

Accepted Answer

$$24,000 - (2,000 	imes 2) = 20,000$$

Question 17

Which of the following transactions would increase the Allowance for Bad Debts account?

Accepted Answer

Estimating uncollectibles at the end of the period

Question 18

A company purchases fixtures for $$20,000 and sells them for 8$$,000 after two years. If accumulated depreciation is $4,000, what is the gain or loss on sale?

Accepted Answer

Unit 2 Notes: Chapters 8, 9, & 13 (Unit Exam 2)

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