Pre-assessment:Intermediate Accounting I
Units 5-7 (JMV1) (PJMV) D103
A company deposits $10,000 in a bank where it will earn simple interest of 10%
annually. What is the amount of interest earned in Year 2? - ANS-$1,000
$10,000 x .10 = $1000
A company is putting together a list of transactions that are affected by the time value of
money. Which transaction should be included in this list? - ANS-Long-term leases
A company needs to have $70,000 in cash at the end of four years. The company can
invest the cash now in a money market account that will return 6% interest compounded
annually. Using a 6% interest rate, the implied annual interest is $70,000 × 0.06 =
$4,200. The following information is given:
Assuming an annual interest rate of 4% for 6 years is appropriate, the present value of
the deposit is $70,000 × 0.79031 = $55,322.
Assuming an annual interest rate of 6% for 4 years is appropriate, the present value of
the deposit is $70,000 × 0.79209 = $55,446.
Assuming an annual interest rate of 6% for 6 years is appropriate, the present value of
the deposit is $70,000 × 0.70946 = $49,662.
How much does this company need to deposit today? - ANS-$55,446
1 / (1+.06)^4 = 0.79209
PVFni=present value factor for n periods at i interest
Company A sells a parcel of land to Company B in exchange for a note receivable. The
terms of the note require Company B to make a single payment of $600,000 in two
years. Using a 10% interest rate, the implied annual interest is $600,000 × 0.10 =
$60,000, and the present value of the note is $600,000 × 0.82645 = $495,870. Which
amount must Company A consider as the proceeds from the sale of the land in order to
calculate gross profit or gain/loss on the sale in accordance with generally accepted
accounting principles (GAAP)? - ANS-$495,870
A company performs services for a customer in exchange for a noninterest-bearing
note. The customer agrees to make a payment of $100,000 in three years. Using a 5%
,interest rate, the implied annual interest is $100,000 × 0.05 = $5,000, and the present
value of the note is $100,000 × 0.86384 = $86,384. Which amount must this company
record as service revenue from this transaction in accordance with generally accepted
accounting principles (GAAP)? - ANS-$86,384
A company will receive $10,000 each year in lease payments for the next five years.
The payments will start at the end of the first year. Assuming an annual interest rate of
4% is appropriate, the present value of an ordinary annuity is 4.45182 × $10,000 =
$44,518, and the present value of an annuity due is 4.62989 × $10,000 = $46,299.
Which amount should be recorded for this sale? - ANS-$44,518
A student has saved $40,000 to take a year to study abroad. The cash was deposited
into a money market account earning 2% monthly interest for 12 months. The student
wants to withdraw equal amounts each month at the end of the month for living
expenses. Assuming a monthly interest rate of 2% is appropriate, the present value of
an ordinary annuity is $40,000/10.57534 = $3,782.38, and the present value of an
annuity due is $40,000/10.78685 = $3,708.22. What is the amount that this student
should withdraw each month? - ANS-$3,782.38
A company has the following items:
Cash $ 10,000
Petty cash $ 100
Short term paper $ 1,500
Post dated customer check $ 2,000
Bank overdraft $ 50
How much should be recorded as cash equivalents? - ANS-$1,500
short term paper
A company has the following account balances as of December 31:
trade receivables: $100,000
current notes receivable: $200,000
other receivables (due in six months): $20,000
allowance for doubtful accounts: $20,000
Which amount should be reported as net receivables under current assets on the
balance sheet? - ANS-$300,000
,trade receivables + current notes receivables
A company uses the net method to record a sale of $500 on 6/18 with terms of 2/10, net
30 and the discount is expected to be taken. Payment is received on 6/30. How is
accounts receivable recorded on 6/30? - ANS-Credited for $490
Net Method recognizes discounts at the point of sale.
6/18 sale:
Accts. Rec. $490
Sales Rev. $490
6/30 payment:
Cash $490
Accts. Rec. $490
The December 31, 2019, trial balance for a company reported a $100,000 debit balance
in accounts receivable. Management estimates that 10% of accounts receivable may
not be collected. Prior to year-end adjustment, there was a $1,000 credit balance in the
allowance for doubtful accounts.What net realizable value of accounts receivable will be
reported on this company's December 31, 2019, balance sheet? - ANS-$90,000
$100,000 x .10 = $10,000
$100,000 - $10,000 = $90,000
A company uses the allowance method for uncollectible accounts. On November 10,
2019, the company wrote off a customer's $4,000 account receivable. The company
received payment in full from the customer on December 1, 2019. Which entry or
entries should this company record on December 1? - ANS-Debit accounts receivable
for $4,000; credit allowance for doubtful accounts for $4,000
Debit cash for $4,000; credit accounts receivable for $4,000
A company has an unadjusted credit balance in the Allowance for Doubtful Accounts of
$10,000 and the following aging schedule:
Name of CustomerTotalUnder 30 days30-60days60-90daysOver 90 daysA$ 55,000$
30,000$ 20,000$
5,000B112,00090,00010,0005,0007,000C106,00065,00022,00015,0004,000D43,00035
, ,0002,0005,0001,000Total$ 316,000.00$ 220,000.00$ 54,000.00$ 25,000.00$
17,000.00Percent Uncollectible1%30%25%35%
What is the ending balance in the Allowance for Doubtful Accounts? - ANS-$30,600
% uncollectable X 30 days, 30-60 days, 60-90 days, and Over 90 days. add all together
A company has an unadjusted debit balance in the Allowance for Doubtful Accounts of
$10,000 and the following aging schedule:
Name of CustomerTotalUnder 30 days30-60days60-90daysOver 90 daysA$ 55,000$
30,000$ 20,000$
5,000B112,00090,00010,0005,0007,000C106,00065,00022,00015,0004,000D43,00035
,0002,0005,0001,000Total$ 316,000.00$ 220,000.00$ 54,000.00$ 25,000.00$
17,000.00Percent Uncollectible1%30%25%35%
What amount should be recorded as the Bad Debt Expense? - ANS-$40,600
$30,600+ $10,000
A company had the following details related to a three-year note receivable on the date
of issue:
face value of note: $15,000
present value of the principal: $10,677
present value of the interest: $3,603
What is the carrying amount of this note at the end of three years? - ANS-$15,000
A company receives a four-year, $50,000 zero-interest-bearing note in exchange for a
piece of equipment. The market rate at the date of receipt is 6%.Which statement is true
regarding the initial recording of the note? - ANS-The discount on notes receivable
account will be credited.
A company sold goods in exchange for a $5,000, two-year zero-interest-bearing note.
The note is issued to a high-risk customer and the market rate for a note of similar risk
is 7%. Assuming an annual interest rate of 7% for two years is appropriate, the present
value of the principal is $5,000 × 0.87344 = $4.367.Which journal entry is recorded at
the time of sale? - ANS-Debit notes receivable for $5,000; credit revenue for $4,367;
credit discount on notes receivable for $633
A company issues a $4,000, four-year zero-interest-bearing note for the sale of
inventory. Assuming an annual interest rate of 4% for four years is appropriate, the
present value of the principal is $4,000 × 0.85480 = $3,419.Which journal entry should
Units 5-7 (JMV1) (PJMV) D103
A company deposits $10,000 in a bank where it will earn simple interest of 10%
annually. What is the amount of interest earned in Year 2? - ANS-$1,000
$10,000 x .10 = $1000
A company is putting together a list of transactions that are affected by the time value of
money. Which transaction should be included in this list? - ANS-Long-term leases
A company needs to have $70,000 in cash at the end of four years. The company can
invest the cash now in a money market account that will return 6% interest compounded
annually. Using a 6% interest rate, the implied annual interest is $70,000 × 0.06 =
$4,200. The following information is given:
Assuming an annual interest rate of 4% for 6 years is appropriate, the present value of
the deposit is $70,000 × 0.79031 = $55,322.
Assuming an annual interest rate of 6% for 4 years is appropriate, the present value of
the deposit is $70,000 × 0.79209 = $55,446.
Assuming an annual interest rate of 6% for 6 years is appropriate, the present value of
the deposit is $70,000 × 0.70946 = $49,662.
How much does this company need to deposit today? - ANS-$55,446
1 / (1+.06)^4 = 0.79209
PVFni=present value factor for n periods at i interest
Company A sells a parcel of land to Company B in exchange for a note receivable. The
terms of the note require Company B to make a single payment of $600,000 in two
years. Using a 10% interest rate, the implied annual interest is $600,000 × 0.10 =
$60,000, and the present value of the note is $600,000 × 0.82645 = $495,870. Which
amount must Company A consider as the proceeds from the sale of the land in order to
calculate gross profit or gain/loss on the sale in accordance with generally accepted
accounting principles (GAAP)? - ANS-$495,870
A company performs services for a customer in exchange for a noninterest-bearing
note. The customer agrees to make a payment of $100,000 in three years. Using a 5%
,interest rate, the implied annual interest is $100,000 × 0.05 = $5,000, and the present
value of the note is $100,000 × 0.86384 = $86,384. Which amount must this company
record as service revenue from this transaction in accordance with generally accepted
accounting principles (GAAP)? - ANS-$86,384
A company will receive $10,000 each year in lease payments for the next five years.
The payments will start at the end of the first year. Assuming an annual interest rate of
4% is appropriate, the present value of an ordinary annuity is 4.45182 × $10,000 =
$44,518, and the present value of an annuity due is 4.62989 × $10,000 = $46,299.
Which amount should be recorded for this sale? - ANS-$44,518
A student has saved $40,000 to take a year to study abroad. The cash was deposited
into a money market account earning 2% monthly interest for 12 months. The student
wants to withdraw equal amounts each month at the end of the month for living
expenses. Assuming a monthly interest rate of 2% is appropriate, the present value of
an ordinary annuity is $40,000/10.57534 = $3,782.38, and the present value of an
annuity due is $40,000/10.78685 = $3,708.22. What is the amount that this student
should withdraw each month? - ANS-$3,782.38
A company has the following items:
Cash $ 10,000
Petty cash $ 100
Short term paper $ 1,500
Post dated customer check $ 2,000
Bank overdraft $ 50
How much should be recorded as cash equivalents? - ANS-$1,500
short term paper
A company has the following account balances as of December 31:
trade receivables: $100,000
current notes receivable: $200,000
other receivables (due in six months): $20,000
allowance for doubtful accounts: $20,000
Which amount should be reported as net receivables under current assets on the
balance sheet? - ANS-$300,000
,trade receivables + current notes receivables
A company uses the net method to record a sale of $500 on 6/18 with terms of 2/10, net
30 and the discount is expected to be taken. Payment is received on 6/30. How is
accounts receivable recorded on 6/30? - ANS-Credited for $490
Net Method recognizes discounts at the point of sale.
6/18 sale:
Accts. Rec. $490
Sales Rev. $490
6/30 payment:
Cash $490
Accts. Rec. $490
The December 31, 2019, trial balance for a company reported a $100,000 debit balance
in accounts receivable. Management estimates that 10% of accounts receivable may
not be collected. Prior to year-end adjustment, there was a $1,000 credit balance in the
allowance for doubtful accounts.What net realizable value of accounts receivable will be
reported on this company's December 31, 2019, balance sheet? - ANS-$90,000
$100,000 x .10 = $10,000
$100,000 - $10,000 = $90,000
A company uses the allowance method for uncollectible accounts. On November 10,
2019, the company wrote off a customer's $4,000 account receivable. The company
received payment in full from the customer on December 1, 2019. Which entry or
entries should this company record on December 1? - ANS-Debit accounts receivable
for $4,000; credit allowance for doubtful accounts for $4,000
Debit cash for $4,000; credit accounts receivable for $4,000
A company has an unadjusted credit balance in the Allowance for Doubtful Accounts of
$10,000 and the following aging schedule:
Name of CustomerTotalUnder 30 days30-60days60-90daysOver 90 daysA$ 55,000$
30,000$ 20,000$
5,000B112,00090,00010,0005,0007,000C106,00065,00022,00015,0004,000D43,00035
, ,0002,0005,0001,000Total$ 316,000.00$ 220,000.00$ 54,000.00$ 25,000.00$
17,000.00Percent Uncollectible1%30%25%35%
What is the ending balance in the Allowance for Doubtful Accounts? - ANS-$30,600
% uncollectable X 30 days, 30-60 days, 60-90 days, and Over 90 days. add all together
A company has an unadjusted debit balance in the Allowance for Doubtful Accounts of
$10,000 and the following aging schedule:
Name of CustomerTotalUnder 30 days30-60days60-90daysOver 90 daysA$ 55,000$
30,000$ 20,000$
5,000B112,00090,00010,0005,0007,000C106,00065,00022,00015,0004,000D43,00035
,0002,0005,0001,000Total$ 316,000.00$ 220,000.00$ 54,000.00$ 25,000.00$
17,000.00Percent Uncollectible1%30%25%35%
What amount should be recorded as the Bad Debt Expense? - ANS-$40,600
$30,600+ $10,000
A company had the following details related to a three-year note receivable on the date
of issue:
face value of note: $15,000
present value of the principal: $10,677
present value of the interest: $3,603
What is the carrying amount of this note at the end of three years? - ANS-$15,000
A company receives a four-year, $50,000 zero-interest-bearing note in exchange for a
piece of equipment. The market rate at the date of receipt is 6%.Which statement is true
regarding the initial recording of the note? - ANS-The discount on notes receivable
account will be credited.
A company sold goods in exchange for a $5,000, two-year zero-interest-bearing note.
The note is issued to a high-risk customer and the market rate for a note of similar risk
is 7%. Assuming an annual interest rate of 7% for two years is appropriate, the present
value of the principal is $5,000 × 0.87344 = $4.367.Which journal entry is recorded at
the time of sale? - ANS-Debit notes receivable for $5,000; credit revenue for $4,367;
credit discount on notes receivable for $633
A company issues a $4,000, four-year zero-interest-bearing note for the sale of
inventory. Assuming an annual interest rate of 4% for four years is appropriate, the
present value of the principal is $4,000 × 0.85480 = $3,419.Which journal entry should
