ACCOUNTING 12 - Allowance method of uncollectible accounts

Allowance method of uncollectible accounts is:

A) a calculation that is used to

estimate how much credit is allowed to be obtained by the most risky customers.

B) an estimate of funds that will not be paid

on customers' accounts

C) based in international accounting laws and

was adopted by the US in 2001

D) more accurate than the direct write-off

method

A company can typically finance through debt or equity. An example of equity financing would be:

A) To acquire more income producing assets

B) To acquire more long-term vs short term loans

C) To sell more shares of stock

D)To take out a line of credit

Saturn Co. purchases a used machine for $110,000 cash on January 2. The company predicts the machine will be used for five years and have a $10,000 salvage value. The depreciation method used by Saturn Co. is straight-line. On December 31, at the end of its fourth year in operation the machine was sold for $25,000. What was the effect of this sale?

A) The $25,000 in cash received on the sales is added to income in the year of the sale

B) There is a loss on the sale

C) There is a gain on the sale

D) There is no effect since the machine was sold prior to the five years the machine was expected to last

The account accumulated depreciation would appear on the:

A) Balance sheet in the asset section

B) Balance sheet in the liability section

C) Income statement in the expense section

D) Statement of owners' equity in the other equity section

Lomax Enterprises purchased a depreciable asset for $22,000 on March 1, Year 1. The asset will be depreciated using the straight-line method over its four-year useful life. Assuming the asset's salvage value is $2,000, Lomax Enterprises should recognize depreciation expense in Year 2 in the amount of $5,000. The transaction to record deprecation would affect:

A) Balance sheet only

B) Income statement only

C) Both balance sheet and income statement

D) There is no effect on any statement since cash is not part of the transaction

MRI Company has one employee that makes $7,200 per month. FICA Social Security taxes are 6.2% and FICA Medicare taxes are 1.45% of gross pay. The employee's federal income taxes withheld are $135 for the pay period. Based on this information, the financial statements affected by this transaction are:

A) Balance sheet only

B) Income statement only

C) Both balance sheet and income statement

D) There is no effect on any statement since cash is not part of the transaction

The 3 main sections of the statement of cash flow are:

A) Incoming cash, outgoing cash, and operating cash

B) Investing, financing, and equity

C) Operating, financing, and equity

D)Operating, investing, and financing

The following ratios are for ProTeam Sports at December 31st. The current ratios are displayed for years 1 and 2. What conclusion can management draw from this information?

20x1

20x0

Current Ratio

1.2

0.7

A) The current ratio has gone down and ProTeam sports is now unable to pay off its current debt

B) The current ratio has gone down and pro team sports is now unable to generate revenue for the company

C) The current ratio has improved and pro team is now able generate revenue for the company

D)The current ratio has improved and pro team sports is now able to pay off its current debt

The formula for return on investment (also known as return on assets) is net income divided by assets. This ratio communicates to management:

A) That the balance sheet is out of balance with the income statement the higher the ratio becomes

B) That the net income is equal to the total of the company assets

C)The profitability of the company

D)The need for management to increase the company debt by selling long-term assets