08 May WHAT JOURNAL ENTRY DOES WINTER MAKE WHEN FACTORING THESE RECEIVABLES?
1. Which of the following receivables would not be classified as an “other receivable”? a. Advance to an employee b. Refundable income tax c. Notes receivable d. Interest receivable 2. An aging of a company’s accounts receivable indicates that $6 000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1 100 credit balance the adjustment to record bad debts for the period will require a a. debit to Bad Debts Expense for $6 000. b. debit to Allowance for Doubtful Accounts for $4 900. c. debit to Bad Debts Expense for $4 900. d. credit to Allowance for Doubtful Accounts for $6 000. 3. Winter Furniture factors $400 000 of receivables to Fair Factors Inc. Fair Factors assesses a 2% service charge on the amount of receivables sold. Winter Furniture factors its receivables regularly with Fair Factors. What journal entry does Winter make when factoring these receivables? a. Cash ………………………… 392 000 Loss on Sale of Receivables ……. 8 000 Accounts Receivable ……….. 400 000 b. Cash ………………………… 392 000 Accounts Receivable ……….. 392 000 c. Cash ………………………… 400 000 Accounts Receivable ……….. 392 000 Gain on Sale of Receivables … 8 000 d. Cash ………………………… 392 000 Service Charge Expense ………… 8 000 Accounts Receivable ……….. 400 000 4. A company purchased land for $80 000 cash. Real estate brokers’ commission was $5 000 and $7 000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle the cost of land would be recorded at a. $87 000. b. $80 000. c. $85 000. d. $92 000. –Page 2 5. A company purchased factory equipment for $100 000. It is estimated that the equipment will have a $10 000 salvage value at the end of its estimated 5-year useful life. If the company uses the double-declining-balance method of depreciation the amount of annual depreciation recorded for the second year after purchase would be a. $40 000. b. $24 000. c. $36 000. d. $21 600. 6. A company sells a plant asset that originally cost $180 000 for $60 000 on December 31 2003. The accumulated depreciation account had a balance of $72 000 after the current year’s depreciation of $18 000 had been recorded. The company should recognize a a. $120 000 loss on disposal. b. $48 000 gain on disposal. c. $48 000 loss on disposal. d. $30 000 loss on disposal. 7. A retail store credited the Sales account for the sales price and the amount of sales tax on sales. If the sales tax rate is 5% and the balance in the Sales account amounted to $168 000 what is the amount of the sales taxes owed to the taxing agency? a. $160 000. b. $168 000. c. $8 400. d. $8 000.
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