In Year 2, the entity had cash provided by operations of
Answer(s): A
Cash provided by operations equals profit, plus depreciation, minus the increase in accounts receivable, minus the decrease in accounts payable. The cash provided is US $219, 000 [$294, 000 + $50, 000 -$300, 000 - $200, 000) -$275, 000 - $250, 000)]. An increase in receivables is a noncash component of profit. A decrease in accounts payable is added when adjusting cost of goods sold to reflect cash paid to suppliers. Thus, it is subtracted when adjusting profit to arrive at cash provided by operations.An entity has the following statements:
Based on the Year 2 year-end balance of accounts receivable and the Year 2 income statement, the company had an average collection period for Year 2 of
Answer(s): C
The average collection period for Year 2 is 73 days [US $300, 000 accounts receivable$1.500.000 sales - 365 days)].
An entity offers its customers credit terms of a 2% discount if paid within 10 days. or the full balance is due within 30 days2/10, n/30). If some customers take advantage of the cash discount and others do not, which of the following accounts will appear on the income statement if the net method of recording receivables is employed? Sales DiscountsSales Discounts Forfeited
Answer(s): D
The gross method accounts for receivables at their face amount. If a discount is taken. a sales discount is recorded and classified as an offset to sales in the income statement to yield net sales. The net method records receivables net of the applicable discount. If the payment is not received during the discount period, an interest revenue account, such as sales discounts forfeited. is credited at the end of the discount period or when the payment is received. Accordingly, the application of the net method requires a sales discount forfeited but not a sales discount account.
Big Co. holds 18% of the outstanding voting common shares of Little Co. How will Big report unrealized holding gains and losses on these shares?
Less than 20% ownership is presumed to result in little or no influence over the investee. Such investments are initially recorded at cost and subsequently measured using the fair value method. If the investor classifies the shares as trading securities, unrealized holding gains and losses are included in the calculation of profit or loss. If the investor classifies the shares as available-for-sale securities. unrealized holding gains and losses are treated as items of other comprehensive income.
An internal auditor is deriving cash flow data based on an incomplete set of facts. Bad debt expense was US $2, 000. Additional data for this period follows:How much cash was collected this period on credit sales?
Answer(s): B
The beginning balance of gross accounts receivableA/R) was US $5.000debit). Thus. net beginning A/R was US $4, 500$5, 000 - $660 credit in the allowance for bad debts). The allowance was credited for the US $2, 000 bad debt expense. Accordingly, the ending allowancecredit) was US $1 .500$500 - $1.000 write-off - $2, 000)_ CT...9n a US $30.000 increase net A/R. ending net A/R must have been US $34, 500$4, 500 beginning net A/R T $30, 000), with ending gross , 4/R of US $36, 000$34, 500 + $1, 500). Collections were therefore US $68.000$5, 000 beginning gross A/R - $1.000 write-off T $100, 000
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