Quiz 4 Mini Calculation Drill
Work each problem before opening the answer. Keep your calculator and some scrap paper nearby.
1
Accounts Receivable is $84,000 and Allowance for Doubtful Accounts has a $6,500 credit balance.
What is Net Accounts Receivable?
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Net Accounts Receivable = Accounts Receivable − Allowance
$84,000 − $6,500 = $77,500
The company expects to collect $77,500 of the $84,000 owed by customers.
2
A company uses the aging-of-receivables method. The analysis indicates that the desired ending balance in Allowance for Doubtful Accounts is $9,200.
Before adjustment, the Allowance has a $2,700 credit balance.
How much Bad Debt Expense should be recorded?
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The aging method gives us the desired ending Allowance balance.
Desired ending balance = $9,200
Existing credit balance = $2,700
$9,200 − $2,700 = $6,500
Bad Debt Expense = $6,500
The $6,500 adjustment brings the Allowance from its existing $2,700 credit balance to the required $9,200 credit balance.
3
A company accepts a $20,000, 9% note receivable for 120 days.
Using a 360-day year, how much interest will the note earn?
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Interest = Principal × Annual Rate × Time
$20,000 × 9% × (120 ÷ 360)
$20,000 × .09 × 1/3 = $600
The note earns $600 of interest.
4
Net credit sales are $720,000. Beginning net receivables were $75,000 and ending net receivables were $85,000.
Calculate receivables turnover and average days to collect.
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First calculate average net receivables:
($75,000 + $85,000) ÷ 2 = $80,000
Receivables Turnover:
$720,000 ÷ $80,000 = 9.0 times
Days to Collect:
365 ÷ 9.0 = 40.6 days
5
Equipment costs $62,000, has an estimated residual value of $8,000, and a useful life of 6 years.
What is annual straight-line depreciation?
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First calculate depreciable base:
$62,000 − $8,000 = $54,000
Straight-line depreciation:
$54,000 ÷ 6 years = $9,000 per year
6
A machine costs $50,000, has a $5,000 residual value, and is expected to produce 90,000 units.
During the current year, it produces 18,000 units.
What is depreciation expense using units-of-production?
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Depreciable base:
$50,000 − $5,000 = $45,000
Depreciation per unit:
$45,000 ÷ 90,000 units = $0.50 per unit
Current-year depreciation:
18,000 × $0.50 = $9,000
7
Equipment costs $80,000 and has an 8-year useful life.
Using double-declining-balance depreciation, what is depreciation expense for Year 1?
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First determine the double-declining rate:
2 ÷ 8 years = 25%
Apply the rate to beginning book value:
$80,000 × 25% = $20,000
Year 1 depreciation = $20,000
8
Equipment originally cost $90,000. Accumulated Depreciation on the date of sale is $58,000.
The equipment is sold for $36,000.
What is the book value, and is there a gain or loss?
Tap to check your answer
Always calculate book value first.
$90,000 − $58,000 = $32,000 book value
Now compare proceeds with book value:
$36,000 − $32,000 = $4,000 gain
Because the cash proceeds are greater than book value, the company records a $4,000 gain on disposal.