Intermediate Acct Review for Test 2

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Exam 2

Ch 6

p26.If you invest $50,000 to earn 8% interest, which of the following compounding approaches would return the lowest amount after one year? (you aren’t earning interest on interest) a.Daily.

b.Monthly.
c.Quarterly.
d.Annually.

p41.An amount is deposited for eight years at 8%. If compounding occurs quarterly, then the table value is found at (adjust rate and number of periods!) a.8% for eight periods.
b.2% for eight periods.
c.8% for 32 periods.
d.2% for 32 periods.

YOU WILL BE GIVEN A CHOICE OF (ABOUT 4) FACTORS
p81.Angie invested $100,000 she received from her grandmother today in a fund that is expected to earn 10% per annum. To what amount should the investment grow in five years if interest is compounded semi-annually? (this is one lump sum)

FV of sum 1.62889
n=10 i=5%
100,000 x 1.62889= $162,890
a.$155,134.
b.$161,050.
c.$162,890.
d.$177,156.

p87.What would you pay for an investment that pays you $3,000,000 after forty years? Assume that the relevant interest rate for this type of investment is 6%.
PV of 1 0.09722
n=40 i=6%
a.$93,540.
b.$935,400.
c.$291,660.
d.$311,010.

***p90.Lucy and Fred want to begin saving for their baby's college education. They estimate that they will need $200,000 in eighteen years. If they are able to earn 6% per annum, how much must be deposited at the beginning of each of the next eighteen years to fund the education? (is it annuity due or an ordinary due?) (it’s annuity due bc you have to make deposit at BEGINNING of each year)

Pmt (FV of OA) = FV
(adj.)
n=18 i=6%
factor = 30.90565 x 1.06 = 32.7599
Pmt(32.7599) = 200,000
Pmt = $6,105
a.$6,471.
b.$6,105.
c.$11,111.
d.$5,924.

Ch 7

p43.Why is the allowance method preferred over the direct write-off method of accounting for bad debts? (conceptual question)
Balance Sheet
AA/R
=<ADA>
L
+
SE

a.Allowance method is used for tax purposes.
b.Estimates are used.
c.Determining worthless accounts under direct write-off method is difficult to do.
d.Improved matching of bad debt expense with revenue.

p47.What is the normal journal entry when writing-off an account as uncollectible under the allowance method? (look over notes about write-off)
a.Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b.Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c.Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.x
d.Debit Accounts Receivable, credit Allowance for Doubtful Accounts.

p79.AG Inc. made a $15,000 sale on account with the following terms: 1/15, n/30. If the company uses the net method to record sales made on credit, how much should be recorded as revenue? Max Discount = $150 (1% of $15,000) (know journal entry on net method and gross method)

a.$14,700.
b.$14,850.
c.$15,000.*answer if it said “gross method”
d.$15,150.

p82.Wellington Corp. has outstanding accounts receivable totaling $1.27 million as of December 31 and sales on credit during the year of $6.4 million. There is also a debit balance of $3,000 in the allowance for doubtful accounts. If the company estimates that 1% of its net credit sales will be uncollectible, what will be the balance in the allowance for doubtful accounts after the year-end adjustment to record bad debt expense? (questions on allowance account)

ADA Sales=6.4m 1%=$64,000
3,000BDE $64,000
64,000ADA $64,000
61,000
a.$12,700.
b.$15,700.
c.$61,000.
d.$67,000.

***p83.Wellington Corp. has outstanding accounts receivable totaling $6.5 million as of December 31 and sales on credit during the year of $24 million. There is also a credit...
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