Accounting Analysis

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1.When a specific account receivable is written off, the entry A) increases net income. B) decreases net income.
C) can either decrease or increase net income.
D) has no effect on net income.2.Echo Company's 2011 beginning and ending accounts receivable balances were $72,500 and $41,250 respectively. During 2011, the company's sales (all on credit) amounted to $857,250. Per Echo's 2011 cash flow statement, $873,500 was collected from customers while $18,750 related to uncollectible accounts was listed among the "non-cash expenses." If Echo's beginning balance in the allowance for uncollectibles was , the ending balance in this account must be A) $15,000 B) 21,350

C) $36,350
D) $17,6003.An analyst notes that ABC Inc.'s allowance for uncollectible accounts as a percentage of year-end accounts receivable has changed. Which of the following would be a plausible explanation for the change? A) ABC's management expects a default rate on outstanding receivables different than that which has occurred in prior years. B) ABC's management is using bad debt accruals to "manage" earnings. C) The company ages its receivables and the distribution of accounts receivable over the various age categories is different than in prior years. D) All of the above are plausible reasons for the noted change.4.Research evidence suggests that A) companies increase bad debt expense when earnings are otherwise low and then decrease the expense when earnings are high. B) companies reduce bad debt expense when earnings are otherwise low and then increase the expense when earnings are high. C) there is no correlation between bad debt expense and earnings levels. D) a company's ratio of allowance for uncollectibles to gross receivables should always be close to the average for its industry.5.XYZ Co.'s 2012 ratio of allowance for uncollectibles to gross receivables has declined from the ratio at the end of 2011. To evaluate whether the reduction in XYZ's ratio is reasonable, an analyst should A) compare the ratio to other firms in XYZ's industry. B) look for additional discussion in XYZ's annual report.

C) listen to the analyst earnings briefing.
D) do all of the above.6.Which one of the following is an example of an aggressive revenue recognition policy? A) A firm recognizes revenue at time of collection. B) A firm recognizes revenue at the expiration of the return period. C) A firm with a liberal return policy recognizes revenue at shipment. D) A firm with a liberal return policy recognizes revenue at shipment with a corresponding allowance for returns and allowances.7.Non-interest bearing notes are initially recorded at A) historical cost. B) maturity value because they bear no interest.

C) present value, based on the prevailing interest for loans of this type. D) future value, based on the prevailing interest for loans of this type.8.On January 2, 2012, Jensen Corporation sells equipment it manufactured to Lewisburg Fabricators in exchange for an $80,000 note due in five years. The note bears no explicit interest, but rather requires the entire $80,000 to be repaid at the end of five years. Jensen recently sold the same equipment to another company for $54,447. When Lewisburg Fabricators sought bank financing for this purchase the company was offered the funds at 8%, but decided instead to let Jensen hold the note. What amount will Jensen recognize as interest income during 2012? A) $4,356 B) $4,704

C) $5,111
D) $09.On January 2, 2012, Jensen Corporation sells equipment it manufactured to Lewisburg Fabricators in exchange for an $80,000 note due in five years. The note bears no explicit interest, but rather requires the entire $80,000 to be repaid at the end of five years. Jensen recently sold the same equipment to another company for $54,447. When Lewisburg Fabricators sought bank financing for this purchase the company was offered the funds at 8%, but decided instead to let Jensen hold the note.What amount will Jensen recognize as interest...
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