Quick check and quiz answers -- chapter five

Quick check and quiz answers -- chapter five - Chapter Five...

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Chapter Five – Quick Check – pages 286 – 288 and Quiz – pages 296 – 298 Quick Check: 1. B Trading securities are classified at fair market value. In this case $55,000. This is an exception to the historical cost principle. 2. C The gain or loss on trading securities is recognized (recorded) even though it is not realized. 3. Typo in the book. If a company uses the percentage of sales method, the existing balance in the allowance for uncollectible accounts is ignored. The bad debt expense would be credit sales times 2% = $760. 4. D After the above entry: Bad Debt Expense 760 Allowance for uncollectible accounts 760 The allowance will have a balance of 750 + 760 = 1510. Remember the allowance account is a contra-asset that reduces the accounts receivable account down to the net realizable value. 5. A The focus of the aging (or percentage of receivables) method is estimation of the net realizable accounts receivable. Per the facts, the amount needed at the end of the year in the allowance for uncollectible accounts is $1,140. We are also informed that the current balance is $750. The following adjustment is necessary: Bad Debt Expense 390 Allowance for uncollectible accounts 390 6. D When the aging method is used the focus is on the needed balance in the allowance account. It is given that the needed ending balance is $1,140. 7. B The ending net realizable value of accounts receivable would be: Accounts Receivable $8,000 Less: Allowance 1,140 Net realizable AR $6,860 8. B
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