Question :
81. Stuart Manufacturing sells an old machine to KSS Corp. which : 1230619
81. Stuart Manufacturing sells an old machine to KSS Corp. which is having financial difficulty. Stuart agrees to accept payment over 3 years. The adjusted basis of the machine to the seller is $5,000 and the buyer is expected to make payments of $2,000 per year for 3 years. What amount of net profit is recognized by the seller in year 3 if the seller uses the installment method? (Assume that the buyer makes the payments.)
A. $2,000
B. $1,000
C. $333.33
D. $0
E. $666.67
82. Ulrich Co. sells an asset to a buyer for a total sales price of $6,000 with a payment schedule of $2,000 in year 1, $2,000 in year 2, and $2,000 in year 3. The cost of the asset is $5,000. Under the cost-recovery-first method, what amount of net profit is recognized in year 3?
A. $2,000
B. $1,000
C. $666.67
D. $333.33
E. $0
83. Cowden Properties
Cowden Properties sold a condominium to Ms. Roberts for $90,000. Cowden originally acquired the condo at a cost of $40,000 and made improvements to the unit totaling $20,000. The contract for sale required Ms. Roberts to pay the $90,000 as follows:
Year 1 – $ 5,000
Year 2 – $10,000
Year 3 – $30,000
Year 4 – $45,000
Refer to the Cowden Properties example. If Cowden uses the installment method, how much cost is recognized as expense in year 3?
A. $10,000
B. $15,000
C. $20,000
D. $25,000
E. $30,000
84. Cowden Properties
Cowden Properties sold a condominium to Ms. Roberts for $90,000. Cowden originally acquired the condo at a cost of $40,000 and made improvements to the unit totaling $20,000. The contract for sale required Ms. Roberts to pay the $90,000 as follows:
Year 1 – $ 5,000
Year 2 – $10,000
Year 3 – $30,000
Year 4 – $45,000
Refer to the Cowden Properties example. Under the installment method, how much net profit would Cowden recognize in year 1?
A. $1,667
B. $2,667
C. $3,333
D. $3,667
E. $5,000
85. Cowden Properties
Cowden Properties sold a condominium to Ms. Roberts for $90,000. Cowden originally acquired the condo at a cost of $40,000 and made improvements to the unit totaling $20,000. The contract for sale required Ms. Roberts to pay the $90,000 as follows:
Year 1 – $ 5,000
Year 2 – $10,000
Year 3 – $30,000
Year 4 – $45,000
Refer to the Cowden Properties example. If Cowden uses the cost-recovery-first method, how much profit is recognized in year 4?
A. $45,000
B. $40,000
C. $30,000
D. $20,000
E. $15,000
86. The allowance method is used by a firm
A. to estimate for uncollectibles when it knows that at the time of sale, it will experience some reduction in future cash flows and this amount can be estimated with reasonable precision in order to reduce reported earnings in the period of sale to the amount of the expected net cash collections
B. when the customer has the right to return the product for a refund and the firm can estimate with reasonable precision the amount of returns at the time of sale
C. when the customer has the right to repairs or replacement under warranty if the purchased product is defective, and the firm can estimate with reasonable precision the amount of warranty costs at the time of sale
D. all of the above.
E. none of the above.
87. The seller of merchandise often offers a reduction from the invoice price for prompt payment, this is called a
A. sales discount
B. purchase allowance
C. incentive discount
D. prompt payment discount
E. all of the above
88. The allowance method for uncollectibles is used by a firm
A. when it knows that at the time of sale, it will experience some reduction in future cash flows
B. when the firm can estimate with reasonable precision the amount of reduction in future cash flows at the time of sale
C. to reduce reported earnings in the period of sale to the amount of the expected net cash collections
D. all of the above.
E. none of the above.
89. In estimating the amount of uncollectible accounts the accountant (1) estimates the amount of outstanding accounts receivable that the firm does not expect to collect and (2) adjusts the balance in the Allowance for Uncollectible Accounts so that, after the entry to recognize estimated uncollectibles, the balance in the account will equal the amount that the firm does not expect to collect. The name of this procedure is/(are).
A. the percentage-of-sales
B. aging-of-accounts-receivable
C. direct write-off
D. tax accounting
E. indirect write-off
90. Which of the following is/are true?
A. The percentage-of-sales procedure (1) estimates the amount of uncollectible accounts that will likely occur over time in connection with sales of each period and (2) makes an entry debiting Bad Debt expense and crediting Allowance for Uncollectible Accounts.
B. The aging-of-accounts-receivable procedure (1) estimates the amount of outstanding accounts receivable that the firm does not expect to collect and (2) adjusts the balance in the Allowance for Uncollectible Accounts so that, after the entry to recognize estimated uncollectibles, the balance in the account will equal the amount that the firm does not expect to collect.
C. The percentage-of-sales and the aging-of-accounts-receivable procedures should produce a balance in the Allowance for Uncollectible Accounts that is approximately the same at the end of each period.
D. all of the above.
E. none of the above.
