11. The amount of interest paid when buying a bond as an investment should be cr
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Question
11. The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.
12. Investments in bonds that management intends to hold to maturity are called trading securities.
13. Investments in stocks that are expected to be held for the long term are listed in the stockholder's equity section of the balance sheet.
14. The Sarbanes-Oxley Act of 2002 was passed by Congress due to the public outcry after the financial scandals of the early 2000s.
15. If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as an "other income" item on the income statement.
16. When the voucher system is used, the amount due on each voucher represents the credit balance of an account payable if the voucher is in full payment to a creditor.
17. Receivables not currently collectible are reported in the investments section of the balance sheet.
18. When companies sell their receivables to other companies, the transaction is called factoring.
19. At the end of a period, (before adjustment), Allowance for Doubtful Accounts has a credit balance of $250. The net credit sales for the period total $500,000. If the company estimates uncollectible accounts expense at 1% of net credit sales, the amount of bad debt expense to be recorded in an adjusting entry is $4,750.
20. When land is purchased to construct a new building, the cost of removing any structures on the land should be charged to the building account.
TRUE OR FALSE?? FOR EACH
Explanation / Answer
11. False - the interest amoun component should be considered as cost on investment
12. False - these are held to maturity investments
13. False - this should be presented on investment side
14. True
15. True
16. True
17. False - they shoul be written off if not collectible in short term
18. True
19. True - the provision account should be debited and carried to bad debt account. Along with that an addition of 4750 as uncollectible debt constitutes $5000.
20. False - if the removal of structures increases the value of land, it has to be a cost of land. Else, it has to be an expense. Another interpretation is, if the land is purchased exclusively for constructing building, it can be added to cost of building
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