Question

High Sierra Tacos acquired a taco truck from Taco Wholesalers on 6/30/15 and gave

a noninterest-bearing note in exchange. High Sierra Tacos is obligated to pay $650,000

on 6/30/17 to satisfy the obligation in full. If High Sierra Tacos accrued interest of

$50,000 on the note in its 2015 year-end financial statements, at what amount would it

record the equipment on its 6/30/15 balance sheet?

A. $450,000

B. $700,000

C. $600,000

D. $650,000

E. $850,000

Tragic Taco lost its taco truck to bandits who took it south of the border. They are

trying to collect insurance on the lost inventory and have the following data: Inventory

January 1, 2015, $80,000; sales up to the theft: 300,000; purchases up to the theft:

$200,000. Tragic consistently reports a 25% gross profit. The estimated lost inventory

is:

A. $205,000.

B. $280,000.

C. $200,000

D. None of these.

E. $55,000.

At January 1, 2015, French Taco had a credit balance of $500,000 in its allowance

for uncollectible accounts. Based on past experience, 1 percent of French's credit sales

have been uncollectible. During 2015, French wrote off $600,000 of accounts

receivable. Credit sales for 2015 were $20,000,000. In its December 31, 2015 balance

sheet, what amount should French report as allowance for uncollectible accounts?

A. None of these.

B. $500,000.

C. $200,000.

D. $100,000.

E. $300,000.

On July 1 of the current year, Online Tacos factored receivables with a carrying

value of $560,000 to a local bank. The transfer was made without recourse. The bank

remits 85% of the factored amount to Online Tacos and retains the remaining 15%.

When collections are over, the bank will remit to Online Tacos what it collects of the

retained amount (expected to be $70,000) less a fee equal to 8% of the total amount

factored. On July 1, Online Taco would

A. Debit loss on sale of receivables for $58,800

B. None of these.

C. Debit accounts receivable for $560,000.

D. Debit receivable from factor for $70,000.

E. Credit cash for $476,000.

Answer 1

1. Year ending of High Sierra Tacos is assumed as 12/31 of every year.

For the six months in 2015, it has accrued interest of $50,000, the interest for 2 years would be $200,000.

The equipment cost would be $650,000 - $200,000 = $450,000

Option A is correct.

2.

Given that the gross profit percentage is 25%. That means, the cost of goods sold would be 75%.

Cost of goods sold upto the date of theft = 300,000 x 75% = $225,000.

Estimated Ending Inventory = Beginning Inventory + Purchases - Cost of Goods Sold

= $80,000 + $200,000 - $225,000

= $55,000

Option E is correct answer.

3.

Credit Sales is $20,000,000,

Allowance created during current year = $20,000,000 x 1% = $200,000

Opening Balance of allowances = $500,000

Allowances written off during the period = $600,000

Ending Balance of Allowance = Opening Balance + Allowance created - Allowances written off

= $500,000 + $200,000 - $600,0000

= $100,000

Option D is correct answer.

4.

In this factoring agreement, accounts receivable sold are $560,000

Out of this cash is received to the extent of 85% i.e., $476,000, but cash will be debited

Accounts Receivable will be credited to the full value of $560,000

Loss on Receivables would be the fee charged on factoring, that is $560,000 x 8% = $44,800

HoldBack amount receivable from the factor is 15% of $560,000 less expense = $84,000 - $44,800 = $39,200, but it is expected that $70,000 would be received instead of $84,000, hold back amount receivable would be $70,000 - $44,800 = $25,200

Loss on Receivables would be increased by $14,000, it would be $58,800

Option A is correct.