position has deteriorated causing the creditor to reevaluate the note . After careful consideration , the creditor believes that only 60 % of the principal ($ 10,000 ) will be collected at the end of the term . The only interest expected to be received is 2 % of the original principal for one year , also to be collected at the end of the term . At the end of the current year , what amount of expense or loss is recognized by the creditor for this loan impairment ? The present value of $ 1 two years hence at 6 % is . 89 , and at 2 % is . 961 . Question 12 Hutch , Inc . uses the conventional retail inventory method to account for inventory . The following information relates to 2004 operations : What amount should be reported as cost of sales for 2004 ? Question 13 Trans Co . uses a periodic inventory system . The following are inventory transactions for the month of January : Trans uses the average pricing method to determine the value of its inventory . What amount should Trans report as cost of goods sold on its income statement for the month of January ? Question 14 At December 31 , 2004 , Kale Co . had the following balances in the accounts it maintains at First State Bank : Kale classifies investments with original maturities of three months or less as cash equivalents . In its December 31 , 2004 balance sheet , what amount should Kale report as cash and cash equivalents ? Question 15 Gar Co . factored its receivables without recourse with Ross Bank . Gar received cash as a result of this transaction , which is best described as a Question 16 A material overstatement in ending inventory was discovered after the year-end financial statements of a company were issued to the public . What effect did this error have on the year-end financial statements ? Question 17