73. Exhibit 6-1
Dana Company’s December 31, 2012, financial statements showed the following:
Sales revenue
$ 750,000
Average receivables
125,000
Cost of goods sold
555,000
Average inventory
215,000
Net income
105,000
Average total assets
1,220,000
Refer to Exhibit 6-1. Given the information above, Dana Company’s average collection period (rounded) for 2012 was
74. If a company’s accounts receivable turnover ratio is 8.0 times, cost of goods sold is $360,000, and sales
revenue is $480,000, the average accounts receivable balance must have been
75. Exhibit 6-2
On December 31, 2012, Seau Inc.’s financial statements showed the following:
Sales revenue
$ 180,000
Average accounts receivable
24,000
Cost of goods sold
108,000
Average inventory
14,400
Net income
12,600
Total assets
1,128,000
Refer to Exhibit 6-2. Given the information above and assuming a 365-day business year, what was Seau’s average collection period (rounded)
during 2012?
76. Exhibit 6-2
On December 31, 2012, Seau Inc.’s financial statements showed the following:
Sales revenue
$ 180,000
Average accounts receivable
24,000
Cost of goods sold
108,000
Average inventory
14,400
Net income
12,600
Total assets
1,128,000
Refer to Exhibit 6-2. Given the information above and assuming a 365-day business year, what was Seau’s accounts receivable turnover during
2012?
77. The following information is available for Bridges Company:
Bridges Company
Partial Balance Sheet
December 31, 2013 and 2012
2013
2012
Accounts receivable
$500,000
$470,000
Allowance for bad debts
(25,000)
(20,000)
Net accounts receivable
$475,000
$450,000
Inventories at lower of cost or market.
$600,000
$550,000
2013
2012
$2,500,000
$2,200,000
500,000
400,000
$3,000,000
$2,600,000
$2,000,000
$1,800,000
300,000
270,000
50,000
30,000
Total operating expenses
$2,350,000
$2,100,000
The accounts receivable turnover for 2013 is computed as follows:
78. Estimated warranty costs associated with sales should be expensed to properly
79. The entry to record estimated service expenses related to sales would include a
80. The entry to record actual expenses incurred to perform service under warranty would include a
81. Eckstein Company sells television sets with a two year service warranty. Each television sells for $400. In
September, Eckstein sold 50 television sets and estimates that during the warranty period Eckstein will provide
an average of $40 of service costs per television set. What amount of service warranty expense should Eckstein
Company recognize in September?
82. Eckstein Company sells television sets with a two year service warranty. Each television sells for $400. In
September, Eckstein sold 50 television sets and estimates that during the warranty period Eckstein will provide
an average of $40 of service costs per television set. The journal entry that Eckstein Company should record to
recognize the estimated service warranty expense for September is
83. In March, Ravenna Corporation sold $85,000 of inventory. Ravenna offers a one year warranty on all of its
inventory. Ravenna estimates that 6 percent of inventory sold is usually returned and replaced during the
warranty period. Given this information, what amount of warranty expense should Ravenna Corporation
recognize in March?
84. Bank statements provide information about all of the following EXCEPT
85. Which of the following items would be added to the book balance on a bank reconciliation?
86. When reconciling a bank statement, direct deposits are
87. Alco Corporation’s accountant wrote a check to a supplier for $15,000. He then wrote himself a check for
$5,000. For the first check he deducted $15,000 from the books, for the second check he wrote “void” in the
check register. How would the accountant conceal his theft on the bank reconciliation?
88. In preparing a bank reconciliation, interest paid by the bank on the account is
89. In preparing a monthly bank reconciliation, which of the following items would be added to the balance
reported on the bank statement to arrive at the correct cash balance?
90. Which of these is NOT one of the most common reasons for differences between the bank cash balance and
the book cash balance?
91. Wilbur Company’s monthly bank statement showed an ending balance of $36,928. The bank reconciliation
included a deposit in transit, $3,274; outstanding checks, $4,340; an “NSF” check, $1,576; a bank service
charge, $50; and proceeds of a customer’s note collected by the bank, $4,600. The correct cash balance at the
end of the month is
92. During the month, Wilson received a $1,200 check from Richard for the purchase of his 1994 Ford. Wilson
deposited the check in his bank account. At the end of the month, Wilson received his monthly bank statement
along with Richard’s check returned and marked “NSF.” What should Wilson do when reconciling his bank
statement?
93. At the end of the month, a company’s Cash account indicates a balance of $9,820. Upon receiving a bank
statement, the following amounts are used in the bank reconciliation: deposit in transit, $2,400; outstanding
checks, $926; bank service charge, $28; NSF check, $425; proceeds of a customer’s note collected by the bank,
$4,097. Given this information, what is the corrected Cash balance?
94. Thorpe Company has prepared the following partial bank reconciliation for January 2012:
Ending balance per bank statement
$37,400
Balance per books
$38,930
Deposit in transit
6,800
Interest earned
?
Outstanding checks
(5,100)
Service charge
(153)
______
NSF check
(187)
Adjusted balance
$39,100
$39,100
Given this information, how much interest was earned? (Assume there are no other adjustments.)
95. Abbott Company wrote a check for $660, but recorded it in the accounting records as $606. This error
would require an adjustment on the bank reconciliation of
96. Assume the following facts for Erich Company: the month-end bank statement shows a balance of $27,200;
outstanding checks totaled $2,000; a deposit of $8,000 is in transit at month-end; and a check for $400 was
erroneously charged against the account by the bank. What is the correct cash balance at the end of the month?
97. In preparing its bank reconciliation for the month of February, Jesse Company has available the following
information:
Balance per bank statement, February 28
$20,025
Deposit in transit, February 28
3,125
Outstanding checks, February 28
2,875
Check erroneously deducted by bank from Jesse’s account, February 10
25
Bank service charges for February
25
What is the corrected cash balance at February 28?
98. When a U.S. company enters into a credit sales transaction denominated in a foreign currency, the
transaction must be recorded in U.S. dollars. The exchange is measured at the exchange rate on the
99. Fluctuations between the sale date and the settlement date of a foreign currency transaction are
100. A U.S. company makes a sale to a Brazilian company for 10,000 reais on March 15. The Brazilian
company will pay on May 1. The exchange rate on March 15 is 1 real = $0.529 and on May 1 is 1 real = $0.480.
The average rate was 1 real = $0.505. The U.S. company will record the sale on March 15 as
101. A U.S. company makes a sale to a Brazilian company for 10,000 reais on March 15. The Brazilian
company will pay on May 1. The exchange rate on March 15 is 1 real = $0.529 and on May 1 is 1 real = $0.480.
The average rate was 1 real = $0.505. The U.S. company will receive cash on May 1 of
102. A U.S. company makes a sale to a Brazilian company for 10,000 reais on March 15. The Brazilian
company will pay on May 1. The exchange rate on March 15 is 1 real = $0.529 and on May 1 is 1 real = $0.480.
The average rate was 1 real = $0.505. The U.S. company will record a foreign currency gain (loss) of
103. For each of the business activities listed below, state whether it is an operating, an investing or a financing
activity.
a.
Purchasing equipment
b.
Selling stock
c.
Purchasing inventory for resale
d.
Paying utility bills
e.
Borrowing money from a bank
f.
Purchasing land
g.
Selling goods for a profit
h.
Buying stock from another company
i.
Paying salaries to employees
j.
Performing services in a service company
a.
Purchasing equipment
Investing
b.
Selling stock
Financing
c.
Purchasing inventory for resale
Operating
d.
Paying utility bills
Operating
e.
Borrowing money from a bank
Financing
Purchasing land
Investing
g.
Selling goods for a profit
Operating
i.
Paying salaries to employees
Operating
104. List and describe the three most common cash controls that companies use to safeguard cash.
105. On March 1, Chickadee Company sold merchandise to Oriole Company for $5,000 with terms of 3/10, net
30. On March 10, Oriole Company paid 50% of the amount due (assume the company allows the discount on
partial payments). On March 25, Oriole Company returned $500 of merchandise and also paid the remaining
balance due.
Prepare the necessary journal entries that Chickadee Company should make on March 1, March 10, and March
25.
March 1
Accounts Receivable
5,000
Sales Revenue
5,000
March 10
Cash
2,425
Accounts Receivable
2,425
March 25
Sales Returns and Allowances
Accounts Receivable
500
Cash
2,000
Accounts Receivable
2,000
106. The trial balance of Lozier Inc. shows a $52,000 outstanding balance in Accounts Receivable at the end of
2011. During 2012, 80 percent of the total credit sales of $2,600,000 was collected, and no receivables had been
written off as uncollectible. The company uses the allowance method to account for bad debts and estimated
that 1 percent of total credit sales would be uncollectible. During 2013, the account of El Cajon Company, with
a balance of $3,500, was judged to be uncollectible and written off. At the end of 2013, the amount previously
written off was collected from El Cajon.
Prepare the necessary journal entries to record
a.
The credit sales during 2012.
b.
The collection of cash from credit sales during 2012.
c.
The bad debts expense for 2012.
d.
The write-off of the El Cajon account in 2013.
e.
The collection of the El Cajon account in 2013.
107. The following information was abstracted from the records of Sydney Corporation:
Accounts receivable, December 31, 2012
$1,160,000
Allowance for bad debt before adjustment, December 31, 2012
36,000
(dr.)
Sales (2012)
4,360,000
Sales discounts (2012)
36,000
Sales returns and allowances (2012)
54,000
Prepare the adjusting entry for Bad Debt expense under each of the following assumptions:
a.
3 percent of outstanding accounts receivable are uncollectible.
b.
An aging schedule of the accounts shows that $44,600 of the accounts are uncollectible.
c.
One-half of one percent of net sales are uncollectible.
Bad Debt Expense
70,800
Allowance for Bad Debts
70,800
b.
Bad Debt Expense
80,600
Allowance for Bad Debts
80,600
c.
Bad Debt Expense
21,350
Allowance for Bad Debts
21,350
a.
Accounts Receivable
2,600,000
b.
Cash
2,080,000
Accounts Receivable
2,080,000
c.
Bad Debt Expense
26,000
Allowance for Bad Debts
26,000
d.
Allowance for Bad Debts
3,500
Accounts Receivable – El Cajon
3,500
Accounts Receivable – El Cajon
3,500
Allowance for Bad Debts
3,500
Cash
3,500
Accounts Receivable – El Cajon
3,500
108. Micah Company uses the allowance method of accounting for bad debts. The following summary schedule
was prepared from an aging of accounts receivable outstanding on December 31 of the current year.
No. of Days
Probability
Outstanding
Amount
of Collection
0-31 days
$675,000
97%
31-60 days
270,000
90%
Over 60 days
135,000
85%
109. At the end of the year, Skipper Company had the following information:
Credit sales for the year
$650,000
Accounts receivable, beginning of year
135,000
Allowance for bad debts, beginning of year
47,000
Allowance for bad debts, end of year
62,000
Cash collections during the year
665,000
Bad debt expense for the year
55,000
the year
Balance, January 1
60,750
(cr.)
Balance before adjustment, December 31
2,700
(cr.)
$675,000 ´ (1 – 0.97) =
$20,250
$270,000 ´ (1 – 0.90) =
$27,000
$135,000 ´ (1 – 0.85) =
$20,250
$67,500 total bad debt in current Accounts Receivable account
Allowance for Bad Debts
64,800
110. The following are summary financial data of the three most recent years for two companies:
2013
2012
2011
Net
Sales (in
millions)
Ayala, Inc.
$ 7,400
$ 7,850
$ 7,960
Mendez, Inc.
14,650
13,200
12,850
Net
Account
s
Receivab
le (in
millions)
Ayala, Inc.
1,200
1,450
1,160
Mendez, Inc.
4,320
4,640
4,450
a.
Using the data above, compute the accounts receivable turnover and average collection period for each company for 2013 and 2012.
(Round to two decimal places)
b.
Which company appears to have a better credit collection policy? Explain why.
Accounts receivable turnover
2012:
$ 7,850/[($1,450 + $1,160)/2] = 6.02 times
Mendez, Inc.:
2013:
$14,650/[($4,320 + $4,640)/2] = 3.27 times
2012:
$13,200/[($4,640 + $4,450)/2] = 2.90 times
Average collection period
Ayala, Inc.:
2013:
365/5.58 = 65.41 days
2012:
365/6.02 = 60.63 days
Mendez, Inc.:
2013:
365/3.27 = 111.62 days
-Verified uncollectible accounts
xxx
Allowance for bad debts, ending of year
62,000
111. The following are summary financial data of the three most recent years for Birch company:
2013
2012
2011
Net Sales
948,000
876,000
745,000
Net Accounts Receivable
35,000
45,500
50,800
Cost of Goods Sold
784,000
798,000
655,000
Net Accounts Payable
19,800
25,700
26,400
Using the data above compute the following ratios for 2013 and 2012:
a.
Accounts receivable turnover
b.
Average collection period
112. In July, Romish Company sold 1,250 financial calculators for $30 each. Each calculator had cost Romish
$20 to manufacture. Romish promises a replacement calculator if the calculator fails for any reason within the
next 3 years. From past experience, Romish has learned that about 2 percent of the calculators have to be
replaced during this time. Also during July, Romish Company replaced 22 calculators.
Based on this information:
a.
Prepare the journal entry required to recognize Romish’s estimated warranty expense for July.
b.
Prepare the journal entry required to recognize the actual expenses incurred from the returned calculators.
Warranty Expense
Estimated Liability for Service
500
Estimated Liability for Service
Supplies
440
Accounts receivable turnover
2013:
2012:
b.
Average collection period
2013:
2012:
113. Mitchell Company has the following information from its records and from the May bank statement:
Cash balance per books
$40,000
Ending cash balance per bank statement
50,000
Deposits made, not received by bank
12,000
Checks written, not processed by bank
20,000
Interest earned on bank account
100
Bank service charge
140
Direct deposit by customer (on account receivable)
2,040
114. The following information is available for Binford Company:
·
The May 2012 bank statement showed the following:
Balance, May 1
$21,000.00
Canceled checks
13,904.20
Deposits
16,489.65
Interest earned by Binford
28.75
Bank service charge
18.00
Balance, May 31
23,596.20
·
Binford Company’s cash accounts showed the following for May:
Balance, May 1
$20,971.25
Debits
22,700.40
Credits
22,886.34
Balance, May 31
20,785.31
·
Outstanding checks totaled $9,100.14.
·
Deposits in transit totaled $8,000.00.
Balance per bank
$50,000
Balance per books
$40,000
+Deposits in transit
12,000
+Interest earned on account
-Outstanding checks
(20,000)
+Direct deposit
2,040
-Service charge
(140)
Adjusted bank balance
$42,000
Adjusted book balance
$42,000
115. A U.S. company entered into a sales transaction with a Japanese company on September 15 for 200,000
yen. The U.S. company prepares quarterly financial statements. The Japanese company will pay for the sale on
November 20. The exchange rates were as follows:
1 Yen
September 15
$0.0125
September 30
0.0109
November 20
0.0114
Prepare the appropriate journal entries to record the sale, the quarterly adjustment, and the collection.
September 15:
Accounts Receivable
2,500
Sales Revenue
2,500
September 30:
Foreign Exchange Loss
Accounts Receivable
November 20:
Cash
2,280
Accounts Receivable
2,180
Foreign Exchange Gain
Balance per bank
$23,596.20
Balance per books
$20,785.31
Add: Deposits in transit
8,000.00
Add: Note collected
1,800.00
Interest earned
Less: Outstanding checks
(9,100.14)
Less: Service charge
(18.00)
_________
NSF check
(100.00)
Corrected bank balance
$22,496.06
$22,496.06