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Exam 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash

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Question 1

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Deposits in transit are deducted from the bank balance when preparing the bank reconciliation.

A) True
B) False

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Question 2

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You are the new manager of West Coast Company. The company distributes goods throughout the Rocky Mountain area. Customers are billed after the shipments are sent. Most customers pay within two weeks. You notice that one employee is responsible for opening all incoming payments, recording them in the accounting records, and depositing all receipts in the bank daily. When asked why this one person performed all of these duties, you were told that it was more efficient for one person to handle cash and to keep track of things. If any cash was missing, responsibility could be easily determined. Required: Do you agree with this arrangement? What changes would you make, and why?

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Question 3

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During 2014, Charles Inc. recorded credit sales of $2,000,000. Based on prior experience, it estimates a 1 percent bad debt loss rate on credit sales. At the beginning of the year, the balance in net accounts receivable was $150,000. At the end of the year, but before the bad debt expense adjustment was recorded and before any bad debts had been written off, the balance in net accounts receivable was $125,000. A. Assume that on December 31, 2014, the appropriate bad debt expense adjustment was recorded for the year 2014 and accounts receivable totaling $16,000 was written off for the year. What was the accounts receivables turnover ratio for the year? B. Assume that on December 31, 2014, the appropriate bad debt expense adjustment was recorded for the year 2014 and accounts receivable totaling $12,000 was written off for the year. What was the accounts receivables turnover ratio for the year? C. Explain why the answers to parts A and B differ or do not differ.

An objective of preparing the bank reconciliation is to reconcile the bank balance at the end of the period with the company's book balance at the end of the period.

Illinois Company prepared the following bank reconciliation at May 31: Required: Prepare the necessary journal entries for Illinois Company required by the May 31 bank reconciliation.

The Ward Company has provided the following information: • Net sales totaled $750,000. • Beginning net accounts receivable was $65,000. • Ending net accounts receivable was $85,000. What was Ward's average collection period?

Flyer Company has provided the following information prior to any year-end bad debt adjustment: • Cash sales, $150,000 • Credit sales, $450,000 • Selling and administrative expenses, $110,000 • Sales returns and allowances, $30,000 • Gross profit, $290,000 • Accounts receivable, $110,000 • Sales discounts, $14,000 • Allowance for doubtful accounts credit balance, $1,200 Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been uncollectible. How much is Flyer's bad debt expense?

Prior year financial statements are adjusted when it is determined that prior year bad debt expense was too low.

The Ward Company has provided the following information: • Net sales totaled $750,000. • Beginning net accounts receivable was $65,000. • Ending net accounts receivable was $85,000. What was Ward's receivables turnover ratio?

Which of the following journal entries correctly records the collection of an account receivable for which a 1% sales discount was recorded at the time of collection?

Why is the reconciliation of a company's cash account to the bank statement so important for effective internal control for cash?

Flyer Company has provided the following information prior to any year-end bad debt adjustment: • Cash sales, $150,000 • Credit sales, $450,000 • Selling and administrative expenses, $110,000 • Sales returns and allowances, $30,000 • Gross profit, $490,000 • Accounts receivable, $110,000 • Sales discounts, $14,000 • Allowance for doubtful accounts credit balance, $1,200 Flyer prepares an aging of accounts receivable and the result shows that 5% of accounts receivable is estimated to be uncollectible. How much is bad debt expense?

Woodland Company uses the allowance method to account for bad debts. During 2014, a customer became bankrupt and a receivable of $10,000 was deemed uncollectible. Which of the following journal entries records the uncollectible account write-off?

Which of the following correctly describes credit terms of 2/10, n/30?

The journal entry to write-off an uncollectible account does not change the net realizable value (book value) of accounts receivable.

A portion of the income statement for Lone Star Company is shown below. Provide the missing account titles and amounts.

Newark Company has provided the following information: • Cash sales, $450,000 • Credit sales, $1,350,000 • Selling and administrative expenses, $330,000 • Sales returns and allowances, $90,000 • Gross profit, $1,360,000 • Increase in accounts receivable, $55,000 • Bad debt expense, $33,000 • Sales discounts, $43,000 • Net income, $1,030,000 How much are Newark's net sales?

Which of the following journal entries correctly records the write-off of an uncollectible account receivable when using the allowance method?

Which of the following does not correctly describe the following journal entry? Sales returns and allowances Accounts receivable

A company purchased goods on credit with credit terms of 3/15, n/45. Although the company does not have cash available to pay within the discount period, the manager of the company is considering borrowing money to take advantage of the discount. In order to make the appropriate decision, the manager computed the annual interest rate associated with the sales discount. Which of the following is the annual interest rate (rounded) ?