of University Massachusetts Dartmouth Accounting 211 Principles of Accounting Chapter 6 Quiz Due Monday 11/3/08 Name: ______________________
Multiple Choice 5 points each 1. Sales discounts with terms 2/10, n/30 mean: a. 10 percent discount for payment within 30 days. b. 2 percent discount for payment within 10 days or the full amount (less returns) is due within 30 days. c. Two-tenths of a percent discount for payment within 30 days. d. None of the above. Answer: b 2. You have determined that Company X estimates bad debt expense with an aging of accounts receivable schedule. Company Xs estimate of uncollectible receivables resulting from the aging analysis equals a. bad debt expense for the current period b. the ending balance in the Allowance for Doubtful Accounts for the period c. the change in the Allowance for Doubtful Accounts for the period d. both (a) and (c) 3. Upon receipt of the most recent bank statement, you discover that you recently received an insufficient funds check from a customer. Which of the following describes the actions to be taken when preparing a bank reconciliation? Balance per books Balance per bank a. No change Decrease b. Decrease Increase c. Decrease No change d. Increase Decrease 4. Which of the following best describes the proper presentation of accounts receivable in the financial statements? a. gross accounts receivable plus the allowance for doubtful accounts in the asset section of the balance sheet b. gross accounts receivable in the asset section of the balance sheet and the allowance for doubtful accounts in the expense section of the income statement. c. Gross accounts receivable less bad debt expense in the asset section of the balance sheet d. Gross accounts receivable less the allowance for doubtful accounts in the asset section of the balance sheet 5. Which of the following is not a component of net sales? a. sales returns and allowances b. sales discounts c. cost of goods sold d. credit card discounts answer: c For the following three questions, indicate whether the following items would be added (+) or subtracted (-) from the companys books or the bank statement during the construction of a bank reconciliation. (5 points per answer) (hint: an answer belongs in one of the columns, not both) Reconciling Item Companys Books Bank Statement 6. Outstanding checks _______________ _____________ 7. Bank service charge _______________ _____________
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8. Deposit in transit
_______________
_____________
9 & 10 During the months of January and February, Gold Corporation sold goods to three customers. The sequence of events was as follows: Jan. 6th Sold goods for $1,000 to S. Green and billed that amount subject to terms 2/10, n/30. Sold goods to M. Munoz for $900 and billed that amount to subject terms 2/10, n/30. Jan. 14th Collected cash due from S. Green Feb. 2nd Collected cash due from M. Munoz Feb 28th Sold goods for $500 to R. Reynolds and billed that amount subject to tems 2/10, n/45. Assuming that Sales Discounts is treated as a contra-revenue, Required: a. write out the journal entries to record the sales activity (5 points)
b. compute net sales for the two months ended February 28th . (5 points)
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11. Brookside Dairy uses the aging approach to estimate bad debt expense. The balance of each
account receivable is aged on the basis of three time periods as follows: (1) not yet due $12,000, (2) up to 120 days past due $5,000, and (3) more than 120 days past due $3,000. Experience has shown that for each age group, the average loss rate on the amount of the receivables at year-end due to uncollectability is (1) 2 percent, (2) 10 percent and (3) 30 percent, respectively. At December 31, 2008 (end of the current year), the Allowance for Doubtful Accounts balance was $300 (credit) before the end-of-period adjusting entry is made. Required: What amount should be recorded as Bad Debt Expense for the current year? (5 points)
Write out the journal entry to adjust the Allowance for Doubtful Accounts (5 points).
12. During 2006, Brookside Electronics, Inc. recorded credit sales of $720,000. Based on prior
experience, it estimates a 0.5% bad debt rate on credit sales. Prepare journal entries for each transaction: a. The appropriate bad debt expense adjustment was recorded for the year 2006. (5 points) Bad debt expense Allowance for doubtful account 3600 3600
b. On December 31, 2006, an account receivable for $300 from a prior year was determined
to be uncollectible and was written off. (5 points) Allowance for doubtful account A/R 300 300
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13. The September 30, 2006 bank statement for Russell Company and the September ledger accounts for cash are summarized here:
BANK STATEMENT Checks Balance, 9/1/06 Deposits recorded during September Checks cleared during September NSF checks - Betty Brown Bank service charges Balance, 9/30/06 Deposits Balance $6,300 $33,30 $27,000 0 $4,800 $4,550 $4,500 $4,500
$28,500 $250 $50
9/1 Balance Sept. Deposits
$6,300 28,000
Cash (A) Sept. checks written $28,600
No outstanding checks and no deposits in transit were carried over from August; however, there are deposits in transit and checks outstanding at the end of September. Required: a. Reconcile the bank account. (10 points) b. Write any journal entries that should be made as the result of the bank reconciliation. (10 points) c. What should the balance in the Cash account be after the reconciliation entries? (5 point) d. What total amount of cash should the company report on the September 30 balance sheet? (5 points)
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