Mgmt_200_Spring_2007_Exam_2_Solution(2,21)

Mgmt_200_Spring_2007_Exam_2_Solution(2,21) - Name: _ PUID:...

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Name: ________________________ PUID: ________________________ Purdue University Krannert School of Management MGMT 200 – Introductory Financial Accounting Spring 2007 Exam 2 – March 7, 2007 – Solution Outline This exam consists of 4 questions on 9 pages (excluding this cover page) for a total of 100 points. Time allowed: 90 minutes. Answer all questions. To ensure full credit and to maximize partial credit, clearly show all supporting calculations. The exam is closed book. A calculator is permitted. GOOD LUCK . Question 1 (25 points) ________ Question 2 (24 points) ________ Question 3 (25 points) ________ Question 4 (26 points) ________ TOTAL (100 points) ________
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Question 1. Allowance for Doubtful Accounts (25 points) The following presentation of receivables is taken from Qwerty Corporation’s 2005 annual report: December 31, 2004 2005 Receivables, less allowance for doubtful accounts ($1,105 and $2,380 respectively) $31,395 $65,620 Qwerty Corporation’s sales in 2006 were $816,000, all on credit. Collections on account during 2006 were $792,000. Qwerty Corporation wrote off $11,400 of uncollectible accounts during 2006. Required: 1. Prepare the summary journal entry related to the write-off of accounts receivable during 2006. Allowance for doubtful accounts 11,400 Accounts receivable 11,400 2. Prepare the journal entry to record bad debt expense for 2006 assuming Qwerty Corporation estimates bad debts as 1.5% of credit sales. Bad debt expense 12,240 Allowance for doubtful accounts 12,240 (1.5% of $816,000 = $12,240) 3. Complete the following ledger T account for the allowance for doubtful accounts, starting with the account balance as at December 31, 2005, assuming Qwerty uses the percentage of net credit sales method. After all transactions have been entered compute the account balance as at December 31, 2006. _________________ Allowance for doubtful accounts ________________ Opening balance 2,380 Write-offs 11,400 Expense 12,240 Ending balance 3,220 Mgmt 200 – Exam 2 Solution – Spring 2007 – page 1
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Question 1 continued over . . . Question 1 continued. 4. Prepare the journal entry to record bad debt expense for 2006 given the aging of accounts receivable as at December 31, 2006 and the amount expected to be uncollectible in each category, and assuming Qwerty uses the aging of accounts receivable method: Age category Amount
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Mgmt_200_Spring_2007_Exam_2_Solution(2,21) - Name: _ PUID:...

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