Mgmt_200_Spring_2008_Exam_2_Solution(3,5)

Mgmt_200_Spring_2008_Exam_2_Solution(3,5) - Name: _ PUID: _...

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Name: ________________________ PUID: ________________________ Purdue University Krannert School of Management MGMT 200 – Introductory Financial Accounting Spring 2008 Exam 2 – March 4, 2008 – SOLUTION OUTLINE This exam consists of 4 questions on 11 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 (25 points) ________ Question 3 (25 points) ________ Question 4 (25 points) ________ TOTAL (100 points) ________
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Question 1. Allowance for Doubtful Accounts (25 points) The following presentation of receivables is taken from Rollins Corporation’s 2006 annual report: December 31, 2005 2006 Receivables, less allowance for doubtful accounts ($4,825 and $5,580 respectively) $72,375 $92,720 Rollins Corporation’s sales in 2007 were $1,540,000, all on credit. Collections on account during 2007 were $1,475,000. Rollins Corporation wrote off $50,400 of uncollectible accounts during 2007. Required: 1. Prepare the journal entry to record sales for 2007. Accounts receivable 1,540,000 Sales revenue 1,540,000 2. Prepare the journal entry to record the collection of accounts receivable during 2007. Cash 1,475,000 Accounts receivable 1,475,000 3. Prepare the journal entry to record the write-off of accounts receivable during 2007. Allowance for doubtful accounts 50,400 Accounts receivable 50,400 Question 1 continued over . . . Mgmt 200 – Exam 2 – Spring 2008 – page 1
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Question 1 continued. 4. Prepare the journal entry to record bad debt expense for 2007 assuming Rollins Corporation estimates bad debts as 3.0% of credit sales. Bad debt expense 46,200 Allowance for doubtful accounts 46,200 (3% of $1,540,000 = $46,200) 5. Complete the following ledger T account for the allowance for doubtful accounts, starting with the account balance as at December 31, 2006, assuming Rollins uses the percentage of credit sales method. After all transactions have been entered compute the account balance as at December 31, 2007. _________________ Allowance for doubtful accounts ________________ Opening balance 5,580 Write-offs 50,400 Expense 46,200 Ending balance 1,380 6. Ignoring your answers to parts 4 and 5, prepare the journal entry to record bad debt expense for 2007 given the following aging of accounts receivable as at December 31, 2007 and the amount expected to be uncollectible in each category, and assuming Rollins uses the aging of accounts receivable method: Age category Amount % uncollectible est. Current accounts
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This note was uploaded on 11/22/2009 for the course MGMT 200 taught by Professor Greigg during the Spring '08 term at Purdue.

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Mgmt_200_Spring_2008_Exam_2_Solution(3,5) - Name: _ PUID: _...

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