ACCT+2101+Quiz+3+V1+SOLUTION

ACCT+2101+Quiz+3+V1+SOLUTION - ACCT 2101 Quiz#3 ——...

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Unformatted text preview: ACCT 2101 Quiz #3 —— Version 1 Solution Spring Semester, 2009 Name “m Wl‘i’if‘x % rCtC‘iA/Wit [if Ltd‘ciéitnfl, Section (please print clearly) k” Pledge: On my honor, I have neither given nor received any unauthorized help on this quiz. (signed) Instructions: 1. You may not ask questions during the quiz. However, all notes you write to the instructor will be read and considered during the grading process. 2. This quiz is comprised of numerous SHORT problems and questions. Please use your time wisely. Remember: Perfect answers are not required to get most of the points. 3. Only the approved calculators may be used during the quiz. 4. You must write legibly or your answers will not be graded. 5. PLEASE SHOW YOUR WORK TO RECEIVE ANY PARTIAL CREDITII 6. Do NOT pull this quiz apart under any circumstances. Make sure you have 8 numbered pages including the cover sheet. 8. Good luck! .\‘ Point Allocation: Problem 1: 2.0 Problem 2: 1.5 Problem 3: 2.0 Problem 4: 2.0 Problem 5: 1.5 Problem 6: _l_._(_)_ TOTAL POINTS = Q points Lg” Version ! W‘s». ACCT 2101 Quz‘zéy 1 of9 PROBLEM 1. The Smith Company had the following information: 1. On May 31, Smith showed a balance in its Cash account of $2,891. On June 2, Smith received its bank statement for the month ended May 31, which showed an ending balance of $4,252. 2. A comparison on the company’s records with the bank statement showed that the $452 receipts of May 31 were included in Cash but not included as a deposit on the bank statement. This deposit was in the bank’s night deposit chute on May 31. 3. A comparison of checks issued with checks that had cleared the bank showed three checks outstanding: No. 9544 $322 No. 9545 268 No. 9546 223 4. Included with the bank statement was a credit memo for $1,225 (principal of $1,200 plus interest of $25) for collection of a note owed to Smith by Shipley Company. 5. Included with the bank statement was a $202 debit memo for an NSF check from the Johnson Company as payment on their account. 6. Charges made to Smith’s account include $23 for bank service charges. REQUIRED: (a) Prepare a bank reconciliation as of May 31. Be sure to label every item. Use the next page for your solution to this part. (b) Prepare an adjusting entry to bring the Cash account to its proper balance. Use the bottom of this page for you solution to this part. (b) Journal Entry: (may be one combined entry) Cash 1,225 Notes Receivable 1,200 Interest Revenue 25 To record collection of note plus interest. 6 Accounts Receivable 202 Cash 202 To reinstate account as a result of NSF check. Bank Service Expense 23 Cash 23 To recognize bank service charges. ACCTZIOI Quiz 3-] 20f9 PROBLEM I SOLUTION HERE. (:1) Bank Reconciliation as of May 31: BANK SIDE: Balance per bank statement Add: Deposits in Transit Deductz Outstanding Checks Adjusted Cash Balance BOOK SIDE: Balance per books Add: Note collected Deduct: Debit memo for NSF Check Bank service charge Adjusted Cash Balance ACCT 2101 Quiz 3—] $4,252 $2,891 + 1,225 - 202 — 23 §3g891 M1 (f1 3 of9 PROBLEM 2. Required: Fill in the blanks with the missing information for the Turner Company. The company uses a calendar year-end. Gross sales 33 Sales discounts 5,000 Sales returns and allowances 15,000 Net sales Merchandise inventory, January 1 24,000 Purchases Purchase discounts 3,000 Purchase returns and allowances 8,000 Net purchases 0 156,000 Transportation—in 10,000 Net cost of purchases Cost of goods available for sale 190,000 Merchandise inventory, December 31 Cost of goods sold 159,000 Gross margin 103,000 ACCTZIO] Quiz 3~l Answer 282,000 262,000 167,000 166,000 31,000 40f9 PROBLEM 3. The accounts of Stackhouse Company as of December 31, 2008, show: Accounts Receivable $ 290,000 Allowance for Uncollectible Accts 1,950 (CR) Sales 1,920,000 Sales Returns & Allowances 132,000 REQUIRED: 1. Prepare the journal entries necessary to adjust for bad debts on December 31, 2008, under each of the following assumptions: (a) Uncollectible accounts are estimated at 1% of net sales. (b) Uncollectible accounts are estimated at 4% of accounts receivable. 10 On March 1, 2009, Stackhouse wrote off the $600 account of one of their customers, Fuller Company. Record the necessary journal entry. 3. On May 15, 2009, Stackhouse receive a check in the amount of $400 from the Fuller Company in settlement of their account. The check cleared our bank account. Record the necessary journal entries. ACCTZIOI Quiz 3~1 50f9 PROBLEM 3 SOLUTION. 1. (a) (b) 3. (a) 0)) Bad Debts Expense Allowance for Uncollectible Accounts [(1,920,000 - 132,000) * 1% = 17,880] Bad Debts Expense Allowance for Uncollectible Accounts [(290,000 * 4%) — 1,950 = 9,650] Allowance for Uncollectible Accounts Accounts Receivable — Fuller Company To record write-ofi of bad debt. Accounts Receivable - Fuller Company Allowance for Uncollectible Accounts To record partial recovery of bad debt. Cash Accounts Receivable — Fuller Company To record collection of account. ACCTZIOI Quiz 3‘] 17,880 9,650 600 400 400 17,880 9,650 600 400 400 60f9 Mame} PROBLEM 4. Crawford Company gave a $300,000, 75—day, 14% note to Dunston Company in settlement of their Account Receivable owed to Dunston. Record the journal entries for both parties for: (l) The issuance of the note. (2) The maturity date assuming payment is made. DUNST ON COMPANY (LENDER): (1) Notes Receivable ~« Crawford Company 300,000 . 3 Accounts Receivable — Crawford Company 300,000 To record settlement of account receivable with note. .‘mk‘ l/ (2) Cash 308,630 ‘ i Tl Notes Receivable —~ Crawford Company 300,000 Interest Revenue 8,630 [Interest Revenue: 300,000 * l4% * 75/365 = $8,630] To record collection ofrzote receivable at maturity. CRAWFORD COMPANY (BORROWER): (1) Accounts Payable ~ Dunston Company 300,000 Notes Payable ~ Dunston Company 300,000 To record settlement ofaccount payable with note. \J ;_i (2) Notes Payable ~ Dunston Company 300,000 Interest Expense 8,630 Cash 308,630 [Interest Expense: 300,000 * 14% * 75/365 = $8,630] To record payment of note payable at maturity. ACCT2101 Quiz 3-] 7of9 PROBLEM 5. The following information is available from the annual reports of the Green and Blue Companies. Green Blue Sales $356,000 $425,000 Beginning receivables, net 27,000 55,500 Ending receivables, net 38,500 63,400 Required: (a) Based on the preceding information, compute the following for each company: 1. Accounts receivable turnover 2. Days to collect accounts receivable (b) What conclusion concerning the management of accounts receivable can be drawn from your computations? (a) (1) Accounts receivable turnover: Green: $156,000 / [($27,000+$38,500) / 2] = $156,000/ $32,750 = 4.76 times g ‘ a Blue: $225,000/[($55,500+$63,400)/2] = $225,000/$59,450 = 3.78 times .3 (2) Days outstanding: ? Green: 365 days / 4.76 times = 76.7 days * a Blue: 365 days/3.78 times = 96.6 days i” ‘3 (b) Possible conclusions: (1) It appears that Blue has a slow turnover of accounts ; . iii receivable than Green which can be very costly. (2) Green seems to be managing e} their accounts receivable much better than Blue. A {I “w Armani“??? feasts mutate, ifizw pestle" “ti/E cakmtd be; zirjg,fip+§e bla. ACCTZIOI Quiz3—I 80f9 PROBLEM 6. ANSWER ALL QUESTIONS IN COMPLETE SENTENCES. (a) . l . l i l (b) l \l/ (d) Flag ’tmo . it {each ACCT 2101 Quiz 3—] Define the term merchandise in transit. If the shipping terms are “FOB shipping,” which company (buyer or seller) should include the inventory in their physical count? Merchandise in transit is merchandise in the hands of the transit company at the date of a physical inventory. (That is, the inventory is between the seller and buyer at the date that the inventory is counted.) FOB shipping means that the transfer of title occurs when the goods are shipped by the seller. Therefore, merchandise in transit would belong to the buyer and should be included in the buyer’s physical count. Identify gne advantage and one disadvantage of the FIFO inventory costing method. Possible advantages include: 0 Easy to apply. 0 Less ability to manipulate income. a Assumed cost flow often matches normal physical flow. 0 Balance sheet amount for inventory will be close to market value. Possible disadvantages include: 0 Recognition of “paper” profits since inventory will have to be replaced at higher prices. 0 Heavier tax burden in periods of inflation. Identify two ways that companies can return excess cash to their shareholders. Two ways that companies can return excess cash to their shareholders are (l) the payment of cash dividends and (2) the repurchase of stock from the shareholders. D l l l identify twp ways that companies can use their receivables to obtain financing. Possible ways to use receivables to obtain financing include: 0 Convert regular receivables to credit card sales. 0 Sell credit card sales to financial institution each day (example: Lowe’s). - Discounts notes receivable (sell at a discount). 0 Factor accounts receivable (sell to financial institutions at a substantial discount). 0 Assign notes receivable (pledging notes receivable as collateral). 90f9 ...
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This note was uploaded on 02/08/2011 for the course ACCT 2101 taught by Professor Turner during the Spring '08 term at Georgia Tech.

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ACCT+2101+Quiz+3+V1+SOLUTION - ACCT 2101 Quiz#3 ——...

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