SolnExam2-1 - Exam #2 SOLUTIONS Part I. 20 Multiple Choice...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
Solutions – Exam #2 195 Exam #2 SOLUTIONS Part I. 20 Multiple Choice Questions at 3 Points Each Intermediate numbers are shown in italics and the final answer is shown in bold. 1. A. Use the Allowance T-account: the beginning balance of $27,100 + Bad Debt Expense – accounts written-off of $162,900 = adjusted ending balance of $23,800. Bad Debt Expense for the year was $159,600 ; $159,600 = credit sales (?) x .025, so credit sales = $6,384,000 ($159,600 ÷ .025). 2. C. Use the Allowance T-account: the beginning balance of $25,600 + $7,200 of recoveries + Bad Debt Expense – accounts written-off of $199,000 = desired ending balance of $26,200 (5% x $524,000). Therefore, Bad Debt Expense for the year was $192,400 . 3. D. The entries to record a recovery are: debit Accounts Receivable and credit Allowance for Bad Debts and then debit Cash and credit Accounts Receivable. 4. A. Use the Allowance and Accounts Receivable T-accounts: the aging analysis indicates the desired ending balance in the Allowance account is $57,800 ($173,000 x 10% + $162,000 x 25%). Beginning balance in the Allowance for Bad Debts of $56,800 + Bad Debt Expense of $117,400 – write-offs (?) = $57,800 desired ending balance. Therefore, write-offs = $116,400 . The beginning balance in Accounts Receivable of $310,100 + credit sales of $3,913,500 – $116,400 of write-offs – cash collected from customers (?) = ending balance in Accounts Receivable of $335,000; this means cash collected from customers = $3,772,200 . 5. B. Cash increased by $726,800 , the Revenue of $710,200 + the $27,500 decrease in Accounts Receivable ($125,300 – $97,800) [this amount was not included in Revenue but was received in cash] – the $10,900 decrease in Unearned Revenue ($73,700 – $62,800) [this amount was included in Revenue but was not received in cash]. Total Assets increased by $699,300 , the $726,800 increase in cash – the $27,500 decrease in Accounts Receivable. Liabilities decreased by $10,900 , the decrease in Unearned Revenue.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
INTRODUCTION TO FINANCIAL REPORTING AND ANALYSIS – 4 TH EDITION 196 6. A. Set up the two income statements and fill in the given amounts. Compute the beginning inventory for 2007, which equals the ending inventory for 2006. With ending inventory you can compute cost of goods sold of $837,900. Since the gross profit percentage for 2006 is 30%, we know that cost of goods sold = 70% of Sales Revenue. Therefore, Sales Revenue = $1,197,000 ($837,900 ÷ .7). 2006 2007 Sales Revenue $1,197,000 $1,380,000 Cost of Goods Sold Beginning Inventory 485,200 301,500 + Purchases 654,200 758,600 Ending Inventory 301,500 837,900 163,100 897,000 Gross Profit Percentage 30% = $ 359,100 35% = $ 483,000 7. B. The first error causes 2006 Cost of Goods Sold to be understated by $36,900 and net income (ignoring income taxes) and Shareholders’ Equity to be overstated by $36,900 . In 2007, the first error, by itself, causes beginning inventory and, therefore, Cost of Goods Sold to be overstated by $36,900; the second error, by itself, causes
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 04/04/2008 for the course ACC 271 taught by Professor Klem during the Winter '08 term at University of Michigan.

Page1 / 6

SolnExam2-1 - Exam #2 SOLUTIONS Part I. 20 Multiple Choice...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online