Chapter 7 sample test

Chapter 7 sample test - Chapter 7 sample test 1. The First...

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Chapter 7 sample test 1. The First Corporation had cash sales of $90,000 and credit sales of $40,000 in January. Its gross profit was $60,000. The company predicts it will collect all but five percent of its credit sales. Calculate the company’s January uncollectible accounts expense. The key to this problem is to recognize that only credit sales that are expected to be uncollectible result in uncollectible accounts expense. Cash sales do not result in uncollectible accounts receivable because cash sales do not result in accounts receivable. Since the company expects to be unable to collect five percent of its credit sales, its uncollectible accounts expense is $2,000. $40,000 credit sales x .05 uncollectible credit sales = $2,000 uncollectible accounts expense. See text exercise 7.1 for similar material. 2. The Second Corporation is planning on expanding sales in February by selling on credit. It predicts its cash sales will be $70,000 and its credit sales will be $30,000. The cost of goods sold is expected to be 55% of sales. Rent expense and supplies expense are expected to total 20% of sales. Four percent of credit sales are expected to be uncollectible. Income taxes expense is expected to be 40% of income before taxes. Determine the company’s expected net income for February. The keys to this problem are to understand the components of the income statement and to recognize that credit sales that are expected to be uncollectible result in uncollectible accounts expense. The uncollectible accounts expense is a part of operating expenses. The company's expected net income for February is $14,280. Sales ($70,000 + $30,000) $100,000 Cost of Goods Sold ($100,000 x .55) $55,000 Gross Profit $45,000 Operating Expenses Rent and Supplies ($100,000 x .20) $20,000 Uncollectible Accounts ($30,000 x .04) $1,200 Total Operating Expenses $21,200 Income Before Taxes $23,800 Income Taxes Expense ($23,800 x .40) $9,520 Net Income $14,280 See text exercise 7.1 for similar material. 3. The Third Corporation requires credit customers to pay within 30 days of their
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This note was uploaded on 10/09/2011 for the course ACCT 60.201 taught by Professor Monty during the Spring '11 term at UMass Lowell.

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Chapter 7 sample test - Chapter 7 sample test 1. The First...

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