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Exam2_Fall2007_VersionB_Solution

Exam2_Fall2007_VersionB_Solution - BOSTON UNIVERSITY School...

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BOSTON UNIVERSITY School of Management Professor Ana Albuquerque Financial Accounting SMG AC 221 Mid-Term Exam II (B) October 16, 2007 (100 points) DO NOT OPEN THIS EXAM UNTIL INSTRUCTED TO DO SO Note: You have 1:30 hours. No partial credit. Good luck! Please Read: By signing your name on this page, you certify that all work on this exam is your own. Any communication during the exam, including through electronic devices, is strictly prohibited. A violation of this agreement is a breach of the University’s code of academic honesty and will result in serious penalties. Show all work for full credit. Signature Name (please print): ___ _SOLUTION __________ SID: ____________________ Section (circle one): B1: 8:00 – 9:30 am C3: 11:00 – 12:30 pm C1: 12:30 – 2:00 pm 8
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Question 1 (35 points) ______________________ Question 2 (35 points) ______________________ Question 3 (30 points) ______________________ TOTAL EXAM (100 points) _________________ (SCORE) 8
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Question 1 (35 points) Brookline Company had the following account balances related to credit sales and receivables information at the end of 2005: (i) Customers owed the company $250,000 (gross); (ii) Allowance for Doubtful Accounts showed a credit balance of 22,000. During 2006, Brookline Company recorded credit sales of $2,100,000. In 2006, the company also received information that a customer owing $20,000 had gone bankrupt. This amount was written off. The accounts receivable balance (gross) at the end of 2006 was $550,000. Required a. (5 points) How much cash did the company collect from customers during 2006? Amount of cash collected : $1,780 Calculations 250+2,100-Cash-20=550 Cash=1,780 b. (6 points) Prepare the journal entry for the amount of bad debt written off during 2006. Journal entry Allowance for Bad Debt 20,000 A/R 20,000 c. (4 points) What was the effect of the bad debt write-off on the company’s 1. Pretax Income for 2006? (circle one) Increase / Decrease / No change 2. Total Net Assets at end of 2006? (circle one) Increase / Decrease / No change d. (8 points) Brookline Company estimates that 2% of its credit sales will prove to be
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