1. On December 31, 2007 Rainbow Appliances has $275,000 in accounts Receivable and an allowance account with a credit balance of $240. Current period net credit sales were $771,000, cash sales were $68,000.
A. Rainbow Appliances performs an aging schedule, and the results are summarized below, along with the appropriate percentages that Rainbow applies to the categories shown.
Days Outstanding Amount Uncollectible
Not yet due $150,000 1%
31-60 days past due $50,000 5%
61-90 days past due $40,000 10%
91-120 days past due $25,000 25%
Over 120 days past due $10,000 50%
Assume Rainbow uses the aging approach of accounting uncollectible accounts; prepare the adjusting entry required at the end of the accounting period.
B. Assume now Rainbow uses the percent-of-sales method of accounting for uncollectible accounts. If historical data indicates that approximately 3% net credit sales are uncollectible, what is the amount of uncollectible-account expense and what is the balance in the allowance for uncollectible accounts after adjustment?
a. General Journal
Date Accounts Debit Credit
2. When prices are rising, LIFO generally results in the lowest taxable income, and therefore helps reduce taxes paid.
3. One way of decreasing the equity of a business is to increase an asset.
4. The purchase of supplies on account will decrease equity
5. The following information is available for Blue Moon Company regarding its June 30, 2005 bank statement:
• Balance per bank statement is $10,241.43.
• Balance per books is $9,745.06.
• Check #506 for $1,948.52 and check #510 for $1,800.25 was not returned with the June 30 bank statement.
• A deposit in transit of $5,113.40 had not been received by the bank when the bank statement was generated
• A bank debit memo indicated an NSF check written by Bruce Garrett to Blue Moon Company on June 13 for $79.
• A bank credit memo indicated a ban collection of $1,900 and interest revenue of $75 on June 20.
• The bank Statement indicated a service charge of $35.
Prepare bank reconciliation for Blue Moon date June 30, 2005
6. If beginning capital was $25,000, ending capital is $37,000, and owner’s withdrawals were $23,000, the amount of net income or net loss for the period was:
A. Net loss of $35,000
B. Net income of $16,000
C. Net income of $35,000
D. Net loss of $14,000
7. Performing a service and immediately collecting cash would:
A. Increase net income less than if the services had been performed on account
B. Have no effect on liabilities
C. Increase owner’s equity less than if the service had been performed on account
D. Increase assets more than if the service had been performed on account
8. Cash received on account would increase total assets
9. Failure to adjust for an accrued expense will understate expenses and overstate net income.
10. If an adjustment for prepaid insurance is not made at year end, liabilities will be:
D. Unable to determine with the given information
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