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Exam 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash

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Question 1

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A company is thinking of borrowing money at an 18% annual interest rate in order to pay a $30,000 invoice within the discount period. The invoice terms are 2/10, n/30. They should borrow the money because they will have a net savings of 19.2%.

A) True
B) False

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Question 2

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Superior Company has provided you with the following information before any year-end adjustments: Net credit sales are $120,000. Historical percentage of credit losses is 2%. Allowance for doubtful accounts has a credit balance of $300. Accounts receivables ending balance is $47,000. What is the estimated bad debt expense using the percentage of credit sales method?

A) $2,100.
B) $2,400.
C) $940.
D) $2,700.

E) A) and C)
F) A) and B)

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Question 3

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The accounts receivable aging schedule determines the dollar amount of uncollectible accounts receivable at year-end; this dollar amount of uncollectible accounts receivable is the bad debt expense that is recorded for the year regardless of the allowance for doubtful accounts balance.

Sales discounts are deducted from sales in the calculation of net sales.

Hickory Corporation recorded sales revenue during the year of $350,000 of which $100,000 was on credit. The company has experienced an average bad debt loss rate of 2% of credit sales. Required: Prepare the adjusting journal entry at the end of the year to record bad debt expense.

At year-end, Chief Company has a balance of $10,000 in accounts receivable of which $1,000 is more than 30 days overdue. Chief has a credit balance of $100 in the allowance for doubtful accounts before any year-end adjustments. Using the aging of accounts receivable method, Chief estimates that 1% of current accounts and 10% of accounts over thirty days are uncollectible. What is the amount of bad debt expense?

Which of the following statements is false?

Which of the following correctly describes credit terms of 2/10, n/30?

Dally Company has just finished preparing its bank reconciliation. If everything was done correctly, which of the following items would be reported as a deduction from the company's ending balance per the bank?

Which of the following transactions will result in an increase in the receivables turnover ratio?

Which of the following journal entries correctly records the write off of an uncollectible account receivable when using the allowance method?

Which of the following statements does not correctly describe the allowance for doubtful accounts balance?

Chicago Company has hired you to reconcile its bank statement and cash account. At June 30, 2016, the Cash account on the books showed the following: The June bank statement, just received, showed the following: There were neither outstanding checks nor deposits in transit at May 31, 2016. Required: A.Prepare the bank reconciliation at June 30, 2016. B.Prepare the adjusting journal entries needed as a result of preparing the bank reconciliation.

A company sells a product FOB destination. The product is shipped on December 29, 2015 and the customer receives the shipment on January 3, 2016. Which of the following is true?

The allowance for doubtful accounts is reported as a contra-asset on the balance sheet.

Dillon Company uses the allowance method to account for bad debts. The entry to write off a bad account (one that will never be collected) should be:

Which of the following is not a component of the gross profit calculation?

Matrix Corp. reported the following figures from its financial statements for the years 2015 through 2017. Required: A.Calculate for 2017: 1.Accounts receivable turnover 2.Average collection period B.Calculate for 2016: 1.Accounts receivable turnover 2.Average collection period C.Interpret the receivables turnover and the average collection period, in general.Comment on the change in the ratio results from 2016 to 2017.Then discuss how the trend in sales from 2015 to 2016 and 2017 may have affected the change in the ratios from 2016 to 2017.

Upon completing an aging analysis of accounts receivable, the accountant for Rosco Works prepared and aging of accounts receivable and estimated that $5,000 of the $98,000 accounts receivable balance would be uncollectible. The allowance for doubtful accounts had a $400 debit balance at year-end prior to adjustment. What is the amount of bad debt expense?

You are the new manager of West Coast Company. The company distributes goods throughout the Rocky Mountain area. Customers are billed after the shipments are sent. Most customers pay within two weeks. You notice that one employee is responsible for opening all incoming payments, recording them in the accounting records, and depositing all receipts in the bank daily. When asked why this one person performed all of these duties, you were told that it was more efficient for one person to handle cash and to keep track of things. If any cash was missing, responsibility could be easily determined. Required: Do you agree with this arrangement? What changes would you make, and why?