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

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Question 21

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Which of the following statements is correct?

A) A decrease in the accounts receivable balance means that credit sales exceeded cash collections from customers.
B) The accounts receivable balance increases when cash collected from customers exceeds credit sales.
C) A decrease in accounts receivable is deducted from net income when determining cash flow from operations.
D) An increase in accounts receivable is deducted from net income when determining cash flow from operations.

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

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Question 22

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Prior year financial statements are adjusted when it is determined that prior year bad debt expense was too low.

A) True
B) False

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Question 23

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Which of the following correctly describes the following journal entry? Cash Sales discounts $\quad$$\quad$ Accounts receivable

A portion of the income statement for Lone Star Company is shown below.Provide the missing account titles and amounts. $\begin{array}{ll}A.&---- & \$ 380,000 \\&\text { Sales discounts } & 20,000 \\&\text { Net sales}&&B.&----\\&\text { Cost of goods sold}&&&\$100,000\\C.&---- &&D.&----\\\end{array}$

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.

The Ward Company has provided the following information: Net sales totaled $750,000. Beginning net accounts receivable was $65,000. Ending net accounts receivable was $85,000. What was Ward's average collection period?

A portion of the income statement for Oscar Company is shown below.Provide the missing account titles and amounts. $\begin{array}{ll}A.&-----&&\$ 350,000 & \\&\text { Sales returns and allowances }&B.&-----& \\C.& -----&&& \$ 348,000 \\D.&-----&&& ----- \\& \text { Gross profit } &&& \$ 90,000\end{array}$

On June 1,2010,Concorde Company sold merchandise on credit at an invoice price of $1,000; terms 2/10,n/30.Give the journal entries to record the following: A.To record the sale. B.Assumption A: To record collection on June 28, 2010. C.Assumption B: To record collection on June 9, 2010.

Redwing Company sold inventory costing $500 to a customer on account for $700.Which of the following does not correctly describe the collection of $686 cash when the customer takes advantage of a discount?

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: $\begin{array}{l l c}& \text { Debit } & \text { Credit }\\\text {A. } &\text { Bad debt expense} &\text { Accounts receivable }\\\text { B. } & \text { Bad debt expense }&\text { Allowance for doubtful accounts }\\\text { C. } & \text { Sales revenue }&\text { Accounts receivable}\\\text { D. } & \text {Allowance for doubtful accounts }&\text { Accounts receivable }\\\end{array}$

The CHS Company has provided the following information: Accounts receivable written-off as uncollectible during the year amounted to $11,500. The accounts receivable balance at the beginning of the year was $150,000. The accounts receivable balance at the end of the year was $210,000. The allowance for doubtful accounts balance at the beginning of the year was $14,000. The allowance for doubtful accounts balance at the end of the year after the recording of bad debt expense was $12,900. Credit sales during the year totaled $900,000. How much was CHS Company's bad debt expense?

Woodland Company uses the allowance method to account for bad debts.During 2009,a customer became bankrupt and a receivable of $10,000 was deemed uncollectible.Which of the following journal entries records the uncollectible account write-off?

Linetech Company's bank statement showed an ending balance of $8,000.Items appearing in the bank reconciliation included: Outstanding checks,$500; deposits in transit,$1,000; bank service charges,$50; and Driver Company's $250 check erroneously deducted from Linetech's bank account by the bank.How much is the correct cash balance at the end of the month?

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

Why is the reconciliation of a company's cash account to the bank statement so important for effective internal control for cash?

A comparison of the balance in Cottonwood Company's cash account (per its books)as of April 30,2009,and the bank statement dated April 30,2009,revealed the following information: $\begin{array} { l l r } \text { Code } & \text { Item } & \\\text { A. } & \text { Ending Cash account balance per books (unadjusted) } & \$ 5,520 \\\text { B. } & \text { Ending balance per bank statement } & 5,170 \\\text { C. } & \text { Customer's NSF check returned by bank } & \\& \text { Shown on the April bank statement } & 300 \\\text { D. } & \text { Outstanding checks at the end of April } & 870 \\\text { E. } & \text { Deposit in transit at the end of April } & 1,100\\\text { F. } & \text { Error made by Cottonwood in recording a check paid to a supplier } & \\& \text { during April- } \$ 550 \text { was credited to Cash account when the proper } & \\&\text { amount was } \$ 500 \text {; the bank properly recorded the check } \$ 500&50\\&\text { when it cleared }\\\text { G. } & \text { Bank service charge for } & 20 \\\text { H. } & \text { April Interest paid by bank} & 150\\\end{array}$ Required: Prepare a bank reconciliation using the format below.Indicate the proper handling of each of the items given above by listing the appropriate item code (letter)and amount under each section of the reconciliation statement form below.Then determine the correct cash balance. Note: If one or more of the items given above should not appear on the reconciliation statement,do not include the item(s).

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

Merchandise was sold on credit for $10,000,terms 2/10,n/30.Which of the following journal entry descriptions correctly describes the cash collection?

Sales returns and allowances is a contra-revenue account.

Which of the following is the most likely cause of a decrease in a company's gross profit percentage?