BA256 Final Exam Review Chapters 1- 7

Matching – Match each of the following terms to its corresponding definition:

  1. Assets a. The amount of net income retained in the corporation

  2. Liabilities b. The debts and obligations of the business

  3. Common Stock c. The increase in assets that results from the sale of a

  4. Retained Earnings product or service in the normal course of business

  5. Dividends d. Resources owned by a business

  6. Revenues e. Term used to describe the total amount paid in by

  7. Expenses stockholders for the shares they purchase

f. The cost of assets used or services consumed in the

process of generating revenuesg. Payments of cash from a corporation to its stockholders

8. Easy transfer of ownership is a characteristic of which form of business organization?a. Sole proprietorship b. Partnership c. Corporation d. All of the above

9. In which forms of business organization are the owners personally liable for all the debts of the business?a. Sole proprietorship and corporation b. Sole proprietorship and partnerships c. Partnership and corporation d. All of them

10. Saira's Maid Service began the year with total assets of $120,000 and stockholders' equity of $40,000. During the year the company earned $90,000 in net income and paid $20,000 in dividends. Total assets at the end of the year were $215,000. Stockholders' equity at the end of the year was:a. $130,000. b. $110,000. c. $150,000. d. $135,000.

11. Which of the following does not affect Retained Earnings?a. Revenuesb. Expensesc. Dividendsd. Issuing stock

12. Saira's Maid Service began the year with total assets of $120,000 and stockholders' equity of $40,000. During the year the company earned $90,000 in net income and paid $20,000 in dividends. Total assets at the end of the year were $215,000. Total liabilities at the end of the year were:a. $80,000. b. $90,000. c. $110,000. d. $105,000.

13. All of the following are included in the general journal except:a. Column for the dateb. Columns for the debits and the creditsc. Column for the account balanced. Column for the transaction descriptione. Column for the posting reference

14. Current assets are assets that are expected to be converted to cash or used up by the business within one year or the normal operating cycle, whichever is longer.a. True b. False

15. Comparability is the qualitative characteristic of accounting information that allows a statement reader to compare a company's performance from one year to the next.a. True b. False

16. Consistency means that a company uses the same accounting principles and methods as the other companies in the same industry.a. True b. False

17. Which of the following is not classified as a current asset?a. Prepaid expenses. b. Accounts receivable. c. Patents. d. Inventory.

18. Which of the following is an example of an intangible asset?a. Cash. b. Trademarks. c. Inventory. d. Property, plant, and equipment.

19. If an expense is paid with cash:a. Assets will decrease. b. Retained earnings will increase. c. Liabilities will increase. d. Expenses will decrease.

20. If cash is received in advance from a customer:a. Assets will decrease. b. Retained earnings will increase. c. Liabilities will increase. d. Stockholders' equity will decrease.

21. Receipt of an unearned revenue:a. Increases an asset; increases a liability. b. Increases an asset; increases a revenue. c. Decreases a liability; increases stockholders' equity. d. Decreases a revenue; increase stockholders' equity.

22. Which of the following is not a part of a complete journal entry?a. The balance of each account affected by the transaction. b. The accounts and amounts to be debited and credited. c. The date of the transaction.

d. A brief explanation of the transaction. 23. The first place every transaction is recorded is the:

a. Ledger. b. Account. c. Basic accounting equation. d. Journal.

24. The entire group of accounts maintained by a company is collectively referred to as the:a. Ledger. b. Journal. c. Financial statements. d. Basic accounting equation.

25. The process of transferring entries from the journal to the ledger is calleda. Journalizing. b. Transferring. c. Posting. d. Balancing.

26. When a trial balance balances, it is an indication that:a. All journal entries have been posted. b. The account balances are correct. c. Debits equal credits. d. All transactions have been journalized.

27. Which of the following accounts is not a temporary account?a. Income Summaryb. Rental Revenuec. Common Stockd. Dividendse. Depreciation Expense

28. Which is true about an adjusting entrya. Only a permanent account is adjustedb. Only a temporary account is adjustedc. A permanent account and a temporary account are affectedd. It is required to satisfy the revenue recognition principle onlye. None of the above

29. The revenue recognition principle dictates that revenue is recognized in the period in which the cash is received.a. Trueb. False

30. The matching principle requires that expenses be recognized in the same period that they are paid.a. Trueb. False

31. Book value is equal to cost minus accumulated depreciation.a. Trueb. False

32. Accrued expenses are expenses that have already been paid.a. Trueb. False

33. If revenues are recognized only when a customer pays, what method of accounting is being used?a. Accrual basisb. Recognition basisc. Cash basisd. Matching basis

34. Which of the following is not a type of adjusting entry?a. Prepaid expensesb. Earned revenuesc. Accrued revenuesd. Accrued expenses

35. If the adjusting entry is not made for unearned revenues the result will be toa. Overstate assets and understate liabilities.b. Overstate liabilities and understate revenues.c. Understate net income and overstate retained earnings.d. Understate retained earnings and overstate revenues.

36. If the adjusting entry is not made for accrued revenues the result will be toa. Overstate assets and understate liabilities.b. Overstate liabilities and understate revenues.c. Understate assets and understate revenues.d. Understate retained earnings and overstate revenues.

37. If the adjusting entry is not made for prepaid expenses the result will be toa. Understate assets and overstate liabilities.b. Overstate liabilities and understate revenues.c. Overstate assets and understate expenses.d. Understate retained earnings and overstate revenues.

38. If the adjusting entry is not made for accrued expenses the result will be toa. Understate assets and overstate liabilities.b. Overstate liabilities and understate revenues.c. Understate liabilities and understate expenses.d. Understate retained earnings and overstate revenues.

39. Adjusting entries are made to ensure that:a. Expenses are recognized in the period in which they are incurred.b. Revenues are recorded in the period in which they are earned.c. Balance sheet and income statement accounts have correct balances at the end of an accounting period.d. All of the above.

40. Which of the following best describes the purpose of closing entries: a. To eliminate the balances in the permanent accounts so they start with zero balances at the beginning of the

next fiscal year.b. To ensure that asset and liability accounts have correct balances at the end of an accounting period.c. To eliminate the balances in the asset and liability accounts so they start with zero balances at the

beginning of the nest fiscal year.d. To eliminate the balances in the temporary accounts so they start with zero balances at the beginning of the

next fiscal year. e. All of the above

41. The following represent steps in the accounting cycle. Place the steps in order by placing the appropriate number next to each step (In other words, place the number “1” next to the first step, “2” next to the second step):

  Prepare the adjusted trial balance

  Post the daily transactions to the ledger

  Journalize the adjusting entries

  Prepare a post-closing trial balance

  Journalize the daily transactions

  Prepare the trial balance

  Journalize the closing entries

  Post the adjusting entries to the ledger

  Prepare the financial statements

  Post the closing entries to the ledger

42. Gross profit (also called gross margin) from sales is the difference between which of the following?a. Net sales and operating expensesb. Net sales and the cost of goods soldc. Net sales and the cost of goods sold plus all the expensesd. Gross sales less the sales discounts and sales returns and allowancese. None of the above

43. Which of the following costs are included in the Merchandise Inventory account?a. Cost incurred to buy goods held for resaleb. Cost of freight inc. Cost of making goods ready for saled. Cost of office suppliese. A, B, and C are all accounted for in the Merchandise Inventory account

44. Which type of inventory system continually updates accounting records for merchandising transactions?a. Wholesaler inventory systemb. Periodic inventory systemc. Perpetual inventory systemd. Permanent inventory systeme. Both periodic and perpetual inventory systems

45. The buyer received an invoice from the seller for merchandise with a list price of $400 and credit terms of 2/10, n/60. The number '10' in the credit terms is which of the following?a. Credit periodb. Cash discount allowed for early payment of the invoicec. Discount periodd. Trade discounte. None of the above

46. How does a merchandiser calculate net sales?a. Sales plus Sales Discount plus Sales Return and Allowancesb. Sales minus Cost of Goods Soldc. Sales minus Sales Discounts minus Sales Returns and Allowances

d. Sales minus Purchase Discounts minus Purchase Returnse. Sales minus Sales Discounts plus Sales Returns and Allowances

47. What are the two classifications of operating expenses on a multi-step income statement?a. Cost of Goods Sold and Selling expensesb. Selling expenses and General & Administrative expensesc. Selling expenses and Other expenses & lossesd. General & Administrative expenses and Interest expensese. Cost of Goods Sold and General & Administrative expenses

48. Cost of goods sold is determined at the end of an accounting period under thea. Perpetual inventory system.b. Double entry inventory systemc. Periodic inventory system.d. Single entry inventory system.

49. Beginning inventory is $12,000; purchases are $34,000; sales are $60,000; and cost of goods sold is $31,000. Ending inventory is:a. $15,000b. $31,000c. $46,000d. $14,000

50. Which of the following statements is correct concerning goods in transit?a. Goods in transit are not included in either the purchaser or seller's inventory count.b. Goods in transit that are being shipped FOB shipping point should be included in the seller's

inventory count.c. Goods in transit that are being shipped FOB destination should be included in the buyer's inventory count.d. Goods in transit that are being shipped FOB destination should be included in the seller's inventory count.e. None of the above

51. How should goods being held on consignment be treated in inventory counts?a. The consignee must report these items in its inventory until sold.b. The consignor must report these items in its inventory until sold.c. Goods held on consignment are not reported in inventory by either the consignee or the consignor.d. Both the consignor and consignee must report goods held on consignment in the inventory.e. None of the above.

52. The assignment of costs to the goods sold and to inventory is the same for both perpetual and periodic inventory for which methods of inventory costing?a. Specific identificationb. FIFOc. LIFOd. Weighted averagee. Specific identification and FIFO

53. Which of the following statements is true concerning the effects of inventory methods?a. LIFO assigns the lowest amount to cost of goods sold during times of rising prices.b. LIFO assigns the highest amount to cost of goods sold during times of rising prices, yielding the lowest net

income.c. FIFO assigns the highest amount of cost of goods sold during times of rising prices, yielding the highest net

income.

d. Weighted average assigns the highest amount of cost of goods sold during times of rising prices.e. None of the above.

54. Inventory at the end of the current period was erroneously understated. Which of the following is true as a result of the error?a. Net income for the current year is overstatedb. The cost of goods sold for the current year is understatedc. Retained earnings at the end of the current year is overstatedd. Net income at the end of the following year will be overstatede. Retained earnings at the end of the following year will be overstated

55. From the choices below, select the one correct response.a. A merchandising company would normally have raw materials and merchandise inventory as inventory

account classifications.b. A manufacturing company would normally have raw materials, work in process, and merchandise

inventory as inventory account classifications.c. A manufacturing company would normally have raw materials, work in process, and finished goods as

inventory account classifications.d. A merchandising company would normally have raw materials, work in process, and finished goods as

inventory account classifications.

56. From the choices below, select the one correct response.a. LIFO inventory valuation requires physical flow of goods to be representative of the cost flow.b. FIFO inventory valuation requires physical flow of goods to be representative of the cost flow.c. Specific identification method inventory valuation requires physical flow of goods to be representative of

the cost flow.d. All of the above statements are correct.

57. From the choices below, select the one correct response.a. GAAP dictates the method – FIFO, LIFO, or specific identification method, of inventory valuation a

company must use.b. The IRS dictates the method – FIFO, LIFO, or specific identification method, of inventory valuation a

company must usec. The SEC dictates the method – FIFO, LIFO, or specific identification method, of inventory valuation a

company must use.d. Company management selects the method – FIFO, LIFO, or specific identification method, of inventory

valuation a company will use.

58. Accounting principles require that inventory be reported at the market value (cost) of replacing inventory when market value is higher than cost.a. Trueb. False

59. If one hundred units of merchandise were purchased at $15 per unit and the current market price of the merchandise is $8 per unit, the merchandise will be reported at $8 per unit.a. Trueb. False

60. Under FIFO, cost of goods sold consists of the units with the oldest costs.a. Trueb. False

61. In a period of inflation, LIFO produces a higher net income than FIFO.a. Trueb. False

62. Which of the following is a purpose of an internal control system?a. Protect assetsb. Ensure reliable accountingc. Promote efficient operationsd. Urge adherence to company policiese. All of the above

63. Which of the following is not a principle of internal control?a. Responsibilities should be clearly establishedb. Adequate records should be maintainedc. Assets should be insured and employees bondedd. Record-keeping and custody should be combinede. Mechanical devices should be used whenever practical

64. Which of the following is not a proper control of cash?a. Handling cash is separate from recordkeeping of cashb. A voucher system should be used for approving and paying cash

disbursements.c. Cash disbursements should be made by checkd. Two people are assigned the task of opening cash receipts in

mail.

65. If the petty cash fund is not replenished at the end of the accounting reporting period, which of the following will occur?a. Net income will be understated or net loss will be overstatedb. Liabilities will be overstated on the balance sheetc. The cash account will be understatedd. It indicates that the petty cash fund is probably shorte. The income statement and the balance sheet will not be correct

66. The bookkeeper recorded a bank deposit at $450, but the bank recorded the deposit at its correct amount of $540. How will this error be treated on the bank reconciliation?a. Addition per book balance of cashb. Deduction per book balance of cashc. Addition per bank statement balanced. Deduction per bank statement balancee. None of the above

67. Which of the following items would not be an adjustment to the book balance of cash on a bank reconciliation?a. Checks deemed to be non-sufficient (NSF) by the bankb. Bank withdrawals for service feesc. Collections by the bank of notes and interestd. Outstanding checkse. Errors made by the depositor

68. Which of the following is not a principle of internal control?a. Segregation of dutiesb. Documentation proceduresc. Collusion between employees

d. Bonding of employees

69. Computer programs that limit unauthorized access to certain files is an example of:a. Other controls.b. Independent internal verification.c. Documentation procedures.d. Physical, mechanical, and electronic controls.

70. Obtaining insurance protection against dishonest employees in an example of:a. Documentation procedures.b. Bonding.c. Establishing responsibility.d. Segregation of duties.

71. The Cash Over and Short account can be treated as either a miscellaneous revenue account or as a miscellaneous expense account, depending upon its balance.a. Trueb. False

72. A journal entry is made each time a petty cash disbursement is made.a. Trueb. False

73. Net income could be overstated if the petty cash fund is not reimbursed at the end of the accounting period.a. Trueb. False

74. When a firm writes off a bad debt under the allowance method of accounting for bad debts, which of the following will occur?a. The realizable value of accounts receivable decreasesb. Total net current assets will decreasec. The cash account will decreased. The realizable value of accounts receivable will not changee. Net income will decrease and expenses will increase

75. When a firm collects (recovers) an account receivable that was previously written off under the allowance method of accounting for bad debts, which of the following will occur?a. The realizable value of accounts receivable will increaseb. The cash account will decrease by the full amount of the recoveryc. The allowance account will decrease by the amount collectedd. The realizable value of accounts receivable will decreasee. The gross amount of accounts receivable will decrease

76. A 60-day, 11%, promissory note that is dated June 13 will have a maturity date of which of the following?a. August 9b. August 10c. August 11d. August 12e. August 13

77. What is the maturity value of a 60-day, 9%, $5,000 note?a. $5,000b. $5,008c. $5,075d. $5,450e. None of the above

78. A method of accounting for bad debts that records the loss from an uncollectible account receivable at the time it is determined to be uncollectible is called the allowance method of accounting for bad debts.a. Trueb. False

79. To write-off a bad debt using the allowance method requires a debit to the Bad Debt Expense account.a. Trueb. False

80. The allowance method of accounting for bad debts adheres to the matching principle.a. Trueb. False

81. The acceptability of the direct write-off approach to recognizing bad debts is provided through the matching principle.a. Trueb. False

82. The Allowance for Doubtful Accounts account is a contra account.a. Trueb. False

83. The matching principle states that an amount may be ignored if its effect on the financial statements is unimportant to the users of the financial statements.a. Trueb. False

84 Estimating bad debts by focusing on the income statement relation between Bad Debt Expense and Sales would involve the determination of bad debts based on the history of uncollected credit sales.a. Trueb. False

85. The percent of receivables method of estimating bad debts emphasizes the realizable value of receivables.a. Trueb. False

86. The maturity date of a 90-day note receivable dated August 29 is November 28.a. Trueb. False

Word Problems

Problem 1. Castle Architects incorporated as licensed architects on September 1, 2007. During the first month of the operation of the business, these events and transactions occurred:

Sept. 1 Stockholders invested $22,000 cash in exchange for common stock of the corporation.2 Paid office rent for the month $1,500.3 Purchased architectural supplies on account from Taliesin Company $1,150.10 Completed blueprints on a carport and billed client $1,700 for services.11 Received $800 cash advance from M. Stewart to design a new home.20 Received $4,900 cash for services completed and delivered to R. Husch.30 Paid secretary-receptionist for the month $1,640.30 Paid $600 to Taliesin Company for accounts payable due.

The company uses these accounts: Cash, Accounts Receivable, Supplies, Accounts Payable, Unearned Revenue, Common Stock, Service Revenue, Salaries Expense, and Rent Expense.

Instructions(a) Journalize the transactions, including explanations.(b) Create and post to t-accounts.(c) Prepare a trial balance on September 30, 2007.

Problem 2. The adjusted trial balance of Bacon Bytes, Inc. is listed below:

Bacon Bytes, Inc.

Adjusted Trial Balance

December 31,2005

Cash $25,000  

Accounts receivable 2,000  

Equipment 54,000  

Accumulated depreciation—Equipment

  22,900

Accounts payable   6,000

Common stock   10,000

Retained earnings   30,000

Dividends 2,000  

Sales   48,500

Sales Discounts 400  

Sales Returns and Allowances 600  

Cost of Goods Sold 14,000  

Depreciation expense—Equipment 2,000  

Salaries expense 8,800  

Insurance expense 400  

Rent expense 5,500  

Supplies expense 300  

Advertising expense 1,000  

Utilities expense 1,400  

Totals $117,400 $117,400

Required

a. Prepare the closing entries for the temporary accounts at December 31, 2005.b. Prepare a post-closing trial balance.

Problem 3. Champlain Confuser Systems, a tech center owned by Sam Champlain, provides training to individuals who pay tuition directly to the school. The school also offers training to groups in off-site locations. The school’s unadjusted trial balance as of December 31, 2005, follows. Champlain Confuser Systems initially records prepaid expenses and unearned revenues in balance sheet accounts. Descriptions of items a through h that require adjusting entries on December 31, 2005, follow.Additional Items

a. An analysis of the company’s insurance policies shows that $3,600 of coverage has expired.b. An inventory count shows that Supplies costing $900 are available at year-end 2005.c. Annual depreciation on the equipment is $7,200.d. On October 1, the company agreed to do a special five-month course for a client (beginning immediately). The contract calls for a monthly fee of $2,000, and the client paid the first four months’ fees in advance. When the cash was received, the Unearned Revenue account was credited. The fee for the fifth month will be recorded when it is collected in 2006.e. On November 1, the school agreed to teach a four-month class (beginning immediately) for an individual for $1,700 tuition per month payable at the end of the class. The services are being provided as agreed, and no payment has been received. f.The school’s five employees are paid weekly. As of the end of the year, four days’ wages have accrued at the rate of $150 per day for each employee.

CHAMPLAIN CONFUSER SYSTEMSUnadjusted Trial Balance

December 31, 2005Cash $25,000  Accounts receivable -0-  Supplies 3,800  Prepaid insurance 9,800  Equipment 69,000  Accumulated depreciation—Equipment   22,900Accounts payable   6,000Salaries payable   -0-Unearned Revenue   10,000Common stock   10,000Retained earnings   30,000Dividends 14,000  Service Revenue   103,000Depreciation expense—Equipment -0-  Salaries expense 54,800  Insurance expense -0-  Rent expense 5,500  Supplies expense -0-  Totals $181,900 $181,900

Required

a. Prepare T-accounts (representing the ledger) with balances from the unadjusted trial balance.

b. Prepare adjusting journal entries for items (a) through (f) and post them to the T-accounts. Assume adjusting entries are made only at year-end.c. Update balances in the T-accounts for the adjusting entries and prepare an adjusted trial balance.d. Prepare Champlain Confuser System’s income statement and statement of retained earnings for the year 2005 and prepare its classified balance sheet as of December 31, 2005.

Problem 4. Prepare journal entries to record the following merchandising transactions of Franklin’s Tower Company, which applies the perpetual inventory system. (Hint: It will help to identify each receivable and payable; for example, record the purchase on June 1 in Accounts Payable—Bertha Co.)

June 1 Purchased merchandise from Bertha Company for $7,000 under credit terms of 1/15, n/30, FOB shipping point.

2 Sold merchandise to Jack Straw Co. for $850 under credit terms of 2/10, n/30, FOB shipping point. The merchandise had cost $360.

3 Paid $250 cash for freight charges on the purchase of June 1.7 Sold merchandise that cost $2,300 for $5,600 cash.9 Purchased merchandise from 20Four Co. for $1,950 under credit terms of 2/15, n/60, FOB

destination.11 Received a $500 credit memorandum from the return of merchandise purchased on June 912 Received the balance due from Jack Straw Co. for the credit sale dated June 2, net of the

discount.16 Paid the balance due to Bertha Company within the discount period.19 Sold merchandise that cost $420 to Casey Jones Co. for $840 under credit terms 2/10, n/45, FOB

shipping point.20 Issued a $100 credit memorandum to Casey Jones Co. for an allowance on goods sold on June

19.24 Paid 20Four Co. the balance due after deducting the discount.29 Received the balance due from Casey Jones Co. for the credit sale dated June 19, net of discount.30 Sold merchandise that cost $2,500 to Jerry Co. for $6,000 under credit terms of 2/10, n/60, FOB

shipping point.

Problem 5 Harry’s House of Fashions uses a perpetual inventory system. It entered into the following calendar-year 2005 purchases and sales transactions:

Jan.1 Beginning inventory 60 units @ $40/unitApril 1 Purchase 75 units @ $48/unitApril 5 Sales 50 units @ $80/unitJuly 7 Purchase 30 units @ $42/unitAug.12 Purchase 40 units @ $50/unitSept. 2 Sales ______ 65 units @ $80/unitTotals 205 units 115 units

Required

a. Compute both cost of goods available for sale and the number of units available for sale.b. Compute the number of units remaining in ending inventory.c. Compute the cost assigned to ending inventory using FIFO, LIFO, specific identification (note: 50 units

from beginning inventory, 50 units from the April 1, and 15 units from the August 12 purchase are sold), and moving average.

d. Compute the gross profit earned by the company for each of the costing methods in part c.

Problem 6 McMahon Company’s adjusted trial balance on November 30, 2005, its fiscal year-end, follows:

Debit Credit

Merchandise inventory $ 38,000Other assets 156,000Liabilities $ 52,000Common stock 20,000Retained earnings 51,600Dividends 14,000Sales 305,000Sales discounts 4,100Sales returns and allowances 15,200Cost of goods sold 103,500Sales salaries expense 32,500Store supplies expense 11,700Delivery expense 12,000Office salaries expense 38,000Office supplies expense 3,600

_____________________________

Totals $428,600 $428,600

On November 30, 2004, merchandise inventory amounted to $22,000. Supplementary records of merchandising activities for the year ended November 30, 2005, reveal the following itemized costs:

Invoice cost of merchandise purchases $120,000Purchase discounts received 1,700Purchase returns and allowances 3,300Costs of transportation-in 4,500

Required

a. Compute the company’s net sales for the year.b. Compute the company’s total cost of merchandise purchased for the year.c. Prepare a multiple-step income statement that includes separate categories for selling expenses and for

general and administrative expenses.

Problem 7 Nittany Company set up a petty cash fund for payments of small amounts. The following transactions involving the petty cash fund occurred in April (the last month of the company’s fiscal year)

April 1 Prepared a company check for $500 to establish the petty cash fund.

15 Prepared a company check both to replenish the fund for the following expenditures made since April 1 and to increase the fund to $700:

a. Paid $156 for janitorial servicesb. Paid $127.36 for miscellaneous expensesc. Paid postage expenses of $87.00d. Paid $114.30 for newspaper advertisements.e. Counted $22.30 remaining in the petty cash box.

30 The petty cashier reports that $386.78 cash remains in the fund and decides that the April 15 increase in the fund was too large. A company check is drawn to both replenish the fund for the following expenditures since April 15 and to reduce the fund to $600:

a. Paid postage expenses of $96.72b. Reimbursed the office manager for business mileage, $127.00c. Paid $79.50 to deliver merchandise to a customer, terms FOB destination.

Required

Prepare journal entries to establish the fund on April 1, to replenish it on April 15 and on April 30, and to reflect any increase or decrease in the fund balance on those dates.

Problem 8 The following information is available to reconcile Wild Willy’s Whitewash Co. book balance of cash with its bank statement cash balance as of July 31, 2005:

a. After all posting is complete on July 31, the company’s Cash account has a $13,805 debit balance, but its bank statement shows a $14,350 balance.

b. Checks outstanding total $4,180.c. In comparing the canceled checks returned by the bank with the entries in the accounting records, it is

found that Check No. 2222 for July phone bill was correctly written and drawn for $720 but was erroneously entered in the accounting records as $270.

d. The bank charged Wild Willy’s $40 for a safe-deposit box. Wild Willy’s does not have a safe-deposit box.

e. A debit memorandum for $125 lists a $100 NSF check plus a $25 NSF charge. The check had been received from the Public Trust bank. Wild Willy has not yet recorded this check as NSF.

f. Enclosed with the statement is a $20 debit memorandum for bank services. It has not yet been recorded because no previous notification had been received.

g. The July 31 daily cash receipts of $3,000 were placed in the bank’s night depository on that date but do not appear on the July 31 bank statement.

Required

a. Prepare a bank reconciliation for this company as of July 31, 2005.b. Prepare the journal entries necessary to bring the company’s book balance of cash into conformity with

the reconciled cash balance as of July 31, 2005.

Problem 9 Winston Company began operations on January 1, 2004, During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows:

2004a.Sold $875,000 of merchandise (that had cost $520,000) on credit, terms n/30.b.Wrote off $20,000 of uncollectible accounts receivable.c.Received $764,000 cash in payment of accounts receivable.d. In adjusting the accounts on December 31, the company concluded that 2% of accounts receivable will

be uncollectible.

2005e.Sold $966,000 of merchandise (that had cost $420,000) on credit, terms n/30.f.Wrote off $15,000 of uncollectible accounts receivable.g.Received $802,000 cash in payment of accounts receivable.h. In adjusting the accounts on December 31, the company concluded that 2.5% of accounts receivable

will be uncollectible.

Required

Prepare journal entries to record Winston’s 2004 and 2005 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system.)

Problem 10. On December 31, 2005, DotGone’s records show the following results for the year:Cash sales $2,362,000Credit sales 4,024,000

In addition, its unadjusted trial balance includes the following items:Accounts receivable $692,300 debitAllowance for doubtful accounts 29,030 credit

Required

a. Prepare the adjusting entry for DotGone to recognize bad debts under each of the following independent assumptions:

1. Bad debts are estimated to be 3% of credit sales.2. Bad debts are estimated to be 1% of total sales.3. An aging analysis suggests 8% of accounts receivable at year-end are uncollectible.

b. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on the December 31, 2005, balance sheet given the facts in part (1a).

c. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on the December 31, 2005, balance sheet given the facts in part (1c).

Problem 11. The following selected transactions are from Virginia Company:

2004Dec. 16Accepted a $40,000, 60-day, 9% note dated this day granting Bonnie Parker a

time extension on her account receivable.31 Made an adjusting entry to record the accrued interest on the Parker note.

2005Jan.31 Accepted a $25,000, 60-day, 12% note dated this day granting Clyde Barrows a time

extension on his past-due account receivable.Feb.14 Received payment of principal plus interest from Parker for the note of December 15.April 1 Barrows dishonored his note when presented for payment.June 10 Accepted a $10,000, 30-day, 6% note dated this day in granting Alphonse Capone a time

extension on his past due account.July 10 Received payment of principal plus interest from Capone for the note of June 10.Dec. 30 Wrote off the Barrows account against Allowance for Doubtful Accounts.

RequiredPrepare journal entries to record these transactions and events.

Optional Materials – The following questions/problems are not covered by all instuctors. Please check your syllabus/notes to determine which of the following topics may be covered on your final exam

Work Sheet Problems

1 The subtotals of the Income Statement Debit and Credit columns of the work sheet are $3,500 and $4,900, respectively. If the subtotal of the Balance Sheet Debit column is $9,600, what should be the subtotal of the Balance Sheet Credit column?     a. $ 1,400     b. $11,000     c. $ 8,200     d. $4,700     e. A total other than the choices shown

2. The subtotals of the Income Statement Debit and Credit columns of the work sheet are $6,200 and $4,900, respectively. If the subtotal of the Balance Sheet Debit column is $19,000, what should be the subtotal of the Balance Sheet Credit column?     a. $20,300     b. $ 1,300     c. $17,700     d. $14,400     e. A total other than the choices shown

Periodic Inventory Problems

Question 3 Prepare journal entries to record the following merchandising transactions of Franklin’s Tower Company, which applies the periodic inventory system. (Hint: It will help to identify each receivable and payable; for example, record the purchase on June 1 in Accounts Payable—Bertha Co.)

June 1 Purchased merchandise from Bertha Company for $7,000 under credit terms of 1/15, n/30, FOB shipping point.

June 3 Sold merchandise to Jack Straw Co. for $850 under credit terms of 2/10, n/30, FOB shipping point. The merchandise had cost $360.

June 3 Paid $250 cash for freight charges on the purchase of June 1.June 7 Sold merchandise that cost $2,300 for $5,600 cash.June 9 Purchased merchandise from 20Four Co. for $1,950 under credit terms of 2/15, n/60, FOB

destination.June 13 Received a $500 credit memorandum from the return of merchandise purchased on June 9June 14 Received the balance due from Jack Straw Co. for the credit sale dated June 2, net of the

discount.June 16 Paid the balance due to Bertha Company within the discount period.June 21 Sold merchandise that cost $420 to Casey Jones Co. for $840 under credit terms 2/10, n/45,

FOB shipping point.June 22 Issued a $100 credit memorandum to Casey Jones for an allowance on goods sold on June 19.June 25 Paid 20Four Co. the balance due after deducting the discount.June 29 Received the balance due from Casey Jones Co. for the credit sale dated June 19, net of discount.

June 31 Sold merchandise that cost $2,500 to Jerry Co. for $6,000 under credit terms of 2/10, n/60, FOB shipping point.

Question 4 Harry’s House of Fashions uses a periodic inventory system. It entered into the following calendar-year 2005 purchases and sales transactions:

Jan. 1 Beginning inventory 60 units @ $40/unitApril 1 Purchase 75 units @ $48/unitJuly 7 Purchase 30 units @ $42/unitAug.12 Purchase 40 units @ $50/unitTotals 205 units

At the end of the year, a physical count of inventory reveals 90 units remaining.

Required

a. Compute both cost of goods available for sale and the number of units available for sale.b. Compute the number of units remaining in ending inventory.c. Compute the cost assigned to ending inventory using (a) FIFO, (b) LIFO, and (c) weighted average.

Gross Profit Method Problem

Question 5 Bacon Bytes Computers, Inc. has recently experienced the loss of its retail store due to a fire. In an attempt to file a claim with its insurance company, Bacon Bytes has compiled the following information:

Net sales $100,000

Beginning Inventory, January 1 $10,000Merchandise purchases through March 28 $120,000

In the past, Bacon Bytes has experienced a gross profit rate of 30%.

Using the gross profit method, estimate the cost of the inventory destroyed by the fire.