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

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Question 1

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On July 10,2010,Rex Company sold merchandise at an invoice price of $5,000 with terms of 2/10,n/30.Give the journal entries required below by indicating the account code of the appropriate account for each debit and credit and the amounts involved. $\begin{array} { c l } \text { Account Code } & \\\text { A } & \text { Cash } \\\text { B } & \text { Accounts receivable } \\\text { C } & \text { Sales revenue } \\\text { D } & \text { Sales discounts }\end{array}$ $\begin{array}{l}\begin{array} { l } &&&&&&&&&&&&&&&&&&&\text { Debits} &&&&& \text { Credits} \\\end{array}\\\begin{array} {lrlr } &&\text { \quad \quad \quad Transaction} & \text { Code}& \text { Amount} & \text { Code}& \text { Amount} \\&&\text { Sale on July } 10,2010\\&&\text { Assumption A: Collection of the } \\&&\text { account on August 9, 2010 . } \\&&\text { Assumption B: Collection of the } \\&&\text { account on July 18, 2010 . } \\\end{array}\end{array}$

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Hill Company has reported the following information on their income statements for the years 2008 through 2012: $\begin{array} { l r r r r r } & \underline { 2012 } & \underline { 2011 } & \underline { 2010 } & \underline { 2009 } & \underline { 2008 } \\\text { Net Sales } & \$ 11,332 & \$ 11,862 & \$ 11,170 & \$ 11,038 & \$ 9,932 \\\text { Cost of Goods Sold } & 7,815 & 8,321 & 8,191 & 7,710 & 6,892\end{array}$ A.Compute the gross profit percentage for each year. B.Has the gross profit ratio for Hill improved over time or worsened? Explain your answer.

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Question 3

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Which of the following statements is correct?

Effective internal control of cash should include the separation of the duties for receiving and disbursing cash.

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%.

When completing the bank reconciliation,bank service charges should be deducted from the company's cash balance.

The Soft Company has provided the following information: Allowance for doubtful accounts increased $19,000 and accounts receivable increased $390,000 during the year. Accounts written off as uncollectible totaled $20,000. Net sales totaled $2,700,000. The gross profit percentage was 40%. Sales discounts were $100,000. How much was Soft's gross profit?

When using the allowance method for accounting for bad debts,accounts receivable is reported on the balance sheet at the expected net realizable value.When a particular receivable from a customer ultimately is determined to be uncollectible and is written off,the recording of this event will

When a depositor receives a bank statement indicating that there was a "NSF check",the depositor should do which of the following?

Which of the following statements correctly describes the effect of recording the collection of a $10,000 account receivable for which a 2% sales discount was recorded at the time of collection?

A customer purchased and received $5,000 of goods on credit from Discount Paper Supply on September 1.The customer received the bill on September 13 and mailed a $5,000 check on September 30.Discount Paper Supply received the check on October 4.On which of the following dates should Discount Paper Supply record sales revenue?

A recent annual report for Kirova Company contained the following data: $\begin{array} { l r r } &&{ \text { (in millions) } } \\ & \underline { 2011 } & \underline { 2010 } \\\text { Accounts receivable }& \$ 2,023 & \$ 1,866 \\\text { Less: Allowance for Doubtful Accounts } & 50 & 52 \\\text { Net accounts receivable } & 1,973 & 1,814\\\text { Net sales (assume all are on credit) } &18.158\end{array}$ Requirements: A.Calculate the accounts receivable turnover ratio and average days' sales in receivables for 2011. B.Explain the meaning of each number.

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 receivable turnover ratio?

The Rye Corporation has provided the following information: Total sales were $1,200,000. Beginning net accounts receivable was $45,000. Ending net accounts receivable was $65,000. Sales returns and allowances totaled $100,000. What was Rye's receivable turnover ratio?

Upon completing an aging analysis of accounts receivable,the accountant for Rosco Works aged the 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.How much is bad debt expense?

Net sales multiplied by an historical percentage for bad debt expense,equals bad debt expense when using the percentage of credit sales method.

When goods are shipped FOB shipping point,title passes to the buyer on the shipment date.

What are "cash equivalents"? Specifically where would they appear on the financial statements?

Cash equivalents such as treasury bills are reported as investments on the balance sheet.

Flyer Company has provided the following information: Cash sales,$150,000 Credit sales,$450,000 Selling and administrative expenses,$110,000 Sales returns and allowances,$30,000 Gross profit,$290,000 Accounts receivable,$110,000 Sales discounts,$14,000 Allowance for doubtful accounts credit balance,$1,200 How much is Flyer's bad debt expense assuming that 1.5% of credit sales have historically been uncollectible.