Question 1

A portion of the income statement for Oscar Company is shown below. Provide the missing account titles and amounts.

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Question 2

Chicago Company has hired you to reconcile its bank statement and cash account. At June 30, 2014, the Cash account on the books showed the following:  There were neither outstanding checks nor deposits in transit at May 31, 2014.
Required: 
A. Prepare the bank reconciliation at June 30, 2014.
B. Prepare the adjusting journal entries needed as a result of preparing the bank reconciliation.

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Question 3

Sabre Company sold inventory costing $600 to a customer on account for $900 with terms of 3/15, n/30. Which of the following is not correct?
A) Gross profit increases $300 on the date of sale.
B) Total current assets are not affected on the date of cash collection if the customer pays 30 days after the date of sale.
C)Total current assets increase $27 on the date of cash collection if the customer pays within 15 days of the date of sale.
D)Gross profit and net sales both decrease $27 on the date of cash collection if the customer pays within 15 days of the date of sale.

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Question 4

Illinois Company prepared the following bank reconciliation at May 31:  Required:
Prepare the necessary journal entries for Illinois Company required by the May 31 bank reconciliation.

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Question 5

On December 31, 2014, Colonial Corporation had the following account balances related to credit sales and receivables prior to recording adjusting entries: $$\begin{array} { l c } 
\text { Accounts receivable } & \$ 25,000 \
\text { Allowance for doubtful accounts } & 200 \text { credit balance } \
\text { Sales revenue (all credit sales) } & 400,000
\end{array}$$ Required:
Prepare the necessary year-end adjusting entry related to uncollectible accounts for each of the following independent assumptions: 
A. An aging of accounts receivable is completed. It is estimated that $2,150 of the receivables outstanding at year-end will be uncollectible.
A. except that prior to adjustment, the allowance for doubtful accounts had a debit balance of $200 rather than a credit balance of $200.
B. Assume the same information presented in part
C. It is estimated that a provision for bad debts is required for 1% of credit sales for the year.

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Question 6

A recent annual report for Kirova Company contained the following data: $$\begin{array} { l r r } 
&{ \text { (in millions) } } \
& \underline { 2014 } & \underline { 2013 } \
\text { Accounts receivable } & \$ 2,023 & \$ 1,866 \
\text { Less: Allowance for doubtful accounts } & 50 & 52 \
\text { Net accounts receivable } & 1,976 & 1,814 \
\text { Net sales (all are on credit) } & 18,158 &
\end{array}$$ Required: 
A. Calculate the accounts receivable turnover ratio.
B. Calculate the average days' sales in receivables for 2014 (rounded to the nearest day).
C. Explain the meaning of each number.

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Question 7

The following data were taken from the records of Lilo Corporation for the year ended December 31, 2014 before any adjustment for bad debt expense: $\begin{array}{lr}
\text { Sales of merchandise for cash } & \$ 150,000 \
\text { Sales of merchandise on credit } & 800,000 \
\text { Sales returns and allowances } & 10,000 \
\text { Sales salaries expense } & 80,000 \
\text { Cost of sales } & 610,000 \
\text { Administrative expenses } & 90,000
\end{array}$ The following items have not been included in above amounts:
Estimated bad debt expense is 1% of credit sales.
The income tax rate is 35%.
10,000 of shares of common stock are outstanding.
Required: 
A. Calculate the bad debt expense.
B. Prepare a multiple-step income statement (including gross profit, income before income taxes, and earnings per share).

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Question 8

Cyclone Inc. reported the following figures from its financial statements for the years 2013 through 2015: $$\begin{array}{l}
&\underline { 2015 }& \underline { 2014 } & \underline { 2013 }\
\text { Net revenues } & \$ 717,422 & \$ 1,110,178 & \$ 591,786 \
\text { Gross profit } & 560,421 & 960,434 & 498,605 \
\text { Net income (net loss) } & ( 92,788 ) & 70,776 & 47,811 \
\text { Cash flow from operations } & 106,850 & 509,707 & 204,496 \
\text { Accounts receivable } & 68,648 & 90,561 & 56,454
\end{array}$$ Required: 
A. Calculate the accounts receivable turnover for 2015 and 2014.
B. Calculate the average collection period for 2015 and 2014.

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Question 9

During 2014, Charles Inc. recorded credit sales of $2,000,000. Based on prior experience, it estimates a 1 percent bad debt loss rate on credit sales. At the beginning of the year, the balance in net accounts receivable was $150,000. At the end of the year, but before the bad debt expense adjustment was recorded and before any bad debts had been written off, the balance in net accounts receivable was $125,000.
A. Assume that on December 31, 2014, the appropriate bad debt expense adjustment was recorded for the year 2014 and accounts receivable totaling $16,000 was written off for the year. What was the accounts receivables turnover ratio for the year?
B. Assume that on December 31, 2014, the appropriate bad debt expense adjustment was recorded for the year 2014 and accounts receivable totaling $12,000 was written off for the year. What was the accounts receivables turnover ratio for the year?
C. Explain why the answers to parts A and B differ or do not differ.

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Question 10

One of Trent Company's customers returned products that had been sold on account for $800. Which of the following correctly describes the effect on the financial statements of the return?
A) A contra-revenue account decreases $800.
B) Accounts receivable decrease $800.
C)Sales returns and allowances decrease $800.
D)Net sales increase $800.

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Question 11

One of Hawk Company's customers returned products that cost Hawk $300, which was sold on account for $450. Which of the following does not correctly describe the effect of the return on the financial statements?
A) Gross profit decreases $150.
B) Total current assets decrease $150.
C)Sales returns and allowances increase $150.
D)Operating expenses increase $150.

Accepted Answer

The return of the products would not affect the operating expenses as they are a separate line item on the income statement and do not directly relate to the return of products. The other options are correct: A) Gross profit decreases by the amount of the return, which is $150. B) Total current assets decrease by the net amount of the return after adjusting for any allowances or write-offs. C) Sales returns and allowances account is used to record the returns, which increases by the amount of the return, which is $150 in this case.

Question 12

Cyclone Inc. reported the following figures from its financial statements for the years 2013 through 2015: $$\begin{array}{l}
&\underline { 2015 }& \underline { 2014 } & \underline { 2013 }\
\text { Net revenues } & \$ 717,422 & \$ 1,110,178 & \$ 591,786 \
\text { Gross profit } & 560,421 & 960,434 & 498,605 \
\text { Net income (net loss) } & ( 92,788 ) & 70,776 & 47,811 \
\text { Cash flow from operations } & 106,850 & 509,707 & 204,496 \
\text { Accounts receivable } & 68,648 & 90,561 & 56,454
\end{array}$$ Describe how the change in accounts receivable will affect the calculation of cash flow from operating activities for 2015 and 2014.

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Question 13

Prior to the year-end adjustment to record bad debt expense for 2014 the general ledger of Stickler Company included the following accounts and balances:  Cash collections on accounts receivable during 2014 amounted to $450,000. Sales revenue during 2014 amounted to $800,000, of which 75% was on credit, and it was estimated that 2% of these credit sales made in 2014 would ultimately become uncollectible.
Required: 
A. Calculate the bad debt expense for 2014.
B. Determine the adjusted 2014 year-end balance of the allowance for doubtful accounts.
C. Determine the net realizable value of accounts receivable for the December 31, 2014 balance sheet.

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Question 14

A portion of the income statement for Lone Star Company is shown below. Provide the missing account titles and amounts.

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Question 15

Which of the following transactions does not affect gross profit?
A) A customer returning merchandise that was sold for a profit.
B) The collection of cash on an account receivable, which was paid for by the customer within the discount period.
C)The journal entry to record bad debt expense.
D)Accepting a credit card for a sale and paying a service fee to the credit card company.

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Question 16

Matrix Corp. reported the following figures from its financial statements for the years 2013 through 2015.  Required: 
A. Calculate for 2015:
1. Accounts receivable turnover
2. Average collection period
B. Calculate for 2014:
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 2014 to 2015. Then discuss how the trend in sales from 2013 to 2014 and 2015 may have affected the change in the ratios from 2014 to 2015.

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Question 17

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.

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Question 18

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

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Question 19

On January 1, American Company's allowance for doubtful accounts had a credit balance of $3,000. The balance in the Accounts Receivable account on that date was $75,000. On January 2, prior to any credit sales, a $500 account from National Company was deemed to be uncollectible and written off.
Required:
A. Compute the net realizable value of American's receivables on January 1.
B. Prepare the journal entry American would record on January 2 related to the write-off of National's account.
C. Compute the net realizable value of American's receivables on January 2, immediately following the write-off of National's account.

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Question 20

Which of the following is not a component of the gross profit calculation?
A) Cost of sales.
B) Sales returns and allowances.
C)Allowance for doubtful accounts.
D)Credit card discounts.

Accepted Answer

Allowance for doubtful accounts is a contra asset account and is not directly related to the cost of sales or sales returns and allowances, which are both components of the gross profit calculation. Credit card discounts are also considered a component of the cost of sales.

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

A portion of the income statement for Oscar Company is shown below. Provide the missing account titles and amounts.

Sabre Company sold inventory costing $600 to a customer on account for $900 with terms of 3/15, n/30. Which of the following is not correct?

Illinois Company prepared the following bank reconciliation at May 31: Required: Prepare the necessary journal entries for Illinois Company required by the May 31 bank reconciliation.

One of Trent Company's customers returned products that had been sold on account for $800. Which of the following correctly describes the effect on the financial statements of the return?

One of Hawk Company's customers returned products that cost Hawk $300, which was sold on account for $450. Which of the following does not correctly describe the effect of the return on the financial statements?

A portion of the income statement for Lone Star Company is shown below. Provide the missing account titles and amounts.

Which of the following transactions does not affect gross profit?

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.

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

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