Accountancy Test Questions

The collection of accounts receivable seems to be slightly improving. It took the company slightly over one-half day less to collect on its accounts receivable in 2013 than in 2012.

Items
Bank or Book
Addition or Subtraction
Adjusting entry required
a.
Interest on cash balance
Book
Addition
Yes
b.
Bank service charges
Book
Subtraction
Yes
c.
Debit memos
Book
Subtraction
Yes
d.
Outstanding checks
Bank
Subtraction
No
e.
Credit memos
Book
Addition
Yes
f.
NSF checks
Book
Subtraction
Yes
g
Outstanding deposits
Bank
Addition
No

Bank Balance
Book Balance
Shown/Not Shown on Reconciliation
1.
NSF check from customer returned on Sept. 25 but not recorded by this company.
NA
Deduct - Cr.
Shown
2.
Interest earned on the September cash balance in the bank.
NA
Add - Dr.
Shown
3.
Deposit made on September 5 and processed by bank on September 6.
NA
NA
Not Shown
4.
Check written by another depositor but charged against this company's account.
Add
NA
Shown
5.
Bank service charge.
NA
Deduct - Cr.
Shown
6.
Checks outstanding on August 31 that cleared the bank in September.
NA
NA
Not Shown
7.
Check written against the company account and cleared by the bank; erroneously not recorded by the company recordkeeper.
NA
Deduct - Cr.
Shown
8.
Principal and interest on a note receivable to this company is collected by the bank but not yet recorded by the company.
NA
Add - Dr.
Shown
9.
Checks written and mailed to payees on October 2.
NA
NA
Not Shown
10.
Checks written by the company and mailed to payees on September 30.
Deduct
NA
Shown
11.
Deposit made on September 30 after the bank closed.
Add
NA
Shown
12.
Special bank charge for collection of note in part 8 on this company’s behalf.
NA
Deduct - Cr.
Shown

Description
Document
A.
An itemized statement of goods prepared by the vendor listing the customer's name, items sold, sales prices, and terms of sale.
Invoice
B.
An internal file used to store documents and information to control cash disbursements and to ensure that a transaction is properly authorized and recorded.
Voucher
C.
A document used to place an order with a vendor that authorizes the vendor to ship ordered merchandise at the stated price and terms.
Purchase order
D.
A checklist of steps necessary for the approval of an invoice for recording and payment; also known as a check authorization.
Invoice approval
E.
A document used by department managers to inform the purchasing department to place an order with a vendor.
Purchase requisition
F.
A document used to notify the appropriate persons that ordered goods have arrived, including a description of the quantities and condition of goods.
Receiving report

At December 31, Folgeys Coffee Company reports the following results for its calendar year.

Cash sales
$
900,000 Credit sales 300,000

Its year-end unadjusted trial balance includes the following items.

Accounts receivable
$
125,000 debit Allowance for doubtful accounts 5,000 debit

a.
Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 1.5% of credit sales.
Date
General Journal
Debit
Credit
Dec. 31
Bad debts expense
4,500

Allowance for doubtful accounts

4,500
b.
Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 0.5% of total sales.
Date
General Journal
Debit
Credit
Dec. 31
Bad debts expense
6,000

Allowance for doubtful accounts

6,000

c.
Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to be 6% of year-end accounts receivable.
Date
General Journal
Debit
Credit
Dec. 31
Bad debts expense
12,500

Allowance for doubtful accounts

12,500

Explanation:
a.
Bad Debts Expense $300,000 × 0.015 = 4,500

b.
Bad Debts Expense [($300,000 + $900,000) × 0.005] = 6,000

c.
Bad Debts Expense:

Unadjusted balance
$
5,000 debit Estimated balance ($125,000 × 6%) 7,500 credit

Required adjustment
$
12,500 credit

On August 2, 2013, Jun Co. receives a $6,000, 90-day, 12% note from customer Ryan Albany as payment on his $6,000 account. 1.
Compute the maturity date for the above note.

October 31

2.
Prepare Jun’s journal entry for August 2.
Date
General Journal
Debit
Credit
Aug. 2
Notes receivable—R. Albany
6,000

Accounts receivable—R. Albany

6,000

Explanation:
1.
Maturity date is October 31, which is computed as follows:

Days in August
31

Minus the date of the note
2

Days remaining in August 29 Add days in September 30 Add days in October to equal 90 days (October 31) 31

Period of the note in days 90

Gomez Corp. uses the allowance method to account for uncollectibles. On January 31, it wrote off a $800 account of a customer, C. Green. On March 9, it receives a $300 payment from Green. 1.
Prepare the journal entry for January 31.
Date
General Journal
Debit
Credit
Jan 31
Allowance for doubtful accounts
800

Accounts receivable—C. Green

800

2.
Prepare the entries for March 9; assume no additional money is expected from Green.
Date
General Journal
Debit
Credit
Mar 09
Accounts receivable—C. Green
300

Allowance for doubtful accounts

300

Mar 09
Cash
300

Accounts receivable—C. Green

300

Warner Company’s year-end unadjusted trial balance shows accounts receivable of $99,000, allowance for doubtful accounts of $600 (credit), and sales of $280,000. Uncollectibles are estimated to be 0.5% of sales. Prepare the December 31 year-end adjusting entry for uncollectibles

Date
General Journal
Debit
Credit
Dec. 31
Bad debts expense
1,400

Allowance for doubtful accounts

1,400
Explanation:
To record estimate of uncollectibles ($280,000 × 0.5%) = $1,400

The following data are taken from the comparative balance sheets of Ruggers Company.

2013
2012
Accounts receivable, net
$153,400
$138,500 Net sales
861,105
910,600

Complete the below table to calculate the accounts receivable turnover for the year 2013.
Accounts receivable turnover
Choose Numerator:
/
Choose Denominator:
=
Accounts receivable turnover
Net sales
/
Average accounts receivable, net
=
Accounts receivable turnover
$861,105
/
$145,950
=
5.9
times

Explanation:

Net sales Accounts receivable turnover
=

Average accounts receivable

$861,105

($153,400 + $138,500) / 2

= 5.9 times

At year-end (December 31), Chan Company estimates its bad debts as 0.5% of its annual credit sales of $975,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $580 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off. Prepare the journal entries of Chan to record these transactions and events of December 31, February 1, and June 5.
Date
General Journal
Debit
Credit
Dec. 31
Bad debts expense
4,875

Allowance for doubtful accounts

4,875

Feb 01
Allowance for doubtful accounts
580

Accounts receivable—P. Park

580

Jun 05
Accounts receivable—P. Park
580

Allowance for doubtful accounts

580

Jun 05
Cash
580

Accounts receivable—P. Park

580

Explanation:
Dec. 31
(0.005 × $975,000) = 4,875

Levine Company uses the perpetual inventory system and allows customers to use two credit cards in charging purchases. With the Suntrust Bank Card, Levine receives an immediate credit to its account when it deposits sales receipts. Suntrust assesses a 4% service charge for credit card sales. The second credit card that Levine accepts is the Continental Card. Levine sends its accumulated receipts to Continental on a weekly basis and is paid by Continental about a week later. Continental assesses a 2.5% charge on sales for using its card. Apr. 8
Sold merchandise for $8,400 (that had cost $6,000) and accepted the customer's Suntrust Bank Card. The Suntrust receipts are immediately deposited in Levine's bank account. 12
Sold merchandise for $5,600 (that had cost $3,500) and accepted the customer's Continental Card. Transferred $5,600 of credit card receipts to Continental, requesting payment. 20
Received Continental's check for the April 12 billing, less the service charge.

Prepare journal entries to record the above selected credit card transactions of Levine Company.
Date
General Journal
Debit
Credit
Apr. 8
Cash
8,064

Credit card expense
336

Sales

8,400

Apr. 8
Cost of goods sold
6,000

Merchandise inventory

6,000

Apr. 12
Accounts receivable—Continental
5,460

Credit card expense
140

Sales

5,600

Apr. 12
Cost of goods sold
3,500

Merchandise inventory

3,500

Apr. 20
Cash
5,460

Accounts receivable—Continental

5,460

Explanation:
Apr.
8
Credit Card Expense = $8,400 × 0.04 = $336
Apr.
12
Credit Card Expense = $5,600 × 0.025 = $140

Daley Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.

Days Past Due

Total 0
1 to 30
31 to 60
61 to 90
Over 90 Accounts receivable
$
570,000 $
396,000

$
90,000

$
36,000

$
18,000

$
30,000

Percent uncollectible

1
%

2
%

5
%

7
%

10
%

a.
On February 1 of the next period, the company determined that $6,800 in customer accounts is uncollectible; specifically, $900 for Oakley Co. and $5,900 for Brookes Co. Prepare the journal entry to write off those accounts.
Date
General Journal
Debit
Credit
Feb. 1
Allowance for doubtful accounts
6,800

Accounts receivable—Oakley Co.

900

Accounts receivable—Brookes Co.

5,900

b.
On June 5 of that next period, the company unexpectedly received a $900 payment on a customer account, Oakley Company, that had previously been written off in part a. Prepare the entries necessary to reinstate the account and to record the cash received.
Date
General Journal
Debit
Credit
June 05
Accounts receivable—Oakley
900

Allowance for doubtful accounts

900

June 05
Cash
900

Accounts receivable—Oakley

900

Warner Company’s year-end unadjusted trial balance shows accounts receivable of $99,000, allowance for doubtful accounts of $600 (credit), and sales of $280,000. Uncollectibles are estimated to be 1.5% of accounts receivable. 1.
Prepare the December 31 year-end adjusting entry for uncollectibles.
Date
General Journal
Debit
Credit
Dec. 31
Bad debts expense
885

Allowance for doubtful accounts

885
2.
What amount would have been used in the year-end adjusting entry if the allowance account had a year-end unadjusted debit balance of $300?
Amount used in the year-end adjusting entry
$1,785

Explanation:
1.
To record estimate of uncollectibles [($99,000 × 1.5%) − $600 credit] = $885 2.
Amount used in the year-end adjusting entry ($99,000 × 1.5%) + $300 debit = $1,785