ACCT207 Midterm: Practice Tests Exam 2 Explanations
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Periodic inventory system. Each of the following four horizontal lines represents data taken from a separate multiple-step income statement. Insert the missing amounts in the space (empty box) provided. Indicate any net loss by placing brackets around the amount.
Hint: Not all parts of the income statement are shown, so be careful with your arithmetic.
| Beginning Inventory | Purchases | Cost of Goods Available for Sale | Ending Inventory | Cost of Goods Sold | |
| a. | $180,000 | $325,000 | $80,000 |
| Sales (Revenue) | Cost of Goods Sold | Gross Profit | Operating Expenses | Net Income | |
| b. | $240,000 | $145,000 | $32,000 |
| Revenue (Sales) | Cost of Goods Available for Sale | Ending Inventory | Cost of Goods Sold | Gross Profit | Operating Expenses | Net Income | |
| c. | $515,000 | $240,000 | $145,000 | $225,000 | $145,000 |
. For each question below, circle the best answer from the choices given. (
1 : Under the periodic inventory system the purchases of merchandise are recorded at their selling prices.
a. True b. False
2 : Inventory shrinkage does not include the loss of merchandise through shoplifting.
a. True b. False
3 : Only under the periodic inventory system is a physical count of the inventory necessary.
a. True b. False
4 : It is not possible to have more inventory at the end of a period then at the beginning of a period.
a. True b. False
5) True and false. Indicate whether each of the following is True (T) or False (F). (5 POINTS)
T F 1. US Treasury bills that mature within 120 days are cash equivalents.
T F 2. Financial assets describe not just cash, but all assets that are easily and directly convertible into known amounts of cash.
T F 3. Good cash mgmt. dictates that any cash and checks received each day should be deposited the same day.
T F 4. The income statement approach to estimating Bad debts Expense emphasizes the aging of accounts receivable and the adjustment of the Allowance for Doubtful Accounts account to the level of the estimated uncollectible amount.
T F 5. When I use the allowance method for accounts receivable, I will recognize a Bad Debt Expense at the same time the account is taken off the Accounts Receivable Subsidiary Ledger.
. For each question below, circle the best answer from the choices given.
1. Which of the following items would cause the ending balance on the bank statement to be larger than the ending balance of cash shown in the accounting records (checkbook)?
A) Bank service charges.
B) Deposits in transit.
C) Outstanding checks.
D) NSF check from one of the depositor's customers.
2. When a bank reconciliation has been satisfactorily completed, the only related entries to be made in the companyâs records are:
A) To correct errors made by the bank in recording the dollar amounts of cash transactions during the period.
B) To reconcile items explaining the difference between the balance per books and the balance per bank stmt.
C) To record outstanding checks and bank service charges.
D) To record items explaining the difference between the balance per accounting records and the adj. cash bal.
3. The Allowance for Doubtful Accounts represents:
A) Cash set aside to make up for bad debt losses.
B) The amount of uncollectible accounts written off to date.
C) The difference between total credit sales and collections on credit sales.
D) The difference between the face value of A/R and the net realizable value of A/R.
4. In preparing a bank reconciliation, a service charge shown on the bank statement should be:
A) Added to the balance per the bank statement.
B) Deducted from the balance per the bank statement.
C) Added to the balance per the depositor's records.
D) Deducted from the balance per the depositor's records.
5. During preparation of a bank reconciliation, outstanding checks should be:
A) Added to the balance per the bank statement.
B) Deducted from the balance per the bank statement.
C) Added to the balance per the depositor's records.
D) Deducted from the balance per the depositor's records.
Bank reconciliation. Indicate what effect each situation will have on the bank reconciliation process (Match the situation with the bank reconciliation process below by placing the number of the process next to the situation). Note that there are more situations than processes, so some processes may be used more than once, but not all processes have to be used. Only one process is required for each situation. Hint: Determine if Cash is increasing or decreasing
Process
Deduct from bank balance 2. Add to bank balance
3. Deduct from checkbook balance 4. Add to checkbook balance
Situation
_______ Bank received $2,750 from one of your customers (Terms: Cash in advance)
_______ Bank collection (wire) fee was $15
_______ Check number 111 was outstanding for $55
_______ A $400 check was written, but recorded on the books as $40
_______ Interest received from your bank for the month was $16.55
Billâs Lawn Care Mini Practice Part 4
In June, Bill commented to you that he could never figure outhis bank statement, âit never matches the
balance in my accounting recordsâ he tells you. So you explainthat a bank reconciliation is a tool used
to balance the bank statement to the accounting books. He givesyou his bank statement for June, 2014
(shown below). The general ledger shows a balance for theaccount cash of $14,319.00 on June 30,
2014 (detail transactions below). Billâs business only has onechecking account and no other cash
accounts.
Bill has begun to have problems collecting some of his creditaccounts and is considering writing off a
couple of customer account balances. He asks you how these baddebts should be recorded and has
asked you to begin recording bad debt using the allowance methodfor June, 2014. Selected account
balances at the end of June, 2014 are:
Sales $7,200
Sales on Credit $2,900
Accounts Receivable $3,200
As a result of increased focus on collecting accountsreceivable, Bill has decided to extend credit for one
customer, Alan Jones, who owes Billâs Lawn Care $500. Bill andAlan have agreed to a 90-day 6% note
for $500 issued on June 5, 2014.
Instructions:
1. Using the bank statement and the general ledger, prepare abank reconciliation for Billâs Lawn
Care as of June 30, 2014. Record the necessary journal entriesto adjust the books for the
appropriate reconciling items. Start with Page 6 for the journalentries. Explanations are
optional.
2. Using the information given above, calculate the amount ofbad debt using:
Using the chart of accounts, record the journal entry for baddebt expense for Billâs Lawn Care
using the percentage of sales on credit method.
3. Using the note receivable information above and the chart ofaccounts, record the following
entries in the general journal (continue these entries on Page6):
a. Percentage of Sales on Credit = 1.5%
b. Percentage of Accounts Receivable = 1%
a. Receipt of the note in payment of the accounts receivablebalance.
b. Adjusting entry at the end of June, 2014 for the notereceivable. (Round interest
calculations to two decimals)
c. Assume that Alan pays the note and interest in full on thedue date, record the necessary
journal entry. Assume that interest has been accrued at the endof each month.
d. Assume that Alan defaults on the note and interest on the duedate, record the necessary
journal entry. Assume that interest has been accrued at the endof each month.
CHECKING ACCOUNT DETAIL:
DATE | TRANSACTION TYPE & NUMBER | AMOUNT | BALANCE |
BEGINNING BALANCE | $12,850.00 | ||
6/2/2014 | CHECK #1570 | 226.00 | 12,624.00 |
6/5/2014 | CHECK #1571 | 83.00 | 12,541.00 |
6/6/2014 | EFT #43 | 127.00 | 12,414.00 |
6/10/2014 | DEPOSIT #104 | 1,550.00 | 13,964.00 |
6/15/2014 | CHECK #1572 | 145.00 | 13,819.00 |
6/15/2014 | CHECK #1573 | 185.00 | 13,634.00 |
6/20/2014 | DEPOSIT #105 | 885.00 | 14,519.00 |
6/24/2014 | EFT #44 | 143.00 | 14,376.00 |
6/28/2014 | CHECK #1574 | 87.00 | 14,289.00 |
6/28/2014 | CHECK #1575 | 95.00 | 14,194.00 |
6/30/2014 | DEPOSIT #106 | 425.00 | 14,619.00 |
6/30/2014 | CHECK #1576 | 155.00 | 14,464.00 |
6/30/2014 | CHECK #1577 | 145.00 | $14,319.00 |
BANK STATEMENT:
FIRST NATIONAL BANK | ||
ACCOUNT SUMMARY JUNE 30, 2014 | ||
BEGINNING BALANCE | $12,850.00 | |
PAYMENTS | $1,021.00 | |
DEPOSITS | 2,440.00 | |
FEES | 20.00 | |
ENDING BALANCE | $14,249.00 | |
PAYMENTS | ||
DATE | REFERENCE | AMOUNT |
6/5/2014 | 1570 | $266.00 |
6/9/2014 | 1571 | 83.00 |
6/10/2014 | 43 | 127.00 |
6/19/2014 | 1572 | 145.00 |
6/28/2014 | 1573 | 185.00 |
6/28/2014 | NSF | 120.00 |
6/30/2014 | 1575 | 95.00 |
TOTAL PAYMENTS | $1,021.00 | |
DEPOSITS | ||
DATE | REFERENCE | AMOUNT |
6/11/2014 | 104 | $1,550.00 |
6/23/2014 | 105 | 885.00 |
6/30/2014 | INTEREST | 5.00 |
TOTAL DEPOSITS | $2,440.00 | |
FEES | ||
6/30/2014 | SVC CHG | $20.00 |
TOTAL FEES | $20.00 |
Additional Information: Check #1570 waswritten for $266.00, but was recorded incorrectlyin the general ledger. The check was for fuel.
Billâs Lawn Care
Chart of Accounts
Classification | Account Number | Account Name |
ASSETS | 101 | Cash |
110 | Accounts Receivable | |
112 | Allowance for Doubtful Accounts | |
115 | Notes Receivable | |
116 | Interest Receivable | |
120 | Supplies | |
130 | Prepaid Insurance | |
140 | Inventory | |
150 | Equipment | |
155 | Accumulated Depreciation â Equipment | |
LIABILITIES | 201 | Accounts Payable |
220 | Notes Payable | |
225 | Interest Payable | |
OWNERâS EQUITY | 301 | Ownerâs Capital |
305 | Ownerâs Drawings | |
310 | Income Summary | |
REVENUES | 401 | Lawn Service Revenue |
410 | Sales Revenue | |
415 | Sales Returns and Allowances | |
420 | Interest Income | |
COST OF GOODS SOLD | 501 | Purchases |
505 | Purchase Returns and Allowances | |
EXPENSES | 620 | Supplies Expense |
630 | Fuel Expense | |
640 | Repair and Maintenance Expense | |
650 | Advertising Expense | |
660 | Insurance Expense | |
670 | Depreciation Expense | |
680 | Interest Expense | |
690 | Bad Debt Expense | |
695 | Miscellaneous Expense |
Please answer for the following
Bank reconciliation
| Cash balanceper bank statement | ||||
| Adjusted cashbalance per bank | ||||
| Cash balanceper books | ||||
| Adjusted cashbalance per books | ||||
General Ledger
| GENERALJOURNAL | Page | |||
| DATE | DESCRIPTION | POST. REF. | DEBIT | CREDIT |
Bad Debt Calculations
| Term ofNote |
| TotalInterest on Note |
| AccruedInterest June 30, 2014 |
Notes Receivable Calculation
| Percentage ofSales on Credit | |||
| Percentage ofAccounts Receivable | |||
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