I. For the year 2006 Kolar Company has the following information available. Use this information to answer questions A, B, C, & D.
Gross Credit Sales of $90,000
Sales Discounts of $4,000
Debit balance in Allowance for Doubtful Accounts (before adjusting entries) of $6,000
Balance in Accounts Receivable (before adjusting entries) of $22,000.
Answer each of the following questions INDEPENDENT of the other questions. (10 points)
A. IfKolar Company estimates bad debt expense to be 4% of Net Credit Sales, what amount of bad debt expense should be reported on the 2006 Income Statement?
B. If Kolar Company performs an aging of Accounts Receivable and determines that $8,000 worth of accounts are uncollectible, make the adjusting journal entry to record bad debts expense for 2006.
C. Assume that on December 31, 2006, Kolar Company makes a journal entry to record $7,500 of Bad Debt Expense. Assume that on January 1, 2007 (before any more credit sales are made) Kolar Company decides to write-off as uncollectible a $1,000 account receivable. After making this journal entry, what will be the net realizable value of accounts receivable?
D. Assume that on December 31, 2006, Kolar Company makes a journal entry to record $7,500 of Bad Debt Expense. Assume that on January 1, 2007 (before any more credit sales are made) Kolar Company decides to write-off as uncollectible a $1,000 account receivable. If the bookkeeper forgets to make this Journal entry, what will be the net realizable value of accounts receivable?
II. Finley Company had the following transactions in 2006. (9 points)
Jan 1 Used cash to purchase a mine for $70 million. The mine is estimated to have 250,000 tons of ore and a salvage value of $10 million.
July 1 Purchased a patent for $1,500,000 cash. The patent’s legal life is 17 years but the company estimates the patent’s useful life to be 5 years because at that time the patent will no longer have any value.
Dec 29 Paid cash for research and development cost of $400,000 during the previous 12 months.
Make the appropriate general journal entries for Jan 1, July 1 & Dec 29.
Make the appropriate adjusting entry on December 31 for the mine (assume 50,000 tons of ore mined and 40,000 tons sold)
Ill Journal Entries 12 points
For the following situations, if a journal entry is required on December 31 to adjust the cash balance per the books make the appropriate entry. If no entry is required write NONE.
Whilereconciling the bank statement the company discovers there are $4,000 in outstanding checks.
While reconciling the bank statement the company discovers the bank has charged the company a service charge of $45 for having some checks printed.
While reconciling the bank statement the company discovers the bank has made an error related to a company deposit of cash sales. The bank added $7,800 to the company’s checking account when in fact there was $8,100 in cash deposited._____
While reconciling the bank statement the company discovers that a note receivable with a face value of $1,200 has been collected for the company. The total amount collected was $1,280 with $100 of interest accruing and a $20 bank charge. No interest revenue has been recorded related to the note.
While reconciling the bank statement the company discovers that a cash payment to a vendor in the amount of $250 has accidently been recorded in the cash payments journal for $520.
IV Essay 5 points
The following narrative describes the business process at Company B. After reading the narrative, identify and explain WHY each SPECIFIC internal control weakness at Company B is a violation of good internal control.
Rodney is normally responsible for writing all checks. When the bank statement arrives Rodney does the reconciliation of the bank statement and reports any discrepancies to the owner. In addition to writing the checks, Rodney is responsible for approving all vendor invoices for payment before he signs and mails the checks. After writing the payroll checks Rodney leaves the pay checks in an envelope in the employee break room. In order to save money, Rodney orders checks that are unnumbered. Because Rodney is sometimes busy with other tasks, two other employees also have permission to sign and mail checks.
V On January 1 Company B establishes a petty cash fund in the amount of $200. On February 20 the necessary balance in the fund is increased to $250. On February 28th the petty cash fund is replenished when there is only $82 cash left in the petty cash drawer. The petty cash drawer included petty cash vouchers as follows. (8 points)
postage expense $45
miscellaneous expense $50
Make the journal entry on February 20.
|Make the journal entry to replenish the fund on February 28.|
VI. On October 12, Brady Storhaug Company owns a Porsche 911 Turbo that originally cost $40,000 and currently has accumulated depreciation of $32,000. The fair market value of the Porsche is $6,000. Storhaug exchanges this Porsche for a Cavalier with a fair market value of $9,000 and pays $3,000 cash to boot.
MAKE THE JOURNAL ENTRY TO RECORD THE EXCHANGE OF VEHICLES ON STORHAUG’S BOOKS. (6 points)
VII. Use the following information to make the appropriate journal entries as required.
Sellin’Inc. received a notes receivable from Buyin’ Inc on April 15. The face value of the note was $3,000 with a maturity date of June 15 and a maturity value of $3,040. On April 30 Sellin’ properly calculated accrued interest to be $10. (6 points)
Make the April 30 entry related to the accrual of interest for Sellin’ Inc.
On June 15 Buyin’ Inc. informed Sellin’ Inc that Buyin’ was low on cash and would not be able to pay the maturity value of the note until July 18. Assume Sellin’ made another journal entry related to the accrual of interest on the note receivable on May 31 for $20. Also, from June 1 to June 15 assume another $10 of interest has accrued with no journal entry being made. Make the appropriate journal entry on Sellin’ Inc. books on June 15.
VIII. Poorly Managed Inc had total net credit sales of $100,000. At the beginning of the year, PoorlyManaged had a balance in accounts receivable of $35,000 and at the end of the year this balance had increased to $65,000. The terms for all of Poorly Managed’s credit sales are l/5, N30.There are nofinance charges on overdue balances.
REQUIRED (7 points):
Calculate Poorly Managed’s accounts receivable turnover
Calculate Poorly Managed’s average collection period in days
Provide a written evaluation of how Poorly Managed is handling their accounts receivable.
X. Calculating depreciation expense.
A building is acquired on January 1, at a cost of $300,000 has an estimated useful life of 8 years. Thesalvage value is estimated to be $25,000 at the end of the asset’s useful life.
Use the above information to answer the following INDEPENDENT questions.
A Calculate accumulated depreciationat the end of year 2 if the straight-line method is used (3 points).
B Calculate depreciation expensefor years 1 & 2 if the double-declining balance method is used (5 points).
C Calculate accumnlated depreciationat the end of year 2 if the units of activity method is used and the asset is expected to be used a total of 500,000 hours. The asset will be used 75,000 hours in year one and 90,000 hours in year two (3 points).
XI.Joyce Company has issued a 4-month, 9%, $6,000 note receivable to a customer. Calculate the following (9 pts).
Total interest to accrue over the 4-month time period of the note,
Maturity value of the note.
On the maturity date, the customer pays Joyce Company the maturity value of the note. Make the required journal entry on the maturity date assuming NO adjusting entries have been made for interestrevenue.
XII. Rodney Company has a machine that originally cost $32,000 and has been depreciated a total of $20,000. After five years Rodney sells the machine for $15,000 (7 points).
Calculate the book value of the machine
Calculate the gain (loss) on the disposal of the machine.
XIII. The following information is available for Jones Company for the month ended April 30:
A. The balance per the bank statement as of April 30 was $6440.55
B. The cash account balance in the general ledger as of April 30 was $5,835.55.
C. A customer’s check was returned with the April bank statement marked NSF for $123. This was the first time Jones Company had been notified the check bounced.
D. Jones Company incorrectly recorded a cash payment for $469. The correct amount of the payment was $649.
E. Deposits in transit as of April 30 equaled $1,200.25.
F. The bank statement included a debit memo for $24.75 as a check printing charge.
G. A note collected by the bank on April 28 has not yet been recorded in Jones’ Company cash receipts journal. The face amount of the note was $2,000 and the interest was $150. The bank charged a collection fee of $17.
NOTE: ** Jones Co. has already recorded all of the interest revenue.** NOTE
Required (10 points):
A Prepare a bank reconciliation for Jones Company for April 30.
|Balance per Bank Statement|
|Balance per Books|