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

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Question 61

Multiple Choice

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Which of the following statements is correct?

A) The journal entry to record bad debt expense requires a debit to bad debt expense and a credit to accounts receivable.
B) The journal entry to record bad debt expense requires a debit to bad debt expense and a credit to allowance for doubtful accounts.
C) The journal entry to record the write-off of an uncollectible account receivable requires a debit to bad debt expense and a credit to accounts receivable.
D) The journal entry to record the write-off of an uncollectible account receivable requires a debit to bad debt expense and a credit to allowance for doubtful accounts.

E) All of the above
F) A) and B)

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Question 62

Multiple Choice

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Which of the following is correct when bad debt expense is recorded at year-end?

A) Current assets will increase.
B) Gross profit will decrease.
C) Income from operations will decrease.
D) Current liabilities will decrease.

E) B) and C)
F) C) and D)

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Question 63

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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 average collection period?

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

Oakwood Company had accounts receivable of $750,000 and an allowance for doubtful accounts of $21,500 just prior to writing off as worthless a customer's $5,000 account receivable. The net realizable value of Oakwood's accounts receivable as shown by the accounting records before and after the write-off was as follows:

Sales discounts are deducted from sales in the calculation of net sales.

Which of the following transactions will result in an increase in the receivables turnover ratio?

Flyer Company has provided the following information prior to any year-end bad debt adjustment: • 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 Flyer estimates bad debt expense assuming that 1.5% of credit sales have historically been uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded?

Credit terms of "2/10, n/30" mean that if payment is made in two days, a 10% discount will be given; if not paid within two days, the full invoice price will be due in thirty days.

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.

Gross profit decreases when sales discounts increase.

Redwing Company sold inventory costing $500 to a customer on account for $700. Which of the following does not correctly describe the collection of $686 cash when the customer takes advantage of a sales discount?

The CHS Company has provided the following information: • Accounts receivable written-off as uncollectible during the year amounted to $11,500. • The accounts receivable balance at the beginning of the year was $150,000. • The accounts receivable balance at the end of the year was $210,000. • The allowance for doubtful accounts balance at the beginning of the year was $14,000. • The allowance for doubtful accounts balance at the end of the year after the recording of bad debt expense was $12,900. • Credit sales during the year totaled $900,000. How much cash was received from collections of accounts receivable?

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.

Which of the following correctly describes the following journal entry? Cash Sales discounts Accounts receivable

Newark Company has provided the following information: • Cash sales, $450,000 • Credit sales, $1,350,000 • Selling and administrative expenses, $330,000 • Sales returns and allowances, $90,000 • Gross profit, $1,360,000 • Increase in accounts receivable, $55,000 • Bad debt expense, $33,000 • Sales discounts, $43,000 • Net income, $1,030,000 How much is Newark's cost of sales?

Which of the following demonstrates a poor internal control procedure?

Sales returns and allowances is a contra-revenue account.

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 company sells a product FOB destination. The product is shipped on December 29, 2013 and the customer receives the shipment on January 3, 2014. Which of the following is true?