PROBLEM 01MULTIPLE CHOICE QUESTIONS

1. The ending balance of the Accounts Receivable account was $12,000.

Services billed to customers for the period were $21,500, and collections on
account from customers were $23,600. What was the beginning balance of
Accounts Receivable?
a)
b)
c)
d)

$33,500
$14,100
$9,900
$33,100

2. Which of the following documents does not initiate an entry being made in the
accounts
a) Sales invoice
b) Purchase invoice
c) Purchase order
d) Credit memo
3. Banner Ltd., bought
merchandise for $900, terms 2/10, n/30. If Banner returns $300 worth of the
goods to the vendor, the entry to record the return should include a
a) Debit to Accounts Payable of $300.
b) Debit to Discounts Lost of $6.
c) Credit to Purchases Returns and Allowances of $294.
d) Debit to Purchases Returns and Allowances of $294.
4. A firm's gross profit on net sales is 35% The firm had net sales of $400,000
and net cost of purchases of $280,000. If the beginning inventory was
$40,000, how much was the ending inventory?
a) $180,000
b) $60,000
c) $20,000
d) $40,000

5. A firm has accounts receivable of $60,000 and a debit balance of $600 in the
Allowance for Uncollectible Accounts. Two thirds of the accounts receivable are
current and one-third are past due. The firm estimates that 2% of the current
accounts and 5% of the past due accounts will prove to be uncollectible. The
adjusting entry to provide for uncollectible accounts expense should be for
a) $1,800.
b) $2,400.
c) $1,200.
d) $2,800
6.

Hopeful Company is a new company. During its first year of operation

Customers ordered $50,000 of goods on account
$40,000 of the goods ordered were delivered
Customers paid $34,000 on account (taking advantage of a cash discounts of
$1,000 from the invoiced amounts recorded originally in accounts receivable)
Customers returned damaged goods and were refunded $2,000
The balance of Account Receivable at the end of the year is
a) $3,000
b) $4,000
c) $5,000
d) $16,000
e) none of the above.

7. The Blue Bends Co. signed a 12%, $40,000 note payable on September 1,
1998 due on February 28, 1999. If the accounting year ends on December
31, how much is the interest expense for 1999, the year the note was repaid?
a) $4,800
b) $800
c) $2,400
d) $1,600
e) none of the above

8. The Steven Co. estimates its Allowance for Doubtful Accounts by aging its
accounts receivable. At the end of 1998 its accounts receivable were aged
as follows:
0-30 days
$1,000,000
31-90 days
500,000
over 90 days
100,000
The company estimates that all amounts outstanding for 30 days or less will
be collected but the 5% of the amounts outstanding between 31 and 90 days
and 50% of the amount outstanding over 90 days will eventually be
uncollectible. The balance in the Allowance for Doubtful Accounts at the
beginning of 1998 was $50,000. During 1998, $35,000 of uncollectible
accounts were written off.

The Uncollectible Accounts Expense for 1998 is

a) $35,000
b) $75,000
c) $60,000
d) none of the above

Use the following information for questions 9 and 10.

The following amounts have been extracted from the accounts of Sell-It at its
year-end, December 31, 1999:
Sales
$50,000
Cost of Goods Sold 35,000
Inventory
10,000
Account Payable
8,000
9. The gross profit which Sell-it would report is
a) $50,000
b) $40,000
c) $7,000
d) $15,000
e) none of the above

10. If an error were made computing Sell-its ending inventory and inventory were
overstated by $5,000 then
a) liabilities are understated by $5,000
b) net income is overstated by $5,000
c) gross profit is understated by $5,000
d) none of the above

Use the following information for questions 11 - 12

Goodies Galore Company's current year's income statement includes the following data:
Sales
Cost of Goods Sold

$700,000
$500,000

Goodies Galore
comparative balance sheet shows the following data (accounts payable relates to
merchandise purchases):
End of Year
Accounts Receivable (net)
Inventory
Prepaid Expenses
Account Payable

$40,000
$30,000
$2,000
$10,000

Beginning of
Year
$50,000
$25,000
$1,000
$15,000

11. Cash received from Customers was

a) $690,000
b) $700,000
c) $710,000
d) $691,000
e) none of the above

12. Cash paid for merchandise purchases

a) $500,000
b) $495,000
c) $505,000
d) $510,000
e) none of the above

13. The correct equation that applies to the determination of the ending balance of the
Allowance for Doubtful Accounts is:
a) Beginning Allowance for Doubtful Accounts - Accounts Written-off during the
period + Bad Debt Expense for the period
b) Beginning Allowance for Doubtful Accounts + Accounts Written-off during the
period + Bad Debt Expense for the period
c) Beginning Allowance for Doubtful Accounts - Accounts Written-off during the
period - Bad Debt Expense for the period
d) None of the above

PROBLEM 02 COLLECTION OF SALES

Kiwi Company, which sells on terms 2/10, n/30, has had gross credit sales for May and
June of $40,000 and $60,000, respectively. Analysis of Kiwi's operations indicates that
the pattern of customers' payments on account is as follows (percentages are of total
monthly credit sales):

In month of sale
In month following sale
Uncollectible accounts,
returns, and allowances

Receiving
Discount
50%
15%

Beyond
discount period
20%
10%

Totals
70%
25%
5%
100%

Determine the estimated cash collected on customers' accounts in June.

PROBLEM 03
The following transactions occurred between the Seinfeld Company and Simpson Stores
during March of the current year.
Mar. 8...Seinfeld sold $2,600 worth of merchandise to Simpson Stores, terms 2/10, n/30,
F.O.B. shipping point. Seinfeld paid freight charges of $40 and added it to the amount of
the invoice for the merchandise.
Mar.12... Simpson Stores returned $200 worth of the merchandise shipped on March 8.
Seinfeld issued a credit memo for this amount.
Mar17... Seinfeld received full payment for the net amount due from the March 8 sale.
Mar 20... Simpson Stores returned goods that had been billed originally at $100. Seinfeld
issued a cheque.
REQUIRED
Record the above transactions in general journal form as they would appear on
(a) the books of Seinfeld Company and
(b) the books of Simpson Stores.
Simpson Stores records purchases at invoice price.

PROBLEM 04
Bart Corporation, which began business on August 1 of the current year, sells on terms of
2/10, n/30, F.O.B. shipping point. Credit terms and freight terms for its purchases vary
with the supplier. Selected transactions for August are given below. Unless noted, all
transactions are on account and involve merchandise held for resale. All purchases are
recorded at invoice price.
Aug.
1
4
5
6
7
8
9
10
14
15
17
18
19
20
20
25
28

Purchased merchandise from Sally, Inc., $750, terms 2/10, n/30, F.O.B. shipping
point, freight collect.
Purchased merchandise from Neelam Company, $1,400, terms 2/10, n/30, F.O.B.
destination. Freight charges of $60 were prepaid by Neelam Company.
Paid freight on shipment from Sally, Inc., $60.
Sold merchandise to Solid Corporation, $800.
Paid freight on shipment to Solid Corporation, $45, and billed Solid for the
charges.
Returned $50 worth of the merchandise purchased August 1 from Sally, Inc.,
because it was defective.
Issued a credit memo to Solid Corporation for $100 worth of merchandise
returned by Solid.
Paid Sally, Inc. the amount due.
Purchased from Delgado, Inc., goods with a list price of $1,600. Bart Corporation
was entitled to a 25% trade discount; terms 1/10, n/30, F.O.B. shipping point,
freight collect.
Paid freight on shipment from Delgado, Inc., $60.
Received the amount due from Solid Corporation.
Sold merchandise to Watson, Inc., $2,200.
Paid Neelam Company for the amount due on its August 4 invoice.
Paid freight on August 18 shipment to Watson, Inc., $70.
Received a credit memo of $200 from Delgado, Inc., adjusting the price charged
for merchandise purchased on August 14.
Paid Delgado, Inc., the amount due.
Received the amount due from Watson, Inc.

REQUIRED
Record the transactions for Bart Corporation in general journal form.

PROBLEM 05
The following selected information is available for the Newman Wholesale Company for
March of the current year:
Purchases
Sales
Transportation In
Purchases Discounts
Inventory, March 1
Inventory, March 31
Purchases Returns and Allowances
Sales Returns and Allowances
Transportation Out
Rent Expense
Sales Salaries Expense
Sales Discounts
Depreciation Expense-Office Equipment
Office Supplies Expense
Office Salaries Expense
Advertising Expense
Insurance Expense (a selling expense)

$45,500
94,500
3,200
700
38,500
31,000
800
1,400
420
1,450
18,400
1,100
120
310
7,850
1,400
150

REQUIRED
(a) Prepare the March income statement for Newman Wholesale Company.
(b) Calculate the ratio of gross profit to net sales and express it as a percentage.
(c) Calculate the ratio of net income to net sales and express it as a percentage.

PROBLEM 06
Springer Trading Company, whose accounting year ends on December 31, had the
following normal balances (accounts which are normally debits have debit balances here
and visa versa) in its general ledger at December 31 of the current year:
Cash
6,200
Sales
275,000
Accounts Receivable
15,000
Inventory, January 1
49,000
Office Supplies on Hand
1,800
Sales Returns and Allowances
3,100
Sales Discounts
2,900
Prepaid Insurance
2,400
Purchases
185,000
Furniture and Fixtures
12,500
Purchases Returns and Allowances
2,600
Accumulated Depreciation- Furniture and Fixtures 2,500
Purchases Discounts
3,600
Delivery Equipment
40,000
Transportation In
4,800
Accumulated Depreciation-Delivery Equipment 8,000
Delivery Expense
6,200
Sales Salaries Expense
40,000
Accounts Payable
22,300
Advertising Expense
2,400
Long-term Notes Payable
20,000
Rent Expense
7,500
R. Springer, Capital
72,000
Office Salaries Expense
22,000
R.Springer,Drawing
4,000
Utilities Expense
1,200
Rent expense and utilities expense are administrative expenses. During the year, the
accounting department prepared monthly statements using worksheets, but no adjusting
entries were made in the journals or ledgers. Data for the year-end procedures are as
follows:
(1)
(2)
(3)
(4)
(5)
(6)

Prepaid insurance at December 31 is $400 (75% of insurance expense is classified

as selling expense, and 25% is classified as administrative expense).
Office supplies on hand at December 31 is $1,200.
Depreciation expense on furniture and fixtures for the year (an administrative
expense) is $800.
Depreciation expense on delivery equipment for the year amounts to $5,000.
Salaries payable at December 31 ($600 sales salaries and $300 office salaries)
total $900.
Inventory at December 31 is $61,000.

REQUIRED
(a)
Prepare a multiple-step income statement for the year
(b)
Prepare a balance sheet at December 31.
(c)
Record the necessary adjusting entries in general journal form.

PROBLEM 07
While on her way to the bank to negotiate a loan, Shery Bayer, the treasurer of Crafty,
Inc., realizes that the income statement for the current year is missing from her papers.
She has a December 31 balance sheet, however, and after searching through her papers,
locates an unadjusted trial balance taken at December 31. She arrives at your office
shortly before her appointment at the bank and asks your assistance in preparing an
income statement for the year. The available data at December 31 are given below:
REQUIRED
Use the given data to prepare the year's income statement for Crafty, Inc.,
for Shery Bayer.

Description

Unadjusted Trial Balance

Debit

Cash
Accounts Receivable
Inventory
Office Supplies on hand
Prepaid Insurance
Delivery Equipment
Accumulated Depreciation

Accounts Payable
Salaries Payable
Capital Stock
Retained Earnings
Sales
Purchases
Rent Expense
Salaries Expense
Advertising Expense
Delivery Expense

Balance Sheet

Credit
28,000
51,000
77,000
4,100
2,400
48,000
14,500

34,000

28,000
51,000
75,000
2,900
1,600
48,000
(22,500)
$184,000

100,000
30,000
240,000

34,000
500
100,000
49,500

$418,500

$184,000

155,000
7,500
33,000
5,100
7,400

$418,500

Adjustments
Debit

Cash
Inventory, January 1
Office Supplies on Hand
Prepaid Insurance
Equipment
Accumulated Depreciation
Accounts Payable
R. Maria Capital
R. Maria Drawings
Sales
Purchases
Transportation in
Rent Expense
Salaries Expense
Depreciation Expense
Salaries Payable
Office Supplies Expense
Inventory, December 31
Net Income

Credit

Debit

7,000
38,000
2,400
1,600
40,000

Credit

1,800

8,000
10,000
45,000

Adjusted Trial Balance

Debit
Credit

7,000
38,000
600
1,600
40,000

4,000

6,000

12,000
10,000
45,000
6,000

140,000
75,000
1,500
3,500
28,000
203,000

140,000

500

75,000
1,500
3,500
28,500

4,000

4,000

203,000
500
1,800
6,300

6,300

500
1,800
207,500

207,500

PROBLEM 8
Pancake, Inc., which has been in business for three years, makes all sales on account and
does not offer cash discounts. The firm's credit sales, collections from customers, and
write-offs of uncollectible accounts for the three-year period are summarized below:
Year
Sales
Collections
Accounts Written Off
1
$400,000
$380,000
$2,000
2
600,000
590,000
2,400
3
720,000
704,000
3,000
REQUIRED
(a) If Pancake, Inc., had used the direct write-off method of recognizing credit losses
during the three years, what amount of Accounts Receivable would appear on the
firm's balance sheet at the end of the third year? What total amount of uncollectible
accounts expense would have appeared on the firm's income statement during the
three-year period?
(b) If Pancake, Inc., had used an allowance method of recognizing credit losses and
had provided for such losses at the rate of 0.75% of sales, what amounts of
Accounts Receivable and Allowance for Uncollectible Accounts would appear on
the firm's balance sheet at the end of the third year? What total amount of
uncollectible accounts expense would have appeared on the firm's income
statement during the three-year period?
(c) Comment on the use of the 0.75% rate to provide for losses in part (b).

PROBLEM 9
At the beginning of the current year, Beast Company had the following accounts on its
books:
Accounts Receivable $86,000 (debit)
Allowance for Uncollectible Accounts 2,200 (credit)
During this year, credit sales were $700,000 and collections on account were $685,000.
The following transactions, among others, occurred during the year:
Feb. 17 Beast Company wrote off R. Jetson's account, $700.
May 28 Beast Company wrote off M. Magee's account, $450.
Oct. 13 M. Magee, who is in bankruptcy proceedings, paid $250in final settlement of
the account written off on May 28. This amount is not included in the $685,000
collections.
Dec. 15 Beast Company wrote off P. Lauder's account, $600.
Dec 31 In an adjusting entry, Beast Company recorded the provision for uncollectible
accounts at 0.5% of credit sales for the year.
REQUIRED
(a) Prepare general journal entries to record the credit sales, the collections on
account, and the above transactions.
(b) Show how Accounts Receivable and the Allowance for Uncollectible
Accounts would appear in the December 31 balance sheet.

PROBLEM 10
At December 31 of the current year, the Susan Company had a balance of $160,000 in its
Accounts Receivable account and a credit balance of $1,700 in its Allowance for
Uncollectible Accounts. The Accounts Receivable sub-sidiary ledger consisted of
$161,500 in debit balances and $1,500 in credit balances. The following schedule shows
the company's analysis of Accounts Receivable balances at December 31, and the
percentages of each age group that have proven uncollectible in the past.

Current
0-60 Days Past Due
61-180 Days Past Due
Over Six Months Past Due
Total Past Due

Amount
Percent Doubtful
$134,000
1
15,000
5
8,000
15
4,500
40
$161,500

REQUIRED
(a)
(b)

Prepare the adjusting journal entry to record the provision for credit losses for the
year.
Show how Accounts Receivable (including the credit balances) and Allowance for
Uncollectible Accounts would appear in the December 31 balance sheet.

PROBLEM 11
Candy Company had the following transactions during the current year:
Apr. 8..Received a $7,200, 75-day, 10% note from L. Trance in payment of account.
May 24...Wrote off customer J. Nut's account against the Allowance for Uncollectible
Accounts, $575.
June 2... Received payment of L. Trance's note in full.
Sept. 10...Gave a $5,600, 90-day, 11% note to H. Ali in payment of account.
Sept.18...Received payment of Nut's account, written off May 24.
Dec.4 ...Discounted its own $18,000, 90-day note at the bank at 12%.
Dec 9...Paid principal and interest due on note to H. Ali.
Dec 21....Received a $7,500, 60-day, 12% note from L. Cindy on account.

REQUIRED
(a) Record the above transactions in general journal form.
(b) Make any necessary adjusting entries for interest at December 31.
Please Note: Transactions shown in green relate to a concept (discounting of notes),
which you are not responsible for on the exams,
and you may ignore these transactions.