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Questions and Answers of Accounting

Determine the approximate effective rate of interest for $450,000, 9%, three-year bonds issued at 98. (Assume straight-line amortization.)
The following is a partially completed amortization schedule prepared for the Liggett Company to account for its three-year bond issue with a face value of $50,000. The schedule covers the first
Brown & Co., a calendar-year firm, is authorized to issue $500,000 of 11%, 15-year bonds dated May 1, 2012, with interest payable semiannually on May 1 and November 1.Amortization of bond
Nemo Company authorized and sold $90,000 of 10%, 15-year bonds on April 1, 2012. The bonds pay interest each April 1, and Nemo’s year-end is December 31.Required:1. Prepare journal entries to
On March 1, 2012, Roger Corporation issued $150,000 of 10%, five-year bonds at 105. The bonds were dated March 1, 2012, and interest is payable on March 1 and September 1. Roger records amortization
Stottard Company issued $650,000 of 8%, 10-year bonds on June 1, 2011, at 103. The bonds were dated June 1, and interest is payable on June 1 and December 1 of each year.Required:1. Record the
Cyprus Corporation issued $150,000 of bonds on January 1, 2012, to raise funds to buy some special machinery. The maturity date of the bonds is January 1, 2017, with interest payable each January 1
Royce Corporation issued $200,000 of three-year, 12% bonds on January 1, 2011. The bonds pay interest on January 1 and July 1 each year. The bonds were sold to yield a 10% return, compounded
Bell Company sold $200,000 of 10-year bonds on January 1, 2011, to Brown Corporation. The bond indenture included the following information:Face value
Foster Corporation issued three-year bonds with a $180,000 face value on March 1, 2011, in order to pay for a new computer system. The bonds mature on March 1, 2014, with interest payable on March 1
Amity Construction Company registered $100,000 of 6% bonds on July 1, 2012. The maturity date of the bonds is January 1, 2022. Interest is payable January 1 and July 1. The bonds were sold at 105.7
Gonzalez Corporation was authorized to issue $100,000 of 7%, four-year bonds, dated May 1, 2012. All the bonds were sold on that date when the effective interest rate was 8%. Interest is payable on
Bonds with a face value of $200,000 and a stated interest rate of 12% were issued on March 1, 2012. The bonds pay interest each February 28 and August 31 and mature on March 1, 2022. The issuing
What are the three types of basic business activities?
Why is the purchase of inventory for resale to customers classified as an operating activity rather than an investing activity?
When should revenues be recognized and reported?
Why do you think misstatement of revenues (e.g., recognizing revenues before they are earned) is one of the most common ways to manipulate financial statements?
Why is it important to have separate sales returns and allowances and sales discounts accounts? Wouldn’t it be much easier to directly reduce the sales revenue account for these adjustments?
Why do companies usually have more controls for cash than for other assets?
What are three generally practiced controls for cash, and what is the purpose of each control?
Why do most companies tolerate having a small percentage of uncollectible accounts receivable?
Why does the accounting profession require the use of the allowance method of accounting for losses due to bad debts rather than the direct write-off method?
With the allowance method, why is the net balance, or net realizable value, of Accounts Receivable the same after the write-off of a receivable as it was prior to the write-off of the uncollectible
Why is the “aging” of accounts receivable usually more accurate than basing the estimate on total receivables?
Why is it important to monitor operating ratios such as accounts receivable turnover?
Why must the customer service expense (warranty) sometimes be recorded in the period prior to when the actual customer services will be performed?
Classify each of the following business activities as an operating, an investing, or a financing activity.a. Acquiring inventory for resaleb. Buying and selling stocks and bonds of other companiesc.
In which one of the following situations should revenue be recognized?a. The earnings process has begun and cash collectibility is reasonably ensured.b. The earnings process has begun and cash has
Make the journal entry necessary to record the sale of 175 books at $29 per book. Ninety-five of the books were sold for cash, and 80 were sold on credit.
Refer to the data in PE 6-3. Make the journal entry necessary when the company receives payment for the 80 books sold on credit.Data from PE 6-3Make the journal entry necessary to record the sale of
Refer to the data in PE 6-3. Assume that all of the 80 books sold on credit were sold to a single customer and that the terms of the credit sale were 2/10, n/30. Make the journal entry necessary to
Refer to the data in PE 6-3. Assume a customer found that 15 of the books were misprinted and returned the 15 books for a refund. Prepare the journal entry necessary in the records of the selling
Using the following data, compute net sales.Sales discounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000Accounts receivable, ending. . . . . . . . . .
Which one of the following is not an important control associated with cash?a. All cash expenditures must be made with pre-numbered checks.b. The cash balance must never fall below the sum of
Morrison Company had credit sales of $2,500,000 during the year, its first year of business. Morrison has estimated that $50,000 of these sales on account will ultimately be uncollectible. In
Refer to the data in PE 6-9. Taking into account the allowance for bad debts established at the end of the year, compute the net realizable value of accounts receivable (1) Before the write-off of
Refer to the data in PE 6-9. Assume that one customer, whose account had previously been written off, returned from exile in the Bahamas and paid his account of $7,000. Make the journal entry or
Palmer Company had an Accounts Receivable balance of $85,000 and an Allowance for Bad Debts balance of $3,400 (credit) at the end of the year (before any adjusting entry). Credit sales for the year
Joplin Company had an Accounts Receivable balance of $102,000 and an Allowance for Bad Debts balance of $2,700 (credit) at the end of the year (before any adjusting entry). Credit sales for the year
Harrison Company reports the following aging accounts receivable data:In addition, the company provides the following estimates for accounts that will ultimately be uncollectible:Using this
Crosby Company reports the following data for the past three years:Compute the allowance for bad debts as a percentage of accounts receivable and evaluate the quality of accounts receivable over the
Using the following data, calculate this company’s accounts receivable turnover.Accounts receivable balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . $ 54,000Inventory
Refer to the data in PE 6-16. Calculate the company’s average collection period.Data from PE 6-16Accounts receivable balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Frampton Company has determined, based on past experience, that 15% of all tires sold will need repairs within the warranty period. When customers request a tire repair under the warranty agreement,
Refer to the data in PE 6-18. Assume that during the following year, 20 customers bring in 80 tires for warranty repairs. The labor and supplies associated with these repairs were $900 and $350,
The fiscal year-end (when they close their books) for the Green Bay Packers is March 30 of each year. If the Packers sell season football tickets in February for the coming football season, when
James Dee Company cleans the outside walls of buildings. The average job generates revenue of $800,000 and takes about two weeks to complete. Customers are required to pay for a job within 30 days
In the year 2002, Salt Lake City, Utah, hosted the Winter Olympics. To get ready for the Olympics, most of the major roads and highways in and around Salt Lake City were renovated. It took over three
Yummy, Inc., is a franchiser that offers for sale an exclusive franchise agreement for $30,000. Under the terms of the agreement, the purchaser of a franchise receives a variety of services
Molly Maloney is an employee of Marshall Company, a small manufacturing concern. Her responsibilities include opening the daily mail, depositing the cash and checks received into the bank, and making
On June 24, 2012, Sudweeks Company sold merchandise to Brooke Bowman for $70,000 with terms 2/10, n/30. On June 30, Bowman paid $39,200 on her account and was allowed a discount for the timely
Solar Company sold merchandise on account to Kit Company for $9,000 on June 3, 2012, with terms 2/10, n/30. On June 7, 2012, Solar Company received $850 of returned merchandise from Kit Company and
The trial balance of Sparkling Jewelry Company at the end of its 2012 fiscal year included the following account balances:AccountAccounts receivable . . . . . . . . . . . . . . . . . . . . . . . . .
The following data were associated with the accounts receivable and uncollectible accounts of Julia Jay, Inc., during 2012:a. The opening credit balance in Allowance for Bad Debts was $600,000 at
Mahogany Company had the following information relating to its accounts receivable at December 31, 2011, and for the year ended December 31, 2012:Accounts receivable balance at 12/31/11 . . . . . .
Smoot Company’s accounts receivable reveal the following balances:Age of Accounts Receivable BalanceCurrent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The following aging of accounts receivable is for Harry Company at the end of its first year of business:Harry Company has collected the following bad debt information from a consultant familiar with
The trial balance of Beecher’s Sporting Warehouse, Inc., shows a $110,000 outstanding balance in Accounts Receivable at the end of 2011. During 2012, 90% of the total credit sales of $4,400,000
Bauer Company uses the percentage of sales method for computing bad debt expense. As of January 1, 2012, the balance of Allowance for Bad Debts was $300,000. Write-off s of uncollectible accounts
The following are summary financial data for Parker Enterprises, Inc., and Boulder, Inc., for three recent years:1. Using the above data, compute the accounts receivable turnover and average
Assume that Leif Company has the following data related to its accounts receivable:Use these data to compute accounts receivable turnover ratios and average collection periods for 2011 and 2012.
The following accounts receivable information is for Kayley Company:Did the creditworthiness of Kayley's customers increase or decrease between 2010 and 2012?Explain.
Pip Havisham, president of Pinpoint Electronics Stores, has been concerned recently about declining sales due to increased competition in the area. Pip has noticed that many of the national stores
Ainge Auto sells used cars and trucks. During 2012, it sold 53 cars and trucks for a total of $1,400,000. Ainge provides a 24-month, 30,000-mile warranty on the used cars and trucks sold. Ainge
Brad Company sells ships. Each ship sells for over $25 million. Brad never starts building a ship until it receives a specific order from a customer. Brad usually takes about four years to build a
The Ho Man Tin Tennis Club sells lifetime memberships for $20,000 each. A lifetime membership entitles a person to unlimited access to the club’s tennis courts, weight room, exercise equipment, and
Buckaroo Company and Yearling Company entered into the following transactions:a. Buckaroo Company sold merchandise to Yearling Company for $135,000, terms 2/10, n/30.b. Prior to payment, Yearling
Mac Faber was the controller of the Lewiston National Bank. In his position as controller, he was in charge of all accounting functions. He wrote cashier’s checks for the bank and reconciled the
Domitian Corporation accounts for uncollectible accounts receivable using the allowance method. As of December 31, 2011, the credit balance in Allowance for Bad Debts was $170,000. During 2012,
Assume that Dominum Company had the following balances in its receivable accounts on December 31, 2011:Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Juniper Company was formed in 2002. Sales have increased on the average of 5% per year during its first 10 years of existence, with total sales for 2011 amounting to $400,000. Since incorporation,
During 2012, Slainge Corporation had a total of $8,000,000 in sales, of which 85% were on credit. At year-end, the Accounts Receivable balance showed a total of $3,600,000, which had been aged as
Capital Edge Company has found that, historically, 0.5% of its current accounts receivable, 3% of accounts 1 to 30 days past due, 4.5% of accounts 31 to 60 days past due, 8% of accounts 61 to 90
Ulysis Corporation makes and sells clothing to fashion stores throughout the country. On December 31, 2012, before adjusting entries were made, it had the following account balances on its
The following aging of accounts receivable is for Coby Company at the end of 2012:Coby Company had a credit balance of $20,000 in its allowance for bad debts account at the beginning of 2012.
The following accounts receivable information is for Trapper Company:Required:1. With the big increase in Allowance for Bad Debts in 2012, Trapper Company is concerned that the creditworthiness of
Healthcare, Inc., operates a number of medical testing facilities around the United States. Drug manufacturers, such as Merck and Bristol-Myers Squibb, contract with Healthcare for testing of their
The president, vice president, and sales manager of Moorer Corporation were discussing the company’s present credit policy. The sales manager suggested that potential sales were being lost to
For the past year, you have been working as an accountant for a local Internet Service Provider. Business is growing steadily with the holiday season just around the corner. The company hopes to
The company you work for has been highly profitable this year. Your boss tells you to overestimate the allowance for doubtful accounts. He says the income statement can handle the charge this year
Locate the 2009 Form 10-K for Wal-Mart in Appendix A and consider the following questions:1. Provide the summary journal entry that Wal-Mart would have made to record its net sales for the fiscal
Bank of America is one of the oldest banks in America, as well as one of the largest. It has operations in all 50 states, the District of Columbia, and over 40 foreign countries. Information from
Information from comparative income statements and balance sheets for Microsoft and IBM is given below. (Amounts are in millions.)Use this information to answer the following questions:1. Without
The economic downturn in South Korea in late 1997 focused world attention on what had heretofore been viewed as one of the world's economic powerhouses. Symptomatic of the economic collapse was the
John Verner is the controller for BioMedic, Inc., a biotechnology company. John is finishing his preparation of the preliminary financial statements for a meeting of the board of directors scheduled
What are the major reasons that the balance of a bank statement is usually different from the cash book balance (Cash per the general ledger)?
Why don’t the additions and deductions from the bank balance on a bank reconciliation require adjustment by the company?
Do all transactions by U.S. companies with foreign parties require special accounting procedures by the U.S. companies? Explain.
Company G received a bank statement at the end of the month. The statement contained the following:Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Refer to PE 6-64. Make all journal entries necessary on the company’s books to adjust the reported cash balance in response to the receipt of the bank statement.Data from PE 6-64Bank
On November 6 of Year 1, Havens Company provided services (on account) to a client located in Thailand. The contract price is 100,000 Thai baht. On November 6, the exchange rate was 50 baht for one
Refer to PE 6-66. Compute the foreign exchange gain or loss that should be reported in (1) Year 1 and (2) Year 2.Data from PE 6-66On November 6 of Year 1, Havens Company provided services (on
Prepare a bank reconciliation for Bend Company at January 31, 2012, using the information shown.1. Cash per the accounting records at January 31 amounted to $228,909; the bank statement on this same
The records of Derma Corporation show the following bank statement information for December:a. Bank balance, December 31, 2012, $87,450b. Service charges for December, $50c. Rent collected by bank,
Jensen Company has just received the September 30, 2012, bank statement summarized in the following schedule:Cash on hand (recorded on Jensen€™s books but not deposited) on September 1 and
Orange Peel, a U.S. company, sold 140,000 cases of tropical fruit to Hanoi Foods, a Vietnamese firm, for 4.25 billion Vietnamese dong. The sale was made on November 17, 2012, when one U.S. dollar
American, Inc., sells one widget to Japanese Company at an agreed-upon price of 1,000,000 yen. On the day of the sale, one yen is equal to $0.01. American, Inc., maintains its accounting records in
Milton Company has just received the following monthly bank statement for June 2012.Data from the cash account of Milton Company for June are as follows:At the end of May, Milton had three checks
Kim Lee, the bookkeeper for Briton Company, had never missed a day€™s work for the past 10 years until last week. Since that time, he has not been located. You now suspect that Kim may have
On December 19, 2012, Teacup Company performed services for Candlestick Company. The contracted price for the services was 45,000 euros, to be paid on March 23, 2013. On December 19, 2012, one euro

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