Question 5. (15 marks)

At December 31, 1996, Trisha Underwood Imports reported the following information on its balance sheet:

Accounts receivable $1,000,000

Less: Allowance for doubtful accounts 60,000

During the first quarter of 1997, the company had the following transactions related to receivables.

1. Sales on Account

2. Sales returns and allowances

3. Collections of accounts receivable

4. Write-offs of accounts receivable deemed uncollectible

5. Recovery of bad debts previously written off as uncollectible

Required:

$2,600,000 40,000 2,300,000 80,000 25,000

(1) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable.

(2) Prepare the journal entry to record bad debts expense for the first quarter of 1997, assuming that an aging of accounts receivable indicates that estimated bad debts are $70,000.

Question 6 (15 marks)

Pine Boat Company often requires customers to sign promissory notes for major credit purchases. Journalize the following transactions for Pine Boat Company.

Feb. 12 Accepted a $25,000, 6%, 60-day note from Bob Weiss for a 24-foot motorboat built to his specifications.

April 14 Received notification from Bob Weiss that he was unable to honor his promissory note but that he expects to pay the amount owed in May.

May 26 Received a check from Bob Weiss for the total amount owed.

June 10 Received notification by the bank that Bob Weiss check was being returned "NSF" and that Mr. Weiss had declared personal bankruptcy.

PART III short essay questions (10 marks each, 20 marks in total)

1. You are at a company picnic and the company president starts a conversation with you. The president says Since we use the perpetual inventory system, there is no reason to take a physical count of our inventory. What is your response to the presidents remarks?

(10 marks)

2. Journalizing and posting closing entries is a required step in the accounting cycle. Discuss why it is necessary to close the books at the end of an accounting period. If closing entries were not made, how would the preparation of financial statements be affected?. (10 marks