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COMPREHENSIVE EXAMINATION B

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COMPREHENSIVE EXAMINATION B

COMPREHENSIVE EXAMINATION B

PART 2

(Chapters 7–9)

 

 

Problem B-I — Multiple Choice — Cash and Receivables.

Choose the best answer for each of the following questions and enter the identifying letter in the space provided.

 

____    1.    When should the loss on an uncollectible account receivable be recorded as an expense for accrual accounting purposes?

a.   When it is determined that an account cannot be collected.

b.   In the same period in which the sale on account occurs.

c.   When the balance is past due for more than 3 months.

d.   When a lawyer indicates that collection efforts would cost more than the account is worth.

 

____    2.    How should unearned discounts, finance charges, and interest included in the face amount of installment accounts receivable be presented in the balance sheet?

a.   As a current liability.

b.   As a deduction from the related installment accounts receivable.

c.   Within the net amount of installment accounts receivable.

d.   As an addition to the related installment accounts receivable.

 

____    3.    Durler Company's account balances at December 31 for Accounts Receivable and the related Allowance for Doubtful Accounts are $800,000 and $13,000, respectively. From an analysis of accounts receivable, it is estimated that $28,000 of the December 31 receivables will be uncollectible. After adjustment for the above facts, the net realizable value of accounts receivable would be

a.   $800,000.

b.   $787,000.

c.   $759,000.

d.   $772,000.

 

____    4.    Which group of items listed below should be included in the cash account?

a.   Silver coins, postage stamps, demand deposits, personal checks.

b.   Promissory notes, demand deposits, money orders, silver coins.

c.   Money orders, postdated checks, personal checks, time deposits.

d.   Silver coins, money orders, demand deposits, personal checks.

 

____    5.    Which of the following methods of accounting for uncollectible accounts does not properly match costs with revenues?

a.   Percentage of sales

b.   Percentage of receivables

c.   Direct write-off

d.   Aging schedule

 

____    6.    Certain information relative to the 2012 operations of Ball Co. follows:

                  Accounts receivable, January 1, 2012                                              $48,000

                  Accounts receivable collected during 2012                                         92,000

                  Cash sales during 2012                                                                       24,000

                  Inventory, January 1, 2012                                                                  36,000

                  Inventory, December 31, 2012                                                            33,000

                  Purchases of inventory during 2012                                                    80,000

                  Gross profit on sales                                                                            27,000

                  What is Ball's accounts receivable balance at December 31, 2012?

a.   $36,000.

b.   $42,000.

c.   $48,000.

d.   $66,000.

 

Problem B-II — Lower of Cost or Market

Presented below is data relative to the 12/31/12 inventory of Lance Company:

                                Number Units         Original Cost               Total                     Current    

              Item            In Inventory               Per Unit           Original Cost       Replacement Cost

                A                    5,000                       $1.09                  $5,450                       $1.08

                B                    5,000                         1.30                    6,500                         1.15

               C                    5,000                         1.50                    7,500                         1.05

               D                    5,000                         1.60                    8,000                         1.65

                E                    5,000                         1.80                    9,000                         1.70

               Total             25,000                                               $36,450

 

                                                                                                                           Appropriate

                                       Upper                   Lower                                               Inventory

                                       Limit                      Limit                Designated             Valuation

              Item               ("Ceiling")              ("Floor")                 Market                   (Totals)

               A

               B

               C

               D

               E

               Total

 

Additional Data:

Selling price is $2.00/unit for all items. Disposal costs amount to 10% of selling price and a "normal" profit is 35% of selling price.

 

Instructions

Complete the last four columns above.

 

Problem B-III — Notes Receivable.

On December 31, 2011 Berry Corporation sold some of its product to Flynn Company, accepting a 3%, four-year promissory note having a maturity value of $500,000 (interest payable annually on December 31). Berry Corporation pays 6% for its borrowed funds. Flynn Company, however, pays 8% for its borrowed funds. The product sold is carried on the books of Berry at a manufactured cost of $310,000. Assume Berry uses a perpetual inventory system.

 

Instructions

(a)   Prepare the journal entries to record the transaction on the books of Berry Corporation at December 31, 2011. (Assume that the effective interest method is used. Use the interest tables below and round to the nearest dollar.)

(b)   Make all appropriate entries for 2012 on the books of Berry Corporation.

(c)   Make all appropriate entries for 2013 on the books of Berry Corporation.

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COMPREHENSIVE EXAMINATION B 1. When should the loss on an uncollectible account receivable be recorded as an expense for accrual accounting purposes? a. When it is determined that an account cannot be collected. b. In the same period in which the sale on account occurs. c. When the balance is past due for more than 3 months. d. When a lawyer indicates that collection efforts would cost more than t...
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