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

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?

Cash equivalents such as treasury bills are reported as investments on the balance sheet.

Select the appropriate answer choice A through G (listed below) to correspond with the following numbered items on a bank reconciliation. There may be more than one letter selection for the numbered item. Items:A. Checks written during June that had not cleared the bank by June 30. B. Bank service charges for June, which were not known until the June 30th bank statement arrived. C. Deposit made on June 30 that did not reach the bank until July 1. D. Upon reviewing the company's cash receipts book after June 30, it was discovered the accounting clerk had neglected to post one receipt to the cash account. E. The bank statement reported a "NSF check" during June. F. The bank incorrectly deducted the check of another company to the bank account during June. G. The company was paid interest on its account by the bank.

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, $490,000 • 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?

Gross profit decreases when sales discounts increase.

Credit card discounts are reported as operating expenses on an income statement.

If a check received from a customer has been deposited by the seller and is marked on the bank statement as a nonsufficient funds (NSF) amount, then it would appear on the seller's bank reconciliation as a deduction from the ending bank statement balance.

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?

Why is the reconciliation of a company's cash account to the bank statement so important for effective internal control for cash?

Sales returns and allowances is a contra-revenue account.

What would be incorrect about reporting accounts receivable in the balance sheet?

Which of the following does not correctly describe the following journal entry?

On December 31, 2016, Colonial Corporation had the following account balances related to credit sales and receivables prior to recording adjusting entries: Required: Prepare the necessary year-end adjusting entry related to uncollectible accounts for each of the following independent assumptions: A.An aging of accounts receivable is completed.It is estimated that $2,150 of the receivables outstanding at year-end will be uncollectible. B.Assume the same information presented in part A above except that, prior to adjustment, the allowance for doubtful accounts had a debit balance of $200 rather than a credit balance of $200. C.It is estimated that a provision for bad debts is required for 1% of credit sales for the year.

Asia Company sold $10,000 of goods to Euro Company on credit on May 1. At the time of the sale, Asia recorded a debit to Accounts Receivable and a credit to Sales Revenue for $10,000. Terms were 2/10, n/30. Required: Prepare the journal entries Asia Company would record for each of the following situations: A.Euro paid the balance due, less the discount, on May 10. B.Euro returned half of the goods for credit on May 4.Euro paid the balance due, less the discount, on May 10. C.Euro paid its bill on May 30 (there were no sales returns).

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.

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, $490,000 • Accounts receivable, $110,000 • Sales discounts, $14,000 • Allowance for doubtful accounts credit balance, $1,200 Flyer prepares an aging of accounts receivable and the result shows that 5% of accounts receivable is estimated to be uncollectible. What is the balance in the allowance for doubtful accounts after bad debt expense is recorded?

Gross profit is calculated as gross sales less cost of sales.

Prior year financial statements are adjusted when it is determined that prior year bad debt expense was too low.

When a particular account receivable is determined to be uncollectible, the journal entry to write off the account reduces cash.

Merchandise was sold on credit for $10,000, terms 2/10, n/30. Which of the following journal entry descriptions correctly describes the cash collection?