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ACC205 Principles of Accounting I, Exams of Banking and Finance

The December cash records of Dunlap Insurance follow: Dunlap's Cash account shows a balance of $16,740 at December 31. On December 31, Dunlap Insurance received the following bank statement:

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ACC205 Principles of Accounting I
Required Text
Horngren, C., Harrison W. &Oliver, M. (2012). Accounting (9th ed.). Upper Saddle River, NJ: Pearson
Prentice Hall. ISBN: 9780132569057
Week 4
Required Readings
1. Chapter 7: Internal Control and Cash
2. Chapter 8: Receivables
Assignments
a. Chapter 7, P7-27A
b. Chapter 7, P7-31A
c. Chapter 8, P8-26A
d. Chapter 8, P8-27A
e. Chapter 8, P8-32A
P7-27A Preparing a bank reconciliation and journal
entries [20–25 min]
The December cash records of Dunlap Insurance follow:
Dunlap's Cash account shows a balance of $16,740 at December
31. On December 31, Dunlap Insurance received the following bank
statement:
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ACC205 Principles of Accounting I Required Text Horngren, C., Harrison W. &Oliver, M. (2012). Accounting (9th ed.). Upper Saddle River, NJ: Pearson Prentice Hall. ISBN: 9780132569057

Week 4

Required Readings

  1. Chapter 7: Internal Control and Cash
  2. Chapter 8: Receivables Assignments a. Chapter 7, P7-27A b. Chapter 7, P7-31A c. Chapter 8, P8-26A d. Chapter 8, P8-27A e. Chapter 8, P8-32A P7-27A Preparing a bank reconciliation and journal entries [20–25 min] The December cash records of Dunlap Insurance follow: Dunlap's Cash account shows a balance of $16,740 at December
    1. On December 31, Dunlap Insurance received the following bank statement:

Additional data for the bank reconciliation follows: a. The EFT credit was a receipt of rent. The EFT debit was an insurance payment. b. The NSF check was received from a customer. c. The $1,400 bank collection was for a note receivable. d. The correct amount of check 1419 for rent expense is $1,940. Dunlap's controller mistakenly recorded the check for $1,490. Requirements

(continued) P 7-27A

Req. 2

Journal Entry

DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT Dec 31 Cash 300 Rent revenue 300 31 Cash 1, Note receivable 1, 31 Accounts receivable^ 1, Cash (^) 1, 31 Insurance expense 700 Cash 700 31 Miscellaneous expense ( or Bank service charge expense)

Cash 60

31 Rent expense 450 Cash 450 P7-31A Accounting for petty cash transactions [20– min] Suppose that on June 1, Rockin’ Gyrations, a disc jockey service, creates a petty cash fund with an imprest balance of $500. During June, Michael Martell, fund custodian, signs the following petty cash tickets: On June 30, prior to replenishment, the fund contains these tickets plus cash of $325. The accounts affected by petty cash payments are Office supplies expense, Entertainment expense, and Postage expense. Requirements

1. On June 30, how much cash should this petty cash fund hold before it is replenished? 2. Journalize all required entries to (a) create the fund and (b) replenish it. Include explanations. 3. Make the entry on July 1 to increase the fund balance to $550. Include an explanation.

(20-30 min.) P 7-31A

Req. 1 Before replenishment, the petty cash fund should hold cash of $330 ($500 – total payments of $170).

P8-26A Accounting for uncollectible accounts using the allowance and direct write-off methods, and reporting receivables on the balance sheet [20–30 min] On August 31, 2012, Daisy Floral Supply had a $155,000 debit balance in Accounts receivable and a $6,200 credit balance in Allowance for uncollectible accounts. During September, Daisy made

  • sales on account, $590,000.
  • collections on account, $627,000.
  • write-offs of uncollectible receivables, $7,000. Requirements 1. Journalize all September entries using the allowance method. Uncollectible account expense was estimated at 3% of credit sales. Show all September activity in Accounts receivable, Allowance for uncollectible accounts, and Uncollectible account expense (post to these T-accounts). 2. Using the same facts, assume instead that Daisy used the direct write-off method to account for uncollectible receivables. Journalize all September entries using the direct write-off method. Post to Accounts receivable and Uncollectible account expense and show their balances at September 30, 2012. 3. What amount of uncollectible account expense would Daisy report on its September income statement under each of the two methods? Which amount better matches expense with revenue? Give your reason. 4. What amount of net accounts receivable would Daisy report on its September 30, 2012 balance sheet under each of the two methods? Which amount is more realistic? Give your reason.

(20-30 min.) P 8-26A

Req. 1 (Allowance Method)

Journal Entry DATE ACCOUNTS AND EXPLANATIONS POST . REF. DEBIT CREDIT Sep 30 Accounts receivable 590, Sales revenue

30 Cash 627, Accounts receivable 627, 30 Uncollectible account expense 17, ($590,000 × .03) Allowance for uncollectible accounts

Allowance for uncollectible accounts 7, Accounts receivable 7, Accounts receivable Allowance for uncollectible accounts 155,000 627,000 7,000 6, 590,000 7,000 17, Bal 111,000 Bal 16,

(continued) P 8-26A

Req. 3 INCOME STATEMENT: Allowance Method Direct Write- Off Method Uncollectible account expense.......…. $17,700 $7, Uncollectible account expense under the allowance method better matches expense with revenue because the expense is recorded in the same period the sales are made. Req. 4 BALANCE SHEET: Allowance Method Direct Write- Off Method Accounts receivable............…………… $111,000 $111, Less: Allowance for uncollectible accounts 16,900 0 Accounts receivable, net............……… $94,100 $111, Net accounts receivable under the allowance method is more realistic because it shows the amount of the receivables that the company expects to collect. P8-27A Accounting for uncollectible accounts using the allowance method, and reporting receivables on the balance sheet [25–35 min] At September 30, 2012, the accounts of Mountain Terrace Medical Center (MTMC) include the following: Requirements

1. Journalize the transactions. 2. Open the Allowance for uncollectible accounts T-account, and post entries affecting that account. Keep a running balance. 3. Show how Mountain Terrace Medical Center should report net accounts receivable on its December 31, 2012 balance sheet. Use the three line reporting format.

(25-35 min.) P 8-27A

Req. 1 Journal Entry DATE ACCOUNTS AND EXPLANATIONS POST. REF. DEBIT CREDIT Dec 28 Allowance for uncollectible accounts 2, Accounts receivable—Regan Co. 1, Accounts receivable—Owen Mac 900 Accounts receivable—Rain, Inc. 700 Dec 31 Uncollectible account expense *10, Allowance for uncollectible accounts 10,


*Computation of Allowance for uncollectible accounts under aging of Accounts receivable: Ending credit balance:

Less: Allowance for uncollectible accounts 11, Accounts receivable, net $153, P8-32A Using ratio data to evaluate a company's financial position [20–30 min] The comparative financial statements of Lakeland Cosmetic Supply for 2012, 2011, and 2010 include the data shown here: Requirements

1. Compute these ratios for 2012 and 2011: a. Acid-test ratio b. Days’ sales in receivables c. Accounts receivable turnover 2. Considering each ratio individually, which ratios improved from 2011 to 2012 and which ratios deteriorated? Is the trend favorable or unfavorable for the company?

(20-30 min.) P 8-32A

Req. 1 Amounts In thousands 2012 2011 Cash + Short-term investments a. Acid-test = + Net current receivables = $90 + $145 + $290 $70 + $175 + $ ratio Total current liabilities $560 $ = 0.94 = 0.

b. One day’s = Net sales = $5, = $16. $5, = $14. sales 365 365 365 Days’ sales in = Average net receivables = ($260 + $290) / 2 ($250 + $260) / 2 receivables One day’s sales $16.05 $14. = 17 days = 18 days c. Accounts receivable turnover = Net credit sales = $5,860 $5, Average net accounts receivable ($260 + $290) / 2 ($250 + $260) / 2 = 21.31 = 20. Req. 2 The acid-test ratio improved from 2011 to 2012. This trend is favorable to the company. The days’ sales in receivables improved from 2011 to 2012. This trend is favorable to the company. The accounts receivable turnover improved from 2011 to 2012. This trend is favorable to the company.