Exam 7: The Revenuereceivablescash Cycle

A new product introduced by Wilkenson Promotions carries a two-year warranty against defects. The estimated warranty costs related to dollar sales are as follows: Sales and actual warranty expenditures for the years ended December 31, 2010 and 2011, are as follows: What amount should Wilkenson report as its estimated liability as of December 31, 2011?

Bank statements provide information about all of the following except

In preparing the bank reconciliation of Crews Company for the month of July, the following information is available: What is the correct cash balance at July 31?

Which of the following is incorrect?

Under GAAP, an entry should be made to the Bad Debt Expense account

Robb Corporation uses the allowance method of accounting for uncollectible accounts. During 2011, Robb had charged $80,000 to Bad Debt Expense, and wrote off accounts receivable of $90,000 as uncollectible. What was the amount of the decrease in working capital as a result of these entries?

Receivables can be used to generate cash through two general categories of transactions: 1. A secured borrowing 2. A sale of the receivables. Both of these types of transactions require a transfer of the receivables to a new holder, typically a financial institution. Required: Distinguish between a secured borrowing and a sale of receivables as regards the rights of the transferor and transferee as well as regards the accounting for each type of transaction.

Jackson Company had the following cash balances at December 31, 2011: Cash in banks includes $125,000 of compensating balances against short-term borrowing arrangements at December 31, 2011. The compensating balances are legally restricted as to withdrawal by Jackson. In the current asset section of Jackson's December 31, 2011, balance sheet, what total amount should be reported as Cash?

Which of the following is not correct regarding IAS 39, International Accounting Standard 39, "Financial Instruments: Recognition and Measurement," and SFAS No. 140, Statement of Financial Accounting Standards No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities: A Replacement of FASB Statement No. 125"?

The plan of organization and all the methods and measures adopted within a business to safeguard its assets, check the accuracy of its accounting data, promote operational efficiency, and encourage adherence to managerial policies is called

The following information is from the records of Prosser, Inc. for the year ended December 31, 2011. If the basis for estimating bad debts is 1 percent of net sales, the correct amount of doubtful accounts expense for 2011 is

During 2009, General Machinery company introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: What amount should General Machinery report as a liability at December 31, 2011?

First Company sold merchandise on credit to Second Company for $1,000 on July 1, with terms of 2/10, net /30. On July 6, Second returned $200 worth of merchandise claiming the materials were defective. On July 8, First received a payment from Second and credited Accounts Receivable for $450. On July 24, Second Company paid the remaining balance on its account. See First Company information above. How much was the total Sales Discounts given to Second during July?

When the direct write-off method of recognizing bad debt expense is used, the entry to write off a specific customer account would

Berman Corporation had the following transactions in its first year of operations: What is the cash balance at December 31 of the first year?

From inception of operations to December 31, 2010, Harris Corporation provided for uncollectible accounts receivable under the allowance method: Provisions were made monthly at 2 percent of credit sales; bad debts written off were charged to the allowance account; recoveries of bad debts previously written off were credited to the allowance account; and no year-end adjustments to the allowance account were made. Harris's usual credit terms are net 30 days. The credit balance in the allowance for doubtful accounts was $260,000 at January 1, 2011. During 2011, credit sales totaled $18,000,000, interim provisions for doubtful accounts were made at 2 percent of credit sales, $180,000 of bad debts were written off, and recoveries of accounts previously written off amounted to $30,000. Harris installed a computer system in November 2011 and an aging of accounts receivable was prepared for the first time as of December 31, 2011. A summary of the aging is as follows: Based on the review of collectibility of the account balances in the "prior to January 1, 2011" aging category, additional receivables totaling $120,000 were written off as of December 31, 2011. Effective with the year ended December 31, 2011, Harris adopted a new accounting method for estimating the allowance for doubtful accounts at the amount indicated by the year-end aging analysis of accounts receivable.

If the balance shown on a company's bank statement is less than the correct cash balance, and neither the company nor the bank has made any errors, there must be

Bank reconciliations are normally prepared on a monthly basis to identify adjustments needed in the depositor's records and to identify bank errors. Adjustments should be recorded for

Carr Company sells specialized machinery and equipment. On January 1, 2011, the company sold equipment and received a two-year, $10,000 note with a 3 percent stated interest rate. Interest is payable each December 31, and the entire principal is payable December 31, 2012. The equipment does not have a readily established market value. The market rate of interest for notes of this type and level of risk is 10 percent. See Carr Company information above. Required: Explain how and why this transaction was structured as it is.

When comparing the allowance method of accounting for bad debts with the direct write-off method, which of the following is true?