Problem 1: Using the code letters below, indicate how each of the items listed would be handled in preparing a bank reconciliation. Enter the appropriate code letter in the space to the left of each item.

Code

A. Add to cash balance per books

B. Deduct from cash balance per books

C. Add to cash balance per bank

D. Deduct from cash balance per bank

E. Does not affect the bank reconciliation

Items:

1. Outstanding checks.

2. Bank service charge.

3. Check for $420 correctly written and paid by the bank but incorrectly entered in the cash payments journal for $240.

4. Deposit in transit.

5. Bank returns deposited check marked NSF.

6. Bank collects notes receivable and interest for depositor.

7. Bank debit memorandum for check printing fees.

8. Petty cash custodian has $91 in paid petty cash vouchers that have not been reimbursed.

9. Bank charged a check against the company which should have been charged to another company.

10. A check for $246 was correctly paid by the bank but was incorrectly entered in the cash payments journal for $264.

Prepare a multiple-step income statement, in proper form, for the year ended December 31, 2014 for Cosey Inc. Also known as a classified income statement.

The adjusted trial balance accounts:

Advertising Expense                                        $  15,000

Cost of Goods Sold                                                   347,000                         

Depreciation Expense                                                 3,500

Freight-out                                                                  2,000

Income Tax Expense                                                   21,700

Interest Expense                                                         19,000

Interest Revenue                                                         25,000

Merchandise Inventory                                               35,750

Prepaid Rent                                                               4,500

Sales                                                                            575,000

Sales Discounts                                                           9,500

Sales Returns and Allowances                                    50,000

Store Salaries Expense                                                74,000

Unearned Revenue                                                     8,000

Utilities Expense                                                         18,000

On December 31, 2013, the balance in Accounts Receivable was $680,000 and net credit sales amounted to $3,800,000 during 2013. An aging analysis of the accounts receivable indicated that $40,000 in accounts are expected to be uncollectible.             Past experience has shown that about 1% of net credit sales eventually are uncollectible.

Instructions:

Prepare the adjusting entries to record estimated bad debts expense using the percentage of receivables basis under each of the following independent assumptions:

(a) Allowance for Doubtful Accounts has a credit balance of $3,200 before adjustment.

(b) Allowance for Doubtful Accounts has a debit balance of $730 before adjustment.

Problem 2: A debit balance in the Allowance for Doubtful Accounts

a. is the normal balance for that account.

b. indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.

c. indicates that actual bad debt write-offs have been less than what was estimated.

d. cannot occur if the percentage of sales method of estimating bad debts is used.

Problem 3: Notes receivable are recorded in the accounts at Notes receivable are recorded in the accounts at

a. cash (net) realizable value.

b. face value.

c. gross realizable value.

d. maturity value.