Questions -
Q1. An aging of a company's accounts receivable indicates that $12,000 is estimated to be uncollectible. If Allowance for Doubtful Accounts has a $3,400 debit balance, the adjustment to record bad debts for the period will require a
Credit to Bad Debts Expense for $15,400.
Debit to Bad Debts Expense for $15,400.
Credit to Allowance for Doubtful Accounts for $8,600.
Debit to Allowance for Doubtful Accounts for $15,400. "
Q2. The following items are taken from the financial statements of LBJ Company for 2010:
|
Accounts Payable
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$45,000
|
|
Accounts Recievable
|
55,000
|
|
Accumulated Depreciation
|
9,600
|
|
Bonds Payable
|
38,000
|
|
Cash
|
74,000
|
|
Common Stock
|
135,000
|
|
Cost of Goods Sold
|
34,000
|
|
Depreciation Expense
|
4,800
|
|
Dividends
|
7,000
|
|
Equipment
|
50,000
|
|
Interest Expense
|
4,500
|
|
Patents
|
19,500
|
|
Retained Earnings, January 1
|
40,000
|
|
Salaries Expense
|
20,200
|
|
Sales Revenue
|
75,500
|
|
Supplies
|
2,000
|
Instructions: Prepare an income statement and a retained earnings statement for Calidor Company.
Q3. The Oxford Company has budgeted sales revenues as follows:
|
|
Jan
|
Feb
|
Mar
|
|
Credit sales
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$240,000
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$192,000
|
$144,000
|
|
Cash sales
|
$144,000
|
$408,000
|
$312,000
|
|
Total sales
|
$384,000
|
$600,000
|
$456,000
|
Past experience indicates that 60% of the credit sales will be collected in the month of sale and the remaining 40% will be collected in the following month.
Purchases of inventory are all on credit with 60% paid in the month of purchase and 40% in the month following purchase. Budgeted inventory purchases are $520,000 in January, $360,000 in February, and $168,000 in March.
Other budgeted cash receipts: (a) sale of plant assets for $98,800 in February, and (b) sale of new common stock for $134,800 in March. Other budgeted cash disbursements: (a) operating expenses of $54,000 each month, (b) selling and administrative expenses of $100,000 each month, (c) dividends of $152,000 will be paid in February, and (d) purchase of equipment for $48,000 cash in March.
The company has a cash balance of $80,000 at the beginning of February and wishes to maintain a minimum cash balance of $80,000 at the end of each month. An open line of credit is available at the bank and carries an annual interest rate of 12%. Assume that all borrowing is done on the first day of the month in which financing is needed and that all repayments are made on the last day of the month in which excess cash is available. Also assume that there is no outstanding financing as of February 1.
Requirements: Use this information to prepare a Schedule of Expected Cash Payments for Purchases of Inventory for the months of FEBRUARY and MARCH only.
Q4. Your friend James has hired you to evaluate the following internal control procedures.
a. Explain to your friend whether each of the numbered items below is an internal control strength or weakness. You must also state which principle relates to each of the internal controls.
b. For the weaknesses, you also need to state a recommendation for improvement.
1) Everyone has access to the petty cash fund.
2) Cash register codes are assigned to each cashier.
3) The Treasurer is the only one allowed to sign checks.
4) Supervisors count cash receipts daily.
5) The Treasurer approves of the purchases and makes the payment since he is familiar with the purchases.