Ch. 7 & 13 exam material

Question 1

Journal Entries for Compensating Absences

Answer 1

Dr: Wages expense
Cr: Sick wages payable
Cr: Vacay Wages Paybale

then after absences have been used….

Dr: Sick Wages payable
Dr: Vacay wages payable
Dr: Wages expense (what is leftover from previous yr)
Cr: cash

Question 2

Journal Entry to recognize bad debt expense

Answer 2

Dr: bad debt expense

Cr: ADA

Question 3

Journal Entry to recognize an account being written off

Answer 3

Dr: ADA

Cr: A/R

Question 4

Journal Entry to recognize the recovery of an uncollectible account that was previously written off (hint: 2 entries must be made)

Answer 4

to reverse previous journal entry
Dr: A/R
Cr: ADA

Dr: cash
Cr: A/R

Question 5

accounts receivable has a normal ______ balance

and

allowance for doubtful accounts has a normal _____ balance

Answer 5

debit

and

credit

Question 6

how to calculate the percentage of estimates uncollectible amount of accounts receivable?

Answer 6

= accounts receivable end balance
____________________________
allowance for doubtful accounts end balance

Question 7

Net Method of recording sales on credit does not record __________.

Answer 7

sales discounts, only records sales discounts forfeited

Question 8

Net Method (original journal entry and entry w/ discount)

Answer 8

Dr: A/R
Cr: Sales Revenue

with discount
Dr: cash
Cr: A/R

Question 9

Net Method (original journal entry and entry w/o discount)

Answer 9

Dr: A/R
Cr: Sales Revenue

without discount
Dr: cash
Cr: A/R
Cr: Sales Discounts forfeited

Question 10

Gross Method of recording sales on credit does record ________.

Answer 10

sales discounts

Question 11

Gross Method (original journal entry and entry w/ discount)

Answer 11

Dr: A/R
Cr: Sales Revenue

with discount
Dr: cash
Dr: sales discount
Cr: A/R

Question 12

Gross Method (original journal entry and entry w/o discount)

Answer 12

Dr: A/R
Cr: Sales Revenue

without discount
Dr: cash
Cr: A/R

Question 13

Do you record gain contingencies on the F/S?

Answer 13

no, and you only disclose them in the notes if there’s a high probability it will happen.

Question 14

Loss Contingencies if reasonably possible should be recorded how on the F/S?

Answer 14

They are disclosed only in the footnotes and if an estimated range is known…can be detailed as well.

Question 15

Loss Contingencies if probable should be recorded how on the F/S? (estimated range is given or an exact number)

If probable, but no reasonable estimate of amount?

Answer 15

Accrue loss by charging expense and by recognizing liability. The lower of the range is the number to record if not specified and the range should be disclosed in notes.

It is treated like a reasonably possible loss contingency. Footnote disclosure of the nature of contingency.

Question 16

Disposition of Receivables: sale with recourse

what are the journal entries

Answer 16

Dr: cash
Dr: loss (factor amount-cash + FV)
Cr: A/R (full factor amount)
Cr: Recourse liability (same as FV)

Question 17

Disposition of Receivables: sale without recourse

what are the journal entries

Answer 17

Dr: cash
Dr: due from factor (amount retained)
Dr: loss on sale of receivables (finance charge)
Cr: A/R or Note Receivable (full amount factored)

Question 18

Disposition of Receivables : secured borrowing

Answer 18

Dr: cash
Dr: interest expense (assigned amount x finance charge)
Cr: Notes Payable (amount of note)

Question 19

Journal Entries in company’s books to adjust book balance to correct cash balance

Answer 19

a.) Bank Credits and collections
Dr: Cash
     Cr: interest revenue or receivables
b.) Bank charges
Dr: office expense or receivables for NSF check 
  Cr: cash
c.) book errors
*errors that understate*
Dr: cash 
    Cr: appropriate account that corresponds to transaction

errors that overstate
Dr: appropriate account that corresponds to transaction
Cr: cash

Question 20

Assurance- Type/ Manufacturer’s Warranties

Normal Journal Entries

Answer 20

initial entry
Dr: cash (or A/R)
Cr: Sales revenue

As occurs….
Dr: warranty expense
Cr: inventory

calculate total estimated warranty liability

Dr: warranty expense
Cr: warranty liability

Question 21

Assurance-Type/ Manufactuer’s Warranties

Journal Entry if the warranty liability was overestimated and not all of it was used

Answer 21

Dr: warranty liability

Cr: warranty expense

Question 22

Assurance-Type/ Manufacturer’s Warranties

Journal Entry if the warranty liability was understated and more warranties were used than the estimated amount

Answer 22

Dr: warranty liability (for full initial estimated amount)
Dr: warranty expense (extra amount of warranties added)
Cr: inventory

Question 23

Service-Type/Extended Warranties

Normal Journal Entries

Answer 23

initial entry on day bought by customers
Dr: cash
Cr: Unearned Warranty Revenue

GO INTO EFFECT AFTER ASSURANCE WARRANTY ENDS

recognized on a straight line basis (total amount/length of warranty coverage x # of months)

Dr: unearned warranty revenue
Cr: warranty revenue

When “ACTUAL” warranty costs are incurred….
Dr: warranty expense
Cr: inventory

Question 24

Do you recognize estimated warranty expenses under extended/service type warranties?

Answer 24

NO

Question 25

Journal Entries for Sales Returns & Allowances a. ) the initial sale b. ) make allowance to initial sale c. ) add additional allowances to previous allowance entry

Answer 25

``` a.) Dr: A/R Cr: Sales Revenue b.) Dr: Sales Returns & Allowances Cr: A/R c.) Dr: Sales Returns & Allowances Cr: Allowance for Sales Returns & Allowances ```

Question 26

Journal Entries for Notes Receivable Recognition initial entry recognizing interest accruing final entry

Answer 26

Dr: note receivable Cr: Cash Cr: Discount on note *This entry continues on until interest is all paid off*---> Dr: discount on note Cr: interest revenue (CV x interest rate) Dr: cash Cr: Note Receivable

Question 27

How to calculate the net realizable value of accounts receivable?

Answer 27

= end balance of A/R - end balance of ADA