Dominican University Department of Accounting Accounting 310 Mr. Pollastrini Exam I Fall, 2009 Problem I II III Total I.

book balances for cash to a corrected balance and monthly reconciliations of the bank and book balances for cash receipts and disbursements to a corrected balance. The bank records all increases in the bank account as receipts and all decreases in the bank account as disbursements. Dishonored checks are recorded on the books as reductions in cash receipts--and when later redeposited as regular cash receipts. In preparing the October 31 reconciliations, the following information is available: 1. 2. 3. 4. 5. 6. 7. 8. Cash balance per the bank statement on September 30 was $101,000; cash balance per the books before the September reconciliation was prepared was $93,520. October cash receipts per the bank statement were $313,225; October cash receipts per the books were $308,585. October cash disbursements per the bank statement were $310,025; October cash disbursements per the books were $306,605. Deposits in transit were $9,200 on September 30 and $11,100 on October 31. Bank service charges were $80 for September and $75 for October. Outstanding checks were $17,300 on September 30 and $16,400 on October 31. NSF checks were returned with the September bank statement in the amount of $490 and with the October bank statement in the amount of $525. The bank collected a note for the Gold Company during October in Possible Points 40 20 _40 100 Name__ __Solution_____

Actual Points

The Gold Company prepares monthly reconciliations of the bank and

9. 10. 11. 12. 13.

the amount of $2,700. The face of the note was $2,500. A check received on account during September for $5,400 was recorded on the books as $4,500. A check written during October for $3,200 was recorded on the books as $3,700. The check was in payment for merchandise purchased on account. The bank credited a September deposit of $8,700 to the Gold Company's account for $7,000. The bank corrected the error in October. A check written by another customer of the bank was debited to the Gold Company's account during October for $2,500. The bank corrected the error in October. Interest on the Gold Company's money market fund is mailed directly to the bank by the Gold Company's mutual fund. Interest was $750 for September and $800 for October.

1.

Required: 1. Prepare a four column bank reconciliation as of October 31. 2. Prepare any necessary entries on the books of the Gold Company on October 31. 3. Determine the amount of cash to appear on the balance sheet on October 31. Oct. Oct. _ 9/30_ _ Rec._ _Disb._ _10/31_ Balance per bank 101,000 313,225 310,025 104,200 Deposit in transit-Sept. 9,200 ( 9,200) Deposit in transit-Oct. 11,100 11,100 Outstanding checks-Sept. ( 17,300) ( 17,300) Outstanding checks-Oct. 16,400 ( 16,400) Sept. deposit error 1,700 ( 1,700) Oct. check error ( 2,500) ( 2,500) NSF checks-Oct. _ _ ( 525) ( 525) _ _ 94,600 310,400 306,100 98,900 Balance per books Service charges-Sept. Service charges-Oct. NSF checks-Sept. NSF checks-Oct. Note collection Sept. receipt error Oct. check error Interest income-Sept. Interest income-Oct. ( ( 93,520 80) 490) ( 900 _ 750 _ 94,600 ( ( 308,585 ( 490 525) 2,700 900) ( 750) _ 800 310,400 500) _ 306,100 75 75 306,605 80) 75 95,500 ( ( 75) 525) 2,700 500 800 98,900

2.

Service Charge Expense Cash

Accounts Receivable Cash Cash Notes Receivable Interest Income Cash Accounts Payable Cash Interest Income 3. II. 98,900

525 525 2,700 2,500 200 500 500 800 800

On September 1, 2009 the Gray Company sold accounts receivable amounting to $900,000 to the White Company on a notification basis without recourse. The White Company assesses a finance charge of 7% of the total accounts receivable factored and retains an amount equal to 2% of the total accounts receivable factored to cover cash discounts, returns, and allowances. During September the White Company collected accounts receivable in the amount of $550,000 less cash discounts of $5,000 and allowances of $9,500 for returned merchandise. During October the White Company collected accounts receivable in the amount of $350,000 less a $25,000 account which was written off as uncollectible. During October the Gray Company and the White Company made final settlement under the factoring agreement. Required: 1. Prepare the necessary entries on the books of the Gray Company to record the above information. 2. Prepare the necessary entries on the books of the White Company to record the above information.

1. Cash 819,000 Loss on Sale of Receivables (7% x 900,000) Due from White (2% x 900,000) Accounts Receivable Sales Discount Sales Returns and Allowances Due from White Cash

63,000 18,000 900,000 5,000 9,500 14,500 3,500

Due from White (18,000 5,000 9,500) 2. Accounts Receivable Finance Revenue Due to Gray Cash Cash Due to Gray Accounts Receivable Cash Allowance for Uncollectible Accounts Accounts Receivable Due to Gray Cash III. 900,000

3,500

63,000 18,000 819,000 535,500 14,500 550,000 325,000 25,000 350,000 3,500 3,500

On January 1, 2009 the Silver Company sold land costing $275,000 for a $50,000 downpayment and a $350,000, three-year, 6% note. The accrued interest on the note was to be paid on December 31 of 2009, 2010, and 2011, and the face of the note was to be repaid in full on December 31, 2011. The prevailing rate of interest for similar loans is 11%.

1.

Required: 1. Prepare the necessary entry to record the sale of the land. 2. Prepare the necessary entries for the note on December 31 of 2009, 2010, and 2011. Cash 50,000 Notes Receivable 350,000 Discount on Notes Receivable 42,765 (350,000 21,000 x 2.62432 350,000 x .73119) Land 275,000 Gain on Sale of Land 82,235 2009: Cash Interest Income Discount on Notes Receivable Interest Income (33,796 21,000) 2010: Cash Interest Income 21,000 21,000 12,796 12,796

2.

21,000 21,000

Discount on Notes Receivable Interest Income (35,203 21,000) 2011: Cash Interest Income Notes Receivable Discount on Notes Receivable Interest Income (36,766 21,000) Amortization Schedules: Face Interest (6%): Beginning _ Year _ _Balance_ 2009 350,000 2010 350,000 2011 350,000

14,203 14,203

371,000 21,000 350,000 15,766 15,766

+ + +

_Interest 21,000 21,000 21,000

_Payment_ 21,000 21,000 371,000

= = =

Ending _Balance_ 350,000 350,000 ---

Interest Income 2009 = 6% x 350,000 = 21,000 Interest Income 2010 = 6% x 350,000 = 21,000 Interest Income 2011 = 6% x 350,000 = 21,000 Market Interest (11%): _ Year _ 2009 2010 2011 Beginning _Balance_ 307,235 320,031 334,234 + + + _Interest 33,796 35,203 36,766 _Payment_ 21,000 21,000 371,000 = = = Ending _Balance_ 320,031 334,234 ---

Interest Income 2009 = 11% x 307,235 = 33,796 Interest Income 2010 = 11% x 320,031 = 35,203 Interest Income 2011 = 11% x 334,234 = 36,766

Dominican University Department of Accounting Accounting 310 Mr. Pollastrini Exam I Fall, 2008 Problem I II III Total Possible Points 40 20 _40 100 Name__ __Solution_____

Actual Points

I.

The Green Company prepares monthly reconciliations of the bank and book balances for cash to a corrected balance and monthly reconciliations of the bank and book balances for cash receipts and disbursements to a corrected balance. The bank records all increases in the bank account as receipts and all decreases in the bank account as disbursements. Dishonored checks are recorded on the books as a reduction of cash receipts--and when later redeposited as a regular cash receipt. In preparing the October 31 reconciliations, the following information is available: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Cash balance per the bank statement on September 30 was $260,850; cash balance per the books before the September reconciliation was prepared was $252,500. October cash receipts per the bank statement were $484,200; October cash receipts per the books were $482,800. October cash disbursements per the bank statement were $516,100; October cash disbursements per the books were $510,000. Deposits in transit were $5,000 on September 30 and $6,500 on October 31. Bank service charges were $250 for September and $300 for October. Outstanding checks were $11,000 on September 30 and $9,500 on October 31. NSF checks were returned with the September bank statement in the amount of $700 and with the October bank statement in the amount of $950. The bank collected a note for the Green Company during October in the amount of $3,100. The face of the note was $3,000. A check written during September for $600 was recorded on the books as $500. The check was in payment for merchandise purchased on account. A check received on account during September for $8,600 was recorded on the books as $6,800. The bank credited the Green Company's account in September with a $3,500 deposit made by another bank customer. The bank corrected the error in October. The bank credited an October deposit of $8,900 to the Green Company's account for $9,800. Interest on a loan the Green Company has with the bank is deducted directly from its account each month by the bank. Interest was $1,900 for September and $2,100 for October.

Required: 1. Prepare a four column bank reconciliation as of October 31. 2. Prepare any necessary entries on the books of the Green Company on October 31. 3. Determine the amount of cash to appear on the balance sheet on October 31.

1. Balance per bank Deposit in transit-Sept. Deposit in transit-Oct. Outstanding checks-Sept. Outstanding checks-Oct. Sept. deposit error Oct. deposit error NSF checks-Oct. Balance per books Service charges-Sept. Service charges-Oct. NSF checks-Sept. NSF checks-Oct. Note collection Sept. check error Sept. receipt error Interest expense-Sept. Interest expense-Oct. 2. Service Charge Expense Cash Accounts Receivable Cash Cash Notes Receivable Interest Income Interest Expense Cash 3. 225,050 _ 9/30_ 260,850 5,000 ( 11,000) ( 3,500) _ _ 251,350 ( ( ( 252,500 250) 700)

Oct. _ Rec._ 484,200 ( 5,000) 6,500

Oct. _Disb._ 516,100 ( 11,000) 9,500 ( 3,500)

_10/31_ 228,950 6,500 ( ( 9,500) 900) _ _ 225,050 225,300 ( ( 300) 950) 3,100

( (

900) 950) 483,850

950) 510,150

482,800 ( ( 700 950) 3,100 ( ( 1,800) ( _ _ 483,850

510,000 250) 300

100) 1,800 ( 1,900) _ _ 251,350

100) 1,900) _ 2,100 510,150 300 300 950 950 3,100 3,000 100 2,100 2,100 ( 2,100) 225,050

II.

On May 1, 2008 the White Company sold accounts receivable amounting to $350,000 to the Blue Company on a notification basis with recourse. The Blue Company assesses a finance charge of 6% of the total accounts receivable factored and retains an amount equal to 2% of the total accounts receivable to cover cash discounts, returns, allowances, and uncollectibles. During May the Blue Company collected accounts receivable in the amount of $225,000 less cash discounts of $2,500 and allowances of $1,000 for returned merchandise. During June the Blue Company collected accounts receivable in the amount of $125,000 less a $3,000 account which was written off as uncollectible. During July the Blue Company and the White Company made final settlement under the factoring agreement. The recourse obligation had a fair value of $2,800 on May 1, 2008. Required: 1. Prepare the necessary entries on the books of the White Company to record the above information. 2. Prepare the necessary entries on the books of the Blue Company to record the above information.

1.

Cash Loss on Sale of Receivables (6% x 350,000 + 2,800) Due from Blue (2% x 350,000) Accounts Receivable Recourse Liability Sales Discount Sales Returns and Allowances Due from Blue Recourse Liability Due from Blue Cash Due from Blue (7,000 2,500 1,000 3,000) Loss on Sale of Receivables Recourse Liability (2,800 3,000)

322,000 23,800 7,000 350,000 2,800 2,500 1,000 3,500 3,000 3,000 500 500 200 200 350,000 21,000 7,000 322,000 221,500 3,500 225,000 122,000 3,000 125,000 500 500

2.

Accounts Receivable Finance Revenue Due to White Cash Cash Due to White Accounts Receivable Cash Due to White Accounts Receivable Due to White Cash

III.

On January 1, 2008 the Blue Company sold land costing $225,000 for a $45,000 downpayment and a $223,817, three-year, 10% note. The note was to be repaid in three annual installments of $90,000 on December 31 of 2008, 2009, and 2010. On January 1, 2008 the Blue Company sold equipment costing $475,000 for a $75,000 downpayment and a three-year, noninterest-bearing note for $600,000. The note was to be repaid in full on Deceber 31, 2010. The prevailing rate of interest for similar loans is 10%. Required: 1. Prepare the necessary entries to record the sale of the land and the sale of the equipment. 2. Prepare the necessary entries for the notes on December 31 of 2008, 2009, 2010.

1.

Cash Notes Receivable Land Gain on Sale of Land Cash Notes Receivable Discount on Notes Receivable (600,000 600,000 x .75131) Equipment Gain on Sale of Equipment

45,000 223,817 225,000 43,817 75,000 600,000 149,214 475,000 50,786

2.

Interest-bearing Note: 2008: Cash Interest Income Notes Receivable 2009: Cash Interest Income Notes Receivable 2010: Cash Interest Receivable Notes receivable Noninterest-bearing Note: 2008: Discount on Notes Receivable Interest Income 2009: Discount on Notes Receivable Interest Income 2010: Cash Notes Receivable Discount on Notes Receivable Interest Income

90,000 22,382 67,618 90,000 15,620 74,380 90,000 8,182 81,818

45,079 45,466 49,587 49,587 600,000 600,000 54,545 54,545

Amortization Schedules: Interest-bearing Note: Beginning _ Year _ _Balance_ 2008 223,817 2009 156,199 2010 81,819

+ + +

_Interest 22,382 15,620 8,182

_Payment_ 90,000 90,000 90,000

= = =

Ending _Balance_ 156,199 81,819 1

Interest Income 2008 = 10% x 223,817 = 22,382 Interest Income 2009 = 10% x 156,199 = 15,620 Interest Income 2010 = 10% x 81,819 = 8,182 Noninterest-bearing Note: Beginning _ Year _ _Balance_ 2008 450,786 2009 495,865 2010 545,452 Ending _Balance_ 495,865 545,452 ( 3)

+ + +

_Interest 45,079 49,587 54,545

_Payment_ ----600,000

= = =

Interest Income 2008 = 10% x 450,786 = 45,079 Interest Income 2009 = 10% x 495,865 = 49,587 Interest Income 2010 = 10% x 545,452 = 54,545

Dominican University Department of Accounting Accounting 310 Mr. Pollastrini Exam I Fall, 2007 Problem I II III Total Possible Points 40 30 _30 100 Name_ ___Solution_____

Actual Points

I.

The Brown Company prepares monthly reconciliations of the bank and book balances for cash to a corrected balance and monthly reconciliations of the bank and book balances for cash receipts and disbursements to a corrected balance. The bank records all increases in the bank account as receipts and all decreases in the bank account as disbursements. Dishonored checks are recorded on the books as reductions in cash receipts--and when later redeposited as regular cash receipts. In preparing the October 31 reconciliations, the following information is available: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Cash balance per the bank statement on September 30 was $205,100; cash balance per the books before the September reconciliation was prepared was $195,990. October cash receipts per the bank statement were $684,835; October cash receipts per the books were $688,470. October cash disbursements per the bank statement were $666,135; October cash disbursements per the books were $665,415. Deposits in transit were $21,000 on September 30 and $23,700 on October 31. Bank service charges were $225 for September and $210 for October. Outstanding checks were $31,400 on September 30 and $32,300 on October 31. NSF checks were returned with the September bank statement in the amount of $545 and with the October bank statement in the amount of $635. The bank collected a note for the Brown Company during September in the amount of $3,180. The face of the note was $3,000. A check written during October for $4,000 was recorded on the books as 5,000. The check was in payment for merchandise purchased on account. A check received on account during October for $4,500 was recorded on the books as $5,400. The bank debited the Brown Company's account during September with a $300 check written by another bank customer. The bank corrected the error in October. The bank credited the Brown Company's account during October with a $2,300 deposit made by another bank customer. The bank corrected the error during October. Interest on a loan the Brown Company has with the bank is deducted directly from its account each month by the bank. Interest was $3,400 for September and $3,100 for October.

Required: 1. Prepare a four-column bank reconciliation as of October 31. 2. Prepare any necessary entries on the books of the Brown Company on October 31. 3. Determine the amount of cash to appear on the balance sheet on October 31.

1. Balance per bank Deposit in transit-Sept. Deposit in transit-Oct. Outstanding checks-Sept. Outstanding checks-Oct. Sept. check error Oct. deposit error NSF checks-Oct. Balance per books Service charges-Sept. Service charges-Oct. NSF checks-Sept. NSF checks-Oct. Note collection Oct. check error Oct. receipt error Interest expense-Sept. Interest expense-Oct. 2. Service Charge Expense Cash Accounts Receivable Cash Cash Accounts Payable Accounts Receivable Cash Interest Expense Cash 3. 215,200 _ 9/30_ 205,100 21,000 ( 31,400) 300 _ _ 195,000 ( ( 195,990 225) 545) 3,180 ( 3,400) _ _ 195,000

Oct. _ Rec._ 684,835 ( 21,000) 23,700 ( ( ( 300) 2,300) 635) 684,300

Oct. _Disb._ 666,135 ( 31,400) 32,300 ( ( 2,300) 635) 664,100

_10/31_ 223,800 23,700 ( 32,300) _ _ 215,200 219,045 ( ( 210) 635) 1,000 900)

688,470 ( ( ( ( 545 635) 3,180) ( 900) ( _ _ 684,300

665,415 225) 210

1,000) ( 3,400) _ 3,100 664,100 210

( 3,100) 215,200 210

635 635 1,000 1,000 900 900 3,100 3,100

II.

On August 1, 2007 the Green Company assigned accounts receivable amounting to $600,000 to the Brown Company. The Brown Company advanced to the Green Company 75% of the assigned accounts receivable less a finance charge of 2% of the assigned accounts receivable in return for the Green Company's $450,000 note. The Brown Company charges interest of .8% per month on the beginning balance of the note. The Green Company remits to the Blue Company at the end of each month the total collections on the assigned accounts receivable for the month. During August assigned accounts receivable in the amount of $80,000 were collected less cash discounts of $1,400; in addition, credit in the amount of $10,000 was granted on assigned accounts receivable for returned merchandise. During September assigned accounts receivable in the amount of $178,000 were collected. During October the remaining assigned accounts receivable were collected with the exception of $15,000 of assigned accounts receivable which were written off as uncollectible. Required: 1. Prepare the necessary entries on the books of the Green Company to record the above information. 2. Prepare the necessary entries on the books of the Brown Company to record the above information.

1.

Cash Finance Expense (2% x 600,000) Notes Payable Cash Sales Discount Sales Returns and Allowances Accounts Receivable Interest Expense (0.8% x 450,000) Notes Payable Cash Cash Accounts Receivable Interest Expense (0.8% x 375,000) Notes Payable Cash Cash Allowance for Uncollectible Accounts Accounts Receivable Interest Expense (0.8% x 200,000) Notes Payable Cash

438,000 12,000 450,000 78,600 1,400 10,000 90,000 3,600 75,000 78,600 178,000 178,000 3,000 175,000 178,000 317,000 15,000 332,000 1,600 200,000 201,600 450,000 12,000 438,000 78,600 3,600 75,000 178,000 3,000 175,000 201,600 1,600 200,000

2.

Notes Receivable Finance Revenue Cash Cash Interest Income Notes Receivable Cash Interest Income Notes Receivable Cash Interest Income Notes Receivable

III.

On January 1, 2007 the Black Company sold land costing $90,000 for a $15,000 downpayment and a $125,000, three-year, 4% note. The note plus accrued interest was to be repaid in full on December 31, 2009. The prevailing rate of interest for similar loans is 9%. Required: 1. Prepare the necessary entry to record the sale of the land. 2. Prepare the necessary entries for the note on December 31 of 2007, 2008, and 2009.

1.

Cash Notes Receivable Discount on Notes Receivable (125,000 140,608 x .77218) Land Gain on Sale of Land 2007: Interest Receivable Interest Income Discount on Notes Receivable Interest Income (9,772 5,000) 2008: Interest Receivable Interest Income Discount on Notes Receivable Interest Income (10,651 5,408) 2009: Interest Receivable Interest Income Discount on Notes Receivable Interest Income (11,610 5,408) Cash Notes receivable Interest Receivable Amortization Schedules: Face Interest (4%): Beginning _ Year _ _Balance_ 2007 125,000 2008 130,000 2009 135,200

15,000 125,000 16,425 90,000 33,575 5,000 5,000 4,772 4,772

2.

5,200 5,200 5,451 5,451

5,408 5,408 6,202 6,202 140,608 125,000 15,608

+ + +

_Interest 5,000 5,200 5,408

_Payment_ ----140,608

= = =

Ending _Balance_ 130,000 135,200 ---

Interest Income 2007 = 4% x 125,000 = 5,000 Interest Income 2008 = 4% x 130,000 = 5,200 Interest Income 2009 = 4% x 135,200 = 5,408

Market Interest (9%): _ Year _ 2007 2008 2009 Beginning _Balance_ 108,575 118,347 128,998 + + + _Interest 9,772 10,651 11,610 _Payment_ ----140,608 = = = Ending _Balance_ 118,347 128,998 ---

Interest Income 2007 = 9% x 108,575 = 9,772 Interest Income 2008 = 9% x 118,347 = 10,651 Interest Income 2009 = 9% x 128,998 = 11,610