Introduction to Accounting Name _________________________

Instructor: Jian Xue Student ID _________________________

Quiz 3
Class 1
Friday, November 6

Instructions:
1. Write your name and student ID in the space provided above.
2. This is a closed-book, closed-note quiz. You must work independently on the quiz.
3. There are 3 essay questions. For questions requiring calculation, you need to provide
details for each step of calculation to earn the full mark. Make sure to use clear
notations to indicate which amount is being calculated (e.g., “Net Income = …”).
4. You have 20 minutes to finish the quiz. Please use your time wisely. Do not get hung
up on any question. Skip unclear or difficult ones and go over others first.

Good luck! :-)

Question 1 (6 points)
Xue Company, an accounting textbook retailer, is about to release its income statement
for the quarter ended September 30, 2020. The following are selected amounts from the
income statement,
For the quarter ended September 30, 2020
Net sales $770,000
Cost of goods sold 260,000
Before the release, Xue’s accountant discovered that several transactions that occurred
during the last week of September were not journalized or posted to the relevant
accounts. These omitted transactions are summarized as follows,
(a) Customer A paid the account for her prior purchase of $45,000 textbooks within the
discount period. The terms were 2/10, n/40.
(b) Customer B returned some defective textbooks and received $28,000 cash refund.
(Ignore the effect on cost of goods sold.)
(c) Customer C purchased textbooks from Xue, and charged the $170,000 sales price
on her Visa credit card. Visa charges Xue a 1 percent credit card fee. The related
cost of sales was $98,000.
Requirements:
(1) Prepare all journal entries for transactions (a) through (c).
(2) Compute the net sales after adjusting for the above transactions.
(3) Compute the post-adjustment gross profit percentage (rounded to the nearest 0.1%).
Answers to Question 1:
(1)
(a) Cash 44,100
Sales discounts 900
Accounts receivable 45,000
(b) Sales returns and allowances 28,000
Cash 28,000
(c) Accounts receivable 168,300
Credit card discount 1,700
Sales revenue 170,000
Cost of goods sold 98,000
Inventory 98,000
(1 point for each entry)
(2)
Net Sales = $770,000 - $900 - $28,000 + $170,000 - $1,700 = $909,400
(1 point)
(3)
COGS = $260,000 + $98,000 = $358,000
Gross Profit = $909,400 - $358,000 = $551,400
Gross Profit Percentage = $551,400 / $909,400 = 60.6%
(1 point)
Question 2
Haojing Corporation uses the aging of accounts receivable method to estimate the
amount of uncollectible accounts. On December 31, 2019, the aging schedule shows the
following information,
Estimated Estimated
Percentage Amount
Aged Accounts Receivable (Gross) Uncollectible Uncollectible
Not yet due $88,000 2% ?
Up to 90 days past due $65,000 4% ?
Over 90 days past due $45,000 10% ?
Total ? ?
On January 1, 2019, Haojing’s gross accounts receivable totaled $143,000, and the
Allowance for Doubtful Accounts had a debit balance of $1,200. Total write-off for the
year was $25,000. Also, Haojing made $440,000 net sales (all on credit) during the year
of 2019.
Requirements:
(1) Compute the ending balance of Allowance for Doubtful Accounts based on the
information in the aging schedule.
(2) Compute the bad debt expense that should be recognized for the year of 2019.
Prepare a journal entry to record the expense.
(3) Prepare the journal entry for the write-off.
(4) Set up a T-account for Accounts Receivable (gross) with the balance on January 1,
2019, as the beginning balance. First, find the ending balance for Accounts
Receivable (gross). Then, compute the amount of cash collections during 2019.
Show computations.
(5) Compute Haojing’s accounts receivable turnover ratio for 2019 (rounded to the
nearest 0.1).
Answers to Question 2:
(1)
Allowance for Doubtful Accounts = ($88,000 * 2%) + ($65,000 * 4%) + ($45,000 * 10%)
= $8,860
(1 point)
(2)
-$1,200 + Bad Debt Expense - $25,000 = $8,860 ⇒ Bad Debt Expense = $35,060
Bad debt expense 35,060
Allowance for doubtful accounts 35,060
(2 points)
(3)
Allowance for doubtful accounts 25,000
Accounts receivable 25,000
(1 point)
(4)
Accounts Receivable (gross)
Beg. bal. 143,000
Credit sales 440,000 360,000 Collection
25,000 Write-off
End. bal. 198,000
Accounts Receivable (ending) = $88,000 + $65,000 + $45,000 = $198,000
$143,000 + $440,000 - Collection - $25,000 = $198,000 ⇒ Collection = $360,000
(3 points)
(5)
Average Accounts Receivable (net) = ($143,000 + $1,200 + $198,000 - $8,860) / 2 =
$166,670
Accounts Receivable Turnover = $440,000 / $166,670 = 2.6
(1 point)
 Question 3 (6 points)
The following shows the bank reconciliation prepared by Guoqing Company for the
month of October to reconcile the ending bank balance with the ending book balance. On
the completed reconciliation, the correct cash balance is $37,589.
Guoqing Co.
Bank Reconciliation
For the month ended October 31, 2020
Company’s Books Bank Statement
Ending cash balance per book $37,794 Ending cash balance per bank $38,779
statement
Additions Additions
Interest paid by the bank 47 Deposit in transit 4,610
37,841 43,389
Deductions Deductions
NSF check of Haojing 170 Outstanding checks 5,800
Bank service charges 68
Error in recording payment 14
Ending correct cash balance $37,589 Ending correct cash balance $37,589
Requirements:
(1) Help Guoqing prepare the journal entries to account for the changes in cash balance
on the company’s books.
(2) Determine the direction and amount of the effect of the bank reconciliation on
Guoqing’s total assets and stockholders’ equity, respectively.
Answers to Question 3:
(1)
(a) Cash 47
Interest income 47
(b) Account receivable 170
Cash 170
(c) Bank service expense 68
Cash 68
(d) Accounts payable 14
Cash 14
(1 point for each entry)
(2)
Change in Stockholders’ Equity = $47 - $68 = -$21
Change in Total Assets = $47 - $68 - $14 = -$35
(2 points)