ACC 101 Test 3 Review Chapters 7-9 PDF

ACC 101 - WAGERS REVIEW FOR TEST THREE CHAPTERS 7 - 9 This test will consist of two large groups of multiple-choice questions, as well as THREE work problems (estimating bad debt expense and writing off/recovery of uncollectible accounts, note...

ACC 101 - WAGERS REVIEW FOR TEST THREE CHAPTERS 7 - 9 This test will consist of two large groups of multiple-choice questions, as well as THREE work problems (estimating bad debt expense and writing off/recovery of uncollectible accounts, notes receivable entries, bank reconciliation with journal entries). This test will require you to do the following:  ANSWER “GENERAL” MULTIPLE-CHOICE QUESTIONS -addressing various topics we have covered in these chapters. A larger than normal group of these!  ANSWER “NUMBER-CRUNCHING!” MULTIPLE-CHOICE QUESTIONS - where you must compute the correct answer to the question, addressing the following topics:  ESTIMATING BAD DEBT EXPENSE (discussed later on review)  COMPUTING MATURITY VALUE OF A PROMISSORY NOTE  Interest = Principal * Rate * Days / 360  Always divide by 360 – never anything else!!  Maturity value = Principal + total interest  COMPUTING NET REALIZABLE VALUE OF ACCOUNTS RECEIVABLE Total Accounts Receivable – Allowance for Doubtful Accounts = Net Realizable Value  PURCHASING AN ASSET - know the various costs that are (and ones that are not, like operating costs, vandalism, damage, etc.!) debited to the asset account  What you pay for the asset plus all reasonable and necessary costs incurred to get the asset in place and in service ACC 101 - Review for Test 3 Chapters 7 - 9 - Wagers Page 2 of 9  DISPOSING OF AN ASSET Cash (proceeds, if any) Accumulated Depreciation (to zero out) Loss on Sale (debit losses, like expenses) Asset (ORIGINAL COST: to zero out) One or other, not both! Gain on Sale (credit gains, like revenues)  Compare the PROCEEDS to the asset’s BOOK VALUE (Cost - Accumulated Depreciation) to see if you have a gain or loss  Are proceeds LESS THAN book value? Difference is a loss  Are proceeds GREATER THAN book value? Difference is a gain  RECORDING DAILY CASH SALES Cash (amount in drawer) () Cash Short and Over (for SHORTAGE) ONE of these is used, Cash Short and Over (for OVERAGE) not both in same entry! Sales (amount per register) ()  COMPUTE DEPRECIATION EXPENSE, ACCUMULATED DEPRECIATION, AND BOOK VALUE USING STRAIGHT-LINE METHOD  Depreciation per Year = Cost – Residual Estimated Useful Life in Year  If you don’t own the asset the whole year, multiply the yearly amount times the number of months you own the asset, divided by 12 months in a year  Accumulated Depreciation balance represents all the depreciation recorded on the asset during its life  Book (carrying) value = Cost – Accumulated Depreciation  ACCOUNTS RECEIVABLE TURNOVER RATIO Sales Average Accounts Receivable (i.e., beginning plus ending divided by 2)  DAYS’ CASH ON HAND Cash + Short Term Investments Daily Cash Expenses (i.e., yearly cash expenses, which exclude depreciation, divided by 365)  PROBLEM: ALLOWANCE METHOD OF UNCOLLECTIBLE ACCOUNTS  ADJUSTING ENTRY Bad Debt Expense () Allowance for Doubtful Accounts ()  CALCULATING THE AMOUNT FOR THE ADJUSTING ENTRY  Compute the DESIRED ENDING BALANCE (target) for the Allowance account by aging  Multiply amount in each category times the percent estimated to be uncollectible ACC 101 - Review for Test 3 Chapters 7 - 9 - Wagers Page 3 of 9  Add up all these amounts to determine the desired ending balance in the Allowance account  Draw a T-Account for the Allowance account (record the current balance AND the target) then WORK BACKWARDS to figure the EXPENSE needed!  You MUST CONSIDER existing balance in the Allowance account  RECORDING JOURNAL ENTRIES TO WRITE-OFF AN UNCOLLECTIBLE ACCOUNT AND RECORD THE RECOVERY OF AN ACCOUNT PREVIOUSLY WRITTEN OFF  Write-off of an uncollectible account Allowance for Doubtful Accounts () Accounts Receivable ()  Recovery of previously written-off account - TWO ENTRIES Accounts Receivable () Allowance for Doubtful Accounts () Cash () Accounts Receivable () ACC 101 - Review for Test 3 Chapters 7 - 9 - Wagers Page 4 of 9  PROBLEM: RECORD JOURNAL ENTRIES FOR A NOTE RECEIVABLE (TWO notes – one that matures in the SAME period it is issued, and another that is issued one period and matures the NEXT period, so you will be required to make an adjusting entry for the interest!)  Formula to compute INTEREST = Principal * Rate * Days / 360 Please DON’T forget to multiply by the # days / 360 – students forget this often and then they get the wrong answer!! And never divide by any number other than 360!!  Journal entries: for note that DOESN’T CROSS OVER YEAR-END  To record receiving the note Notes Receivable () (amount = principal) Accounts Receivable (), Cash (), Sales (), etc.  To record the receipt of payment at maturity Cash () (amount = maturity value: principal + total interest) Note Receivable () (amount = principal) Interest Income () (amount = earned this period)  To record maturity of note if note maker does NOT pay at maturity Accounts Receivable () Note Receivable () credits are the same as if we Interest Income () were paid! ACC 101 - Review for Test 3 Chapters 7 - 9 - Wagers Page 5 of 9  Journal entries: for note that DOES CROSS OVER YEAR-END  To record receiving the note Notes Receivable () (amount = principal) Accounts Receivable (), Cash (), Sales (), etc.  Adjusting journal entry to accrue interest (amount = interest earned from date we received the note through the end of the accounting period when we are making the adjusting entry) Interest Receivable () Interest Income ()  To record the receipt of payment at maturity Cash () (amount = maturity value: principal + total interest) Note Receivable () (amount = principal) Interest Receivable () (amount = accrued last period) Interest Inco me () (amount = earned this period, NOT last period)  To record maturity of note if note maker does NOT pay at maturity Accounts Receivable () Note Receivable () Interest Receivable () credits are the same as if we Interest Income () were paid!  Remember, every time you debit/credit Notes Receivable it MUST BE for the PRINCIPAL amount ONLY (never any interest)!!  You only credit Interest Receivable (at maturity) IF the note was issued one period and matured in the next period, so you had to make an adjusting entry.  If the note matures in the same period it was issued, you DON’T credit Interest Receivable at maturity ACC 101 - Review for Test 3 Chapters 7 - 9 - Wagers Page 6 of 9  PROBLEM: PREPARE BANK RECONCILIATION AND THE RELATED JOURNAL ENTRIES -- I will give you a BLANK form for the reconciliation (no titles, headings, etc.) and the relevant data, and you must prepare the reconciliation in good form. You will NOT have to determine amount of outstanding checks or deposits in transit - I will give you these amounts. Use good form – remember there are two parts – “bank” part and “books” part, and be sure to write “words” on the left to tell what the “numbers” on the right are for! Some students do only either the “bank” part or the “books” part – which means that they lose lots of points, because you MUST do BOTH the “bank” AND the “books” part!  Who do we make the adjustment to? Whoever is WRONG regarding an item  Typical adjustments to the BOOKS - interest earned (add), collection of note receivable (add), service charge (subtract), NSF check (subtract), book errors  Typical adjustments to the BANK - deposits in transit (add), outstanding checks (subtract), bank errors ACC 101 - Review for Test 3 Chapters 7 - 9 - Wagers Page 7 of 9  Format of bank reconciliation Books Balance per the Books Add: Interest Earned Note Receivable/Interest Collected by Bank Errors the company made that understate the book balance Subtract: Bank service charges NSF checks Errors the company made that overstate the book balance Equals: Adjusted Balance per Books Bank Balance per Bank Add: Deposits in Transit Errors the bank made that understate the bank balance Subtract: Outstanding Checks Errors the bank made that overstate the bank balance Equals: Adjusted Balance per Bank  Journal entries must be recorded for all adjustments to the BOOKS (but NOT for any adjustments to the BANK!)  Adjustments ADDED to the Book Balance - DEBIT Cash in the entry  Common credits include Interest Income, Notes Receivable  Adjustments SUBTRACTED from the Book Balance - CREDIT Cash in the entry  Common debits include Bank Charge Expense, Accounts Receivable (for NSF checks)  Be sure to use “good” account titles for these entries, like we learned in Chapter 2!  What do we debit for a check that we deposited from a customer that “bounced” (a NSF check?) Accounts Receivable, because we will try to collect that money from them still! ACC 101 - Review for Test 3 Chapters 7 - 9 - Wagers Page 8 of 9  What do we debit (or credit) for errors we made in recording transactions (deposits or checks) on our books? Whatever account was in error when we made the original entry (so if the original erroneous entry involved, for example, Repairs Expense, then the entry to correct it would also involve Repairs Expense!) Write down the original erroneous journal entry to help you figure out the correcting entry needed! The key to doing well on this test is PRACTICE, PRACTICE, and PRACTICE!! EXTRA PRACTICE PROBLEMS (WITH SOLUTIONS) ARE GIVEN IN CONTENT IN D2L – YOU ABSOLUTELY, DEFINITELY WANT TO WORK THROUGH THESE EXTRA PRACTICE PROBLEMS BEFORE YOU COME TO TAKE THE TEST!!! Some EXTRA homework problems (in addition to those that were assigned for in-class work or homework AND in addition to those given in the “Extra Practice Problems” on the web site) from your textbook that will help you assess your current level of knowledge on the certain topics are:  Bank Reconciliation Basic exercises BE 7-3 Exercises EX 7-16, 7-17, 7-18, 7-19, 7-20 Problems PR 7-3A&B, 7-4A&B, 7-5A&B  Accounts Receivable (write-off/recovery; estimating bad debt expense) Basic exercises BE 8-2, 8-4 Exercises EX 8-4, 8-5 (b only), 8-6 (b&d only), 8-8, 8-9, 8-10, 8-11, 8-12, 8-14 (b only) Problems PR 8-1A&B (1-3 only), 8-2A&B  Notes Receivable Basic exercises BE 8-5 Exercises EX 8-19, 8-20, 8-22, 8-23, 8-24 Problems PR 8-4A&B, 8-5A&B, 8-6A&B ACC 101 - Review for Test 3 Chapters 7 - 9 - Wagers Page 9 of 9  Quantitative multiple-choice questions Daily cash sales: Exercises EX 7-12, 7-13 Days Cash on Hand: MAD 7-1, 7-2, 7-3 Accounts Receivable turnover: MAD 8-1, 8-2, 8-3 Cost of asset: Exercises EX 9-1, 9-2, 9-3, Problems PR 9-1A&B Depreciation Expense: Basic exercises BE 9-1 Exercise EX 9-9 (a only), 9-10 (a only), 9-11 (a only) Disposal of fixed asset: Exercises EX 9-17, 9-18, Problems PR 9-5A&B If you can correctly work these extra exercises and problems (in addition to those on the handout) without looking back at your notes or text, you should be well prepared for the test!! Solutions to all homework can be found in D2L – check your homework and extra problems there! Remember, as you approach the test day, be sure that you can work homework problems WITHOUT having to constantly flip back to the textbook, handouts, etc. because there will be no such materials to flip back to on the test!! Study hard!! DON’T FORGET-- WHAT YOU GET OUT OF THIS COURSE DEPENDS ON WHAT YOU PUT INTO IT! SO PUT A LOT INTO PREPARING FOR THIS TEST!!