Escolar Documentos
Profissional Documentos
Cultura Documentos
No.
Description
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
*28.
*29.
*30.
MULTIPLE CHOICEConceptual
Answer
d
b
d
d
b
a
b
d
No.
Description
31.
32.
33.
P
34.
35.
36.
37.
38.
7-2
b
d
d
d
d
d
c
d
d
d
a
d
a
c
d
a
b
c
a
d
c
d
a
b
a
c
b
d
b
c
c
c
b
c
a
b
d
c
a
d
c
a
d
b
c
c
b
c
P
39.
40.
41.
42.
43.
44.
S
45.
46.
S
47.
P
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
S
70.
71.
72.
73.
74.
75.
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
S
7-3
MULTIPLE CHOICEComputational
Answer
b
d
b
c
b
c
c
b
c
a
b
d
b
a
c
c
d
c
b
b
d
c
b
a
b
b
d
b
b
d
b
a
a
b
c
c
d
a
d
d
c
a
c
c
b
b
c
c
c
No.
87
88.
89.
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
109.
110.
111.
112.
113.
114.
115.
116.
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
128.
129.
130.
131.
132.
133.
134.
135.
Description
Calculate cash balance.
Calculate effective interest on loan with required compensatory balance.
Reporting cash.
Cash and cash equivalents.
Reporting cash.
Cash and cash equivalents.
Determine effective annual interest rate of sales discount.
Calculate sales revenue using net method.
Entry for credit sale using gross method.
Entry for credit sale using net method.
Calculate accounts receivable balance.
Calculate cash realizable value of receivables.
Calculate cash realizable value of receivables.
Calculate total impairment of receivables.
Calculate total impairment of receivables.
Calculate ending allowance for doubtful accounts balance.
Calculate bad debt expense.
Calculate ending allowance for doubtful accounts balance.
Calculate balance of accounts receivable.
Calculate cash realizable value of accounts receivable.
Calculate cash realizable value of accounts receivable.
Calculate bad debt expense using aging of receivables.
Calculate bad debt expense using percent of sales.
Calculate bad debt expense using percent of receivables.
Valuation of accounts receivable.
Calculation of bad debt expense.
Calculate Allowance for Doubtful Accounts balance.
Valuation of accounts receivable.
Calculation of bad debt expense.
Calculate Allowance for Doubtful Accounts balance.
Determine appropriate interest rate for a zero-interest-bearing note.
Calculate present value of a zero-interest-bearing note.
Calculation of sales revenue.
Entry for exchange of goods for note receivable.
Calculate amount of interest.
Calculate interest revenue on a zero-interest-bearing note.
Calculate note payable amount.
Calculate gain (loss) on transfer of receivables.
Calculate gain (loss) on transfer of receivables.
Calculation of gain (loss) on transfer of receivables.
Calculate proceeds from transfer of receivables with recourse.
Record assignment of accounts receivables.
Calculate cash proceeds from transfer of receivables.
Entry to record collection of assigned receivables.
Factoring receivables without recourse.
Factoring receivables with recourse.
Calculate loss on sale of receivables.
Calculate loss on sale of receivables.
Calculate accounts receivable turnover.
7-4
No.
136.
*137.
*138.
*139.
*140.
*141.
*142
Description
Calculate accounts receivable turnover.
Entry to replenish petty cash.
Calculate correct balance in bank account.
Calculate correct cash balance.
Calculate correct cash balance.
Calculate correct cash balance.
Calculate correct cash balance.
No.
143
144
145.
146.
147.
148.
149.
150.
151.
*152.
*153.
Description
Determine current net receivables.
Calculate adjustment for bad debts.
Calculate bad debt expense.
Calculate adjustment to write off bad debts.
Effect of a write-off under the allowance method.
Determine balance in the Allowance for Doubtful Accounts.
Determine interest revenue of a zero-interest-bearing note.
Determine interest receivable at year end.
Assignment and factoring of accounts receivable.
Calculate correct cash balance.
Calculate the cash balance per books.
EXERCISES
Item
E7-154
E7-155
E7-156
E7-157
E7-158
Description
Asset classification.
Allowance for doubtful accounts.
Entries for bad debt expense.
Accounts receivable assigned.
Fair value option.
PROBLEMS
Item
P7-159
P7-160
P7-161
*P7-162
*P7-163
Description
Entries for bad debt expense.
Amortization of discount on note.
Accounts receivable assigned.
Factoring accounts receivable.
Bank reconciliation.
7-5
7-6
Type
Item
Type
Item
1.
2.
TF
TF
3.
31.
TF
MC
4.
5.
TF
TF
6.
38.
TF
MC
7.
TF
8.
TF
43.
9.
10.
11.
TF
TF
TF
46.
47.
48.
MC
MC
MC
49.
50.
51.
12.
13.
14.
15.
52.
53.
54.
TF
TF
TF
TF
MC
MC
MC
55.
56.
57.
58.
59.
60.
61.
MC
MC
MC
MC
MC
MC
MC
62.
63.
64.
65.
98.
99.
100.
16.
17.
TF
TF
66.
67.
MC
MC
117.
118.
18.
19.
20.
21.
22.
TF
TF
TF
TF
TF
23.
68.
69.
S
70.
S
71.
TF
MC
MC
MC
MC
72.
73.
74.
124.
125.
24.
25.
TF
TF
26.
27.
TF
TF
75.
76.
28.
29.
30.
TF
TF
TF
82.
83.
84.
MC
MC
MC
85.
86.
137.
Note:
S
P
32.
33.
39.
40.
TF = True-False
MC = Multiple Choice
Type
Item
Type
Item
Learning Objective 1
P
MC
34. MC
36.
MC
35. MC
37.
Learning Objective 2
MC
41. MC
88.
MC
42. MC
89.
Learning Objective 3
S
MC
44. MC
45.
Learning Objective 4
MC
93. MC
96.
MC
94. MC
97.
MC
95. MC
143.
Learning Objective 5
MC
101. MC
108.
MC
102. MC
109.
MC
103. MC
110.
MC
104. MC
111.
MC
105. MC
112.
MC
106. MC
113.
MC
107. MC
114.
Learning Objective 6
MC
119. MC
121.
MC
120. MC
122.
Learning Objective 8
MC
126. MC
131.
MC
127. MC
132.
MC
128. MC
133.
MC
129. MC
134.
MC
130. MC
151.
Learning Objective 9
P
MC
77. MC
79.
MC
78. MC
80.
Learning Objective *10
MC
138. MC
141.
MC
139. MC
142.
MC
140. MC
152.
E = Exercise
P = Problem
Type
Item
Type
Item
Type
92.
154.
MC
E
MC
MC
87.
MC
MC
MC
90.
91.
MC
MC
MC
46.
MC
MC
MC
MC
MC
MC
MC
MC
115.
116.
144.
145.
146.
147.
148.
MC
MC
MC
MC
MC
MC
MC
155.
156.
159.
E
E
P
MC
MC
123.
149.
MC
MC
150.
160.
MC
P
MC
MC
MC
MC
MC
157.
158.
161.
162.
E
E
P
P
MC
MC
81.
135.
MC
MC
136.
158.
MC
E
MC
MC
MC
153.
163.
MC
P
MC
MC
MC
7-7
TRUE-FALSEConceptual
1. Savings accounts are usually classified as cash on the statement of financial position. T
2. Certificates of deposit are usually classified as cash on the statement of financial position. F
3. Companies include postdated checks and petty cash funds as cash. F
4. Cash equivalents are investments with original maturities of six months or less. F
5. Bank overdrafts are always included as part of cash in the statement of financial position. F
6. Short-term, highly liquid investments may be included with cash on the statement of
financial position. T
7. Receivables are classified in the statement of financial position as either trade or non-trade
receivables. F
8. Trade receivables include notes receivable and advances to officers and employees. F
9. Trade discounts are used to avoid frequent changes in catalogs and to alter prices for
different quantities purchased. T
10. In the gross method, sales discounts are reported as a deduction from sales. T
11. Ideally, a company should measure receivables in terms of their present value, that is, the
discounted value of the cash to be received in the future. T
12. The International Accounting Standard Board requires that companies assess their
receivables for impairment each reporting period and begin the impairment assessment by
considering whether objective evidence indicates that one or more loss events have
occurred. T
13. The International Accounting Standard Board requires that when performing an impairment
assessment, all receivables that are individually significant should be considered for
impairment separately. T
14. The percentage-of-receivables approach of estimating uncollectible accounts emphasizes
matching over valuation of accounts receivable. F
15. The percentage-of-sales method results in a more accurate valuation of receivables on the
balance sheet. F
16. Companies record and report long-term notes receivable on a discounted basis. T
17. When the stated rate of interest exceeds the effective rate, the present value of the note
receivable will be less than its face value. F
18. When buying receivables with recourse, the purchaser assumes the risk of collectibility and
absorbs any credit loss. F
7-8
19. If substantially all the risks and rewards of ownership of the receivables are transferred,
then they are derecognised. T
20. The International Accounting Standards Board believes that historical cost for financial
instruments provides more relevant and understandable information than fair value. F
21. Under IFRS, a company may select the fair value option or amortized cost for valuing its
receivables at each statement of financial position date. F
22. Under IFRS, a company will derecognize its receivables when it elects to use the fair value
option for a receivable. F
23. Under IFRS, a company will derecognize its receivables when the contractual rights to the
cash flows of the receivable no longer exist. T
24. The receivables turnover ratio is computed by dividing net sales by the ending net
receivables. F
25. Under IFRS de-recognition of a receivable is determined by using lack of control as the
primary criterion. F
26. U.S.GAAP permits the reversal of impairment losses recorded on receivables, with the
reversal limited to the asset's amortized cost before the impairment. F
27. The International Accounting Standards Board has indicated that they believe that financial
statements would be more transparent and understandable if companies recorded and
reported all financial instruments at amortized cost. F
28. Under IFRS, the Cash Over and Short account is shown on the statement of financial
position as an addition to (over) or subtraction from (short) the cash account. F
29. The percentage-of-sales and -receivables approaches are examples of impairment testing
based on the individual assessment approach for long-term receivables. F
30. If a receivable is deemed to be individually impaired, the impairment loss is calculated as the
difference between the carrying amount (generally the principal plus accrued interest) and the
expected future cash flows discounted at the loan's historical effective-interest rate. T
Ans.
T
F
F
F
F
T
F
F
Item
9.
10.
11.
12.
13.
14.
15.
16.
Ans.
T
T
T
T
T
F
F
T
Item
17.
18.
19.
20.
21.
22.
23.
24.
Ans.
F
F
T
F
F
F
T
F
Item
25.
26.
27.
28.
29.
30.
Ans.
F
F
F
F
F
T
7-9
MULTIPLE CHOICEConceptual
31.
Which of the following is not considered cash for financial reporting purposes?
a. Petty cash funds and change funds
b. Money orders, certified checks, and personal checks
c. Coin, currency, and available funds
d. Postdated checks and I.O.U.'s
32.
33.
34.
Which of the following items should not be included in the Cash caption on the statement
of financial position
a. Coins and currency in the cash register
b. Checks from other parties presently in the cash register
c. Amounts on deposit in checking account at the bank
d. Postage stamps on hand
35.
All of the following may be included under the heading of "cash" except
a. currency.
b. money market funds.
c. checking account balance.
d. savings account balance.
36.
37.
38.
7 - 10
39.
Under which section of the statement of financial position is "cash restricted for plant
expansion" reported?
a. Current assets.
b. Non-current assets.
c. Current liabilities.
d. Equity.
40.
A cash equivalent is a short-term, highly liquid investment that is readily convertible into
known amounts of cash and
a. is acceptable as a means to pay current liabilities.
b. has a current market value that is greater than its original cost
c. bears an interest rate that is at least equal to the prime rate of interest at the date of
liquidation.
d. is so near its maturity that it presents insignificant risk of changes in interest rates.
41.
42.
43.
44.
45.
7 - 11
46.
47.
48.
49.
If a company employs the gross method of recording accounts receivable from customers,
then sales discounts taken should be reported as
a. a deduction from sales in the income statement.
b. an item of "other income and expense" in the income statement.
c. a deduction from accounts receivable in determining the net realizable value of
accounts receivable.
d. sales discounts forfeited in the cost of goods sold section of the income statement.
50.
51.
Of the approaches to record cash discounts related to accounts receivable, which is more
theoretically correct?
a. Net approach.
b. Gross approach.
c. Allowance approach.
d. All three approaches are theoretically correct.
52.
All of the following are problems associated with the valuation of accounts receivable
except for
a. uncollectible accounts.
b. returns.
c. cash discounts under the net method.
d. allowances granted.
7 - 12
53.
Why is the allowance method preferred over the direct write-off method of accounting for
bad debts?
a. Allowance method is used for tax purposes.
b. Estimates are used.
c. Determining worthless accounts under direct write-off method is difficult to do.
d. Improved matching of bad debt expense with revenue.
54.
Which of the following concepts relates to using the allowance method in accounting for
accounts receivable?
a. Bad debt expense is an estimate that is based on historical and prospective
information.
b. Bad debt expense is based on the actual amounts determined to be uncollectible.
c. Bad debt expense is an estimate that is based only on an analysis of the receivables
aging.
d. Bad debt expense is management's determination of which accounts will be sent to
the attorney for collection.
55.
How can accounting for bad debts be used for earnings management?
a. Determining which accounts to write-off.
b. Changing the percentage of sales recorded as bad debt expense.
c. Using an aging of the accounts receivable balance to determine bad debt expense.
d. Reversing previous write-offs.
56.
What is the normal journal entry for recording bad debt expense under the allowance
method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
57.
What is the normal journal entry when writing-off an account as uncollectible under the
allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
58.
Which of the following is included in the normal journal entry to record the collection of
accounts receivable previously written off when using the allowance method?
a. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.
b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.
c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.
d. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.
59.
Assuming that the ideal measure of short-term receivables in the statement of financial
position is the discounted value of the cash to be received in the future, failure to follow
this practice usually does not make the statement of financial position misleading because
a. most short-term receivables are not interest-bearing.
b. the allowance for uncollectible accounts includes a discount element.
c. the amount of the discount is not material.
d. most receivables can be sold to a bank or factor.
7 - 13
60.
Which of the following methods of determining bad debt expense does not properly match
expense and revenue?
a. Charging bad debts with a percentage of sales under the allowance method.
b. Charging bad debts with an amount derived from a percentage of accounts receivable
under the allowance method.
c. Charging bad debts with an amount derived from aging accounts receivable under the
allowance method.
d. Charging bad debts as accounts are written off as uncollectible.
61.
Which of the following methods of determining annual bad debt expense best achieves
the matching concept?
a. Percentage of sales
b. Percentage of ending accounts receivable
c. Percentage of average accounts receivable
d. Direct write-off
62.
Which of the following is a generally accepted method of determining the amount of the
adjustment to bad debt expense?
a. A percentage of sales adjusted for the balance in the allowance
b. A percentage of sales not adjusted for the balance in the allowance
c. A percentage of accounts receivable not adjusted for the balance in the allowance
d. An amount derived from aging accounts receivable and not adjusted for the balance in
the allowance
63.
The advantage of relating a company's bad debt expense to its outstanding accounts
receivable is that this approach
a. gives a reasonably correct statement of receivables in the statement of financial position.
b. best relates bad debt expense to the period of sale.
c. is the only generally accepted method for valuing accounts receivable.
d. makes estimates of uncollectible accounts unnecessary.
64.
Under IFRS, which of the following is not permitted for accounting for material amounts of
uncollectable accounts receivable?
a. Percentage of receivables, allowance method.
b. Percentage of sales, allowance method.
c. Direct write-off method.
d. All of the choices are acceptable under IFRS.
65.
Which of the following statement is incorrect regarding how the IASB requires that the
impairment assessment be performed?
a. Receivables that are individually significant should be considered for impairment
separately, if impaired, the company recognizes it.
b. Receivables that are not individually significant are assessed individually. If impaired,
the company recognizes it.
c. Any receivable individually assessed that is not considered impaired should be
included with a group of assets with similar credit-risk characteristics and collectively
assessed for impairment.
d. Any receivables not individually assessed should be collectively assessed for
impairment.
7 - 14
66.
67.
68.
69.
Which of the following is true when accounts receivable are factored without recourse?
a. The transaction may be accounted for either as a secured borrowing or as a sale,
depending upon the substance of the transaction.
b. The receivables are used as collateral for a promissory note issued to the factor by the
owner of the receivables.
c. The factor assumes the risk of collectibility and absorbs any credit losses in collecting
the receivables.
d. The financing cost (interest expense) should be recognized ratably over the collection
period of the receivables.
70.
Which of the following statements is incorrect regarding the classification of accounts and
notes receivable?
a. Segregation of the different types of receivables is required if they are material.
b. Disclose any loss contingencies that exist on the receivables.
c. Any discount or premium resulting from the determination of present value in notes
receivable transactions is an asset or liability respectively.
d. Valuation accounts should be appropriately offset against the proper receivable
accounts.
71.
Which of the following statement is incorrect when a company chooses the fair value
option for its receivables?
a. Receivables are recorded at fair value in the statement of financial position.
b. Unrealized holding gains and losses from fair value adjustments are reported as a
component of comprehensive income.
c. The International Accounting Standards Board believes that fair value measurement
for financial instruments provides more relevant and understandable information than
historical cost.
d. An unrealized holding gain or loss is the net change in the fair value of the receivable
from one period to another, exclusive of interest revenue recognized but not recorded.
7 - 15
72.
Morley Manufacturing has notes receivable that have a fair value of $810,000 and a
carrying amount of $620,000. Morley decides on December 31, 2011, to use the fair value
option for these recently-acquired receivables. Which of the following statements is
correct regarding the election of the fair value option by Morley?
a. Morley can elect to use the fair value option or amortized cost at each statement of
financial position date.
b. Morley reports the receivables at fair value, with any unrealized holding gains and
losses reported as a separate component of comprehensive income.
c. The unrealized holding gain is the difference between the fair value and the carrying
amount.
d. All of the choices are correct regarding the fair value option.
73.
Under IFRS Morley Manufacturing will derecognize its receivables in all of the following
cases except
a. When Morley elects to use the fair value option for a receivable.
b. When the contractual rights to the cash flows of the receivable no longer exist; for
example when one of Morley's customers declares bankruptcy.
c. When Morley collects a receivable when due.
d. All of the choices require Morley Manufacturing to derecognize its receivables.
74.
On December 31, 2011, Hunter Corporation has elected to use the fair value option for
one of its notes receivable. The note was accepted in late September, 2011 from a
customer who was unable to pay its accounts receivable. The transaction with the
customer had been delivery of accounting services valued at 25,000. The customer
made a partial payment, resulting in a carrying value for the note of 22,000. At year-end,
Hunter Corporation estimates the fair value of the note to be 17,500. Which of the
following is incorrect regarding this note?
a. Hunter will report the note on its statement of financial position at 17,500.
b. Hunter will report an unrealized loss of 7,500 in its income statement for the year
ended December 31, 2011.
c. Hunter will be required to use the fair value option for this note for the duration of its
existence.
d. In 2012, Hunter will calculate the unrealized holding gain or loss as the net change in
the fair value of the receivable from 2011 to 2012, exclusive of interest revenue
recognized but not recorded.
75.
76.
Which of the following is correct regarding differences between IFRS and U.S.GAAP with
regard to receivables?
a. Under IFRS de-recognition of a receivable is determined by using lack of control as
the primary criterion.
b. U.S.GAAP permits the reversal of impairment losses, with the reversal limited to the
asset's amortized cost before the impairment.
c. Under IFRS the fair value option is subject to certain qualifying criteria not in
U.S.GAAP.
d. All of the choices are differences between IFRS and U.S.GAAP for receivables.
7 - 16
P
77.
78.
79.
Which of the following items should be included in accounts receivable reported on the
statement of financial position?
a. Notes receivable.
b. Interest receivable.
c. Allowance for doubtful accounts.
d. Advances to related parties and officers.
80.
81.
What is a possible reason for accounts receivable turnover to increase from one year to
the next year
a. Decreased credit sales during a recession.
b. Write-off uncollectible receivables.
c. Granting credit to customers with lower credit quality.
d. Improved collection process.
*82.
Which of the following is an appropriate reconciling item to the balance per bank in a
bank reconciliation?
a. Bank service charge.
b. Deposit in transit.
c. Bank interest.
d. Chargeback for NSF check.
*83.
*84.
*85.
*86.
7 - 17
31.
32.
33.
P
34.
35.
36.
37.
38.
39.
Ans.
d
b
d
d
b
a
b
d
b
Item
S
40.
41.
42.
43.
44.
S
45.
S
46.
P
47.
48.
Ans.
d
d
d
d
d
c
d
d
d
Item
49.
50.
51.
52.
53.
54.
55.
56.
57.
Ans.
a
d
a
c
d
a
b
c
a
Item
58.
59.
60.
61.
62.
63.
64.
65.
66.
Ans.
d
c
d
a
b
a
c
b
d
Item
67.
68.
69.
70.
71.
72.
73.
74.
75.
Ans.
Item
Ans.
Item
Ans.
B
C
C
c
b
c
a
b
d
76.
77.
78.
79.
80.
81.
*82.
*83.
*84.
c
a
d
c
a
d
b
c
c
*85.
*86.
b
c
Solutions to those Multiple Choice questions for which the answer is none of these.
33. As receivables.
42. Many answers are possible.
43. Open accounts resulting from short-term extensions of credit to customers.
44. Open accounts resulting from short-term extensions of credit to customers.
66. Overstate, understate, understate, zero.
7 - 18
MULTIPLE CHOICEComputational
87.
Consider the following: Cash in Bank checking account of $13,500, Cash on hand of
$500, Post-dated checks received totaling $3,500, and Certificates of deposit totaling
$124,000. How much should be reported as cash in the statement of financial position?
a. $ 13,500.
b. $ 14,000.
c. $ 17,500.
d. $131,500.
88.
On January 1, 2010, Lynn Company borrows $2,000,000 from National Bank at 11%
annual interest. In addition, Lynn is required to keep a compensatory balance of $200,000
on deposit at National Bank which will earn interest at 5%. The effective interest that Lynn
pays on its $2,000,000 loan is
a. 10.0%.
b. 11.0%.
c. 11.5%.
d. 11.6%.
89.
Kennison Company has cash in bank of $10,000, restricted cash in a separate account of
$3,000, and a bank overdraft in an account at another bank of $1,000. Kennison should
report cash of
a. $9,000.
b. $10,000.
c. $12,000.
d. $13,000.
90.
$20,000
300
5,500
1,400
Lawrence Company has cash in bank of $15,000, restricted cash in a separate account of
$4,000, and a bank overdraft in an account at another bank of $2,000. Lawrence should
report cash of
a. $13,000.
b. $15,000.
c. $18,000.
d. $19,000.
92.
7 - 19
$30,000
500
8,200
2,100
If a company purchases merchandise on terms of 1/10, n/30, the cash discount available
is equivalent to what effective annual rate of interest (assuming a 360-day year)?
a. 1%
b. 12%
c. 18%
d. 30%
94.
AG Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If the
company uses the net method to record sales made on credit, how much should be
recorded as sales revenue?
a. $ 9,800.
b. $ 9,900.
c. $10,000.
d. $10,100.
95.
AG Inc. made a $10,000 sale on account with the following terms: 1/15, n/30. If the
company uses the gross method to record sales made on credit, what is/are the debit(s) in
the journal entry to record the sale?
a. Debit Accounts Receivable for $9,900.
b. Debit Accounts Receivable for $9,900 and Sales Discounts for $100.
c. Debit Accounts Receivable for $10,000.
d. Debit Accounts Receivable for $10,000 and Sales Discounts for $100.
96.
AG Inc. made a $10,000 sale on account with the following terms: 2/10, n/30. If the
company uses the net method to record sales made on credit, what is/are the debit(s) in
the journal entry to record the sale?
a. Debit Accounts Receivable for $9,800.
b. Debit Accounts Receivable for $9,800 and Sales Discounts for $200.
c. Debit Accounts Receivable for $10,000.
d. Debit Accounts Receivable for $10,000 and Sales Discounts for $200.
97.
Rosalie Co. uses the gross method to record sales made on credit. On June 10, 2011, it
made sales of $100,000 with terms 2/10, n/30 to Finley Farms, Inc. On June 19, 2011,
Rosalie received payment for 1/2 the amount due from Finley Farms. Rosalie's fiscal year
end is on June 30, 2011. What amount will be reported in the statement of financial
position for the accounts receivable due from Finley Farms, Inc.?
a. $49,000
b. $50,000
c. $48,000
d. $51,000
7 - 20
98.
Vivian, Inc had net sales in 2011 of 700,000. At December 31, 2010, before adjusting
entries, the balances in selected accounts were: accounts receivable 125,000 debit, and
allowance for doubtful accounts 1,200 credit. Vivian estimates that 2% of its net sales will
prove to be uncollectable. What is the cash realizable value of the receivables reported on
the statement of financial position at December 31, 2011?
a. 112,200
b. 122,500
c. 111,000
d. 109,800
99.
Vivian, Inc had net sales in 2011 of 700,000. At December 31, 2010, before adjusting
entries, the balances in selected accounts were: accounts receivable 125,000 debit, and
allowance for doubtful accounts 1,200 debit. Vivian estimates that 2% of its net accounts
receivable will prove to be uncollectable. What is the cash realizable value of the
receivables reported on the statement of financial position at December 31, 2011?
a. 112,200
b. 122,500
c. 111,000
d. 109,800
100.
Rosalie Corporation is located in Los Angeles but does business throughout Europe. The
company builds and sells equipment used in manufacturing pharmaceuticals. On
December 31, 2011, Rosalie's accounts receivable are as follows:
Individually significant receivables
Finley Company
$ 80,000
Rios, Inc.
200,000
Rafael Co.
120,000
Hunter, Inc.
100,000
All other receivables 500,000
Total
$1,000,000
Rosalie Corporation determines that Finley Company's receivable is impaired by $40,000
and Hunter, Inc.'s receivable is totally impaired. The other receivables from Rafael and
Rios are not considered impaired. Rosalie determines that a composite rate of 2% is
appropriate to measure impairment on all other receivables. What is the total impairment
of receivables for Rosalie Corporation for 2011?
a. $156,400
b. $140,000
c. $150,000
d. $123,600
101.
Wave Crest Hotels is located in Canada, but manages an extensive network of boutique
hotels in the United States. Wave Crest has significant receivables from 3 customers,
$480,000 due from Stephanie Inn, $900,000 due from Warren House, and $760,000 due
from Hallmark Hotels. Wave Crest has other receivables totaling $440,000.
Wave Crest determines that the Warren House receivable is impaired by $160,000 and
the Hallmark Hotels receivable is impaired by $200,000. The receivable from the
Stephanie Inn is not considered impaired. Wave Crest determines that a composite rate of
5% is appropriate to measure impairment on all other receivables. What is the total
impairment of receivables for Wave Crest for 2011?
a.
b.
c.
d.
102.
103.
7 - 21
$382,000
$314,000
$406,000
$360,000
104.
105.
At the close of its first year of operations, December 31, 2010, Ming Company had
accounts receivable of $540,000, after deducting the related allowance for doubtful
accounts. During 2010, the company had charges to bad debt expense of $90,000 and
wrote off, as uncollectible, accounts receivable of $40,000. What should the company
report on its statement of financial position at December 31, 2010, as accounts receivable
before the allowance for doubtful accounts?
a. $670,000
b. $590,000
c. $490,000
d. $440,000
7 - 22
106.
Before year-end adjusting entries, Dunn Company's account balances at December 31,
2010, for accounts receivable and the related allowance for uncollectible accounts were
$600,000 and $45,000, respectively. An aging of accounts receivable indicated that
$62,500 of the December 31 receivables are expected to be uncollectible. The cash
realizable value of accounts receivable after adjustment is
a. $582,500.
b. $537,500.
c. $492,500.
d. $555,000.
107.
During the year, Kiner Company made an entry to write off a $4,000 uncollectible account.
Before this entry was made, the balance in accounts receivable was $50,000 and the
balance in the allowance account was $4,500. The cash realizable value of accounts
receivable after the write-off entry was
a. $50,000.
b. $49,500.
c. $41,500.
d. $45,500.
108.
8,000
400,000
9,000
As a result of a review and aging of accounts receivable in early January 2011, however, it
has been determined that an allowance for doubtful accounts of $5,500 is needed at
December 31, 2010. What amount should Murphy record as "bad debt expense" for the
year ended December 31, 2010?
a. $4,500
b. $5,500
c. $6,500
d. $13,500
Use the following information for questions 109 and 110.
A trial balance before adjustments included the following:
Debit
Sales
Sales returns and allowance
Accounts receivable
Allowance for doubtful accounts
109.
Credit
$425,000
$14,000
43,000
760
If the estimate of uncollectibles is made by taking 2% of net sales, the amount of the
adjustment is
a. $6,700.
b. $8,220.
c. $8,500.
d. $9,740.
7 - 23
110.
If the estimate of uncollectibles is made by taking 10% of gross account receivables, the
amount of the adjustment is
a. $3,540.
b. $4,300.
c. $4,224.
d. $5,060.
111.
$60,000
3,600
2,400
Smithson Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
$10,000. During 2010, it wrote off $7,200 of accounts and collected $2,100 on accounts
previously written off. The balance in Accounts Receivable was $200,000 at 1/1 and
$240,000 at 12/31. At 12/31/10, Smithson estimates that 5% of accounts receivable will
prove to be uncollectible. What is Bad Debt Expense for 2010?
a. $2,000.
b. $7,100.
c. $9,200.
d. $12,000.
113.
Black Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
$12,000. During 2010, it wrote off $8,640 of accounts and collected $2,520 on accounts
previously written off. The balance in Accounts Receivable was $240,000 at 1/1 and
$288,000 at 12/31. At 12/31/10, Black estimates that 5% of accounts receivable will prove
to be uncollectible. What should Black report as its Allowance for Doubtful Accounts at
12/31/10?
a. $5,760.
b. $5,880.
c. $8,280.
d. $14,400.
114.
$80,000
4,800
3,200
7 - 24
115.
Vasguez Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
$20,000. During 2010, it wrote off $14,400 of accounts and collected $4,200 on accounts
previously written off. The balance in Accounts Receivable was $400,000 at 1/1 and
$480,000 at 12/31. At 12/31/10, Vasguez estimates that 5% of accounts receivable will
prove to be uncollectible. What is Bad Debt Expense for 2010?
a. $4,000.
b. $14,200.
c. $18,400.
d. $24,000.
116.
McGlone Corporation had a 1/1/10 balance in the Allowance for Doubtful Accounts of
$15,000. During 2010, it wrote off $10,800 of accounts and collected $3,150 on accounts
previously written off. The balance in Accounts Receivable was $300,000 at 1/1 and
$360,000 at 12/31. At 12/31/10, McGlone estimates that 5% of accounts receivable will
prove to be uncollectible. What should McGlone report as its Allowance for Doubtful
Accounts at 12/31/10?
a. $7,200.
b. $7,350.
c. $10,350.
d. $18,000.
117.
118.
On December 31, 2010, Flint Corporation sold for $75,000 an old machine having an
original cost of $135,000 and a book value of $60,000. The terms of the sale were as
follows:
$15,000 down payment
$30,000 payable on December 31 each of the next two years
The agreement of sale made no mention of interest; however, 9% would be a fair rate for
this type of transaction. What should be the amount of the notes receivable net of the
unamortized discount on December 31, 2010 rounded to the nearest dollar? (The present
value of an ordinary annuity of 1 at 9% for 2 years is 1.75911.)
a. $52,773.
b. $67,773.
c. $60,000.
d. $105,546.
7 - 25
119.
Assume Royal Palm Corp., an equipment distributor, sells a piece of machinery with a list
price of $800,000 to Arch Inc. Arch Inc. will pay $850,000 in one year. Royal Palm Corp.
normally sells this type of equipment for 90% of list price. How much should be recorded
as revenue?
a. $720,000.
b. $765,000.
c. $800,000.
d. $850,000.
120.
Equestrain Roads sold $50,000 of goods and accepted the customer's $50,000 10%
1-year note receivable in exchange. Assuming 10% approximates the market rate of
return, what would be the debit in this journal entry to record the sale?
a. No journal entry until cash is collected.
b. Debit Notes Receivable for $50,000.
c. Debit Accounts Receivable for $50,000.
d. Debit Notes Receivable for $45,000.
121.
Equestrain Roads sold $50,000 of goods and accepted the customer's $50,000 10%
1-year note in exchange. Assuming 10% approximates the market rate of return, how
much interest would be recorded for the year ending December 31 if the sale was made
on June 30?
a. $0.
b. $1,250.
c. $2,500.
d. $5,000.
Equestrain Roads accepted a customer's $50,000 zero-interest-bearing six-month note in
a sales transaction. The product sold normally sells for $46,000. If the sale was made on
June 30, how much interest revenue from this transaction would be recorded for the year
ending December 31?
a. $0.
b. $2,000.
c. $4,000.
d. $5,000.
122.
123.
Assuming the market interest rate is 10% per annum, how much would Green Co. record
as a note payable if the terms of the loan with a bank are that it would have to make one
$60,000 payment in two years?
a. $60,000.
b. $54,422.
c. $54,545.
d. $49,587.
124.
Sun Inc. factors $2,000,000 of its accounts receivables without guarantee (recourse) for a
finance charge of 5%. The finance company retains an amount equal to 10% of the
accounts receivable for possible adjustments. What would be recorded as a gain (loss) on
the transfer of receivables?
a. Loss of $100,000.
b. Gain of $100,000.
c. Loss of $300,000.
d. Loss of $200,000.
7 - 26
125.
Sun Inc. factors $2,000,000 of its accounts receivables with guarantee (recourse) for a
finance charge of 3%. The finance company retains an amount equal to 10% of the
accounts receivable for possible adjustments. What would be recorded as a gain (loss) on
the transfer of receivables?
a. Gain of $60,000.
b. Loss of $60,000.
c. Loss of $260,000.
d. $0.
126.
Sun Inc assigns $2,000,000 of its accounts receivables as collateral for a $1 million 8%
loan with a bank. Sun Inc. also pays a finance fee of 1% on the transaction upfront. What
would be recorded as a gain (loss) on the transfer of receivables?
a. Loss of $20,000.
b. Loss of $160,000.
c. Loss of $180,000.
d. $0.
127.
Moon Inc. factors $1,000,000 of its accounts receivables with guarantee (recourse) for a
finance charge of 4%. The finance company retains an amount equal to 8% of the
accounts receivable for possible adjustments. What would be the debit to Cash in the
journal entry to record this transaction?
a. $1,000,000.
b. $960,000.
c. $880,000.
d. $780,000.
128.
Moon Inc assigns $1,500,000 of its accounts receivables as collateral for a $1 million loan
with a bank. The bank assesses a 3% finance fee and charges interest on the note at 6%.
What would be the journal entry to record this transaction?
a. Debit Cash for $970,000, debit Finance Charge for $30,000, and credit Notes payable
for $1,000,000.
b. Debit Cash for $970,000, debit Finance Charge for $30,000, and credit Accounts
Receivable for $1,000,000.
c. Debit Cash for $970,000, debit Finance Charge for $30,000, debit Due from Bank for
$500,000, and credit Accounts Receivable for $1,500,000.
d. Debit Cash for $910,000, debit Finance Charge for $90,000, and credit Notes Payable
for $1,000,000.
The amount of cash Geary received from Kwik at the time of the transfer was
a. $301,500.
b. $327,000.
c. $328,300.
d. $335,000.
130.
7 - 27
Assume that Henson factors the receivables on a without guarantee (recourse) basis. The
loss to be reported is
a. $0.
b. $9,000.
c. $15,000.
d. $24,000.
132.
Assume that Henson factors the receivables on a with guarantee (recourse) basis. The
amount of cash received is
a. $285,000.
b. $276,000.
c. $291,000.
d. $300,000.
Maxwell Corporation factored, with guarantee (recourse), $100,000 of accounts receivable
with Huskie Financing. The finance charge is 3%, and 5% was retained to cover sales
discounts, sales returns, and sales allowances. What amount of cash would Maxwell
receive on the sale of receivables?
a. $97,000.
b. $95,000.
c. $92,000.
d. $100,000.
133.
134.
135.
Remington Corporation had accounts receivable of $100,000 at 1/1. The only transactions
affecting accounts receivable were sales of $600,000 and cash collections of $550,000.
The accounts receivable turnover is
a. 4.0.
b. 4.4.
c. 4.8.
d. 6.0.
7 - 28
136.
*137. If a petty cash fund is established in the amount of $250, and contains $150 in cash and
$95 in receipts for disbursements when it is replenished, the journal entry to record
replenishment should include credits to the following accounts
a. Petty Cash, $75.
b. Petty Cash, $100.
c. Cash, $95; Cash Over and Short, $5.
d. Cash, $100.
*138. If the month-end bank statement shows a balance of $36,000, outstanding checks are
$12,000, a deposit of $4,000 was in transit at month end, and a check for $500 was
erroneously charged by the bank against the account, the correct balance in the bank
account at month end is
a. $27,500.
b. $28,500.
c. $20,500.
d. $43,500.
*139. In preparing its bank reconciliation for the month of April 2010, Henke, Inc. has available
the following information.
Balance per bank statement, 4/30/10
NSF check returned with 4/30/10 bank statement
Deposits in transit, 4/30/10
Outstanding checks, 4/30/10
Bank service charges for April
$39,140
450
5,000
5,200
20
7 - 29
b. $20,400.
c. $22,200.
d. $21,750.
*141. The cash account shows a balance of $45,000 before reconciliation. The bank statement
does not include a deposit of $2,300 made on the last day of the month. The bank
statement shows a collection by the bank of $940 and a customer's check for $320 was
returned because it was NSF. A customer's check for $450 was recorded on the books as
$540, and a check written for $79 was recorded as $97. The correct balance in the cash
account was
a. $45,512.
b. $45,548.
c. $45,728.
d. $47,848.
*142. In preparing its May 31, 2010 bank reconciliation, Catt Co. has the following information
available:
Balance per bank statement, 5/31/10
$30,000
Deposit in transit, 5/31/10
5,400
Outstanding checks, 5/31/10
4,900
Note collected by bank in May
1,250
The correct balance of cash at May 31, 2010 is
a. $35,400.
b. $29,250.
c. $30,500.
d. $31,750.
87.
88.
89.
90.
91.
92.
93.
94.
95.
96.
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
b
d
b
c
b
c
c
b
c
a
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
b
d
b
a
c
c
d
c
b
b
107.
108.
109.
110.
111.
112.
113.
114.
115.
116.
d
c
b
a
b
b
d
b
b
d
117.
118.
119.
120.
121.
122.
123.
124.
125.
126.
b
a
a
b
c
c
d
a
127.
128.
129.
130.
131.
132.
133.
134.
135.
136.
c
a
c
c
b
b
c
c
c
c
*137.
*138.
*139.
*140.
*141.
*142.
d
b
b
c
b
c
Item
Ans.
7 - 30
On the December 31, 2010 statement of financial position of Vanoy Co., the current
receivables consisted of the following:
Trade accounts receivable
Allowance for uncollectible accounts
Claim against shipper for goods lost in transit (November 2010)
Selling price of unsold goods sent by Vanoy on consignment
at 130% of cost (not included in Vanoy 's ending inventory)
Security deposit on lease of warehouse used for storing
some inventories
Total
$ 75,000
(2,000)
3,000
26,000
30,000
$132,000
At December 31, 2010, the correct total of Vanoy's current net receivables was
a. $76,000.
b. $102,000.
c. $106,000.
d. $132,000.
144.
Ace Co. prepared an aging of its accounts receivable at December 31, 2010 and
determined that the net realizable value of the receivables was $300,000. Additional
information is available as follows:
Allowance for uncollectible accounts at 1/1/10credit balance
Accounts written off as uncollectible during 2010
Accounts receivable at 12/31/10
Uncollectible accounts recovered during 2010
$ 34,000
23,000
325,000
5,000
For the year ended December 31, 2010, Ace's uncollectible accounts expense would be
a. $25,000.
b. $23,000.
c. $16,000.
d. $9,000.
145.
For the year ended December 31, 2010, Dent Co. estimated its allowance for uncollectible
accounts using the year-end aging of accounts receivable. The following data are available:
Allowance for uncollectible accounts, 1/1/10
$56,000
Provision for uncollectible accounts during 2010
(2% on credit sales of $2,000,000)
40,000
Uncollectible accounts written off, 11/30/10
46,000
Estimated uncollectible accounts per aging, 12/31/10
69,000
After year-end adjustment, the uncollectible accounts expense for 2010 should be
a. $46,000.
b. $62,000.
c. $69,000.
d. $59,000.
7 - 31
146.
Nenn Co.'s allowance for uncollectible accounts was $95,000 at the end of 2010 and
$90,000 at the end of 2009. For the year ended December 31, 2010, Nenn reported bad
debt expense of $13,000 in its income statement. What amount did Nenn debit to the
appropriate account in 2010 to write off actual bad debts?
a. $5,000
b. $8,000
c. $13,000
d. $18,000
147.
Under the allowance method of recognizing uncollectible accounts, the entry to write off
an uncollectible account
a. increases the allowance for uncollectible accounts.
b. has no effect on the allowance for uncollectible accounts.
c. has no effect on net income.
d. decreases net income.
148.
The following accounts were abstracted from Starr Co.'s unadjusted trial balance at
December 31, 2010:
Debit
Credit
Accounts receivable
$750,000
Allowance for uncollectible accounts
8,000
Net credit sales
$3,000,000
Starr estimates that 2% of the gross accounts receivable will become uncollectible. After
adjustment at December 31, 2010, the allowance for uncollectible accounts should have a
credit balance of
a. $60,000.
b. $52,000.
c. $23,000.
d. $15,000.
149.
150.
On June 1, 2010, Yang Corp. loaned Gant $300,000 on a 12% note, payable in five
annual installments of $60,000 beginning January 2, 2011. In connection with this loan,
Gant was required to deposit $3,000 in a zero-interest-bearing escrow account. The
amount held in escrow is to be returned to Gant after all principal and interest payments
have been made. Interest on the note is payable on the first day of each month beginning
July 1, 2010. Gant made timely payments through November 1, 2010. On January 2, 2011,
Yang received payment of the first principal installment plus all interest due. At
December 31, 2010, Yang's interest receivable on the loan to Gant should be
a. $0.
b. $3,000.
c. $6,000.
d. $9,000.
7 - 32
151.
a.
b.
c.
d.
Factoring
No
Yes
Yes
No
*152. In preparing its August 31, 2010 bank reconciliation, Bing Corp. has available the
following information:
Balance per bank statement, 8/31/10
Deposit in transit, 8/31/10
Return of customer's check for insufficient funds, 8/30/10
Outstanding checks, 8/31/10
Bank service charges for August
$21,650
3,900
600
2,750
100
$37,200
10,300
47,500
12,600
$34,900
$46,700
49,700
All reconciling items at March 31, 2010 cleared the bank in April. Outstanding checks at
April 30, 2010 totaled $6,000. There were no deposits in transit at April 30, 2010. What is
the cash balance per books at April 30, 2010?
a. $28,200
b. $31,900
c. $34,200
d. $38,500
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
Item
Ans.
143.
144.
a
d
145.
146.
d
b
147.
148.
c
d
149.
150.
c
c
151.
*152.
b
a
*153.
DERIVATIONS Computational
No.
Answer
87
Derivation
$13,500 + $500 = $14,000.
88.
$2,000,000 .11
=
$200,000 (.11 .05) =
Interest
$220,000
12,000
$232,000
90.
91.
92.
93.
94.
95.
96.
97.
98.
99.
100.
101.
102.
103.
104.
105.
106.
107.
108.
7 - 33
7 - 34
109.
110.
111.
112.
113.
114.
115.
116.
117.
7% and 7%.
118.
119.
120.
121.
122.
123.
124.
125.
126.
127.
128.
129.
130.
131.
132.
133.
134.
135.
136.
*137.
*138.
*139.
*140.
*141.
*142.
Answer
Derivation
143.
144.
145.
146.
147.
Conceptual.
148.
149.
150.
151.
Conceptual.
*152.
*153.
7 - 35
7 - 36
EXERCISES
Ex. 7-154Asset classification.
Below is a list of items. Classify each into one of the following statement of financial position
categories:
a. Cash
b. Receivables
c. Short-term Investments
d. Other
____
____
2. Savings account
____
____
4. Checking account
____
5. Postage stamps
____
____
____
____
9. Ordinary shares of another company (to be sold by December 31, this year)
Solution 7-154
1.
2.
d
a
3.
4.
c
a
5.
6.
d
c
7.
8.
b
d
9.
10.
c
a
7 - 37
Solution 7-155
(a) There are basically two methods of recognizing bad debt expense: (1) direct write-off and (2)
allowance.
The direct write-off method requires the identification of specific balances that are deemed to
be uncollectible before any bad debt expense is recognized. At the time a specific account is
deemed uncollectible, the account is removed from accounts receivable and a corresponding
amount of bad debt expense is recognized.
The allowance method requires an estimate of bad debt expense for a period of time by
reference to the composition of the accounts receivable balance at a specific point in time
(aging) or to the overall experience with credit sales over a period of time. Thus, total bad
debt expense expected to arise as a result of operations for a specific period is estimated, the
valuation account (allowance for doubtful accounts) is appropriately adjusted, and a
corresponding amount of bad debt expense is recognized. As specific accounts are identified
as uncollectible, the account is written off. It is removed from accounts receivable and a
corresponding amount is removed from the valuation account (allowance for doubtful
accounts). Net accounts receivable do not change, and there is no charge to bad debt
expense when specific accounts are identified as uncollectible and written off using the
allowance method.
(b) The allowance method is preferable because it matches the cost of making a credit sale with
the revenues generated by the sale in the same period and achieves a proper carrying value
for accounts receivable at the end of a period. Since the direct write-off method does not
recognize the bad debt expense until a specific amount is deemed uncollectible, which may
be in a subsequent period, it does not comply with the expense recognition principle and does
not achieve a proper carrying value for accounts receivable at the end of a period.
Ex. 7-156Entries for bad debt expense.
A trial balance before adjustment included the following:
Accounts receivable
Allowance for doubtful accounts
Sales
Sales returns and allowances
Debit
$80,000
Credit
730
$340,000
8,000
Give journal entries assuming that the estimate of uncollectibles is determined by taking (1) 5% of
gross accounts receivable and (2) 1% of net sales.
Solution 7-156
(1)
3,270
3,270
7 - 38
3,320
3,320
Solution 7-157
Cash ...............................................................................................
Finance Charge...............................................................................
Notes Payable.....................................................................
192,000
8,000
Cash ...............................................................................................
Accounts Receivable...........................................................
130,000
Notes Payable.................................................................................
Interest Expense.............................................................................
Cash ....................................................................................
130,000
1,500
200,000
130,000
131,500
Carrying Value
88,000
72,000
Fair Value
85,000
76,000
7 - 39
Instructions
Prepare the journal entry at December 31 (Ellison's Year-end) for 2010, and 2011, to
record the fair value option for these notes.
Solution 7-158
12/31/10
12/31/11
3,000
3,000
Notes Receivable
[(76,000 72,000) + 3,000].......
Unrealized Holding Gain/Loss
-Income....................................
7,000
7,000
PROBLEMS
Pr. 7-159Entries for bad debt expense.
The trial balance before adjustment of Risen Company reports the following balances:
Accounts receivable
Allowance for doubtful accounts
Sales (all on credit)
Sales returns and allowances
Dr.
$100,000
Cr.
$
2,500
750,000
40,000
Instructions
(a) Prepare the entries for estimated bad debts assuming that doubtful accounts are estimated
to be (1) 6% of gross accounts receivable and (2) 1% of net sales.
(b) Assume that all the information above is the same, except that the Allowance for Doubtful
Accounts has a debit balance of $2,500 instead of a credit balance. How will this difference
affect the journal entries in part (a)?
Solution 7-159
(a)
(1)
3,500
3,500
7 - 40
(b)
7,100
7,100
8,500
8,500
The entry would not change under the percentage of sales method.
5%
1.15763
.86384
3.15250
2.72325
10%
1.33100
.75132
3.31000
2.48685
Instructions
(a) Determine the present value of the note.
(b) Prepare a Schedule of Note Discount Amortization for Green Company under the effective
interest method. (Round to whole dollars.)
7 - 41
Solution 7-160
(a) Present value of interest
Present value of maturity value
=
=
$20,000 2.48685
$400,000 .75132
=
=
$ 49,737
300,528
$350,265
Date
12/31/10
12/31/11
12/31/12
12/31/13
Cash
Interest
(5%)
Effective
Interest
(10%)
$20,000
20,000
20,000
$60,000
$ 35,027
36,529
38,179*
$109,735
Discount
Amortized
$15,027
16,529
18,179
$49,735
Unamortized
Discount
Balance
$49,735
34,708
18,179
0
Present
Value
of Note
$350,265
365,292
381,821
400,000
Solution 7-161
(a) Cash ........................................................................................
Finance Charge.........................................................................
Notes Payable................................................................
410,000
15,000
200,000
450
530
200,000
4,250
425,000
200,980
204,250
7 - 42
Solution 7-162
(a) Cash..............................................................................................
Due from Factor (2% $800,000)..................................................
Loss on Sale of Receivables (6% $800,000)..............................
Accounts Receivable.....................................................
736,000
16,000
48,000
800,000
(c) Cash..............................................................................................
Due from Factor ...........................................................................
Finance Charge.............................................................................
Accounts Receivable...........................................................
736,000
16,000
48,000
800,000
16,000
48,000
736,000
800,000
7 - 43
$26,746
2,100
(3,800)
$25,046
Per Bank
$27,995
10,784
11,600
3,000
35
900
Instructions
(a) Calculate the amount of the April 30:
1. Deposits in transit
2. Outstanding checks
(b) What is the April 30 adjusted cash balance? Show all work.
*Solution 7-163
(a) 1. Deposits in transit, $5,205 [$13,889 ($10,784 $2,100)]
2. Outstanding checks, $2,280 [$10,080 ($11,600 $3,800)]
(b) Adjusted cash balance at April 30, $30,920
($27,995 + $5,205 $2,280)
OR
($28,855 + $3,000 $35 $900)
Per Books
$28,855
13,889
10,080
-0-0-0-
7 - 44