978-0078025778 Chapter 7 Solution Manual Part 1

subject Type Homework Help
subject Pages 9
subject Words 2837
subject Authors Jan Williams, Joseph Carcello, Mark Bettner, Susan Haka

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Brief Learnin
g
Exercises Objectives
B. Ex. 7.1
B. Ex. 7.2 Bank reconciliations
B. Ex. 7.3
B. Ex. 7.4
B. Ex. 7.5 Internal control over receivables 7-5 Analysis
B. Ex. 7.6 Analysis
B. Ex. 7.7
B. Ex. 7.8
B. Ex. 7.9 Notes receivable and interest
B. Ex. 7.10
Real World: Weis Markets and
Sprint Nextel Co. Doubtful accounts
by industry
7-6, 7-8
CHAPTER 7
FINANCIAL ASSETS
OVERVIEW OF BRIEF EXERCISES, EXERCISES, PROBLEMS, AND CRITICAL
THINKING CASES
Topic Skills
7-1, 7-4
7-1, 7-6
7-1, 7-2
Analysis
Cash and cash equivalents
Real World: Apple, Inc. fair value
adjustments
Analysis
7-2, 7-3 Analysis
Analysis, communication7-1, 7-4
7-7
7-1, 7-6
Analysis, judgment, communication
Analysis
Analysis, judgment, communication
Accounting for marketable securities
Analysis
Uncollectible accounts - balance sheet
approach
Real World: Molson Coors Brewing
Co. and Anheuser-Busch InBev
Analyzing accounts receivable
Uncollectible accounts - Income
statement approach
7-1, 7-6, 7-8
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Learning
Objective
7.9 7-8
7.10 Effects of transactions 7-1–7-6
7.11 Reporting financial assets 7-1 Analysis
7.12 Effects of account errors 7-1, 7-6, 7-
7.13 Sale of marketable securities 7-1, 7-4
7.14 Notes and interest 7-7
7.15
Learning
Topic Objective
7.1 A,B 7-1, 7-3
7.2 A,B 7-2, 7-3
7.3 A,B 7-1, 7-6
7.4 A,B 7-1, 7-6
7.5 A,B 7-1, 7-4
7.6 A,B Notes receivable and interest 7-7
7.7 A,B Short Comprehensive Problem 7-1, 7-3–
7-8
7.8 A,B Short Comprehensive Problem 7-1, 7-3–
7-8
7.1 7-1, 7-6,
7-7
7.2 7-2, 7-6, 7-
7.3
7.4 7-1, 7-2
7-1, 7-4,
7-6, 7-8
7-1–7-6,
7-8
Analysis, communicationProtecting cash
Analysis, communication
Skills
Problems
Sets A, B
Exercises Topic Skills
Real World: The Home
Depot, Inc. Examining an
annual report
Analysis
Analysis, communicationReal World: Goodyear Tire
& Rubber and PPL Energy
Co. Collection performance by
industry
Analysis
Analysis, communication
Analysis
Analysis
Accounting for marketable
securities
Bank reconciliation
Critical Thinking Cases
Aging accounts receivable
Uncollectible accounts
Understanding cash flows
Window dressing
Accounting principles
Analysis, communication,
Analysis, communication
Real World: Bankrate.com Cash
management (Internet)
Analysis, communication,
Analysis, communication,
technology
(Ethics, fraud & corporate
governance)
Analysis, communication
Analysis, communication
Analysis, communication
Analysis, communication
Analysis, communication,
judgment
Analysis, communication,
judgment
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DESCRIPTIONS OF PROBLEMS AND CRITICAL THINKING CASE
S
Problems (Sets A and B)
7.1 A,B 25 Medium
7.2 A,B 45 Stron
g
7.3 A,B 15 Medium
7.4 A,B 30 Medium
7.5 A,B 40 Stron
g
7.6 A,B 20 Medium
7.7 A,B 20 Medium
7.8 A,B 40 Strong
Putnam & Putnam/Starlight
Students are to analyze a fraudulently prepared bank reconciliation
to determine the amount of concealed embezzlement. Also calls for
recommendations for improving internal control. A very challenging
problem well suited to use as a group assignment.
Below are brief descriptions of each problem and case. These descriptions are accompanied by the
estimated time (in minutes) required for completion and by a difficulty rating. The time estimates
assume use of the partially filled-in working papers.
Banner, Inc./Dodge, Inc.
A comprehensive bank reconciliation.
Osage Farm Supply/Jason Chain Saws, Inc.
Hendry Corporation/Ciavarella Corporation
A short comprehensive problem that integrates the various
components of financial assets. Includes a bank reconciliation, cash
equivalents, short-term investments, doubtful accounts, notes
receivable, and interest revenue.
Computation of the amount required in the allowance for doubtful
accounts based on an aging schedule of accounts receivable. Also
requires journal entries for adjustment of the allowance account and
for write-off of a worthless receivable.
Wilcox Mills/Redstone Mill
A short comprehensive problem that integrates the various
components of financial assets. Includes a bank reconciliation, cash
equivalents, short-term investments, doubtful accounts, notes
receivable, and interest revenue.
Briefly covers accounting for notes receivable, including accrual of
interest, maturity, and default.
Ski Factory/Data Management, Inc.
Charter Holding Co./Westport Manufacturing Co.
A comprehensive problem on marketable securities. Includes
recording gains and losses, the fair value adjustment, and balance
sheet presentation.
Eastern Supply/Midtown Distribution
A problem designed to dispel the misconception that the allowance
is equal to annual bad debt expense. Students are to summarize (in
general journal entry form) transactions during the year that affect
the allowance for doubtful accounts. Then they are to comment on
the relative size of the year-end allowance in comparison to write-
offs during the subsequent year.
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Accounting Principles
Rock, Inc.
"Window Dressing"
Ethics, Fraud & Corporate Governance
Bankrate.com No time estimate
Internet Medium
An unstructured problem involving the effects of a major change in
credit policy upon sales, cash receipts, turnover of accounts receivable,
and uncollectible accounts. Good problem for classroom discussion.
20 Medium
Accounting practices are described in four separate situations. Students
are asked to determine whether there has been a violation of generally
accepted accounting principles, to identify the principles involved, and to
explain the nature of the violations.
40 Strong
40 Strong7.3
Students are to evaluate several proposals being considered by
management for "improving" the year-end balance sheet. One issue is
whether the company must comply with GAAP as it is not publicly
owned. Involves both ethical and accounting issues.
7.1
An Internet research problem that requires students to compare interest
rates of various U.S. Treasury securities, CDs, and money market
accounts.
7.4
7.2
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SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1.
2.
Receivables are created as a result of sales and are converted into cash as they are collected.
All financial assets appear in the balance sheet at their current value —that is, the amount of
cash that the assets represent. For cash, current value is simply the face amount. But for
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12.
13.
14. a.
The advantages of making credit sales only to customers who use nationally recognized credit
cards are that this policy: (1) eliminates all the work associated with maintaining records of
and (5) does not restrict sales by excluding the large number of shoppers who prefer to use these
credit cards for purchases.
No; companies are not required to use the same method of accounting for uncollectible accounts
in their financial statements and in their income tax returns. In fact, tax regulations require use of
In a multiple-step income statement, the loss from a sale of marketable securities reduces net
income and is classified as a nonoperating item. In a statement of cash flows, the entire
proceeds from the sale are shown as a cash receipt from investing activities.
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B.Ex.7.1 a.
B.Ex.7.2 a. $ 21,749
(200)
(3,000)
Less: Bank service charge………………….……………………..
NSF check from Susque Company………………………….
SOLUTIONS TO BRIEF EXERCISES
Cash equivalents are usually short-term debt securities (e.g., U.S. Treasury bills, high-
Cash balance per general ledger………………………………….
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b.
B. Ex. 7.4 a. Dec. 4 Marketable Securities……………………. 30,000
Cash…………………………………. 30,000
The $160 million unrealized gain increases the asset amount and also is included
in an account in Apple's stockholders' equity section of its balance sheet. The
recognition of this gain does not involve any cash flow.
"unrealized" indicates that this gain has not been finalized through an actual sale
of the investments. Therefore, its amount will change as market values fluctuate.
d. Apple's short-term creditors are primarily interested in the company's current
debt-paying ability. From this perspective, mark-to-market should enhance the
usefulness of the balance sheet by showing the amount of liquid resources that
would be available if the marketable securities were sold.
To record the purchase of marketable
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Allowance for Doubtful Accounts .......... 12,000
b. Uncollectible Accounts Expense…………………. 15,000
Allowance for Doubtful Accounts ......... 15,000
To record uncollectible accounts expense ($13,400 - $1,400 credit
balance = $12,000).
To record uncollectible accounts expense ($13,400 + $1,600 debit
balance = $15,000).
Computations:
Current $60,000 x 2% = $ 1,200
Past due 31-60 days 25,000 x 16% = 4,000
Past due 61-90 days 12,000 x 40% = 4,800
Past due over 90 days 2,000 x 90% = 1,800

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