978-0078025556 Chapter 6 Solution Manual Part 2

Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash

P6–2.

Req. 1

Sales

Revenue

Sales Discounts

(taken)

Sales Returns

and Allowances

Bad Debt

Expense

(a)

+235,000

NE

(b)

+11,500

NE

(c)

+26,500

NE

(d)

NE

+500

NE

(e)

+24,000

NE

(f)

NE

+220

NE

(g)

NE

+2,000*

NE

(h)

NE

+530

NE

(i)

+19,000

NE

(j)

NE

–70

+3,500

NE

(k)

NE

(l)

NE

(m)

NE

+1,155**

Total

+$316,000

+$2,680

+$4,000

+$1,155

*$98,000 ÷ (1 ─ .02) = $100,000 gross sales; $100,000 x .02 = $2,000

**Credit sales ($11,500 + $26,500 + $24,000 + $19,000) . $81,000

Less: Sales returns ($500 + $3,500) ……………………….. 4,000

Net sales revenue ………………………………………………….. 77,000

Estimated bad debt rate …………………………………………. x 1.5%

Bad debt expense ………………………………………………….. $1,155

Req. 2

Income statement:

Sales revenue ………………………………………………….. $316,000

Less: Sales returns and allowances ………….. 4,000

6-22 Solutions Manual

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1. Bad debt expense (+E, –SE) …………………………………………….. 42

Allowance for doubtful accounts (+XA, –A) ………………… 42

2. Year 2 …………………………………. $132 + $187 – $36 = $283

Year 1 …………………………………. $128 + $4 – $0 = $132

Allowance for DA Year 2

Allowance for DA Year 1

132

Beg. bal.

128

Beg. bal

Write-offs

36

187

Bad debt exp.

Write-offs

0

4

Bad debt exp.

283

End. bal.

132

Ending Bal.

The solution involves solving for the missing value in the T-account.

Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash

P6–4.

Req. 1

Aging Analysis of Accounts Receivable

Customer

Total

Receivables

(a) Not Yet

Due

(b) Up to One

Year Past

Due

(c) More Than

One Year

Past Due

B. Brown…………..

$ 6,200

$6,200

D. Donalds………..

7,000

$ 7,000

N. Napier………….

7,000

$ 7,000

S. Strothers………

24,500

4,000

20,500

T. Thomas…………

4,000

Totals……………

$48,700

$15,000

$27,500

$6,200

Req. 2

Aging Schedule—Estimated Amounts Uncollectible

Age

Amount of

Receivables

Estimated

Uncollectible

Percentage

Estimated

Amount

Uncollectible

a.

Not yet due……………………

$15,000

3%

$ 450

b.

Up to one year past due…….

27,500

9%

2,475

c.

Over one year past due……..

6,200

28%

1,736

Estimated ending balance in

Allowance for Doubtful Accounts

4,661

Balance before adjustment

920

Bad Debt Expense for the year

$3,741

Req. 3

Bad debt expense (+E, –SE) …………………………………… 3,741

Allowance for doubtful accounts (+XA, –A) ……….. 3,741

Req. 4

Income statement:

Operating expenses

Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash

P6–6.

Req. 1

JEFFERSON COMPANY

Bank Reconciliation, April 30, 2014

Company’s Books

Bank Statement

Ending balance per Cash

account …………………….

$23,900

Ending balance per bank

statement …………………

$26,070

Additions:

Interest collected ……………

1,180

Deposits in transit* ………….

4,400

25,080

30,470

Deductions:

NSF—A.B. Wright …………..

160

Outstanding checks …………

5,600

Bank charges ………………..

50

210

Correct cash balance ………

$24,870

Correct cash balance ………

$24,870

*$41,500 – $37,100 = $4,400.

Req. 2

(1) Cash (+A) ……………………………………………………………….. 1,180

Interest revenue (+R, +SE) ………………………………. 1,180

Cash (–A) ………………………………………………………. 50

Bank service charges deducted from bank statement.

These entries are necessary because of the changes to the regular Cash account that

have not yet been recorded by the company. The bank already has recorded them in its

accounts. The Cash account (and the other accounts in the entries) must be brought up

Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash

P6–8. (Based on Supplement A)

Req. 1

(a) Cash (+A) ………………………………………………………… 235,000

Sales revenue (+R, +SE) ………………………….. 235,000

Cash sales for 2014.

(b) Accounts receivable (R. Smith) (+A)…………………….. 11,500

(d) Sales returns and allowances (+XR, –R, –SE) ………. 500

Accounts receivable (R. Smith) (–A) …………… 500

Sale return, 1 unit @ $500.

(e) Accounts receivable (B. Sears) (+A) ……………………. 24,000

Sales revenue (+R, +SE) ………………………….. 24,000

($11,500 – $500) x (1 – .02) = $10,780.

(g) Cash (+A) ………………………………………………………… 98,000

Sales discounts (+XR, –R, –SE) ………………………….. 2,000

Accounts receivable (prior year) (–A) …………. 100,000

Collected receivables of prior year, all within

$26,500 x .98 = $25,970.

(i) Accounts receivable (R. Roy) (+A) ………………………. 19,000

Sales revenue (+R, +SE) ………………………….. 19,000

Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash

ALTERNATE PROBLEMS

AP6–1.

Req. 1

Sales

Revenue

Sales Discounts

(taken)

Sales Returns

and Allowances

Bad Debt

Expense

(a)

+227,000

NE

(b)

+12,000

NE

(c)

+23,500

NE

(d)

NE

+240

NE

(e)

+26,000

NE

(f)

NE

–10

+500

NE

(g)

NE

+1,800*

NE

(h)

NE

+3,500

NE

(i)

NE

+400

NE

(j)

+18,500

NE

(k)

NE

(l)

NE

(m)

NE

+3,040**

Total

+$307,000

+$2,430

+$4,000

+$3,040

* [($88,200/.98) x .02] = $1,800

**Credit sales ($12,000 + $23,500 + $26,000 + $18,500) . $80,000

Less: Sales returns ($500 + $3,500) ……………………….. 4,000

Net sales revenue ………………………………………………….. $76,000

Estimated bad debt rate …………………………………………. x 4%

Bad debt expense ………………………………………………….. $3,040

Req. 2

Income statement:

Sales revenue ………………………………………………….. $307,000

Less: Sales returns and allowances ………….. 4,000

Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash

AP6–3.

Req. 1

Aging Analysis of Accounts Receivable

Customer

Total

Receivable

(a)

Not Yet

Due

(b)

Up to

6 Mo.

Past Due

(c)

6 to

12 Mo.

Past Due

(d)

More Than

12 Mo.

Past Due

R. Devens ………..

$ 2,000

$2,000

C. Howard ………..

6,000

$6,000

D. McClain .……….

4,000

$ 4,000

T. Skibinski ………

14,500

$ 4,500

10,000

H. Wu ………..……

13,000

Totals……………

$39,500

$17,500

$14,000

$2,000

$6,000

Req. 2

Estimated Amounts Uncollectible

Age

Amount of

Receivable

Estimated

Loss Rate

Estimated

Uncollectible

a.

Not yet due……………………

$17,500

1%

$ 175

b.

Up to 6 months past due…….

14,000

5%

700

c.

6 to 12 months past due.….

2,000

20%

400

d.

Over 12 months past due……

6,000

50%

3,000

Estimated ending balance in

Allowance for Doubtful Accounts

4,275

Balance before adjustment

1,550

Bad Debt Expense for the year

$2,725

Req. 3

Bad debt expense (+E, –SE) ………………………………….. 2,725

Allowance for doubtful accounts (+XA, –A) ………. 2,725

Req. 4

Income statement:

Less: Allowance for doubtful accounts …………………….. 4,275

Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash

AP6–5.

Req. 1

Comparison of (a) the unrecorded deposit carried over from November and (b) the

deposits listed on the bank statement reveals that the $13,000 deposit for December 31

is in transit.

Req. 2

Comparison of the checks cleared on the bank statement with (a) outstanding checks

Financial Accounting, 8/e 6-35

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CP6–1.

1. The company includes liquid financial instruments with remaining maturity of three

2. In addition to Cost of Goods Sold, American Eagle Outfitters subtracts buying,

occupancy and warehousing costs from Net Sales in its computation of Gross Profit.

3.

Receivables turnover

=

Net Sales

=

$3,159,818

=

82.0 times

Average Net Trade

Accounts Receivable

$38,516*

4. No, the company does not report an allowance for doubtful accounts on the balance

sheet or in the notes. As a retailer, its trade receivables from customers are

Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash

CP6–3.

1.

Current year

American Eagle

Outfitters

Urban Outfitters

Receivables

=

Net Sales

$3,159,818

=

82.0

$2,473,801

=

67.6

Turnover

Ratio

Average Net Trade

Accounts Receivable

38,516*

*($36,721 + 40,310) ÷ 2

36,588

*($36,673 + 36,502) ÷ 2

2. American Eagle Outfitters has a higher ratio than Urban Outfitters because American

Eagle and Urban Outfitters sell to different classes of customers. American Eagle

sells its products almost exclusively to retail and online customers, who are likely to

3.

Industry

Average

American Eagle

Outfitters

Urban Outfitters

Receivables Turnover =

97.5

82.0

67.6

6-38 Solutions Manual

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CP6–4.

1. Yes. Given that only one three-year project is worked on at a time, the completed

contract method would result in no revenue being recognized for two out of every

3. Under generally accepted accounting principles, the appropriate method would

be determined by whether the costs to complete can be accurately assessed. If

CP6–5.

3. Profiting from sales of stock they owned at an inflated stock price and perhaps

Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash

CP6–5. (continued)

4. The other investors who paid inflated amounts for the stock, customers who were

5. Sales transactions booked near the end of the quarter and sales with special

terms, e.g. right of return or cancellation, should receive special attention from

CP6–6.

Req. 1

(a) $50 x 12 months = $ 600

(b) $12 x (52 weeks x 5 days per week) = 3,120

(c,d) Accounts receivable collections ($300 + $800) = 1,100

Total approximate amount stolen $4,820

Req. 2

CP6–7.

The solutions to this case will depend on the company and/or accounting period

selected for analysis.

6-40 Solutions Manual

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CC6–1.

Req. 1

Bad debt expense (+E, –SE) ……………………………… 2,958

Allowance for doubtful accounts (+XA, –A) ……. 2,958

To record estimated bad debt expense.