Type
Solution Manual
Book Title
Financial Accounting Fundamentals 5th Edition
ISBN 13
978-0078025754

### 978-0078025754 Chapter 7 Solution Manual Part 3

March 26, 2020
Problem 7-5B (75 minutes)
Part 1
2014
Nov. 1
Notes ReceivableS. Julian ................................
4,800
Accounts ReceivableS. Julian ......................
4,800
To record note received on account.
Interest Revenue* ..............................................
32
Interest Receivable ............................................
64
Notes ReceivableS. Julian ............................
4,800
To record cash received on note with interest.
*[\$4,800 x .08 x 30/360]
To record note received on account.
30
Accounts ReceivableKing Co .............................
12,684
Interest Revenue ...............................................
84
Notes ReceivableKing Co .............................
12,600
To record receivable for dishonored note
(\$6,200 x .12 x 60/360 = \$124).
Problem 7-5B (Concluded)
June 15
Notes ReceivableR. Solon ................................
2,000
Accounts ReceivableR. Solon .....................
2,000
To record note received on account.
June 21
Notes ReceivableJ. Felton ................................
9,500
To record cash received on note plus interest.
*[\$2,000 x .08 x 72/360] rounded to nearest dollar
Sept. 19
Cash ........................................................................
9,690
Interest Revenue* ............................................
190
Notes ReceivableJ. Felton ..........................
9,500
Part 2
Analysis Component: When a business pledges its receivables as security
for a loan and the loan is still outstanding at period-end, the business must
SERIAL PROBLEM SP 7
Serial Problem SP 7, Business Solutions (50 minutes)
1. a. Bad debts expense is recorded as 1% of total revenues:
\$44,000 x .01 = \$440.
2016
1. b. Bad debts expense is recorded as 2% of accounts receivable:
\$22,867 x .02 = \$457.34, which is \$457 rounded to the nearest dollar.
2016
2. Allowance Balance as of 3/31/16 ................... \$457 Cr.
Less: Account written off .............................. (100) Dr.
3. Many small business owners use the direct write-off method of
recording bad debts expense. The direct method is a simple and
Reporting in Action BTN 7-1
1. Apple’s receivables at September 28, 2013, are \$13,102 million.
2. Accounts receivable turnover for 2013 (\$ millions)
3. Average collection period = 365 / Turnover = 365 / 14.22 = 25.67 days
4. Liquid assets as a percent of current liabilities (\$ millions)
Comments: Current liabilities are obligations that are due to be paid or
liquidated within one year or one operating cycle of the business,
whichever is longer. Typically, cash provided from the operations of the
5. Note 1 to Apple’s financial statements describes its accounting
6. Solution depends on the financial statement information obtained.
\$170,910
Comparative Analysis BTN 7-2
1. Accounts Receivable Turnover (\$ millions)
Apple (Current Year):
= 14.22 times
Apple (Prior Year):
2. Average Collection Period (or “Average Days’ Sales Uncollected”)
Apple (Current Year): 365 days / 14.22 times = 25.67 days
3. Both companies appear reasonably efficient in collecting accounts
\$170,910
(\$13,102 + \$10,930) / 2
Ethics Challenge BTN 7-3
1. If the estimate for bad debts is reduced then less Bad Debts Expense
will be recognized on the income statement resulting in a higher net
2. Accounting procedures often allow for alternate methods or require the
use of estimates. Therefore, managers have some leeway in their
3. An informed owner or an effective board of directors will be aware of
Communicating in Practice BTN 7-4
TO: Sid Omar
DATE: _______________
SUBJECT: Difference Between Bad Debts Expense and Allowance
For Doubtful Accounts
In accounting for credit sales and bad debts, we report sales revenue in the
period the sales are made, even though some credit sales do not result in
Determining Allowance For Doubtful Accounts
The Allowance for Doubtful Accounts unadjusted balance at the end of the
year is the cumulative result of recording bad debts expense and writing
off specific accounts receivable in all past years. The recognition of bad
Taking It to the Net BTN 7-5
1. At December 31, 2013, eBay’s (\$ millions) net accounts receivable were
\$899, and at December 31, 2012, its net accounts receivable were \$822.
2.
\$ millions
December 31,
2013
December 31,
2012
3. These percentages seem high compared to other companies, but
Teamwork in Action BTN 7-6
Instructor note: Computations for the aging schedule are in the Problem 7-3A solution.
The check figure for total estimated uncollectibles is \$41,650.
December 31, 2015, Balance Sheet Presentation
** Net Realizable Accounts Receivable.
Entrepreneurial Decision BTN 7-7
1. Computation of added annual net income or loss
a.
Added Monthly Net Income or Loss under Plan A
Increased sales ............................................................... \$250,000
b.
Added Monthly Net Income or Loss under Plan B
Increased sales ............................................................... \$500,000
Entrepreneurial Decision BTN 7-7 continued
2. Plan (A) provides a slightly higher income, so if the client company can
only pursue one plan now, based purely on the financial aspect, it
should choose Plan (A).
Plan (A) might expand its product into new markets, and could increase