g.
5,250
$
4,900
$
10,150
5,250
$
Nonoperating items:
Loss on sales of investments
PROBLEM 7.5A
CHARTER HOLDING CO. (concluded)
realized loss on the sale of marketable securities will reduce both taxable income and the
company’s income tax liability.
Realized gain
Net realized loss
Computation:
Less: realized loss
20 Minutes, Medium
Sept
1
75,000
Accounts Receivable (Party Plus)
75,000
Dec
31
2,500
Interest Revenue
2,500
June
1
80,625
Notes Receivable
75,000
Interest Revenue
3,125
June
1
80,625
Interest Receivable
2,500
Notes Receivable
75,000
Interest Receivable
2,500
Interest Revenue
3,125
c.
PROBLEM 7.6A
a.
General Journal
EASTERN SUPPLY
Notes Receivable
($75,000 x 9/12 x 10% = $5,625 interest, of which,
$3,125, was earned in current year).
To reclassify as an account receivable the
defaulted 9-month, 10% note from Party Plus
There are two reasons why the company adopts this policy: (1) The interest earned on the
20 Minutes, Medium
a.
b.
c.
d.
e.
(
(
$30,000 – $8,000
)
.
The accounts receivable turnover rate is computed by dividing sales by average accounts
receivable at their net realizable value. Recording uncollectible accounts expense decreases
PROBLEM 7.7
A
General Journal
SKI FACTOR
Y
current market value
(
$57,000 – $52,000
)
.
Accounts Receivable at Net Realizable Value
Notes and Interest Receivable
receivable
(
$120,000 x 5% x 1/12
)
.
To record accrued interest revenue on notes
Bank Reconciliation
an error in the recordin
g
of office su
pp
lies.
To record bank service char
g
es, to reclassif
y
NSF
To increase marketable securities to their
check as an account receivable, and to correct
Marketable Securities
40 Minutes, Strong
General
Bank
Ledger
Statement
Balance
Balance
a.
96,990
$
100,560
$
24,600
(31,700)
(200)
(3,600)
270
93,460
$
93,460
$
200
3,600
270
3,530
b.
75,000
$
3,000
78,000
$
93,460
171,460
$
c.
500
500
PROBLEM 7.8A
Deposits in Transit
HENDRY CORPORATION
Preadjustment balance, 12/31/15
To record interest revenue on the Moran
The necessary journal entry to update the
Error correction (check #244)
Adjusted cash balance, 12/31/15
Cash and cash equivalents at 12/31/15
Interest Receivable
Cash equivalents include:
Money market accounts
High-grade, 90-day, commercial paper
Total cash (from part a)
Total cash equivalents
Cash
Accounts Receivable (Kent Company)
Bank service charge
Industries note receivable ($100,000 x 6% x1/12).
bank reconciliation.
general ledger is as follows:
To update the general ledger following the
d.
2,150,000
$
(140,000)
(21,213,600)
20,000,000
3,600
800,000
$
40,000
$
(140,000)
400,000
300,000
500,000
$
e.
171,460
$
86,000
100,000
500
500,000
857,960
$
December 31, 2015
at December 31, 2015
Net realizable value of accounts receivable
Collections on account during 2015
(resulting from NSF check)
January 1, 2015
Allowance for doubtful accounts balance
Accounts receivable balance December 31, 2015
Credit sales made during 2015
Reinstating Kent Company’s account
PROBLEM 7.8A
Accounts receivable written off during 2015
HENDRY CORPORATION
Accounts receivable balance January 1, 2015
(continued)
f.
December 31, 2015
January 1, 2015
800,000
$
2,150,000
$
300,000
40,000
500,000
$
2,110,000
$
1,305,000
$
20,000,000
15.33
times
23.81
days
than the industry standard.
If the industry average is 45 days, Hendry Corporation’s turnover is better
Net realizable value
(sales ÷ average accounts receivable)
Accounts receivable turnover
PROBLEM 7.8A
Allowance for doubtful accounts (see part d.)
HENDRY CORPORATION
Accounts receivable (see part d.)
(concluded))
25 Minutes, Medium
a.
Balance per bank statement, November 30
4,710
$
3,850
8,560
$
115
$
170
530
815
7,745
$
6,750
$
4,000
10,750
$
15
$
2,900
90
3,005
7,745
$
Nov.
30
4,000
Notes Receivable
4,000
30
90
15
2,900
Cash
3,005
no. 814
Deduct: Outstanding checks
Check recording error (no. 810)
NSF check
SOLUTIONS TO PROBLEMS SET B
PROBLEM 7.1B
DODGE, INC.
Add: Deposit in transit
b.
no. 816
no. 830
Adjusted cash balance
Deduct:
Balance per accounting records, November 30
Service charge
Add: Note receivable collected by bank
To record collection by bank of note receivable
Adjusted cash balance (as above)
charges, customer’s check charged back as
Cash
from Wright Sisters.
Bank Service Charges
To adjust accounting records for bank service
Computer Equipment
Accounts Receivable
NSF, and correct the recorded cost of equipment.
45 Minutes, Strong
a. Corrected bank reconciliation for April:
Balance per bank statement, April 30
14,300
$
5,000
19,300
$
500
$
440
330
1,300
2,570
16,730
$
20,325
$
6,200
26,525
$
125
$
50
175
26,350
$
9,620
16,730
$
2,120
$
6,200
1,300
adjusted balance per the bank statement:
Overstating the deposit in transit
Improperly adding the amount of the note collected
by the bank to the bank balance
Omitting check no. 859 from the outstanding checks
Less: Indicated cash shortage ($26,350 – $16,730)
Bank service charges
Less: NSF check returned
recognition of cash shortage
Adjusted cash balance per accounting records (as above)
Errors leading to a $9,620 overstatement of the
b. Crook attempted to conceal the shortage by making
the following intentional errors in his reconciliation:
Less: Outstanding checks:
Add: Deposit in transit
Add: Note receivable collected by bank
no. 842
Subtotal
Subtotal
Adjusted cash balance per bank statement
no. 836
Balance per accounting records, April 30
no. 855
no. 859
Total outstanding checks
Adjusted cash balance per accounting records prior to
PROBLEM 7.2B
JASON CHAIN SAWS, INC.
c.
PROBLEM 7.2B
JASON CHAIN SAWS, INC. (concluded)
Two weaknesses in internal control are apparent. First, the bank account should be
15 Minutes, Medium
a.
Percentage
Estimated
Considered
Uncollectible
Amount
Uncollectible
Accounts
500,000$ 1% 5,000$
b.
Dec
31
44,600
44,600
49,300
$
4,700
44,600
$
c.
Jan
18
1,600
1,600
d. Such a policy would compensate the company for having to wait extended periods of time to
collect its cash. It also provides the company with additional “leverage” in a court of law,
should it decide to press charges against customers with delinquent accounts.
Uncollectible Accounts Expense
receivable from May Flowers.
To write-off as uncollectible the account
To increase the valuation account to the estimated
Allowance for Doubtful Accounts
General Ledger
PROBLEM 7.3B
Accounts Receivable by Age Group
STARLIGHT
a. Not yet due