7–46
SOLUTIONS TO PROBLEMS – SERIES A – CHAPTER 7
PROBLEM 7-17A
a.
Event Number
Type of Transaction
2016
1,
Asset Source
2.
Asset Source
3.
Asset Exchange
4.
Asset Use
5.
Asset Use
2017
1.
Asset Source
2.
Asset Exchange
3.
Asset Exchange
4a.*
Asset Exchange
4b.*
Asset Exchange
5.
Asset Use
6.
Asset Use
b. 2016 and 2017
Effect of Transactions on Financial Statements
No.
Assets
=
Liab.
+
Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
2016
1.
+
NA
+
NA
NA
N
+ FA
2.
+
NA
+
+
NA
+
NA
3.
+−
NA
NA
NA
NA
NA
+ OA
4.
−
NA
−
NA
+
−
− OA
5.
−
NA
−
NA
+
−
NA
2017
1.
+
NA
+
+
NA
+
NA
2.
+−
NA
NA
NA
NA
NA
+ OA
3.
+−
NA
NA
NA
NA
NA
NA
4a.*
+−
NA
NA
NA
NA
NA
NA
4b.*
+−
NA
NA
NA
NA
NA
+ OA
5.
−
NA
−
NA
+
−
− OA
6.
−
NA
−
NA
+
−
NA
*Transaction 4a is the reinstatement of the previously written-off account; 4b is the
PROBLEM 7-17A (cont.)
7–48
PROBLEM 7-17A (cont.)
Jova Company
T-Accounts 2016
Assets
=
Stockholders’ Equity
Common Stock
Cash
Accounts Receivable
1. 10,000
1. 10,000
2. 210,000
3. 162,000
Bal. 10,000
3. 162,000
4. 125,000
Bal. 48,000
Bal. 47,000
Allow. For Doubtful
Accounts
Service Revenue
5. 2,100
2. 210,000
Bal. 2,100
Bal. 210,000
Uncoll. Accts. Expense
5. 2,100
Bal. 2,100
Operating Expenses
4. 125,000
Bal. 125,000
7–49
PROBLEM 7-17B (cont.)
d. (2016)
Jova Company
Financial Statements
For the Year Ended 2016
Income Statement
Service Revenue
$210,000
Expenses
Operating Expenses
$125,000
Uncoll. Accts. Expense
2,100
Total Expenses
127,100
Net Income
$ 82,900
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$10,000
Plus: Stock Issued
-0-
Ending Common Stock
$10,000
Beginning Retained Earnings
$ -0-
Plus: Net Income
82,900
Ending Retained Earnings
82,900
Total Stockholders’ Equity
$92,900
7–50
PROBLEM 7-17A d. (cont.)
(2016)
Jova Company
Financial Statements
Balance Sheet
As of December 31, 2016
Assets
Cash
$47,000
Accounts Receivable
$48,000
Less: Allowance for Doubtful Accounts
(2,100)
45,900
Total Assets
$92,900
Liabilities
$ -0-
Stockholders’ Equity
Common Stock
$10,000
Retained Earnings
82,900
Total Stockholders’ Equity
92,900
Total Liabilities and Stockholders’ Equity
$92,900
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Inflow from Customers
$162,000
Outflow for Expenses
(125,000)
Net Cash Flow from Operating Activities
$37,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities
Inflow from Issue of Common Stock
10,000
Net Change in Cash
47,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$47,000
7-51
PROBLEM 7-17A (cont.)
e. (2016)
Jova Company
Date
Account Titles
Debit
Credit
2016
Closing Entries
1.
Service Revenue
210,000
Retained Earnings
210,000
2.
Retained Earnings
127,100
Operating Expenses
125,000
Uncollectible Accounts Expense
2,100
Jova Company
T-Accounts 2016 Closing Entries
Assets
=
Stockholders’ Equity
Common Stock
Cash
Accounts Receivable
Bal. 10,000
Bal. 47,000
Bal. 48,000
Retained Earnings
2. 127,100
1. 210,000
Bal. 82,900
Allowance for
Doubtful Accounts
Service Revenue
Bal. 2,100
1. 210,000
Bal. 210,000
Bal. -0-
Operating Expenses
Bal. 125,000
2. 125,000
Bal. -0-
Uncoll. Accts. Expense
Bal. 2,100
2. 2,100
Bal. -0-
7-52
PROBLEM 7-17A e. (cont.)
(2016)
Jova Company
Post-Closing Trial Balance
December 31, 2016
Account Title
Debit
Credit
Cash
$47,000
Accounts Receivable
48,000
Allowance for Doubtful Accounts
$ 2,100
Common Stock
10,000
Retained Earnings
82,900
Totals
$95,000
$95,000
PROBLEM 7-17A (cont.)
7-54
PROBLEM 7-17B c. (cont.)
(2017)
Jova Company
T-Accounts 2017
Assets
=
Stockholders’ Equity
Common Stock
Cash
Accounts Receivable
Bal. 10,000
Bal. 47,000
5. 205,000
Bal. 48,000
2. 335,000
1. 320,000
2. 335,000
Retained Earnings
4b. 800
4a. 800
3. 2,150
Bal. 82,900
Bal. 177,800
4b. 800
Bal. 30,850
Service Revenue
1. 320,000
Bal. 320,000
Allow. For Doubtful
Accounts
Operating Expenses
Bal. 2,100
5. 205,000
3. 2,150
4a. 800
Bal. 205,000
6. 1,600
Bal. 2,350
Uncoll. Accts. Expense
6. 1,600
Bal. 1,600
7-55
PROBLEM 7-17A
d. (2017)
Jova Company
Financial Statements
For the Year Ended 2017
Income Statement
Service Revenue
$320,000
Expenses
Operating Expenses
$205,000
Uncoll. Accts. Expense
1,600
Total Expenses
(206,600)
Net Income
$113,400
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$10,000
Plus: Stock Issued
-0-
Ending Common Stock
$10,000
Beginning Retained Earnings
$ 82,900
Plus: Net Income
113,400
Ending Retained Earnings
196,300
Total Stockholders’ Equity
$206,300
7-56
PROBLEM 7-17A d. (cont.)
(2017)
Jova Company
Financial Statements
Balance Sheet
As December 31, 2017
Assets
Cash
$177,800
Accounts Receivable
$ 30,850
Less: Allowance for Doubtful Accounts
(2,350)
28,500
Total Assets
$206,300
Liabilities
$ -0-
Stockholders’ Equity
Common Stock
$10,000
Retained Earnings
196,300
Total Stockholders’ Equity
206,300
Total Liabilities and Stockholders’ Equity
$206,300
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows From Operating Activities:
Inflow from Customers
$335,800
Outflow for Expenses
(205,000)
Net Cash Flow from Operating Activities
$130,800
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities
-0-
Net Change in Cash
130,800
Plus: Beginning Cash Balance
47,000
Ending Cash Balance
$177,800
7-57
PROBLEM 7-17A (cont.)
e. (2017)
Jova Company
Date
Account Titles
Debit
Credit
2017
Closing Entries
1.
Service Revenue
320,000
Retained Earnings
320,000
2.
Retained Earnings
206,600
Operating Expenses
205,000
Uncollectible Accounts Expense
1,600
Jova Company
T-Accounts 2017 Closing Entries
Assets
=
Stockholders’ Equity
Common Stock
Cash
Accounts Receivable
Bal. 10,000
Bal. 177,800
Bal. 30,850
Retained Earnings
Bal. 82,900
2. 206,600
1. 320,000
Bal. 196,300
Allow. For Doubtful
Accounts
Service Revenue
Bal. 2,350
1. 320,000
Bal. 320,000
Bal. -0-
Operating Expenses
Bal. 205,000
2. 205,000
Bal. -0-
Uncoll. Accts. Expense
Bal. 1,600
2. 1,600
Bal. -0-
7-58
PROBLEM 7-17A e. (cont.)
(2017)
Jova Company
Post-Closing Trial Balance
December 31, 2017
Account Title
Debit
Credit
Cash
$177,800
Accounts Receivable
30,850
Allowance for Doubtful Accounts
$ 2,350
Common Stock
10,000
Retained Earnings
196,300
Totals
$208,650
$208,650
7-59
PROBLEM 7-18A
a.
Services on Account
$290,000
Less: Ending Balance of Accounts Receivable
(46,000)
Collections of Accounts Receivable
$244,000
b. Services on Account $290,000 x 1% = $2,900 of Uncollectible
Accounts Expense
c.
Direct Service Co.
General Journal, 2016
Event
Account Title
Debit
Credit
1.
Accounts Receivable
290,000
Service Revenue
290,000
2.
Cash
244,000
Accounts Receivable
244,000
3.
Uncollectible Accounts Expense
2,900
Allowance for Doubtful Accounts
2,900
d. Accounts Receivable Ending Balance
$46,000
Less: Allowance for Doubtful Accounts
(2,900)
Net Realizable Value of Accounts Receivable
$43,100
7-60
PROBLEM 7-18A (cont.)
e.
Direct Service Co.
Effect of Events on Financial Statements
Event
Assets
=
Liab.
+
Equity
Rev.
−
Exp.
=
Net Inc.
Cash Flows
Cash
+
Acct. Rec.
−
Allow.
=
NA
+
Ret. Earn.
1.
NA
+
290,000
−
NA
=
NA
+
290,000
290,000
−
NA
=
290,000
NA
2.
244,000
+
(244,000)
−
NA
=
NA
+
NA
NA
−
NA
=
NA
244,000 OA
3.
NA
+
NA
−
2,900
=
NA
+
(2,900)
NA
−
2,900
=
(2,900)
NA
Totals
244,000
+
46,000
−
2,900
=
-0-
+
287,100
290,000
−
2,900
=
287,100
244,000
PROBLEM 7-19A
Accounts Receivable
Allowance for Doubtful Accounts
Bal. 78,500
Bal. 4,710
sales 550,000
coll. 556,000
write-off 2,850
write-off 2,850
Bal. 1,860
Bal. 69,650
est. 926
Bal. 2,786
7-62
PROBLEM 7-20A
a.
Roth, Inc.
General Journal, 2016
Event
Account Titles
Debit
Credit
1.
Cash
50,000
Common Stock
50,000
2.
Merchandise Inventory
140,000
Accounts Payable
140,000
3a.
Accounts Receivable
250,000
Sales Revenue
250,000
3b.
Cost of Goods Sold
110,000
Merchandise Inventory
110,000
4.
Cash
236,000
Accounts Receivable
236,000
5.
Accounts Payable
118,000
Cash
118,000
6.
Salaries Expense
50,000
Cash
50,000
7.
Operating Expenses
28,000
Cash
28,000
8.
Uncollectible Accounts Expense*
570
Allowance for Doubtful Accts.
570
*
Number of days
past due
Amount
Percent Likely to be
Uncollectible
Allowance
Balance
Current
$10,000
.01
$ 100
0-30
2,000
.05
100
31–60
1,200
.10
120
61–90
500
.20
100
Over 90 days
300
.50
150
Total
$570
7-63
PROBLEM 7-20A a. (cont.)
Roth, Inc.
T-Accounts
Assets
=
Liabilities
+
Stockholders’ Equity
Cash
Accounts Payable
Common Stock
1. 50,000
5. 118,000
5. 118,000
2. 140,000
1. 50,000
4. 236,000
6. 50,000
Bal. 22,000
Bal. 50,000
7. 28,000
Bal. 90,000
Sales Revenue
3a. 250,000
Accounts Receivable
Bal. 250,000
3a. 250,000
4. 236,000
Bal. 14,000
Cost of Goods Sold
3b. 110,000
Allow. Doubt. Accts.
Bal. 110,000
8. 570
Bal. 570
Operating Expenses
7. 28,000
Bal. 28,000
Merchandise Inventory
2. 140,000
3b. 110,000
Salaries Expense
Bal. 30,000
6. 50,000
Bal. 50,000
Uncoll. Accounts Exp.
8. 570
Bal. 570
7-64
PROBLEM 7-20A (cont.)
b.
Roth, Inc.
Financial Statements
For the Year Ended 2016
Income Statement
Sales Revenue
$250,000
Cost of Goods Sold
(110,000)
Gross Margin
140,000
Operating Expenses
Operating Expenses
$28,000
Salaries Expense
50,000
Uncollectible Accts. Expense
570
Total Operating Expenses
(78,570)
Net Income
$ 61,430
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
$ -0-
Plus: Stock Issued
50,000
Ending Common Stock
$ 50,000
Beginning Retained Earnings
$ -0-
Plus: Net Income
61,430
Ending Retained Earnings
61,430
Total Stockholders’ Equity
$111,430
7-65
PROBLEM 7-20A b. (cont.)
Roth, Inc.
Balance Sheet
As of the End of the Year 2016
Assets
Cash
$ 90,000
Accounts Receivable
$14,000
Less, Allowance for Doubtful Accounts
(570)
13,430
Merchandise Inventory
30,000
Total Assets
$133,430
Liabilities
Accounts Payable
$ 22,000
Stockholders’ Equity
Common Stock
$50,000
Retained Earnings
61,430
Total Stockholders’ Equity
111,430
Total Liabilities and Stockholders’ Equity
$133,430