7-86
PROBLEM 7-26A a. (cont.)
Tile, Etc., Inc.
Financial Statements
For the Year Ended December 31, 2017
Income Statement
Sales Revenue
$1,325,000
Cost of Goods Sold
(676,000)
Gross Margin
649,000
Operating Expenses
Credit Card Expense
$ 7,600
Selling and Admin. Expenses
145,000
Uncoll. Accts. Expense
8,900
Total Operating Expenses
(161,500)
Operating Income
487,500
Add: Non-operating Items
Interest Revenue
2,800
Net Income
$ 490,300
Statement of Changes in Stockholders’ Equity
Beginning Common Stock
Plus: Stock Issued
Ending Common Stock
$ 450,000
Beginning Retained Earnings
Plus: Net Income
Ending Retained Earnings
587,300
Total Stockholders’ Equity
$1,077,300
7-87
PROBLEM 7-26A a. (cont.)
Tile, Etc., Inc.
Balance Sheet
As of December 31, 2017
Assets
Cash
$342,400
Accounts Receivable
$387,500
Less: Allowance for Doubtful Accounts
(19,400)
368,100
Merchandise Inventory
329,000
Interest Receivable
2,800
Notes Receivable
60,000
Total Assets
$1,102,300
Liabilities
Accounts Payable
$ 65,000
Total Liabilities
65,000
Stockholders’ Equity
Common Stock
$450,000
Retained Earnings
587,300
Total Stockholders’ Equity
1,037,300
Total Liabilities and Stockholders’ Equity
$1,102,300
7-82
PROBLEM 7-26A a. (cont.)
Tile, Etc., Inc.
Statement of Cash Flows
For the Year Ended December 31, 2017
Cash Flows From Operating Activities:
Inflow from Customers*
$1,047,400
Outflow for Inventory
(610,000)
Outflow for Expenses
(145,000)
Net Cash Flow from Operating Activities
$292,400
Cash Flows From Investing Activities:
Outflow for Notes Receivable
$(60,000)
Net Cash Flow from Investing Activities
(60,000)
Cash Flows From Financing Activities
-0-
Net Change in Cash
232,400
Plus: Beginning Cash Balance
110,000
Ending Cash Balance
$342,400
7-83
ATC 7-1
All dollar amounts are in millions.
a. Note 6 on page 41 of the Form 10-K explains that the company sold its U.S.
7-84
ATC 7-2
a. (1)
Expo
White
Zina
Total Sales
$125,000
$210,000
$195,000
Cash Sales
85,000
26,000
120,000
Sales on Account
40,000
184,000
75,000
Accounts Receivable, 1/1/16
6,200
42,000
8,100
Accounts Receivable, 12/31/16
5,600
48,000
7,500
Allowance for Doubtful Acct, 1/1/16
186
1,840
405
Allowance for Doubtful Acct, 12/31/16
224
1,680
435
Uncoll. Accts. Expense, 2016
242
1,200
395
Uncollectible accounts charged off,
2015
204
1,360
365
Collections of accounts receivable,
2016
40,396
176,640
75,235
(2) Uncollectible Accounts
Expo – 2015: $186 $6,200 = .03 or 3%
(3) Sales on Account
(4) Accounts Receivable Turnover
Expo: $40,000 $5,600 = 7.14
87.6%.
7-85
ATC 7-2 (cont.)
d. Zina appears to be doing the best job of collecting it
accounts receivable with just .19% of its sales on account
7-86
ATC 7-3
a. The rather short collection period for Boeing will surprise many students. They
may suggest that Boeing collects its receivables soon after each airplane is
manufactured because it has been “made to order.” This, of course, is only
partly true. Boeing bills and collects payments from customers as their airplanes
7-87
ATC 7-4
a. Accounts receivable turnover:
2013: $7,146,079 ÷ $444,912 = 16.1 times
2012: $6,644,252 ÷ $461,383 = 14.4 times
7-88
ATC 7-5
a. Since AutoZone sells directly to consumers, it probably receives most of its
payments in cash or by credit card, so it collects the cash from its sales rather
quickly. Conversely, most of BorgWarner’s sales are to other businesses, and
7-89
ATC 7-6
a.
Factors Paul Smith should consider before allowing credit sales:
1. The cash flow – Can he finance his inventory while the
2. The cost of financing the inventory.
3. The creditworthiness of the customers.
4. Payment history of customers in his industry.
5. Additional business if he allows charge sales.
b. The memo should contain a discussion of the factors listed
above. It should also contain a discussion of the
7-90
ATC 7-7
a. Net income is artificially inflated because of the failure
to properly recognize bad debt expense when it became known
that some of the receivable balance was uncollectible. The
balance sheet is affected in two ways. First, retained
earnings and therefore stockholder’s equity are overstated.
receivable. He knows that the accounts receivable balance
have become impaired but would be deceiving the bank in
order to obtain the loan he needed. This deception by
deliberate omission of important facts would constitute
fraud.
c. The three elements of the fraud triangle are:
known (secret) information that if known by the bank would
preclude him from getting the loan he needs.
The capacity for rationalization—Saunders’ company is
thriving, therefore, he has every reason to believe that
repayment of the loan will not be a problem. He further
7-91
ATC 7–7 (cont.)
revenues must be realized or realizable to be recognized. Since
7-92
ATC 7-8
This solution is based on the companies’ From10-K for their 2013 fiscal year, and dollar
amounts are in thousands. (Whirlpool reports in millions, but their numbers have been
converted to thousands.)
Whirlpool Corporation
for 2013. Accounts receivable is the sum of “Accounts receivable” of $52,919
and “Accounts receivable–affiliates” of $284. The allowances for doubtful
accounts for these two sources of receivables were $24,318 and $-0-
7-93
ATC 7-8 – continued
e. Whirlpool sells appliances to dealers, who in turn sell them
to customers. Whirlpool must allow the
dealers a reasonable time to sell these
7-94
EXERCISE 7-1B
Event
Assets
=
Liab.
+
Equity
Rev.
–
Exp.
=
Net Inc.
Cash Flows
=
+
Ret. Earn.
1.
+
=
NA
+
+
+
−
NA
=
+
NA
2.
+/−
=
NA
+
NA
NA
−
NA
=
NA
+ OA
3.
−
=
NA
+
−
NA
−
+
=
−
NA
7-95
EXERCISE 7-2B
a.
Sandy’s Accounting Service
General Journal
Date
Account Titles
Debit
Credit
2016
1.
Accounts Receivable
96,000
Service Revenue
96,000
2.
Cash
80,000
Accounts Receivable
80,000
3.
Salaries Expense
32,000
Cash
32,000
4.
Uncollectible Accounts Expense
1,600
Allowance for Doubtful Accounts
1,600
b.
Sandy’s Accounting Service
T-Accounts
Assets
=
Liabilities
+
Equity
Cash
Service Revenue
2016
2016
2.
80,000
3.
32,000
1.
96,000
Bal.
48,000
Bal.
96,000
Accounts Receivable
Salaries Expense
2016
2016
1.
96,000
2.
80,000
3.
32,000
Bal.
16,000
Bal.
32,000
Allow. for Doubt. Accts.
Uncoll. Accts. Expense
2016
2016
4.
1,600
4.
1,600
Bal.
1,600
Bal.
1,600
EXERCISE 7-2B (cont.)
c.
Sandy’s Accounting Service
Income Statement
For the Year Ended December 31, 2016
Service Revenue
$96,000
Operating Expenses
Salaries Expense
$32,000
Uncollectible Accounts Expense
1,600
Total Operating Expenses
(33,600)
Net Income
$62,400
Assets
Cash
$48,000
Accounts Receivable
Less: Allowance for Doubtful Accounts
Total Assets
$62,400
Liabilities
Retained Earnings
$62,400
$62,400
7-97
EXERCISE 7-2B c. (cont.)
Sandy’s Accounting Service
Statement of Cash Flows
For the Year Ended December 31, 2016
Cash Flows From Operating Activities:
Inflow from Customers
$80,000
Outflow for Expenses
(32,000)
Net Cash Flow from Operating Activities
$48,000
Cash Flows From Investing Activities
-0-
Cash Flows From Financing Activities
-0-
Net Change in Cash
48,000
Plus: Beginning Cash Balance
-0-
Ending Cash Balance
$48,000
7-98
EXRECISE 7-3B
a. Analyze the Accounts Receivable account:
Accounts Receivable
Beginning Balance
$ 4,000
Plus: Revenue on Account
21,000
Less: Write-off
(180)
Less: Ending Balance
(4,500)
Collections of Accounts Rec.
$20,320
b. Analyze the Allowance for Doubtful Accounts account:
Allowance for Doubtful Accounts
Beginning Balance
$150
Less: Write-off
(180)
Less: Ending Balance
(250)
Uncollectible Accounts Expense
$280
format.
7-99
EXERCISE 7-4B
a. and c.
Reliable Auto Service
General Journal
Date
Account Titles
Debit
Credit
2016
1.
Accounts Receivable
45,000
Service Revenue
45,000
2.
Cash
32,000
Accounts Receivable
32,000
3.
Uncollectible Accounts Expense1
450
Allowance for Doubtful Accounts
450
4. cl
Service Revenue
45,000
Retained Earnings
45,000
5. cl
Retained Earnings
450
Uncollectible Accounts Exp.
450
2017
1.
Allowance for Doubtful Accounts
320
Accounts Receivable
320
2.
Accounts Receivable
65,000
Service Revenue
65,000
3.
Cash
66,000
Accounts Receivable
66,000
4.
Uncollectible Accounts Expense2
650
Allowance for Doubtful Accounts
650