(15-20 min.) E 5-25B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2014
Dec.
31
Doubtful-Account Expense ($795,000 × .02) …
15,900
Allowance for Doubtful Accounts ……………
15,900
BALANCE SHEET
Current assets:
Accounts receivable, net of allowance
for doubtful accounts of $16,630* ……………………..
$65,370**
_____
*$730 + $15,900 = $16,630
**$82,000 − $16,630 = $65,370
(15 min.) E 5-26B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Oct.
Accounts Receivable ………………………………..
323,000
Sales Revenue ……………………………………..
323,000
Oct.
Cash ………………………………………………………..
257,000
Accounts Receivable …………………………...
257,000
Oct.
Allowance for Uncollectible Accounts………..
3,600
Accounts Receivable …………………………...
3,600
Oct.
Uncollectible-Account Expense
($323,000 × .03) …………………………………………
9,690
Allowance for Uncollectible Accounts ……
9,690
Req. 2
Accounts Receivable
Allowance for
Uncollectible Accounts
56,000
257,000
3,000
323,000
3,600
3,600
9,690
Bal.
118,400
9,090
Net accounts receivable = $109,310 ($118,400 − $9,090)
Pendley Party Shop expects to collect the net receivable amount.
Req. 3
BALANCE SHEET (Partial)
Current assets:
Accounts receivable ……………………………………………..
Less: Allowance for uncollectible accounts …………..
$118,400
(9,090)
Accounts receivable, net ……………………………………………….
$109,310
IINCOME STATEMENT (Partial)
Net sales
$323,000
(15-30 min.) E 5-27B
Req. 1
The credit balance at December 31 in Allowance for Doubtful Accounts
1-30 31–60 61–90 Over 90 Total
days days days days balance
$100,000 $80,000 $60,000 $20,000
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Dec. 31
Doubtful-Account Expense ………………………..
4,100
Allowance for Doubtful Accounts …………..
4,100
Allowance for Doubtful Accounts
16,000
4,100
Bal.
20,100
(continued) E 5-27B
Req. 3
BALANCE SHEET
Current assets:
Cash …………………………………………………………..
$ XX
Short-term investments ……………………………….
XX
Accounts receivable, net of allowance
for doubtful accounts of $20,100 ………………
239,900*
Or
Accounts receivable ……………………………………
$260,000
Less: Allowance for doubtful accounts …………
(20,100)
239,900
(15-20 min.) E 5-28B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
May
Accounts Receivable …………………………………
5,300
Service Revenue …………………………………..
5,300
Recorded revenue on account.
May
Bad-Debt Expense ($5,300 × .04) …………………
212
Allowance for Bad Debts ……………………….
212
Recorded expense for the month.
May
Sales Returns and Allowances ……………………
104
Accounts Receivable …………………………….
104
Recorded sales returns from customers.
May
Allowance for Bad Debts ($31 + $219) …………
250
Accounts Receivable …………………………….
250
Wrote off uncollectible receivables.
(10-15 min.) E 5-29B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
May
1
Note Receivable — Rock Cason …………………
19,000
Cash…………………………………………………….
19,000
July
6
Note Receivable — Fairway Golf Course …….
15,000
Service Revenue …………………………………..
15,000
16
Note Receivable — Hull, Inc……………………….
5,000
Accounts Receivable – Hull, Inc. ……………
5,000
31
Interest Receivable ……………………………………
343*
Interest Revenue …………………………………..
343
_____
*($19,000 × .06 × 91/365) + ($15,000 × .05 × 25/365) + ($5,000 × .04 × 15/365) = $343**
$284** + $51** + $8**
** Rounded to nearest dollar.
Oak Tree Realty earned interest revenue of $343 this year.
(10-15 min.) E 5-30B
Req. 1
Cash and Short-term Net current
(a)
Acid-test
=
Cash equiv. + investments + receivables
ratio
Total current liabilities
=
$7,000 + $29,000 + $62,000
$23,000 + $109,000
=
$98,000
$132,000
=
0.74
An acid-test ratio of 0.74 is fairly weak.
(b)
One day’s
=
Sales revenue
=
$812,500
=
$2,226
sales
365
365
Days’ sales
Average net
in
=
accounts receivable
=
($62,000 + $76,000) / 2
receivables
One day’s sales
$2,226
=
31 days
Req. 2
(10-15 min.) E 5-31B
Req. 1
Average collection period:
Millions of dollars
One day’s sales
=
$750,500
=
$2,056
365
Days’ sales in receivables
=
($4,870 + $5,210) / 2
=
2.45 days
(average collection period)
$2,056
Req. 2
City Electronics Co., Inc’s collection period is short because City
Quiz
Q5–32
b
Q5–33
c
Q5–34
d
Q5–35
a
[($170,000 × .02) + ($41,000 × .08) + ($9,000 × .20) −
$3,000 = $5,480]
Q5–36
$211,520
($220,000 − $8,480 = $211,520)
Q5–37
c
($100,000 × .02 = $2,000)
Q5–38
b
($3,000 + $2,000 = $5,000)
Q5–39
$3,000
($5,000 − $2,000 = $3,000)
Q5–40
d
($30,000 × .11 × 5/12 = $1,375)
Q5–41
a
Q5–42
c
($30,000 × .11 × 6/12 = $1,650)
Q5–43
b
Q5–44
Cash ………………………………
Note Receivable …………
Interest Receivable …….
Interest Revenue ………..
31,650
30,000
1,375
275
Q5–45
c
Q5–46
c
[($90,000 + $114,000) / 2] ÷ ($1,095,000 / 365 days) =
34 days]
Q5–47
a
Problems
(20-30 min.) P 5-48A
Reqs. 1 and 2
Cash
Investment in Trading Securities
38,000
20,000*
20,000*
2,500+
575**
17,500
Dividend Revenue
Unrealized Loss on
Trading Securities
575**
2,500+
_____
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2014
Nov.
16
Investment in Trading Securities ……………..
20,000
Cash (2,500 × $8) …………………………………
20,000
Purchased investment.
Dec.
16
Cash (2,500 × $0.23) ………………………………..
575
Dividend Revenue ……………………………….
575
Received cash dividend.
31
Unrealized Loss on Trading Securities …….
2,500
Investment in Trading Securities
[$20,000 − (2,500 × $7)] ………………………
2,500
Adjusted investment to fair value.
(continued) P 5-48A
Req. 3
BALANCE SHEET
Req. 4
INCOME STATEMENT
Other revenue and (expense):
Req. 5
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2015
Jan.
14
Cash …………………………………………………….
19,850
Investment in Trading Securities ………..
17,500
Gain on Sale of Trading Securities ……..
2,350
Sold investment at a gain.
(continued) P 5-48A
Req. 6
3.
BALANCE SHEET
Dec. 31
Current assets:
2015
2014
Investment in AFSS ………………………………….
$25,000
$17,500
4.
INCOME STATEMENT
Other revenue and (expense):
Dividend revenue ……………………………………..
$575
STOCKHOLDERS’ EQUITY
Accumulated OCI (Other Comprehensive
Income) ………………………………………………………..
$5,000*
$(2,500)
5. Sale of securities:
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Jan. 1
Cash ($10.50 x 2,500) …………………………………
26,250
Unrealized Gain on Investment in AFSS (OCI)
5,000
Investment in AFSS ……………………………….
25,000
Gain on Sale of Investment in AFSS ………
6,250
(10-15 min.) P 5-49A
MEMORANDUM
DATE: _________________
TO: Management of Brierra Products, Inc.
FROM: Student Name
RE: Evaluation of internal control over cash receipts from
customers
By opening the mail, the accountant has direct access to cash. This
creates an internal control weakness because the accountant also posts
credits to customer accounts. She can steal a cash receipt from a
customer and write off the customer account as uncollectible. The theft
(15-20 min.) P 5-50A
(All amounts in millions)
Reqs. 1 and 3
Accounts Receivable
Allowance for Uncollectible Accts
5,830
84,341
860
88,632
58
2,986
203
2,986
3,545
6,990
1,419
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Cash ……………………………………………..
9,848
Accounts Receivable ……………………..
88,632
Service Revenue ……………………….
98,480
b.
Cash ……………………………………………..
84,341
Accounts Receivable ………………..
84,341
c.
Uncollectible-Account Expense ………
3,545
Allowance for Uncollectible
Accounts ($88,632 × .04) …………
3,545
d.
Allowance for Uncollectible Accts …..
2,986
Accounts Receivable ………………..
2,986
e.
Notes Receivable …………………………..
203
Accounts Receivable ………………..
203
Interest Receivable ………………………..
1
Interest Revenue ($203 × .06 ×1/12)
1
f.
Accounts Receivable …………………….
58
Cash ……………………………………….
58
(continued) P 5-50A
Req. 4
These balances agree with the actual Quick Mail amounts.
Req. 5
INCOME STATEMENT
Service revenue ………………………..
+ Interest revenue ……………………….
− Uncollectible-account expense …
$98,480
1
(3,545)
Net effect on net income ……………
$94,936
(25-35 min.) P 5-51A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Nov.
30
Allowance for Doubtful Accounts ………………………
3,900
Accounts Receivable — Proctor Carpets ……..
3,100
Accounts Receivable — Antiques on Austin …
800
Dec.
31
Doubtful-Account Expense ………………………………..
9,628
Allowance for Doubtful Accounts ………………..
9,628*
_____
1-30 31–60 61–90 Over 90 Total
days days days days balance
$259,000 $93,000 $39,000 $36,000
Req. 2
Allowance for Doubtful Accounts
Nov. 30 Write-offs
3,900
Sept. 30 Balance
15,100
Dec. 31 Adjusting
9,628
Dec. 31 Balance
20,828
(continued) P 5-51A
Req. 3
Asher Communications
Comparative Balance Sheets (Partial)
December 31, 2015 and December 31, 2014
2015
2014
Accounts receivable……………………………….
$427,000
$408,000
Less: Allowance for doubtful accounts………
(20,828)
(9,700)
Accounts receivable, net………………………..
$406,172
$398,300
(20-25 min.) P 5-52A
Req. 1
Cash ($21,000 − $9,000) ………………………………..
$12,000
Investment in trading securities …………………….
12,000
Accounts receivable …………………………………….
$29,000
Less: Allowance for uncollectible accts …….
(1,700)
27,300
Inventory ……………………………………………………..
28,000
Prepaid expenses …………………………..…………….
6,000
Total current assets ………………………………….
$85,300
Accounts payable …………………………………………
Other current liabilities …………………………………
$30,000
27,000
Total current liabilities ………………………………
$57,000
Req. 2
As reported
Corrected
Current
=
$98,000
=
1.72
$85,300
=
1.50
ratio
$57,000
$57,000
Quick
$21,000 + $14,000
$12,000 + $12,000
(acid-test)
=
+ $29,000
=
1.12
+ $27,300
=
0.90
ratio
$57,000
$57,000
(continued) P 5-52A
Req. 3
Net income, as reported ……………………………..
$46,000
Less: Unrealized loss on trading investments
($14,000 − $12,000) ………………………………..
(2,000)
Less: Correction for conversion to the
allowance method —
Correct uncollectible-account expense,
per aging method ………………………………
$1,700
Uncollectible-account expense as
reported using the direct write-off
method ……………………………………………..
(500)
(1,200)
Net income, as corrected …………………………...
$42,800
(20-30 min.) P 5-53A
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2014
Oct.
31
Note Receivable — Stan’s Foods ……………..
24,000
Sales Revenue…………………………………….
24,000
Dec.
31
Interest Receivable
($24,000 × .06 × 2/12) ……………………………….
240
Interest Revenue …………………………………
240
2015
Jan.
31
Cash ………………………………………………………
24,360
Note Receivable — Stan’s Foods …………
24,000
Interest Receivable ……………………………..
240
Interest Revenue
($24,000 × .06 × 1/12) ……………………..
120
Feb.
18
Note Receivable — Dutton Market …………..
6,800
Accounts Receivable —
Dutton Market …………………………………..
6,800
19
Cash ………………………………………………………
6,600
Financing Expense …………………………………
200
Note Receivable — Dutton Market ……….
6,800
Nov.
11
Note Receivable — Kosher Foods Co. ……..
15,000
Cash …………………………………………………..
15,000
Dec.
31
Interest Receivable …………………………………
98
Interest Revenue
($15,000 × .0475 × 50/365) ……………….
98