(continued) P 5-53A
Req. 2
December 31,
BALANCE SHEET
2015
2014
Current assets:
Note receivable ……………………………………
$15,000
$24,000
Interest receivable ……………………………….
98
240
(15-25 min.) P 5-54A
Req. 1
Dollar amounts in millions
2015
2014
a. Current
=
Total current assets
=
$940
= 1.61
$840
= 1.29
ratio
Total current liabilities
$585
$650
Cash + Short-term
investments
b. Quick
(acid-test)
ratio
=
+ Net current receivables
=
$100+$145+$270
$80+$165+$260
Total current liabilities
$585
$650
=
0.88
= 0.78
c. One
day’s
sales
=
Net sales
=
$5,940
= $16.27
$5,200
= $14.25
365
365
365
Days’ sales
in
receivables
=
Average net receivables
=
($270+$260)/2
($260+$230)/2
One day’s sales
$16.27
$14.25
=
16 days
= 17 days
(continued) P 5-54A
Req. 2
The current ratio improved from 1.29 to 1.61. The quick (acid-test) ratio
increased from 0.78 to 0.88. Days’ sales in receivables decreased from
17 days to 16 days.
Req. 3
(20-30 min.) P 5-55B
Reqs. 1 and 2
Cash
Investment in Trading Securities
29,000
23,100*
23,100*
4,200+
987**
18,900
Dividend Revenue
Unrealized Loss on
Trading Securities
987**
4,200+
_____
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2014
Nov.
17
Investment in Trading Securities …………….
23,100
Cash (2,100 × $11) …………………………….
23,100
Purchased investment.
Dec.
19
Cash (2,100 × $0.47) ……………………………….
987
Dividend Revenue …………………………….
987
Received cash dividend.
31
Unrealized Loss on Trading Securities ……
4,200
Investment in Trading Securities
($23,100 − $18,900) …………………………..
4,200
Adjusted investment to market value.
(continued) P 5-55B
Req. 3
BALANCE SHEET
Current assets:
Investment in trading securities (2,100 × $9)…….. $ 18,900
Req. 4
INCOME STATEMENT
Req. 5
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2015
Jan.
11
Cash …………………………………………………..
21,928
Gain on Sale of Trading Securities …..
3,028
Investment in Trading Securities ……..
18,900
Sold investment at a gain.
(continued) P 5-55B
Req. 6
3.
BALANCE SHEET
Dec. 31
Current assets:
2015
2014
Investment in AFSS ………………………………….
$21,000
$18,900
4.
INCOME STATEMENT
Other revenue and (expense):
$987
Dividend revenue ……………………………………..
STOCKHOLDERS’ EQUITY
Accumulated OCI (Other Comprehensive
Income) ………………………………………………………..
$(2,100)
$(4,200)
5. Sale of securities:
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Jan. 1
Cash ($9 x 2,100) ……………………………………….
18,900
Loss on Sale of Investment in AFSS …………..
4,200
Investment in AFSS ……………………………….
21,000
Unrealized Loss on Investment in AFSS
(OCI) ……………………………………………………..
2,100
(10-15 min.) P 5-56B
MEMORANDUM
DATE: _________________
TO: Company Employees
FROM: Wes Cowley, President
RE: Procedures to ensure that all cash receipts are deposited in
the bank and that each day’s total cash receipts are posted to
accounts receivable.
1. Someone other than the accountant opens the mail. This person
separates customer checks from the accompanying remittance slips.
2. An employee with no access to the accounting records deposits the
cash in the bank immediately.
(15-20 min.) P 5-57B
(All amounts in millions)
Reqs. 1 and 3
Accounts Receivable
Allowance for Uncollectible Acct
5,836
85,706
759
89,536
42
3,415
198
3,415
4,477
6,095
1,821
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Cash …………………………..…………………………
9,948
Accounts Receivable …………………………..
89,536
Service Revenue ……………………………….
99,484
b.
Cash …………………………..………………………..
85,706
Accounts Receivable ………………………..
85,706
c.
Uncollectible-Account Expense ………………
4,477
Allowance for Uncollectible Accts
($89,536 × .05) …………………………………..
4,477
d.
Allowance for Uncollectible Accts …………..
3,415
Accounts Receivable ………………………..
3,415
e.
Notes Receivable ………………………………..
198
Accounts Receivable ……………………..
198
Interest Receivable …………………………..…
1
Interest Revenue ($198 × .06 ×1/12) ……
1
f.
Accounts Receivable ………………………….
42
Cash …………………………………………….
42
(continued) P 5-57B
Req. 4
These balances agree with the Ship Fast Corp. amounts.
Req. 5
INCOME STATEMENT
Service revenue ………………………..
+ Interest revenue ……………………….
− Uncollectible-account expense …
$99,484
1
(4,477)
Net effect on net income ……………
$95,008
(25-35 min.) P 5-58B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Nov.
30
Allowance for Doubtful Accounts ……………….
3,400
Accounts Receivable — Frisco Carpets ….
2,500
Accounts Receivable — Antiques
on the Avenue …………………………………
900
Dec.
31
Doubtful-Account Expense ………………………..
14,075
Allowance for Doubtful Accounts …………..
14,075*
_____
1-30 31–60 61–90 Over 90 Total
days days days days balance
$255,000 $78,000 $26,000 $79,000
Est. % uncollectible x .003 x .03 x .12 x .25
Req. 2
Allowance for Doubtful Accounts
Nov. 30 Write-offs
3,400
Sept. 30 Balance
15,300
Dec. 31 Adjusting
14,075
Dec. 31 Balance
25,975
(continued) P 5-58B
Req. 3
Foglemann Communications
Comparative Balance Sheets (Partial)
December 31, 2015 and December 31, 2014
2015
2014
Accounts receivable …………………………………
$438,000
$432,000
Less: Allowance for doubtful accounts ………
(25,975)
(7,300)
Accounts receivable, net …………………………..
$412,025
$424,700
(20-25 min.) P 5-59B
Req. 1
Cash ($15,000 − $4,000) ………………………………….
$11,000
Investment in trading securities ………………………
8,700
Accounts receivable ………………………………………
$31,000
Less: Allowance for uncollectibles ……………..
(2,400)
28,600
Inventory ……………………………………………………….
28,000
Prepaid expenses …………………………………………..
7,000
Total current assets ……………………………………
$83,300
Total current liabilities ………………………………..
$49,000
Req. 2
As reported
Corrected
Current
=
$90,000
=
1.84
$83,300
=
1.70
ratio
$49,000
$49,000
Quick
(acid-test)
=
$15,000 + $9,000
+ $31,000
=
1.12
$11,000 + $8,700 +
$28,600
=
0.99
ratio
$49,000
$49,000
(continued) P 5-59B
Req. 3
Net income, as reported ……………………………..
$54,000
Less: Unrealized loss on trading securities
($9,000 − $8,700) ……………………………………
(300)
Less: Correction for conversion to the
allowance method —
Correct uncollectible-account expense,
per aging method ……………………………..
$ 2,400
Uncollectible-account expense as
reported using the direct write-off
method ……………………………………………..
(600)
(1,800)
Net income, as corrected …………………………...
$51,900
(20-30 min.) P 5-60B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2014
Oct.
31
Note Receivable — Best-Yet Foods ……………..
36,000
Sales Revenue ………………………………………
36,000
Dec.
31
Interest Receivable ($36,000 × .05 × 2/12) ……..
300
Interest Revenue ……………………………………
300
2015
Jan.
31
Cash ………………………………………………………….
36,450
Note Receivable — Best-Yet Foods …………
36,000
Interest Receivable ………………………………..
300
Interest Revenue ($36,000 × .05 × 1/12) ……
150
Feb.
18
Note Receivable — Daphne’s Market ……………
7,400
Accounts Receivable — Daphne’s
Market ………………………………………………
7,400
19
Cash …………………………..…………………………….
7,200
Financing Expense ……………………………………..
200
Note Receivable — Daphne’s Market ………
7,400
Nov.
11
Note Receivable — Tiger Foods …………………..
15,500
Cash ……………………………………………………..
15,500
Dec.
31
Interest Receivable ……………………………………..
127
Interest Revenue ($15,500 × .06 × 50/365) ..
127
(continued) P 5-60B
Req. 2
December 31
BALANCE SHEET
2015
2014
Current assets:
Note receivable …………………………………………
$15,500
$36,000
Interest receivable …………………………………….
127
300
(30-40 min.) P 5-61B
Req. 1
Dollar amounts in millions
2015
2014
a. Current
=
Total current assets
=
$950
= 1.74
$870
= 1.38
ratio
Total current liabilities
$545
$630
Cash + Short-term
investments
b. Quick
(acid-test)
ratio
=
+ Net current receivables
=
$110 + $140+
$290
$90 + $175 +
$260
Total current liabilities
$545
$630
=
0.99
= 0.83
c. One
day’s
sales
=
Net sales
=
$5,960
= $16.33
$5,210
= $14.27
365
365
365
Days’ sales
in
receivables
=
Average net receivables
=
($290+$260)/2
($260+$250)/2
One day’s sales
$16.33
$14.27
=
17 days
= 18 days