7.21 (Abson Corporation; journal entries for service contracts.)
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+180,000
–180,000
To record sale of 300 annual contracts.
3/31/08
Shareholders’
IncSt → RE
Assets
=
Liabilities
+
Shareholders’
(Class.)
IncSt → RE
Solutions 7-22
7.21 a. continued
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–82,500
+82,500
IncSt → RE
To recognize revenue on 500 contracts sold during the
4/01/08–6/30/08
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–71,000
–71,000
IncSt → RE
7/01/08–9/30/08
Cash ………………………………………………………………. 240,000
7.21 a. continued
9/30/08
7.21 b. continued
Balance
Contracts X Remaining X $600 = Amount
7.22 (Diversified Technologies; allowance method for uncollectible accounts.)
Accounts Receivable Net………………………………………………… $ 27,524
7.23 (York Company; aging accounts receivable.)
Bad Debt Expense …………………………………………………. 9,050
7.24 (Dove Company; aging accounts receivable.)
Bad Debt Expense …………………………………………………. 3,700
7-25 Solutions
Solutions 7-26
7.25 (Hamilia S.A.; aging accounts receivable.)
Allowance for Uncollectible Accounts ………………………. 21,500
Bad Debt Expense …………………………………………….. 21,500
=
Liabilities
+
Shareholders’
Equity
(Class.)
+21,500
IncSt → RE
7.26 (Seward Corporation; reconstructing events when using the allowance
method.)
a. Accounts Receivable …………………………..……………. 240,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+240,000
+240,000
IncSt → RE
b. Bad Debt Expense …………………………………………… 4,800
Allowance for Uncollectible Accounts …………….. 4,800
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–4,800
–4,800
IncSt → RE
7-27 Solutions
7.26 continued.
c. Allowance for Uncollectible Accounts ($8,700 +
$4,800 – $9,100) …………………………..………………. 4,400
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+4,400
–4,400
d. Cash ($82,900 + $240,000 – $4,400 – $87,300) …….. 231,200
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+231,200
–231,200
7.27 (Pandora Company; allowance method: reconstructing journal entry from
events.)
Bad Debt Expense …………………………………………………. 3,700
=
Liabilities
+
Shareholders’
Equity
(Class.)
–3,700
IncSt → RE
Writeoff of $2,200 + Ending Balance of Allowance of $5,000
– Beginning Balance of $3,500 = $3,700.
7.28 (Milton Corporation; allowance method: reconstructing journal entries
from events.)
Accounts Receivable …………………………………………… 75,000,000
Sales Revenue ………………………………………………. 75,000,000
=
Liabilities
+
Shareholders’
Equity
(Class.)
+75,000,000
IncSt → RE
$750,000 is 1% of Sales Revenue; Sales Revenue =
$750,000/.01.
Solutions 7-28
7.28 continued.
Bad Debt Expense ……………………………………………… 750,000
Allowance for Uncollectible Accounts ……………… 750,000
=
Liabilities
+
Shareholders’
Equity
(Class.)
–750,000
IncSt → RE
Allowance for Uncollectible Accounts ($1,400,000 +
$750,000 – $1,550,000) ………………………………….. 600,000
Accounts Receivable …………………………..………. 600,000
=
Liabilities
+
Shareholders’
Equity
(Class.)
Cash ($15,200,000 + $75,000,000 – $600,000 –
$17,600,000) …………………………………………………. 72,000,000
=
Liabilities
+
Shareholders’
Equity
(Class.)
7.29 (Reconstructing events from journal entries.)
a. Estimated bad debt expense for the period is $2,300 using the
allowance method.
7-29 Solutions
7.30 (Heath Company; journal entries for the allowance method.)
a. 2006
Bad Debt Expense (.03 X $340,000) ……………………. 10,200
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–10,200
–10,200
IncSt → RE
Allowance for Uncollectible Accounts ………………… 1,800
Accounts Receivable …………………………………….. 1,800
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+1,800
–1,800
2007
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–13,500
–13,500
IncSt → RE
Allowance for Uncollectible Accounts ………………… 8,300
Accounts Receivable …………………………………….. 8,300
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+8,300
–8,300
2008
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–17,400
–17,400
IncSt → RE
Solutions 7-30
7.30 a. continued.
Allowance for Uncollectible Accounts ………………… 14,100
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+14,100
–14,100
b. Yes. Uncollectible accounts arising from sales in 2006, 2007, and
7.31 (Schneider Corporation; journal entries for the allowance method.)
a. 2006
Bad Debt Expense (.02 X $750,000) ……………………. 15,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–15,000
–15,000
IncSt → RE
Allowance for Uncollectible Accounts ………………… 1,300
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+1.300
–1,300
2007
Bad Debt Expense (.02 X $1,200,000) …………………. 24,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–24,000
–24,000
IncSt → RE
Allowance for Uncollectible Accounts ………………… 11,200
Accounts Receivable …………………………………….. 11,200
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+11.200
7-31 Solutions
–11,200
Solutions 7-32
7.31 a. continued.
2008
Bad Debt Expense (.02 X $2,400,000) …………………. 48,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–48,000
–48,000
IncSt → RE
Allowance for Uncollectible Accounts ………………… 23,600
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+23.600
–23,600
7.32 (Fujitsu Limited; reconstructing events when using the allowance
method.)
a. Accounts Receivable …………………………..……………. 5,100,163
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+5,100,163
+5,100,163
IncSt → RE
b. Bad Debt Expense (.01 X ¥5,100,163) ………………… 51,002
Allowance for Uncollectible Accounts …………….. 51,002
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–51,002
–51,002
IncSt → RE
c. Allowance for Uncollectible Accounts ………………… 50,877
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+50,877
–50,877
7-33 Solutions
Solutions 7-34
7.32 continued.
d. Cash ………………………………………………………………. 4,880,538
Accounts Receivable …………………………………….. 4,880,538
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+4,880,538
–4,880,538
¥4,880,538 = ¥885,300 + ¥5,100,163 – ¥50,877 –
¥1,054,048.
7.33 (WollyMartin; effects of transactions involving suppliers and customers on
cash flows.)
a. ฀127,450 = ฀130,000 – (฀8,600 – ฀8,000) + (฀750 – ฀700) – ฀2,000
7.34 (Shannon Construction Company; percentage-of-completion and
completed contract methods of income recognition.)
Percentage-of-Completion Method
Year Degree of Completion Revenue Expense Income
2007 $1,200,000/$4,800,000 = 25.0% $ 1,500,000 $ 1,200,000 $ 300,000
Completed Contract Method
Year Revenue Expense Income
2007 — — —
2008 — — —
7-35 Solutions
7.35 (Raytheon; percentage-of-completion and completed contract methods of
income recognition.)
Percentage-of-Completion Method
Year Degree of Completion Revenue Expense Income
2006 $200/$700 = 28.6% $ 257.4 $ 200 $ 57.4
Completed Contract Method
Year Revenue Expense Income
2006 — — —
7.36 (Cunningham Realty Partners; installment and cost recovery methods of
income recognition.)
Installment Method
(PLUG)
Year Revenue Expenseb Incomea
2008 $ 30,000 $ 20,000 $ 10,000
2009 30,000 20,000 10,000
aIncome = Gross Margin Percentage X Cash Received, or ($40,000/
$120,000) X $30,000 = $10,000.
Cost-Recovery-First Method
Year Revenue Expense Income
2008 $ 30,000 $ 30,000 $ -0-
2009 30,000 30,000 -0-
Solutions 7-36
7.37 (Boeing; installment and cost recovery methods of income recognition.)
(Amounts in Millions)
Installment Method
(PLUG)
Year Revenue Expenseb Incomea
2007 $ 24 $ 19 $ 5
Cost-Recovery-First Method
Year Revenue Expense Income
2007 $ 24 $ 24 $ -0-
7.38 (Nordstrom; revenue recognition at and after time of sale.)
a. December 2008
Cash ………………………………………………………………. 8,000,000
Accounts Receivable ………………………………………… 24,000,000
Sales Revenue ……………………………………………… 20,000,000
Assets
=
Liabilities
+
Shareholders’E
quity
(Class.)
+8,000,000
+24,000,000
+12,000,000
+20,000,000
IncSt → RE
Cost of Goods Sold …………………………………………… 7,200,000
Merchandise Inventory ………………………………… 7,200,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–7,200,000
–7,200,000
IncSt → RE
7-37 Solutions
7.38 continued.
b. Adjusting Entries for December 2008
Bad Debt Expense …………………………………………… 240,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–640,000
–240,000
IncSt → RE
–400,000
IncSt → RE
c. Nordstrom Earned Income before Taxes
Sales Revenue ………………………………………………………….. $ 20,000,000
Less Sales Returns …………………………………………………… (400,000)
d. January 2009
Advances from Customers (Gift Cards) ……………… 6,000,000
Cost of Goods Sold …………………………………………… 3,600,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–3,600,000
–6,000,000
–3,600,000
IncSt → RE
+6,000,000
IncSt → RE
Sales Returns ………………………………………………….. 120,000
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–120,000
–120,000
IncSt → RE
Solutions 7-38
7.39 (Hilton Hotels; revenue recognition at or after time of sale.)
a. February 2, 2008: Journal entry to record internet special
reservation for four nights at $150 per night.
Assets
=
Liabilities
+
Shareholders’
Equity
+600
+600
February 20, 2008: Journal entry to record revenue after services
supplied.
Advances from Customer …………………………………. 600
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–600
+600
IncSt → RE
b. February 2, 2008: Journal entry to record internet special
reservation for four nights at $150 per night.
Cash ………………………………………………………………. 600
Assets
=
Liabilities
+
Shareholders’
Equity
+600
+600
February 14, 2008: Journal entry to record revenue after customer
cancels the reservation.
Advances from Customers ………………………………… 600
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–600
+600
IncSt → RE
7-39 Solutions
7.39 continued.
c. February 2, 2008: Journal entry to record refundable room
reservation for four nights at $220 per night.
Cash ………………………………………………………………. 880
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+880
+880
Advances from Customer …………………………………. 880
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–880
+880
IncSt → RE
d. February 2, 2008: Journal entry to record refundable room
reservation for four nights at $220 per night.
Advances from Customer ……………………………… 880
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+880
+880
February 14, 2008: Journal entry to record cancellation of
refundable room reservation.
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–880
–880
Solutions 7-40
7.39 continued.
e. February 2, 2008: Journal entry to record refundable room
reservation for four nights at $220 per night.
Cash ………………………………………………………………. 880
Advances from Customer ……………………………… 880
Assets
=
Liabilities
+
Shareholders’
Equity
+880
+880
February 16, 2008: Journal entry to record revenue (for one night)
after customer cancels the reservation after 3 p.m., and to refund the
remaining three nights.
Advances from Customer …………………………………. 880
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
–660
–880
+220
IncSt → RE
7.40 (Stone Pest Control; revenue recognition at and after time of sale.)
a. January 4, 2008: Journal entry to record revenue for pest control
services rendered.
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+80
+80
IncSt → RE
b. January 4, 2008: Journal entry to record pest control services
rendered for cash.
Assets
=
Liabilities
+
Shareholders’
Equity
(Class.)
+180
+180
IncSt → RE