Brief Exercise 7–10
(1)Allowance for uncollectible accounts:
Beginning balance $ 25,000
Deduct: Write-offs (16,000)
Required allowance (33 ,400)*
Bad debt expense $24,400
(2) Required allowance = $334,000** x 10% = $33,400*
Accounts receivable:
Beginning balance $ 300,000
Add: Credit sales 1,500,000
Deduct: Cash collections (1,450,000)
Write-offs (16 ,000)
Ending balance $ 334,000**
Brief Exercise 7–11
Allowance for uncollectible accounts:
Beginning balance $30,000
Add: Bad debt expense 40,000
Deduct: Required allowance (38 ,000)
Write-offs $32,000
Brief Exercise 7–12
Credit sales $8,200,000
Deduct: Cash collections (7,950,000)
Write-offs (32,000)*
Year-end balance in A/R (2 ,000,000)
Beginning balance in A/R $1,782,000
Solutions Manual, Vol.1, Chapter 7 7–1
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*Allowance for uncollectible accounts:
Beginning balance $30,000
Add: Bad debt expense 40,000
Deduct: Required allowance (38 ,000)
Write-offs $32,000
Brief Exercise 7–13
2018 interest revenue:
$20,000 x 6% x 1/12 = $100
2019 interest revenue:
$20,000 x 6% x 2/12 = $200
Brief Exercise 7–14
Sales revenue = present value of the note receivable
= $120,000 × 0.71299¥ = $85,559
¥ Present value of $1: n = 5, i = 7% (Table 2)
Solutions Manual, Vol.1, Chapter 7 7–2
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Brief Exercise 7–15
Assets decrease by $7,000:
Cash increases by $100,000 x 85% = $ 85,000
Receivable from factor increases by
($11,000 – 3,000 fee) 8,000
Accounts receivable decrease (100 ,000)
Net decrease in assets $ (7,000)
Liabilities would not change as a result of this transaction.
Income before income taxes decreases by $7,000
(the loss on sales of receivables)
The journal entry to record the transaction is as follows:
Cash (85% x $100,000)………………………………………………. 85,000
Loss on sale of receivables (to balance)………………………. 7,000
Receivable from factor ($11,000 fair value – 3,000 fee)……. 8,000
……………………………..Accounts receivable (balance sold)
……………………………………………………………………….100,000
Brief Exercise 7–16
Logitech would account for the transfer as a secured borrowing. The receivables
remain on the company’s books and a liability is recorded for the amount borrowed
plus the bank’s fee.
Brief Exercise 7–17
Under IFRS Huling would treat this transaction as a secured borrowing, because
it retains substantially all of the risks and rewards of ownership. Under U.S. GAAP
Huling would treat this transaction as a sale, because it has transferred control. Note,
however, that in practice we would typically expect for the entity that has the risks and
rewards of ownership to also have control over the assets, so we would expect these
criteria to usually lead to the same accounting.
Solutions Manual, Vol.1, Chapter 7 7–3
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Brief Exercise 7–18
$30,000 Face amount
450 Interest to maturity ($30,000 x 6% x 3/12)
30,450 Maturity value
(406 ) Discount ($30,450 x 8% x 2/12)
$30,044 Cash proceeds
Brief Exercise 7–19
Receivables turnover = $320,000 = 5.33 times
$60,000*
($50,000 + $70,000) 2 = $60,000*
Average collection = 365 = 68 days
period 5.33
Brief Exercise 7–20
Balance per books $22,340
Add:
Error in recording cash receipt ($550 – 500) 50
Deduct:
NSF checks (1,500)
Service charges (45 )
Corrected cash balance $20 ,845
Solutions Manual, Vol.1, Chapter 7 7–4
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Brief Exercise 7–21
Balance per bank statement $47,582
Add:
Deposits outstanding 2,500
Deduct:
Checks outstanding (7 ,224)
Corrected cash balance $42 ,858
Brief Exercise 7–22
$0. Einhorn would recognize no impairment charge, because it is not probable that
the receivable is impaired.
Brief Exercise 7–23
$30,000. Einhorn would recognize an impairment charge of $30,000, because under
the CECL model it does not matter whether it is probable that the receivable is
impaired. The key is the extent to which it is impaired given all current information.
Exercise 7–1
Requirement 1
Cash and cash equivalents includes:
a. Balance in checking account $13,500
Balance in savings account 22,100
b. Undeposited customer checks 5,200
c. Currency and coins on hand 580
f. U.S. treasury bills with 2-month maturity 15 ,000
Total $56 ,380
Solutions Manual, Vol.1, Chapter 7 7–5
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EXERCISES
Requirement 2
d. The $400,000 savings account will be used for future plant expansion and
therefore should be classified as a noncurrent asset, either in other assets or
investments.
e. The $20,000 in the checking account is a compensating balance for a
long-term loan and should be classified as a noncurrent asset, either in other
assets or investments.
f. The $20,000 in 7-month treasury bills should be classified as a current asset
along with other temporary investments.
Solutions Manual, Vol.1, Chapter 7 7–6
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Exercise 7–2
Requirement 1
Cash and cash equivalents includes:
Cash in bank—checking account $22,500
U.S. treasury bills 5,000
Cash on hand 1,350
Undeposited customer checks 1 ,840
Total $30 ,690
Requirement 2
The $10,000 in 6-month treasury bills should be classified as a current asset
along with other temporary investments.
Solutions Manual, Vol.1, Chapter 7 7–7
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Exercise 7–3
The FASB Accounting Standards Codification represents the single source of
authoritative U.S. generally accepted accounting principles. The specific citation for
each of the following items is:
1. Accounts receivables from related parties should be shown separately from
trade receivables: FASB ACS 210–10–S99–1: “Balance Sheet—Overall—SEC
Materials—General.” Also appears under ACS 310–10–45–13: “Receivables—
Overall—Other Presentation Matters—Receivables from Officers, Employees or
Affiliates, ” and under ASC 850–10–50–2: “Related Party Disclosures—Overall
—Disclosure”
2. Definition of Cash Equivalents: FASB ACS 305–10–20: “Cash and Cash
Equivalents—Overall—Glossary.”
3. Notes exchanged for cash are valued at the cash proceeds: FASB ACS
310–10–30–2: “Receivables—Overall—Initial Measurement—Notes Exchanged
for Cash.”
4. The two conditions that must be met to accrue a loss on an account
receivable: FASB ASC 310–10–35–8: “Receivables—Overall—Subsequent
Measurement.”
Solutions Manual, Vol.1, Chapter 7 7–8
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Exercise 7–4
Requirement 1: U.S. GAAP
Current Assets:
Cash $175,000
Current Liabilities:
Bank overdrafts $ 15,000
Requirement 2: IFRS
Current Assets:
Cash $160,000
(No current liabilities with respect to overdrafts.)
Solutions Manual, Vol.1, Chapter 7 7–9
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Solutions Manual, Vol.1, Chapter 7 7–10
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