Exercise 7–30
Requirement 1
Step 1: Bank Balance to Corrected Balance
Balance per bank statement $38,018
Step 2: Book Balance to Corrected Balance
Balance per books $38,918
Add: Error in recording cash
Requirement 2
To correct error in recording cash receipt from credit customer:
…………………………………….Accounts receivable
To record credits to cash revealed by the bank reconciliation:
…………………………………………………………..Cash 4,
Note: Each of the adjustments to the book balance required journal entries.
None of the adjustments to the bank balance require entries.
Exercise 7–31
Lewis would record an impairment of $0.6 million for the Bebko note, because
Lewis would record $0 impairment for the Dutta note, as default is not probable.
Exercise 7–32
Lewis would record a credit loss of $0.6 million for the Bebko note, because the
Lewis would record a credit loss of $0.5 million for the Dutta note, because the
Exercise 7–33
ANALYSIS
Previous Value:
Accrued 2017 interest (10% x $12,000,000) $ 1,200,000
New Value:
*present value of an ordinary annuity of $1: n = 2, i =10% (from Table 4)
** present value of $1: n = 2, i =10% (from Table 2)
JOURNAL ENTRIES
January 1, 2018
Loss on troubled debt restructuring (to balance)………. 2,373,510
December 31, 2018
Cash (required by new agreement)………………………… 1,000,000
December 31, 2019
Exercise 7–33 (concluded)
Amortization Schedule – Not required
Cash Effective Increase in Outstanding
Interest Interest Balance Balance
by agreement 10% x Outstanding Balance Discount Reduction
10,826,490
1 1,000,000
82,649 10,909,139
* rounded
Exercise 7–34
ANALYSIS
Previous Value:
Accrued 2017 interest (10% x $240,000) $ 24,000
New Value:
*present value of $1: n = 2, i = 10% (from Table 2)
JOURNAL ENTRIES
January 1, 2018
Loss on troubled debt restructuring (to balance)………. 37,003
December 31, 2018
December 31, 2019
* rounded to amortize the note to $274,665 (per schedule below)
Exercise 7–34 (concluded)
Amortization Schedule – Not required
Cash Effective Increase in Outstanding
Interest Interest Balance Balance
by agreement 10% x Outstanding Balance Discount Reduction
226,997
* rounded
PROBLEMS
Problem 7–1
Requirement 1
Monthly bad debt expense accrual summary.
………………………..Allowance for uncollectible accounts
To record year 2018 accounts receivable write-offs:
………………………………………………..Accounts receivable
Requirement 2
……………..Allowance for uncollectible accounts (below)
Year-end required allowance for uncollectible accounts:
Summary
Percent Estimated
Age Group Amount Uncollectible Allowance
0–60 days $430,000 4% $17,200
Problem 7–1 (concluded)
Allowance for uncollectible accounts:
Beginning balance $54,000
Requirement 3
Bad debt expense for 2018:
Monthly accruals $78,600
Balance sheet:
Current assets:
Problem 7–2
Requirement 1
(a)
Accounts receivable analysis ($ in thousands):
Balance, beginning of year ($580,640 + 6,590) $ 587,230
(b)
Allowance for uncollectible accounts analysis ($ in thousands):
Beginning balance $6,590
(c)
equals .2% (.002).
Requirement 2
(a) ($ in thousands)
Current year Previous year
Current assets:
(b) ($ in thousands)
Bad debt expense would be equal to actual receivables written off
of $5,934.
Problem 7–3
Requirement 1
2015 2014
($ in millions)
Requirement 2
Allowance for Uncollectible Accounts
__________________________________________
($ in millions)
78 Beg. Bal.
Write-offs 20
Nike had $20 of bad debt write-offs during 2015.
Requirement 3
Gross Accounts Receivable
__________________________________________
($ in millions)
_________________
Nike collected $30,657 of accounts receivable during 2015.
Problem 7–3 (concluded)
Requirement 4
Net Accounts Receivable
__________________________________________
($ in millions)
Beg. Bal. 3,434
Once again we see that Nike collected $30,657 of accounts receivable during 2015.
Note that write-offs cancel when reconciling net accounts receivable, because the