(10-15 min.) E 5-26A
Req. 1
Average collection period:
Millions of dollars
One day’s sales
=
$565,750
=
$1,550
365
Days’ sales in receivables (DSO)
=
($4,710 + $3,820) / 2
=
2.75 days
(3 days)*
(average collection period)
$1,550
Req. 2
Stark Co., Inc’s collection period is short because Stark Co. sells mainly
(10-15 min.) E 5-27B
Req. 1
This is a trading security (trading investment) because Northern
Req. 2
Dec. 15
Investment in Trading Securities
(1,000 × $46) ……………………………………
46,000
Purchased investment.
Unrealized Gain on Trading
23,000
Adjusted investment to market value.
Req. 3
BALANCE SHEET (Partial)
Current assets:
Investment in trading securities …………………………...
$69,000
INCOME STATEMENT (Partial)
Unrealized gain on trading securities …………………….
(continued) E 5-27B
Req. 4
1. This is an available-for-sale security because it is not a trading
security.
2. Dec. 15 Investment in AFSS ……………………………. 46,000
Cash ……………………………………………… 46,000
3. BALANCE SHEET (partial)
Current assets:
Investment in AFSS ………………………………………..$69,000
Additionally, $23,000 would appear as a part of STOCKHOLDERS’
EQUITY, as “Accumulated OCI (Other Comprehensive Income)”.
(15-20 min.) E 5-28B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Nov. 2
Accounts Receivable—Maxine Holder ………
980
Sales Revenue ($1,000 x .98) ………………..
980
10
Accounts Receivable—Alexis Pinney ……….
2,522
Sales Revenue ($2,600 x .97) ………………..
2,522
11
Cash ($1,000 x .98) …………………………………..
Accounts Receivable—Maxine Holder ….
980
19
Cash ………………………………………………………
1,067
Accounts Receivable—Alexis Pinney …..
1,067
Req. 2
Sales revenue ($980 + $2,522) ……………………..$3,502
(10-15 min.) E 5-29B
Req. 1 and 2
Accounts Receivable
Beg. bal.
303,000
Service revenue
Req. 3
BALANCE SHEET
Accounts receivable …………………………………………….
$242,000
Less Allowance for uncollectible accounts ……………
Accounts receivable, net ………………………………………
(10-15 min.) E 5-30B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Dec.
31
Doubtful-Account Expense ($600,000 × .02) …
12,000
Allowance for Doubtful Accounts ……………
12,000
BALANCE SHEET (Partial)
Current assets:
Accounts receivable, net of allowance
or
BALANCE SHEET (Partial)
Current assets:
(15 min.) E 5-31B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
July
Accounts Receivable ………………………………..
200,000
Sales Revenue …………………………………….
200,000
July
Cash ………………………………………………………..
169,000
Accounts Receivable …………………………...
169,000
July
Allowance for Uncollectible Accounts ……….
Accounts Receivable …………………………...
July
Uncollectible-Account Expense
($200,000 × .01) ………………………………………..
Req. 2
Accounts Receivable
Allowance for
Uncollectible Accounts
43,000
169,000
2,493
200,000
2,910
2,910
2,000
Bal.
Req. 3
BALANCE SHEET (Partial)
Current assets:
Accounts receivable ……………………………………………..
$71,090
(15-30 min.) E 5-32B
Req. 1
The credit balance at December 31 in Allowance for Doubtful Accounts
should be $27,720. The current balance is $22,200. Thus, the balance of
the allowance account is too low.
1-30 31–60 61–90 Over 90 Total
days days days days balance
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Dec. 31
Doubtful-Account Expense ……………………….
5,520
Allowance for Doubtful Accounts ………….
5,520
Bal.
(continued) E 5-32B
Req. 3
BALANCE SHEET
Current assets:
Cash …………………………………………………………..
$ XX
Short-term investments ………………………………
XX
Accounts receivable, net of allowance
Accounts receivable ……………………………………
Less: Allowance for doubtful accounts ………..
(10-15 min.) E 5-33B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
May
Accounts Receivable …………………………………
4,100
Service Revenue …………………………………..
4,100
May
Bad-Debt Expense ($4,100 × .04) …………………
Allowance for Bad Debts ……………………….
Recorded expense for the month.
Accounts Receivable …………………………….
(10-15 min.) E 5-34B
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
1
Note Receivable — Carl Fajar …………………….
19,000
Cash…………………………………………………….
19,000
6
Note Receivable — Green Pro ……………………
6,000
Service Revenue …………………………………..
6,000
Note Receivable — Voeron, Inc. …………………
5,000
Accounts Receivable – Voeron, Inc. ………
Interest Receivable ……………………………………
Interest Revenue …………………………………..
(10-15 min.) E 5-35B
Req. 1
Marketable Net current
(a)
Acid-test
=
Cash + securities + receivables
ratio
Total current liabilities
=
$16,000 + $23,000 + $58,000
(b)
One day’s
=
Sales revenue
=
$732,000
=
$2,005
sales
365
365
=
=
(10-15 min.) E 5-36B
Req. 1
Average collection period:
Millions of dollars
One day’s sales
=
$578,525
=
$1,585
365
Req. 2
Iverson Co., Inc.’s collection period is short because Iverson Co. sells
Quiz
Q5-37
c
Q5-38
c
Q5-39
a
Q5–42
b
Q5–44
Q5-45
d
Q5-46
b
Problems
(20-30 min.) P 5-53A
Reqs. 1 and 2
Cash
Investment in Trading Securities
19,000
8,100*
8,100*
3,600+
315**
4,500
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Nov.
16
Investment in Trading Securities ……………..
8,100
Cash (900 × $9) …………………………………..
8,100
Dec.
16
Cash (900 × $0.35) …………………………………..
Dividend Revenue ……………………………….
Received cash dividend.
Investment in Trading Securities
3,600
Adjusted investment to fair value.
(continued) P 5-53A
Req. 3
BALANCE SHEET
Current assets:
Investment in trading securities (900 × $5)……… $4,500
Req. 5
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2017
Jan.
14
Cash …………………………………………………….
6,300
Investment in Trading Securities ………..
Gain on Sale of Trading Securities ……..
Sold investment at a gain.
(continued) P 5-53A
Req. 6
3.
BALANCE SHEET
Dec. 31
Current assets:
2017
2016
Investment in AFSS …………………………..……..
$9,000
$4,500
Income) ……………………………………………………….
4.
INCOME STATEMENT
Other revenue and expense:
Dividend revenue …………………………………….
$315
(10-15 min.) P 5-54A
Req. 1
MEMORANDUM
DATE: _________________
TO: Management of Bogoda Industries, 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
(15-20 min.) P 5-55A
(All amounts in millions)
Reqs. 1 and 3
Accounts Receivable
Allowance for Uncollectible Accts
3,600
28,860
230
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Cash ($32,900 × .07) ……………………….
2,303
Accounts Receivable ……………………..
30,597
Service Revenue ……………………….
32,900
Cash ……………………………………………..
28,860
Accounts Receivable ………………..
c.
Uncollectible-Account Expense ………
1,224
Allowance for Uncollectible Accts …..
1,294
Accounts Receivable ………………..
e.
Notes Receivable …………………………..
Accounts Receivable ………………..
Interest Receivable ………………………..
Interest Revenue ($185 × .07 × 1/12).
Accounts Receivable …………………….
Cash ……………………………………….
(continued) P 5-55A
Req. 4
These balances agree with the actual Bates Delivery amounts.
Req. 5
INCOME STATEMENT
Service revenue ………………………..
+ Interest revenue ……………………….
$32,900
1
(25-35 min.) P 5-56A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
CREDIT
Nov.
30
Allowance for Doubtful Accounts ………………………
Accounts Receivable — Black Carpets …………
1,600
Accounts Receivable — Rare Antiques ………..
600
Dec.
31
Doubtful-Account Expense ………………………………..
Allowance for Doubtful Accounts ………………..
Req. 2
Allowance for Doubtful Accounts
Nov. 30 Write-offs
2,200
Sept. 30 Balance
8,200
Dec. 31 Adjusting
Dec. 31 Balance