FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 6
3BALANCE SHEET
Current assets: 2017 2016
Investment in AFSS 13,000$ 78,000$
Dec. 31
Chapter 5: Short-Term Investments and Receivables Page 61 of 87
Accumulated OCI (Other Comprehensive Income) 1,300$ (3,900)$
4INCOME STATEMENT
Other revenue and (expense):
Dividend revenue 624$
Jan. 1 Cash ($10.50 × 1,300) 13,650
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P5-61B
(10-15 min.)
Requirement
Solution:
MEMORANDUM
DATE:
TO: Company Employees
FROM: Jeannette Carson, President
1. Take the role of Jeannette Carson, the company president. Write a memo to
employees outlining procedures to ensure that all cash receipts are deposited in the
bank and that the total amounts of each day’s cash receipts are posted to customer
accounts receivable.
Chapter 5: Short-Term Investments and Receivables Page 62 of 87
RE:
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P5-62B
(15-20 min.)
Requirements
Solution:
(All amounts in millions)
Req. 1 and 3
3,500 28,395 240
1. Prepare T-accounts for Accounts Receivable and Allowance for Uncollectible
Accounts, and insert the August 31, 2016, balances as given.
2. Journalize the following transactions of Henderson Shipping for the year ended
August 31, 2017 (explanations are not required):
a. Service revenue was $32,600 million, of which 6% is cash and the remainder is on
account.
b. Collections from customers on account were $28,395 million.
c. Uncollectible-account expense was 4% of service revenue on account.
d. Write-offs of uncollectible accounts receivable were $1,286 million.
e. On August 1, Henderson Shipping received a 2-month, 8%, $210 million note
receivable from a large corporate customer in exchange for the customer’s past due
account; Henderson Shipping made the proper year-end adjusting entry for the interest
on this note.
f. Henderson Shipping’s August 31, 2017, year-end bank statement reported $47 million
of NSF checks from customers.
3. Post your entries to the Accounts Receivable and Allowance for Uncollectible
Accounts T-accounts.
4. Compute the ending balances for Accounts Receivable and Allowance for
Uncollectible Accounts and compare your balances to the actual August 31, 2017,
amounts. They should be the same. How much does Henderson Shipping expect to
collect from its customers after August 31, 2017?
5. Show the net effect of these transactions on Henderson Shipping’s net income for
Accounts Receivable
Allowance for Uncollectible Accts
Chapter 5: Short-Term Investments and Receivables Page 63 of 87
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
DATE DEBIT CREDIT
a. Cash ($32,600 × .06) 1,956
Accounts Receivable . 30,644
Service Revenue 32,600
Req. 4
Req. 5
Journal
ACCOUNT TITLES AND EXPLANATION
These balances agree with the Henderson Shipping Corp. amounts.
Chapter 5: Short-Term Investments and Receivables Page 64 of 87
b. Cash 28,395
Accounts Receivable 28,395
d. Allowance for Uncollectible Accts 1,286
Accounts Receivable 1,286
e.
Interest Receivable 1
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P5-63B
(25-35 min.)
Requirements
Solution:
Req. 1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
Nov. 30 Allowance for Doubtful Accounts 1,700
Accounts Receivable — Blue Carpets 1,300
1-30
31-60 61-90 Over 90 Total
days days days days balance
$ 132,000 $ 54,000 $ 17,000 $ 27,000
1. Record the transactions for the last quarter of 2015 in the journal. Explanations are
not required.
2. Prepare a T-account for Allowance for Doubtful Accounts with the appropriate
beginning balance. Post the entries from requirement 1 to that account.
3. Show how Foglemann Communications will report its accounts receivable in a
comparative balance sheet for 2015 and 2014. Use the three-line reporting format. At
December 31, 2014, the company’s Accounts Receivable balance was $432,000 and
the Allowance for Doubtful Accounts stood at $7,300
Journal
Chapter 5: Short-Term Investments and Receivables Page 65 of 87
Accounts Receivable — Rare Antiques 400
Dec. 31 Doubtful-Account Expense 6,644
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
Nov. 30 Write-offs 1,700 Sept. 30 Balance 8,400
Allowance for Doubtful Accounts
Chapter 5: Short-Term Investments and Receivables Page 66 of 87
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P5-64B
(20-25 min.)
Requirements
Solution:
Req. 1
Cash ($55,000 − $22,000) 33,000$
Investment in trading securities 16,000
Accounts receivable
Req. 2
Current $ 194,000
$ 144,000
36,000$
1. Restate Arctic’s current accounts to conform to GAAP. (Challenge)
2. Compute Arctic’s current ratio and quick (acid-test) ratio both before and after your
corrections.
3. Determine Arctic’s correct net income for 2016. (Challenge)
As reported
Corrected
Chapter 5: Short-Term Investments and Receivables Page 67 of 87
Inventory 63,000
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 3
Net income, as reported 95,000$
Less: Unrealized loss on trading securities
Chapter 5: Short-Term Investments and Receivables Page 68 of 87
Less: Correction for conversion to the
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P5-65B
(20-30 min.)
Requirements
Solution:
Req. 1
DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT
2016
Oct. 31 Note Receivable — Dorsey Foods 38,000
Sales Revenue 38,000
1. Record the transactions in Quick Meals’ journal. Assume that no sales returns are
expected. Round all amounts to the nearest dollar. Explanations are not required.
2. Show what Quick Meals will report on its comparative classified balance sheet at
December 31, 2017, and December 31, 2016.
Journal
Chapter 5: Short-Term Investments and Receivables Page 69 of 87
2017
Cash 15,600
Interest Revenue ($15,600 × .09 × 50/365) 192
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
BALANCE SHEET
2017 2016
Current assets:
December 31,
Chapter 5: Short-Term Investments and Receivables Page 70 of 87
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
P5-66B
(30-40 min.)
Requirements
Solution:
Req. 1
a. Current $ 910 $ 860
ratio $ 560 $ 620
2016
1.63
=
1.39
Total current
liabilities
Dollar amounts in millions
1. Compute these ratios for 2017 and 2016:
a. Current ratio
b. Quick (acid-test) ratio
c. Days’ sales in receivables
2. Which ratios improved from 2016 to 2017 and which ratios deteriorated? Is this trend
favorable or unfavorable?
3. Recommend two ways for Gold Pools, Inc., to improve cash flow from receivables.
Total current
assets
=
=
=
2017
Chapter 5: Short-Term Investments and Receivables Page 71 of 87
(acid-test)
ratio
c. One Net sales 6,570$ 5,110$
sales
=
=
=
Total current
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
Req. 2
The current ratio improved from 1.39 to 1.63. The quick (acid-test) ratio increased from
0.80 to 0.88. Days’ sales in receivables improved from 18 days to 15 days.
Chapter 5: Short-Term Investments and Receivables Page 72 of 87
Req. 3
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E5-67
(15-20 min.)
Requirement
Solution:
Expected with
Bank Cards
Sales revenue …………………………. 700,000$ $ 784,000*
Actual without
Bank Cards
1. Should Ripley Shirt Company start selling on bankcards? Show the computations
of net income under the present plan and under the bankcard plan.
Chapter 5: Short-Term Investments and Receivables Page 73 of 87
Other expenses…………………………. 178,000 168,000****
Total expenses………………………….. 548,000$ 568,680$
Net income………………………………. 152,000$ 215,320$
The switch to bank cards should produce bankcard discount expense on only the
portion of sales that are made on bank cards.
FINANCIAL ACCOUNTING – Eleventh Edition Solutions Manual
E5-68
(15-20 min.)
Requirement
Solution:
(in millions):
Beg. bal. 65
1.Measure the following amounts for the year ended January 31, 2017:
a. Write-offs of uncollectible receivables
b. Collections from customers
Allowance for Doubtful Accounts
Chapter 5: Short-Term Investments and Receivables Page 74 of 87
Beg. bal. ($2,265 + $65) 2,330
Total revenue 46,667 Write-offs 11
Collections 46,334 (b)
End. bal. ($2,584 + $68) 2,652