(continued) P 5-56A
Req. 3
First Data Communications
Comparative Balance Sheets (Partial)
December 31, 2017 and December 31, 2016
2017
2016
Accounts receivable…………………………..…..
$231,000
$215,000
Less: Allowance for doubtful accounts………
(16,168)
(4,500)
Accounts receivable, net………………………..
$214,832
$210,500
(20-25 min.) P 5-57A
Req. 1
$ 32,000
17,000
$42,000
(26,500)
15,500
Req. 2
As reported
Corrected
Current
=
$191,000
=
1.80
$137,500
=
1.30
ratio
$106,000
$106,000
Quick
(continued) P 5-57A
Req. 3
Net income, as reported ……………………………..
$94,000
Less: Unrealized loss on trading
investments
($26,000 − $17,000) ………………………………..
(9,000)
Less: Correction for conversion to the
allowance method —
Correct uncollectible-account expense,
per aging method ………………………………
Net income, as corrected …………………………..
(20-30 min.) P 5-58A
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Oct.
31
Note Receivable — BiLo’s Foods …………….
36,000
Sales Revenue…………………………………….
36,000
Dec.
31
Interest Receivable ($36,000 × .045 × 2/12) ….
270
Interest Revenue …………………………………
270
2017
Jan.
31
Cash ………………………………………………………
36,405
Note Receivable — BiLo’s Foods ………..
Interest Receivable ……………………………..
270
Dutton Market …………………………………..
7,000
19
Cash ………………………………………………………
6,800
Financing Expense …………………………………
200
Note Receivable — Dutton Market ……….
7,000
Cash …………………………………………………..
Dec.
31
Interest Receivable …………………………………
203
(continued) P 5-58A
Req. 2
December 31,
BALANCE SHEET
2017
2016
Current assets:
Note receivable ……………………………………
$15,600
$36,000
Interest receivable ……………………………….
(15-25 min.) P 5-59A
Req. 1
Dollar amounts in millions
2017
2016
a. Current
=
Total current assets
=
$885
= 1.58
$860
= 1.39
ratio
Total current liabilities
$560
$620
Cash + Short-term
investments
b. Quick
(acid-test)
ratio
=
+ Net current receivables
=
$70+$130+$270
$80+$165+$260
Total current liabilities
$560
$620
=
0.84
= 0.81
c. One
day’s
sales
=
Net sales
=
$7,665
= $21.00
$5,110
= $14.00
365
365
365
=
=
($270+$260)/2
(continued) P 5-59A
Req. 2
The current ratio improved from 1.39 to 1.58. The quick (acid-test) ratio
increased slightly from 0.81 to 0.84. Days’ sales in receivables
decreased from 18 days to 13 days.
Req. 3
Kenmore Pools can improve cash flows from receivables by either
offering a discount for early payment and/or emphasizing credit cards
for sales.
(20-30 min.) P 5-60B
Reqs. 1 and 2
Cash
Investment in Trading Securities
15,000
11,700*
11,700*
3,900+
624**
7,800
Dividend Revenue
Unrealized Loss on
Trading Securities
624**
3,900+
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Nov.
17
Investment in Trading Securities …………….
11,700
Cash (1,300 × $9) ………………………………
11,700
Purchased investment.
Dec.
19
Cash (1,300 × $0.48) ……………………………….
Dividend Revenue …………………………….
Received cash dividend.
31
Unrealized Loss on Trading Securities ……
Investment in Trading Securities
Adjusted investment to market value.
(continued) P 5-60B
Req. 3
BALANCE SHEET
Current assets:
Investment in trading securities (1,300 × $6)…….. $ 7,800
Req. 4
INCOME STATEMENT
Other revenue and gain:
Req. 5
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2017
Jan.
11
Cash …………………………………………………..
10,400
Gain on Sale of Trading Securities …..
Investment in Trading Securities ……..
Sold investment at a gain.
(continued) P 5-60B
Req. 6
3.
BALANCE SHEET
Dec. 31
Current assets:
2017
2016
Investment in AFSS ………………………………….
$13,000
$7,800
Income)
4.
INCOME STATEMENT
Other revenue and (expense):
Dividend revenue ……………………………………..
$624
5. Sale of securities:
Journal
(10-15 min.) P 5-61B
Req. 1
MEMORANDUM
DATE: _________________
TO: Company Employees
FROM: Jeannette Carson, President
RE: Procedures to ensure that all cash receipts are deposited in
the bank and that each day’s total cash receipts are posted to
accounts receivable.
1. Someone other than the accountant opens the mail. This person
separates customer checks from the accompanying remittance slips.
2. An employee with no access to the accounting records deposits the
cash in the bank immediately.
3. The remittance slips go to the accountant, who uses them for posting
credits to the customer accounts. The accountant adds up the total of
the credits for the day. The accountant prepares the journal entry for
the collection of accounts receivable.
Student responses may vary.
(15-20 min.) P 5-62B
(All amounts in millions)
Reqs. 1 and 3
Accounts Receivable
Allowance for Uncollectible Acct
240
Req. 2
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
a.
Cash ($32,600 × .06) ……………………………….
1,956
Accounts Receivable …………………………..
30,644
Service Revenue ……………………………….
32,600
b.
Cash …………………………………………………….
28,395
Accounts Receivable ………………………..
28,395
c.
Uncollectible-Account Expense ………………
Allowance for Uncollectible Accts
($30,644 × .04) …………………………………..
d.
Allowance for Uncollectible Accts …………..
Accounts Receivable ………………………..
e.
Notes Receivable ………………………………..
Accounts Receivable ……………………..
Interest Receivable ……………………………..
Interest Revenue ($210 × .08 × 1/12) …..
Accounts Receivable ………………………….
Cash …………………………………………….
47
(continued) P 5-62B
Req. 4
These balances agree with the Henderson Shipping Corp. amounts.
Henderson Shipping expects to collect $4,120 ($4,300 − $180) from its
charge customers (plus the note receivable and interest).
Req. 5
INCOME STATEMENT
(25-35 min.) P 5-63B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
Nov.
30
Allowance for Doubtful Accounts ……………….
1,700
Accounts Receivable — Blue Carpets ……
1,300
Accounts Receivable — Rare Antiques ….
400
Dec.
31
Doubtful-Account Expense ………………………..
6,644
Allowance for Doubtful Accounts …………..
6,644*
_____
1-30 31–60 61–90 Over 90 Total
Req. 2
Allowance for Doubtful Accounts
(continued) P 5-63B
Req. 3
Media Communications
Comparative Balance Sheets (Partial)
December 31, 2017 and December 31, 2016
2017
2016
Accounts receivable …………………………………
$230,000
$215,000
Accounts receivable, net …………………………..
$216,656
$210,800
(20-25 min.) P 5-64B
Req. 1
$33,000
16,000
$36,000
(22,000)
14,000
Req. 2
As reported
Corrected
Current
=
$194,000
=
1.96
$144,000
=
1.45
ratio
$99,000
$99,000
(continued) P 5-64B
Req. 3
Net income, as reported ……………………………..
$95,000
Less: Unrealized loss on trading securities
($22,000 − $16,000) ………………………………..
(6,000)
Less: Correction for conversion to the
allowance method —
Correct uncollectible-account expense,
per aging method ……………………………..
Net income, as corrected …………………………...
$75,500
(20-30 min.) P 5-65B
Req. 1
Journal
DATE
ACCOUNT TITLES AND EXPLANATION
DEBIT
CREDIT
2016
Oct.
31
Note Receivable — Dorsey Foods ……………….
38,000
Sales Revenue ………………………………………
38,000
Interest Revenue ……………………………………
2017
Jan.
31
Cash ………………………………………………………….
38,546
Note Receivable — Dorsey Foods …………..
38,000
Interest Receivable ………………………………..
364
Interest Revenue ($38,000 × .0575 × 1/12) ..
182
Feb.
18
Note Receivable — Barb’s Market ………………..
7,600
Accounts Receivable — Barb’s Market ……
7,600
19
Cash …………………………………………………………
7,400
Financing Expense ……………………………………..
200
Nov.
11
Note Receivable — Master Foods ………………..
Dec.
31
Interest Receivable ……………………………………..
192