Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-32
AP6–2.
1. Bad debt expense (+E, –SE) …………………………………………….. 6,014
Allowance for doubtful accounts (+XA, –A) ………………… 6,014
2.
Allowances for
Doubtful
Accounts
Balance at
Beginning
of Year
Additions
Charged to
Costs and
Expenses
Deductions
from
Reserve
Balance at
End
of Year
Year 3
$1,108
$6,014
$5,941
$1,181
Year 1
Year 3
Allowance for Doubtful Accounts
Beg. bal.
Write-offs
5,941
Bad debt exp.
End. bal.
Year 2
Allowance for Doubtful Accounts
Beg. bal.
End. bal.
Beg. bal
Ending bal.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
AP6–3.
Req. 1
Aging Analysis of Accounts Receivable
Customer
Total
Receivable
(a)
Not Yet
Due
(b)
Up to
6 Mo.
Past Due
(c)
6 to
12 Mo.
Past Due
(d)
More Than
12 Mo.
Past Due
R. Devens ………..
$ 2,000
$2,000
C. Howard ………..
$6,000
D. McClain .……….
T. Skibinski ………
10,000
H. Wu ………..……
13,000
$2,000
$6,000
Req. 2
Estimated Amounts Uncollectible
Age
Amount of
Receivable
Estimated
Loss Rate
Estimated
Uncollectible
a.
Not yet due……………………
$17,500
1%
$ 175
b.
Up to 6 months past due…….
14,000
5%
700
6 to 12 months past due.….
2,000
20%
400
d.
Over 12 months past due……
3,000
Estimated ending balance in
$2,725
Req. 3
Bad debt expense (+E, –SE) ………………………………….. 2,725
Allowance for doubtful accounts (+XA, –A) ………. 2,725
Req. 4
Income statement:
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-34
AP6–4.
Req. 1
PERRY CORPORATION
Income Statement
For the Year Ended December 31, 2012
Net sales revenue ($184,000 – $9,000- $8,000) …………….. $167,000
Cost of goods sold…………………………………………………….. 98,000
Gross profit ………………………………………………………………. 69,000
Operating expenses:
Req. 2
Gross Profit Percentage
=
Gross Profit
=
$69,000
=
0.413 (41.3%)
Net Sales
$167,000
Receivables
=
=
9.82
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
AP6–5.
Req. 1
Comparison of (a) the unrecorded deposit carried over from November and (b) the
deposits listed on the bank statement reveals that the $13,000 deposit for December 31
is in transit.
Req. 2
Req. 3
RIVAS COMPANY
Bank Reconciliation, December 31, 2011
Company’s Books
Bank Statement
Ending balance per Cash
account …………………….
$61,060
Ending balance per bank
statement …………………
$61,860
5,250
NSF check—J. Left …………
450
9,000
Correct cash balance ………
$65,860
Correct cash balance ………
$65,860
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-36
AP6–5. (continued)
Req. 4
(1) Accounts receivable (J. Left) (+A) ……………………………. 300
Cash (–A) ……………………………………………………. 300
To record NSF check.
Req. 5
Balance Sheet (2011):
Current Assets:
Cash ……………………………………………………….……………. $65,860
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
CASES AND PROJECTS
ANNUAL REPORT CASES
CP6–1.
1. The company includes liquid financial instruments with original maturities of three
2. In addition to Cost of Goods Sold, American Eagle Outfitters subtracts buying,
occupancy and warehousing costs from Net Sales in its computation of Gross Profit.
3.
Receivables turnover
=
Net Sales
=
$2,988,866
=
81.4 times
Average Net Trade
Accounts Receivable
$36,696*
4. No, the company does not report an allowance for doubtful accounts on the balance
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
CP6–2.
1. The company held $316,035 thousand of cash and cash equivalents at the end of
2. Accounts receivable increased by $10,025 thousand, decreasing Net Cash Provided
by Operating Activities for the current year. This is included in the operating section
3.
2009
2008
4. It discloses its revenue recognition policies in note 2 which summarizes significant
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-39
CP6–3.
1.
Current year
American Eagle
Outfitters
Urban Outfitters
Gross Profit
=
Gross Profit
$1,174,101
=
0.393
$713,478
=
0.389
Percentage
Net Sales
2,988,866
1,834,618
Prior year
American Eagle
Outfitters
Urban Outfitters
2. Companies with unique items for sale or valuable brand images often produce higher
3.
Industry
Average
American Eagle
Outfitters
Urban Outfitters
Gross Profit Percentage =
39.0%
39.3%
38.9%
Gross Profit
=
Gross Profit
$1,423,138
=
$576,772
=
Percentage
Net Sales
3,055,419
1,507,724
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
FINANCIAL REPORTING AND ANALYSIS CASES
CP6–4.
1. Yes. Given that only one three-year project is worked on at a time, the completed
contract method would result in no revenue being recognized for two out of every
2. If the company regularly started and completed a larger constant number of
3. Under generally accepted accounting principles, the appropriate method would
be determined by whether the costs to complete can be accurately assessed. If
CRITICAL THINKING CASES
CP6–5.
1. Recording sales for goods or services that had not been delivered as of year-end
2. It should establish a sales returns and allowances account (a contra revenue) for
3. Profiting from sales of stock they owned at an inflated stock price and perhaps
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
CP6–5. (continued)
4. The other investors who paid inflated amounts for the stock, customers who were
5. Sales transactions booked near the end of the quarter and sales with special
terms, e.g. right of return or cancellation, should receive special attention from
CP6–6.
Req. 1
(a) $50 x 12 months = $ 600
Req. 2
Basic recommendations:
(1) Install a tight system of internal control, including the following:
a. Separate cash handling from recordkeeping.
(2) a. Arrange for an annual independent audit on a continuing basis.
b. Carefully plan and assign definite responsibilities for all employees. Focus on
FINANCIAL REPORTING AND ANALYSIS PROJECTS
CP6–7.
The solutions to this case will depend on the company and/or accounting period
selected for analysis.