Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-21
PROBLEMS
P6–1.
Case A
Because Wendy’s collects cash when the coupon books are sold, cash collection is not
an issue in this case. In order to determine if the revenue has been earned, the student
Case B
In this case there is an extremely low down payment and some reason to believe that
Uptown Builders may default on the contract because of prior actions. If students
Case C
While warranty work on refrigerators can involve significant amounts of effort and
money, companies are permitted to record revenue at the point of sale. The text does
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
P6–2.
Req. 1
Sales
Revenue
Sales Discounts
(taken)
Sales Returns
and Allowances
Bad Debt
Expense
(a)
+234,000
NE
NE
NE
(b)
+11,500
NE
NE
NE
(c)
+25,000
NE
NE
NE
(d)
NE
NE
NE
(e)
+26,000
NE
NE
NE
(f)
NE
NE
NE
(g)
NE
NE
NE
(i)
+17,500
NE
NE
NE
NE
NE
(k)
NE
NE
NE
NE
(l)
NE
NE
NE
NE
(m)
NE
NE
NE
Total
+$2,650
+$4,000
+$1,140
*$98,000 ÷ (1 ─ .02) = $100,000 gross sales; $100,000 x .02 = $2,000
**Credit sales ($11,500 + $25,000 + $26,000 + $17,500) . $80,000
Req. 2
Income statement:
Sales revenue ………………………………………………….. $314,000
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-23
P6–3.
Income Statement Items
Case A
Case B
Gross sales revenue
$259,000
$165,000
Sales returns and allowances
20,000
i.
40,500
Net sales revenue
a.
239,000
g.
124,500
Note = Computations in order
CASE A
a. $259,000 – $20,000 = $239,000
b. $239,000 x .30 = $71,700
c. $239,000 – $71,700 = $167,300
CASE B
a. $2.54 x 10,000 shares = $25,400
b. $10,000 x .20 = $2,000
c. $25,400 – $10,000 + $2,000 = $17,400
Cost of goods sold
h.
Gross profit
b.
37,350
Operating expenses
d.
Pretax income
22,000
d.
Income tax expense (20%)
e.
4,400
e.
Income before extraordinary items
Extraordinary gain (loss)
10,000
Less: Income tax (20%)
g.
b.
Net income
h.
a.
$1.60
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
P6–4.
1. Bad debt expense (+E, –SE) …………………………………………….. 7
Allowance for doubtful accounts (+XA, –A) ………………… 7
End-of-period bad debt expense estimate.
2. Year 2 …………………………………. $145 + $0 – $78 = $67
Year 1 …………………………………. $89 + $57 – $1 = $145
Allowance for DA Year 2
Allowance for DA Year 1
145
Beg. bal.
89
Beg. bal
Write-offs
Bad debt exp.
Write-offs
1
Bad debt exp.
End. bal.
145
Ending Bal.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-25
P6–5.
Req. 1
Aging Analysis of Accounts Receivable
Customer
Total
Receivables
(a) Not Yet
Due
(b) Up to One
Year Past
Due
(c) More Than
One Year
Past Due
B. Brown…………..
$ 5,200
$5,200
Req. 2
Aging Schedule—Estimated Amounts Uncollectible
Age
Amount of
Receivables
Estimated
Uncollectible
Percentage
Estimated
Amount
Uncollectible
a.
Not yet due……………………
$13,000
2%
$ 260
b.
Up to one year past due…….
28,500
7%
1,995
c.
Over one year past due……..
5,200
30%
1,560
Balance before adjustment
Bad Debt Expense for the year
$2,895
Req. 3
Bad debt expense (+E, –SE) …………………………………… 2,895
Allowance for doubtful accounts (+XA, –A) ……….. 2,895
Req. 4
Income statement:
Operating expenses
Bad debt expense …………………………………………………. $2,895
D. Donalds………..
N. Napier………….
S. Strothers………
T. Thomas…………
$46,700
$5,200
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
P6–6.
Req. 1
TUNGSTEN COMPANY, INC.
Income Statement
For the Year Ended December 31, 2011
Net sales revenue ($147,100 − $5,600 − $6,400) ……………. $135,100
Cost of goods sold………………………………………………………. 78,400
Gross profit on sales …………………………………………………… 56,700
Operating expenses:
Req. 2
Gross Profit Percentage
=
Gross Profit
=
$56,700
=
0.420 (42.0%)
Net Sales
$135,100
Receivables
=
=
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-27
P6–7.
Req. 1
WOOD COMPANY
Bank Reconciliation, April 30, 2011
Company’s Books
Bank Statement
Ending balance per Cash
account …………………….
$23,900
Ending balance per bank
statement …………………
$23,570
*$41,500 – $36,100 = $5,400.
Req. 2
(1) Cash (+A) ……………………………………………………………….. 1,180
Interest revenue (+R, +SE) ………………………………. 1,180
Interest collected.
These entries are necessary because of the changes to the regular Cash account that
have not yet been recorded by the company. The bank already has recorded them in its
accounts. The Cash account (and the other accounts in the entries) must be brought up
to date for financial statement purposes.
Req. 3
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
P6–8.
Req. 1
Comparison of deposits listed in the Cash account with deposits listed on the bank
statement reveals a $5,200 deposit in transit on August 31.
Req. 2
Req. 3 ALLISON COMPANY
Bank Reconciliation, August 31, 2011
Company’s Books
Bank Statement
Ending balance per Cash
account …………………….
$20,370
Ending balance per bank
statement …………………
$18,190
Req. 4
(1) Cash (+A) ……………………………………………………………….. 2,350
Interest revenue (+R, +SE) ………………………………. 2,350
Interest collected.
Req. 5
Current Assets:
Cash ……………………………………………………………………………….. $22,600
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-29
P6–9. (Based on Supplement A)
Req. 1
(a) Cash (+A) ………………………………………………………… 234,000
Sales revenue (+R, +SE) ………………………….. 234,000
Cash sales for 2011.
(e) Accounts receivable (B. Sears) (+A) ……………………. 26,000
Sales revenue (+R, +SE) ………………………….. 26,000
Credit sale, $26,000.
(f) Cash (+A) ………………………………………………………… 10,780
Sales discounts (+XR, –R, –SE) ………………………….. 220
Accounts receivable (R. Smith) (–A) …………… 11,000
Paid account in full within discount period,
($11,500 – $500) x (1 – .02) = $10,780.
(i) Accounts receivable (R. Roy) (+A) ………………………. 17,500
Sales revenue (+R, +SE) ………………………….. 17,500
Credit sale.
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
6-30
P6–9. (continued)
(j) Sales returns and allowances (+XR, –R, –SE) ………. 3,500
Cash (–A) ……………………………………………….. 3,430
Sales discounts (–XR, +R, +SE) ………………… 70
Sales return, 7 units @ $500 less sales discounts taken
= $3,500 x .98.
(m) Bad debt expense (+E, –SE) ………………………………. 1,140
Allowance for doubtful accounts (+XA, –A) ….. 1,140
To adjust for estimated bad debt expense
Credit sales ($11,500 + $25,000 + $26,000 + $17,500) .. $80,000
Less: Sales returns ($500 + $3,500) ……………………….. 4,000
Net sales revenue ………………………………………………….. 76,000
Estimated bad debt rate …………………………………………. x 1.5%
Bad debt expense …………………………………………… $1,140
.
Req. 2
Chapter 06 – Reporting and Interpreting Sales Revenue, Receivables, and Cash
ALTERNATE PROBLEMS
AP6–1.
Req. 1
Sales
Revenue
Sales Discounts
(taken)
Sales Returns
and Allowances
Bad Debt
Expense
(a)
+227,000
NE
NE
NE
(b)
+12,000
NE
NE
NE
(c)
+23,500
NE
NE
NE
(d)
NE
NE
NE
(e)
+26,000
NE
NE
NE
(g)
NE
NE
NE
(h)
NE
NE
NE
(i)
NE
NE
NE
(j)
+18,500
NE
NE
NE
(k)
NE
NE
NE
NE
(l)
NE
NE
NE
NE
(m)
NE
NE
NE
Total
+$307,000
+$2,430
+$4,000
+$3,040
* [($88,200/.98) x .02] = $1,800
**Credit sales ($12,000 + $23,500 + $26,000 + $18,500) . $80,000
Req. 2
Income statement:
Sales revenue ………………………………………………….. $307,000