AP6–2.
(Amounts in thousands)
Req. 1.
Bad debt expense (+E, –SE) …………………………………………….. 6,014
Allowance for doubtful accounts (+XA, –A) ………………… 6,014
Req. 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
2,406
Beg. bal.
1,108
End. bal.
Year 1
Allowance for Doubtful Accounts
2,457
Beg. bal.
2,406
End. bal.
AP6–3.
Req. 1
Aging Analysis of Accounts Receivable
Customer
Total
Receivables
(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
c.
2,000
20%
400
d.
Over 12 months past due……
3,000
Balance before adjustment
Bad Debt Expense for the year
$2,725
Req. 3
Bad debt expense (+E, –SE) ………………………………….. 2,725
Allowance for doubtful accounts (+XA, –A) ………. 2,725
Req. 4
Income statement:
Financial Accounting, 10/e 6-35
AP6–4.
Req. 1
PERRY CORPORATION
Income Statement
For the Year Ended December 31, Current Year
Net sales revenue ($184,000 – $9,000- $8,000) …………….. $167,000
Cost of goods sold…………………………………………………….. 98,000 for
Gross profit ………………………………………………………………. 69,000
Selling, general, and administrative expenses:
Req. 2
The receivables turnover ratio measures the effectiveness of credit-granting and
collection activities. The receivables turnover ratio reflects how many times average
trade receivables were recorded and collected during the period. The average days
sales in receivables indicates the average time it takes a customer to pay its account.
For the current year presented, Perry’s accounts receivable turned over approximately
9.82 times per year.
AP6–5.
Req. 1
Comparison of (a) the unrecorded deposit carried over from November and (b) the
Req. 2
Comparison of the checks cleared on the bank statement with (a) outstanding checks
Req. 3
RIVAS COMPANY
Bank Reconciliation
December 31, Current Year
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
Financial Accounting, 10/e 6-37
AP6–5. (continued)
Req. 4
(1) Accounts receivable (J. Left) (+A) ……………………………. 300
Cash (–A) ……………………………………………………. 300
To record NSF check.
Req. 5
Balance Sheet (Current Year):
CON6–1.
Req. 1
Bad debt expense (+E, –SE) ……………………………… 2,958
Allowance for doubtful accounts (+XA, –A) ……. 2,958
Req. 2
Sales revenue …………………………………………………………………. $137,256
Financial Accounting, 10/e 6-39
CASES AND PROJECTS
ANNUAL REPORT CASES
CP6–1.
(Amounts in thousands)
1. “The Company considers all highly liquid investments purchased with a remaining
maturity of three months or less to be cash equivalents.” Included in the account are
2. In addition to Cost of Sales (Cost of Goods Sold), American Eagle Outfitters
This question is designed to focus student attention on the mechanics of the
computation of the receivables turnover ratio and the effect of industry differences.
The receivables turnover is so high because of the nature of the company’s
business. Retail sales are likely to be made with cash or credit card. As a
consequence, most retailers would not have accounts receivable related to sales
unless they had private store credit card accounts. The accounts receivable on
American Eagle’s balance sheet relate primarily to amounts owed from landlords for
construction allowances for building new stores in malls.
CP6–2.
(Amounts in thousands)
1. The company held $236,222 of cash and cash equivalents at the end of the current
year. This is disclosed on the balance sheet and the statement of cash flows. The
2. Accounts receivable decreased by $3,703, increasing Net Cash Provided by
Operating Activities for the current year. You may wish to note to students that this
3. The receivables, net are primarily construction allowances and receivables from
4. Express, Inc., discloses its revenue recognition policy in Note 2, which summarizes
significant accounting policies. The company recognizes revenue from selling gift
Financial Accounting, 10/e 6-41
CP6–3.
1.
Current year
American Eagle
Outfitters
Express, Inc.
2. Both companies’ receivables include construction allowances and receivables from
franchisees and resellers of gift cards. American Eagle Outfitters has a lower ratio
3.
Industry
Average
American Eagle
Outfitters
Express, Inc.
American Eagle has a lower ratio and Express, Inc., has a higher ratio than the
CP6–4.
Req. 1
Recording sales for goods or services that had not been delivered as of year-end
Req. 2
It should establish a sales returns and allowances account (a contra revenue) for
Req. 3
Profiting from sales of stock they owned at an inflated stock price and perhaps
receiving bonuses determined on the basis of growth in net income probably
motivated management. Management was very focused on reporting increased
growth because the growth fueled the run-up in the stock price.
Req. 4
The other investors who paid inflated amounts for the stock, customers who were
Req. 5
Sales transactions booked near the end of the quarter and sales with special
Financial Accounting, 10/e 6-43
CP6–5.
Req. 1
(a) $50 x 12 months = $ 600
Total approximate amount stolen $4,820
Req. 2
Basic recommendations:
(1) Install a tight system of internal control, including the following:
a. Separate cash handling from recordkeeping.
(2) Arrange for an annual independent audit on a continuing basis.
(3) Carefully plan and assign definite responsibilities for all employees. Focus on
FINANCIAL REPORTING AND ANALYSIS TEAM PROJECT
CP6–6.
The solutions to this case will depend on the company and/or accounting period
selected for analysis.