Problem 7–10 (continued)
April 30, 2016
Cash (99% x $50,000) ……………………………………………….. 49,500
To accrue interest on note receivable for four months:
June 30, 2016
To record discounting of note receivable:
June 30, 2016
$10,000 Face amount
September 30, 2016 — NO ENTRY REQUIRED
7–62 Intermediate Accounting, 8/e
Problem 7–10 (concluded)
Requirement 2
To accrue nine months’ interest on the Maddox Co. note receivable:
Requirement 3
Income
Date increase (decrease)
February 28 $10,000
Problem 7–11
Note
Note Face
Value
Date of
Note
Interest
Rate
Date
Discounted
Discount
Rate
Proceeds
Received
1
$50,000
3-31-16
8%
6-30-16
10%
$50,350 (1)
2
50,000
3-31-16
8%
9-30-16
10%
3
50,000
3-31-16
8%
9-30-16
12%
4
80,000
6-30-16
6%
10%
5
80,000
6-30-16
6%
12%
6
80,000
6-30-16
6%
10%
(1)
$50,000 Face amount
(2)
$50,000 Face amount
(3)
$50,000 Face amount
(4)
$80,000 Face amount
(5)
$80,000 Face amount
(6)
$80,000 Face amount
Problem 7–12
Requirement 1
In addition to sales revenue of $1,340,000, the 2017 income statement will
include (1) interest revenue, (2) bad debts expense, and (3) loss on sale of note
receivable.
Interest revenue
$200,000 note: $200,000 x 6% x 3/12 = $3,000
Bad debt expense
Analysis of accounts receivable
Beginning accounts receivable ($218,000 + 24,000) $ 242,000
Analysis of allowance for uncollectible accounts
Beginning allowance $24,000
Problem 7–12 (concluded)
Loss on sale of note receivable
Interest accrued on the $200,000 note for nine months (6/30/2016 to 3/31/2017):
$200,000 x 6% x 9/12 = $9,000
Calculation of cash proceeds received from discounting note:
$200,000 Face amount
Requirement 2
Accounts receivable, net of $28,000 in allowance for
Requirement 3
Accounts receivable turnover ratio:
Problem 7–13
Requirement 1
Computation of balance per books:
Balance per bank statement $14,632.12
Add: Deposits outstanding 575.00
Step 1: Bank Balance to Corrected Balance
Balance per bank statement $14,632.12
Add: Deposits outstanding 575.00
Deduct:
Step 2: Book Balance to Corrected Balance
Balance per books $13,542.87
7–68 Intermediate Accounting, 8/e
Problem 7–13 (concluded)
Requirement 2
To correct error in recording cash disbursement for rent:
Cash ………………………………………………………….. 18
Requirement 3
Checking account balance $13,011.87
Problem 7–14
Requirement 1
Step 1: Bank Balance to Corrected Balance
Balance per bank statement $3,851
Add: Deposits outstanding 2,150 (1)
Deduct:
Step 2: Book Balance to Corrected Balance
Balance per books $4,422
Deduct:
(1) Receipts $42,650
Less: December receipts deposited:
Bank deposits $43,000
(2) Dec. disbursements $41,853
Error in recording check #411 90
Less: December checks cleared:
Problem 7–14 (concluded)
Requirement 2
To record credits to cash revealed by the bank reconciliation:
Problem 7–15
Requirement 1
($ in millions)
Land ……………………………………………………….. …………………… 16
Requirement 2
ANALYSIS
Previous Value:
New Value:
Interest $1 million x 3.16987 * = $ 3,169,870
JOURNAL ENTRIES
January 1, 2016
December 31, 2016
Cash (required by new agreement)……………………… 1,000,000
December 31, 2017
Cash (required by new agreement)……………………… 1,000,000
7–72 Intermediate Accounting, 8/e
Problem 7–15 (continued)
December 31, 2018
Cash (required by new agreement) …………….. . 1,000,000
December 31, 2019
Cash (required by new agreement) …………….. . 1,000,000
Amortization Schedule – Not required
Cash Effective Increase in Outstanding
Interest Interest Balance Balance
by agreement 10% x Outstanding Balance Discount Reduction
13,415,020
Problem 7–15 (continued)
Requirement 3
ANALYSIS
Previous Value:
Accrued interest (10% x $20,000,000) $ 2,000,000
New Value:
$27,775,000 x 0.68301 * = (18,970,603)
JOURNAL ENTRIES
January 1, 2016 …..
Loss on troubled debt restructuring (to balance) …………… 3,029,397
December 31, 2016 …..
December 31, 2017 …..
December 31, 2018 …..
December 31, 2019 …..
Note receivable (to balance)…………………………….. 2,525,128
7–74 Intermediate Accounting, 8/e
Problem 7–15 (concluded)
Amortization Schedule – Not required
Cash Effective Increase in Outstanding
Interest Interest Balance Balance
by agreement 10% x Outstanding Balance Discount Reduction
18,970,603
1 0 .10 (18,970,603) = 1,897,060 1,897,060 20,867,663
Judgment Case 7–1
Requirement 1
To account for the accounts receivable factored on April 1, 2016, Magrath should
decrease accounts receivable by the amount of accounts receivable factored, increase
Requirement 2
Magrath should account for the collection of the accounts previously written off
as uncollectible as follows:
Requirement 3
One approach estimates uncollectible accounts based on credit sales. This
approach focuses on income determination by attempting to match uncollectible
CASES
7–76 Intermediate Accounting, 8/e
Communication Case 7–2
Suggested Grading Concepts and Grading Scheme:
Content (70%)
______ 40 Explains the difference between the allowance method and the
direct write-off method.
____ Direct write-off is more objective.
Writing (30%)
______ 6 Terminology and tone appropriate to the audience of a
company president.
Judgment Case 7–3
Requirement 1
a. Hogan should account for the sales discounts at the date of sale using the net
method by recording accounts receivable and sales revenue at the amount of
sales less the sales discounts available.
Requirement 2
Trade discounts are neither recorded in the accounts nor reported in the financial
statements. Therefore, the amount recorded as sales revenues and accounts receivable
is net of trade discounts and represents the cash equivalent price of the asset sold.
Requirement 3
To account for the accounts receivable factored on August 1, 2016, Hogan should
decrease accounts receivable by the amount of the accounts receivable factored,
Requirement 4
Hogan should report the face amount of the interest-bearing notes receivable and
the related interest receivable for the period from October 1 through December 31 on
its balance sheet as current assets. Both assets are due on September 30, 2017, which