Exercise 7–8
Requirement 1
Estimated returns = 4% x $11,500,000 = $460,000
To record the actual sales returns
Sales returns ………………………………………………………….. 450,000
December 31, 2016 To record the estimated sales returns
Sales returns ………………………………………………………….. 10,000
7–22 Intermediate Accounting, 8/e
Exercise 7–8 (continued)
Note: another series of journal entries that produce the same end result would be:
To record the actual sales returns
Allowance for sales returns ……………………………………… 450,000
December 31, 2016 To record the estimated sales returns
Sales returns (4% x $11,500,000) …………………………………. 460,000
Requirement 2
Beginning balance in allowance account $300,000
Exercise 7–9
Requirement 1
and Doubtful Accounts.”
Requirement 2
FASB ACS 310–10–50–9 reads as follows:
“In addition to disclosures required by this Subsection and Subtopic 450-20, an entity
7–24 Intermediate Accounting, 8/e
Exercise 7–10
Requirement 1
Requirement 2
Allowance for uncollectible accounts
Balance, beginning of year $42,000
Requirement 3
Exercise 7–11
Requirement 1
To record the write-off of receivables:
Allowance for uncollectible accounts ………………………. 21,000
To reinstate an account previously written off and to record the collection:
Accounts receivable ……………………………………………….. 1,200
Allowance for uncollectible accounts:
Balance, beginning of year $32,000
Deduct: Receivables written off (21,000)
To record bad debt expense for the year:
Requirement 2
Current assets:
7–26 Intermediate Accounting, 8/e
Exercise 7–12
Using the direct write-off method, bad debt expense is equal to actual write-offs.
Collections of previously written-off receivables are recorded as revenue.
Allowance for uncollectible accounts:
Balance, beginning of year $17,280
Exercise 7–13
($ in millions)
Allowance for uncollectible accounts:
Balance, beginning of year $21.7
12.0
19.9
Accounts receivable analysis:
Balance, beginning of year $ 1,345.3
($1,323.6 + 21.7)
17,774.1
13.8
1,466.3
Allowance
21.7
Gross A/R
1,345.3
Exercise 7–14
Requirement 1
June 30, 2016
Note receivable ……………………………………………………… 30,000
Sales revenue …………………………………………………….. 30,000
December 31, 2016
Requirement 2
2016 income before income taxes would be understated by $900
7–28 Intermediate Accounting, 8/e
Exercise 7–15
Requirement 1
June 30, 2016
December 31, 2016
March 31, 2017
Discount on note receivable ……………………………………. 600
Requirement 2
$ 1,800 interest for 9 months
Exercise 7–16
Requirement 1
Sales revenue = present value of the note receivable
Requirement 2
January 1, 2016
Note receivable …………………………………………..
Discount on note receivable………………………
Sales revenue* ………………………………………..
December 31, 2016
Discount on note receivable………………………….
Interest revenue ($408,822 × 8%) …………………
December 31, 2017
Discount on note receivable …………………………...
35,322
December 31, 2018
Cash …………………………………………………………….
515,000
Discount on note receivable …………………………...
7–30 Intermediate Accounting, 8/e
Exercise 7–17
Requirement 1
Book (carrying) value of stock $16,000
Plus gain on sale of stock 6,000
Requirement 2
January 1, 2016
To accrue interest on note receivable for twelve months:
December 31, 2016
Exercise 7–18
Exercise 7–19
Cash (90% x $60,000) ……………………………………………….. 54,000
Exercise 7–20
Cash ([90% – 2%] x $60,000) ………………………………………. 52,800
Exercise 7–21
Mountain High retains significant risks and rewards and therefore must treat the
transfer as a secured borrowing. The accounts receivable stay on the balance sheet of
Mountain High, and they must record a liability.
7–32 Intermediate Accounting, 8/e
Exercise 7–22
Step 1: Accrue interest earned.
February 28, 2016
Step 2: Add interest to maturity to calculate maturity value.
Step 3: Deduct discount to calculate cash proceeds.
$15,000 Face amount
Step 4: Record a loss for the difference between the cash proceeds and the
note’s book value.
February 28, 2016
Cash (proceeds determined above) …………………………………. 15,120
Exercise 7–23
List A List B
c 1. Internal control a. Restriction on cash.
7–34 Intermediate Accounting, 8/e
Exercise 7–24
Requirement 1
March 17, 2016
Allowance for uncollectible accounts ……………………….. 1,700
Step 1: Accrue interest earned for two months on note receivable.
May 30, 2016
Interest receivable ………………………………………………….. 233
Step 2: Add interest to maturity to calculate maturity value.
Step 3: Deduct discount to calculate cash proceeds.
$20,000 Face amount
Exercise 7–24 (continued)
Step 4: Record a loss for the difference between the cash proceeds and the note’s book value.
May 30, 2016
Cash (proceeds determined above) ………………………………… 19,973
June 30, 2016
Accounts receivable ……………………………………………….. 12,000
July 8, 2016
Cash ($12,000 x 98%) ……………………………………………….. 11,760
August 31, 2016
December 31, 2016
7–36 Intermediate Accounting, 8/e
Exercise 7–24 (concluded)
Requirement 2
To accrue interest earned on note receivable:
December 31, 2016
Exercise 7–25
Second quarter:
Receivables turnover = $24,519 = 1.817 times
Exercise 7–26
Average collection period = 365 ÷ Accounts receivable turnover = 50 days
Accounts receivable turnover = 365 ÷ 50 = 7.3
Exercise 7–27
To establish the petty cash fund:
October 2, 2016
To replenish the petty cash fund:
October 31, 2016
Office supplies expense …………………………..….. 76
7–38 Intermediate Accounting, 8/e
Exercise 7–28
September 30, 2016 To replenish the petty cash fund
Delivery expense ………………………………………… 16
Exercise 7–29
Compute balance per bank statement:
Balance per books $23,820
Deduct: Deposits outstanding (2,340)
Step 1: Bank Balance to Corrected Balance
Balance per bank statement $23,332
Step 2: Book Balance to Corrected Balance
Balance per books $23,820
Exercise 7–30
Requirement 1
Requirement 2
To correct error in recording cash receipt from credit customer:
To record credits to cash revealed by the bank reconciliation:
Miscellaneous expense (bank service charges) . 30
Note: Each of the adjustments to the book balance required journal entries.
None of the adjustments to the bank balance require entries.
Step 1: Bank Balance to Corrected Balance
Balance per bank statement $38,018
Step 2: Book Balance to Corrected Balance
Balance per books $38,918
Add: Error in recording cash
7–40 Intermediate Accounting, 8/e
Exercise 7–31
ANALYSIS
Previous Value:
Accrued 2015 interest (10% x $12,000,000) $ 1,200,000
Carrying amount of the receivable $13,200,000
New Value:
Interest $1 million x 1.73554 * = $1,735,540
Present value of the receivable (10,826,490)
Loss: $ 2,373,510
* present value of an ordinary annuity of $1: n = 2, i =10% (from Table 4)
JOURNAL ENTRIES
January 1, 2016
Loss on troubled debt restructuring (to balance) ……… 2,373,510
December 31, 2016
Cash (required by new agreement) …………….. ………… 1,000,000
December 31, 2017
Cash (required by new agreement) …………….. ………… 1,000,000