EXERCISE 7.4 (Continued)
Sales on account
$322,000
Less: Collections
Uncollected balance
EXERCISE 7.5 (15–20 minutes)
(a)
(1)
June 3
Accounts Receivable—Chester …………………………..
3,000
Sales Revenue ………………………………………………..
June 12
Cash ($3,000 – $60) …………………………………………………..
2,940
Sales Discounts ($3,000 X .02) …………………………..
Accounts Receivable—Chester ………………………..
(2)
June 3
Accounts Receivable—Chester …………………………..
2,940
Sales Revenue ($3,000 X .98) …………………………..
June 12
Cash ……………………………………………………….
2,940
Accounts Receivable—Chester ………………………..
EXERCISE 7.5 (Continued)
(b)
July 29
Cash …………………………..…………………………..
3,000
Accounts Receivable—Chester ……………………….
2,940
Sales Discounts Forfeited …………………………..
*($3,000 X .02)
EXERCISE 7.6 (5–10 minutes)
July 1
Accounts Receivable ………………………………………………
20,000
Sales Revenue ……………………………………………….
20,000
Sales Returns and Allowances …………………………..
1,300
Allowance for Sales
Returns and Allowances……….
1,300
July 10
Cash ($20,000 – $600) ………………………………………………
Sales Discounts ($20,000 X .03) …………………………..
Accounts Receivable …………………………..
20,000
Sales Revenue ……………………………………………….
July 30
Cash ……………………………………………………….
Accounts Receivable …………………………..
EXERCISE 7.7 (10–15 minutes)
(a)
Bad Debt Expense…………………………………………………..
3,000
Allowance for Doubtful Accounts …………………….
3,000
(b)
Bad Debt Expense…………………………………………………..
6,500
Allowance for Doubtful Accounts …………………….
6,500
EXERCISE 7.8 (5-10 minutes)
(a)
Allowance for Doubtful Accounts …………………………..
6,000
Accounts Receivable …………………………..
6,000
(b)
Accounts Receivable
Less: Allowance for Doubtful Accounts
Net amount expected to be collected
(c)
Accounts Receivable ($800,000 – $6,000)
($40,000 – $6,000)
Net amount expected to be collected
EXERCISE 7.9 (8–10 minutes)
(a)
Bad Debt Expense …………………………………………………..
5,350
Allowance for Doubtful Accounts …………………….
[($90,000 X .04) + $1,750]
(b)
Bad Debt Expense …………………………………………………..
Allowance for Doubtful Accounts …………………….
EXERCISE 7.10 (10–12 minutes)
(a) The direct write-off approach is not theoretically justifiable even
though required for income tax purposes. The direct write-off method
does not match expenses with revenues of the period, nor does it
EXERCISE 7.11 (8–10 minutes)
Balance 1/1 ($700 – $155)
$ 545
Over one year
4/12 (#2412) [($1,710 – $1,000 – $300*)]
410
Eight months and 19 days
11/18 (#5681) [($2,000 – $1,250)]
750
One month and 13 days
EXERCISE 7.12 (15–20 minutes)
7/1
Accounts Receivable—Harding Co. …………………………
7,840
Sales Revenue ($8,000 X .98) …………………………..
7,840
7/5
Cash [$9,000 – $810] ………………………………………………..
Loss on Sale of Receivables ($9,000 x .09) ……………….
Accounts Receivable ($9,000 X .98) ………………….
8,820
Sales Discounts Forfeited ($9,000 x .02) ……………………
EXERCISE 7.12 (Continued)
7/9
Accounts Receivable ……………………………………………….
180
Cash ($6,000 – $360) ………………………………………………..
Interest Expense ($6,000 X .06) …………………………..
360
Notes Payable …………………………………………………
7/11
Account Receivable—Harding Co. …………………………..
160
Sales Discounts Forfeited …………………………..
($8,000 X .02)
12/29
Allowance for Doubtful Accounts …………………………..
7,200
Accounts Receivable—Harding Co. …………………….
EXERCISE 7.13 (10–15 minutes)
1.
7/1/20
Notes Receivable …………………………………………………….
1,101,460
Discount on Notes Receivable …………………………
401,460
Land ……………………………………………………….
590,000
Gain on Disposal of Land …………………………..
Computation of the discount
Face value of note
Present value of 1 for 4 periods at 12%
Present value of note
Face value of note
2.
7/1/20
Notes Receivable …………………………………………………….
400,000.00
Discount on Notes Receivable …………………………
178,836.32
Service Revenue …………………………..
221,163.68
Computation of the present value of the note:
Maturity value
Present value of $400,000 due
in 8 years at 12%—$400,000 X .40388
Present value of $12,000 ($400,000 X .03)
payable annually for 8 years
at 12% annually—$12,000 X 4.96764
Present value of the note
EXERCISE 7.14 (20–25 minutes)
(a)
Notes Receivable ……………………………………………………
200,000
Discount on Notes Receivable …………………………
34,710
Service Revenue …………………………..………………..
(b)
Discount on Notes Receivable …………………………..
16,529**
Interest Revenue ……………………………………………
16,529
**$165,290* X .10 = $16,529
(c)
Discount on Notes Receivable …………………………..
18,181***
Interest Revenue …………………………………………….
18,181
***($34,710 – $16,529) (or [$165,290 + $16,529] X .10)
Cash ………………………………………………………………………
200,000
Notes Receivable …………………………………………..
EXERCISE 7.15 (10–15 minutes)
(a)
Cash ($200,000 – $8,000*) ………………………………………..
192,000
Interest Expense ($400,000 x .02) …………………………..
Notes Payable…………………………………………………
EXERCISE 7.15 (Continued)
(c)
Notes Payable ……………………………………………………….
200,000
Interest Expense …………………………………………………….
Cash ($200,000 + $5,000) …………………………..
*($200,000 X .10 X 3/12)
EXERCISE 7.16 (15–18 minutes)
1.
Cash ($25,000 – $2,500) ……………………………………………
22,500
Loss on Sale of Receivables …………………………..
2,500
($25,000 X .10)
Accounts Receivable …………………………..
25,000
2.
Cash ($55,000 – $4,400) ……………………………………………
50,600
Interest Expense ($55,000 X .08) …………………………..
4,400
Notes Payable ………………………………………………..
55,000
3.
Bad Debt Expense …………………………………………………..
6,220
Allowance for Doubtful Accounts …………………….
[($82,000 X .05) + $2,120]
4.
Bad Debt Expense …………………………………………………..
4,700
Allowance for Doubtful Accounts …………………….
($5,800 – $1,100)
EXERCISE 7.17 (10–15 minutes)
Computation of net proceeds:
Cash received
$160,000
Less: Recourse liability
1,000
Computation of gain or loss:
Carrying value
$200,000
Net proceeds
The following journal entry would be made:
Cash ………………………………………………………………
Loss on Sale of Receivables …………………………..
Recourse Liability ……………………………………
Accounts Receivable …………………………..
EXERCISE 7.18 (15–20 minutes)
(a)
To be recorded as a sale, all of the following conditions would be met:
(1)
The transferred asset has been isolated from the transferor (put
beyond the reach of the transferor and its creditors).
EXERCISE 7.18 (Continued)
(b)
Computation of net proceeds:
Cash received ($175,000 X .94)
$164,500
Due from factor ($175,000 X .04)
7,000
$171,500
Less: Recourse liability
2,000
Net proceeds
$169,500
Computation of gain or loss:
Net proceeds
Loss on sale of receivables
$ 5,500
The following journal entry would be made:
Cash ……………………………………………………….
164,500
Due from Factor ……………………………………………..
Loss on Sale of Receivables …………………………..
Accounts Receivable …………………………..
EXERCISE 7.19 (10–15 minutes)
(a)
July 1
Cash ($300,000 – $12,000 – $4,500) …………………………..
283,500
Due from Factor ………………………………………………………
Loss on Sale of Receivables …………………………..
EXERCISE 7.19 (Continued)
(b)
July 1
Accounts Receivable …………………………..
300,000
Due to JFK Corp. …………………………..
12,000*
Interest Revenue …………………………..
Cash ($300,000 – $12,000 – $4,500) ………………………….
EXERCISE 7.20 (10–15 minutes)
(a)
Accounts Receivable ………………………………………………
100,000
Sales Revenue ………………………………………………..
Cash ………………………………………………………………………
Accounts Receivable …………………………..
(b) Accounts Receivable Turnover =
Net Sales
Average Trade Receivables (net)
Average Trade Receivables (net)
($15,000 + $45,000*)/2
(c) Jones Company’s turnover ratio has declined significantly. That is, it
is turning receivables 3.33 times a year and collections on receivables
EXERCISE 7.21 (10-15 minutes)
(a)
Cash [$25,000 X (1 – .09)] …………………………………………
22,750
Due from Factor ………………………………………………………
1,250
Loss on Sale of Accounts Receivable ………………………
2,200
Accounts Receivable …………………………..
25,000
Recourse Liability …………………………………………..
1,200
Computation of cash received
Accounts receivable ……………………………………….
$25,000
Less: Due from factor (.05 X $25,000) ……………….
Finance charge (.04 X $25,000) ……………….
Cash received …………………………………………..
$22,750
Cash received …………………………………………………
Due from factor ………………………………………………
Less: Recourse liability …………………………..
1,200
Net proceeds …………………………………………….
$22,800
Carrying (Book) value …………………………..
$25,000
Less: Net proceeds …………………………………………
Loss on sale of receivables ……………………….
(b) Accounts Receivable Turnover =
Net Sales
Average Trade Receivables (net)
Average Trade Receivables (net)
($15,000 + $20,000*)/2
EXERCISE 7.21 (Continued)
With the factoring transaction, Jones Company’s turnover ratio still declines
but by less than in the earlier exercise. While Jones’ collections have
*EXERCISE 7.22 (5–10 minutes)
April 1
Petty Cash ……………………………………………………….
Cash ……………………………………………………….
2.
April 10
Freight-In (or Inventory) …………………………..
60
Supplies Expense …………………………..
25
Postage Expense …………………………………………………….
33
Accounts Receivable—Employees…………………………..
17
Miscellaneous Expense …………………………..
36
Cash Over and Short …………………………..
Cash ($200 – $27)…………………………..
April 20
Petty Cash ……………………………………………………….
Cash ……………………………………………………….
*EXERCISE 7.23 (10–15 minutes)
Accounts Receivable—Employees …………………………..
74.00
($40.00 + $34.00)
Owner’s Drawings** …………………………………………………
170.00
Office Supplies Expense ………………………………………….
14.35
Postage Expense ($20.00 – $2.90) …………………………..
17.10
Prepaid Postage ………………………………………………………
Cash Over and Short ……………………………………………….
*EXERCISE 7.24 (15–20 minutes)
(a) Angela Lansbury Company
Bank Reconciliation
July 31
Balance per bank statement, July 31
$8,650
Add: Deposits in transit
2,350
Deduct: Outstanding checks
(1,100)
Correct cash balance, July 31
Balance per books, July 31
$9,250
Add: Collection of note
Less: Bank service charge
NSF check
*EXERCISE 7.24 (Continued)
Computation of deposits in transit
Deposits per books
$5,810
Deposits per bank in July
$5,000
Less deposits in transit (June)
July
(3,460)
Computation of outstanding checks
Checks written per books
$3,100
Checks cleared by bank in July
$4,000
(June)*
July
(2,000)
(b)
Cash ($1,000 – $15 – $335) ………………………………………..
650
Office Expenses—bank service charges …………………..
15
Accounts Receivable ………………………………………………
335
Notes Receivable …………………………………………….
*EXERCISE 7.25 (15–20 minutes)
(a) Logan Bruno Company
Bank Reconciliation, August 31, 2020
County National Bank
Balance per bank statement, August 31, 2020
$ 8,089
Add: Cash on hand
$ 310
Deposits in transit
3,800
4,110
12,199
Deduct: Outstanding checks
1,050
Balance per books, August 31, 2020
($10,050 + $35,000 – $34,903)
$10,147
1,040
11,187
Deduct: Bank service charges
($164.50 – $146.50)
Correct cash balance
$11,149
(b)
Cash ………………………………………………………………………
1,040
Notes Receivable…………………………………………….
1,000
Interest Revenue …………………………………………….
(To record collection of note and interest)
*EXERCISE 7.25 (Continued)
(c) The correct cash balance of $11,149 would be reported in the August
31, 2020, balance sheet.
*EXERCISE 7.26 (15-25 minutes)
(a) Journal entry to record issuance of loan by Paris Bank:
December 31, 2020
Notes Receivable ……………………………………………………..
100,000
(b) Note Amortization Schedule
(Before Impairment)
Date
Cash
Received
(0%)
Interest
Revenue
(10%)
Increase in
Carrying
Amount
Carrying
Amount of
Note
*EXERCISE 7.26 (Continued)
Computation of the impairment loss:
Carrying amount of investment (12/31/22)……………..
$75,131
Less: Present value of $75,000 due in 3 years
Loss due to impairment ……………………………………….
$18,782
Bad Debt Expense …………………………………………………..
Allowance for Doubtful Accounts …………………….
*EXERCISE 7.27 (15-25 minutes)
(a) Cash received by Conchita Martinez Company on December 31, 2020:
Cash received ……………………………………………………..
Present value of principal of $1,000,000 due
(b) Note Amortization Schedule
(Before Impairment)
Date
Cash
Received
(10%)
Interest
Revenue
(12%)
Increase in
Carrying
Amount
Carrying
Amount of
Note
$11,349
100,000
*EXERCISE 7.27 (Continued)
(c) Loss due to impairment:
Carrying amount of loan (12/31/22) …………………..
$951,968b