PROBLEM 7-10B
(a) PAWNS INC.
Long-Term Receivables Section of Balance Sheet
December 31, 2014
8% note receivable from sale of division, due
in annual installments of $1,000,000 to
July 1, 2018, less current installment……………..
$ 3,000,000
6% note receivable from officer, due Oct. 31,
2017, collateralized by 20,000 shares
of Pawns, Inc., common stock
with a fair value of $820,000 ………………………….
Zero-interest-bearing note from sale of patent,
net of 14% imputed interest, due
April 1,2017 ………………………………………………….
Installment contract receivable, due in annual
installments of $45,125 to July 1, 2016,
less current installment ………………………………..
Total long-term receivables ………………………..
$3,912,613
(b) PAWNS INC.
Selected Balance Sheet Balances
December 31, 2014
Current portion of long-term receivables:
Note receivable from sale of division ………………………..
$1,000,000
Installment contract receivable …………………………..
Accrued interest receivable:
Note receivable from sale of division ………………………..
Installment contract receivable …………………………..
Total accrued interest receivable …………………………
PROBLEM 7-10B (Continued)
(c) PAWNS INC.
Interest Revenue from Long-Term Receivables
For the Year Ended December 31, 2014
Interest income:
Note receivable from sale of division …………………………
$360,000
(6)
Note receivable from sale of patent …………………………..
(2)
Note receivable from officer ………………………………………
(7)
Installment contract receivable from sale of land ………..
(5)
Total interest income for year ended 12/31/2014 …….
$426,719
Explanation of Amounts
(1)
Long-term Portion of 8% Note Receivable at 12/31/2014
Face amount, 12/31/2013 ………………………………….
$5,000,000
Less: Installment received 7/1/2014 …………………
Balance, 12/31/2014 …………………………………………
Less: Installment due 7/1/2015 ………………………..
Long-term portion, 12/31/2014 ………………………….
$3,000,000
(2)
Zero-interest-bearing Note, Net of Imputed Interest
at 12/31/2014
Face amount 4/1/2014………………………………………
$ 250,000
Less: Imputed interest
Balance, 4/1/2014 …………………………………………….
Add: Interest earned to 12/31/2014
Balance, 12/31/2014 …………………………………………
PROBLEM 7-10B (Continued)
(3)
Long-term Portion of Installment Contract
Receivable at 12/31/2014
Contract selling price, 3/1/2014 ………………………..
Less: Down payment, 3/1/2014 ……………………….
Balance, 12/31/2014 ………………………………………..
Less: Installment due, 3/1/2015
Long-term portion, 12/31/2014 …………………………
$ 94,144
(4)
Accrued Interest—Note Receivable, Sale of
Division at 12/31/2014
Interest accrued from 7/1 to 12/31/2014
($4,000,000 X 8% X 6/12) ……………………………….
$ 160,000
(5)
Accrued Interest—Installment Contract at 12/31/2014
Interest accrued from 3/1 to 12/31/2014
($120,000 X 10% X 10/12) ………………………………
$ 10,000
(6)
Interest Revenue—Note Receivable, Sale of
Division, for 2014
Interest earned from 1/1 to 7/1/2014
($5.000,000 X 8% X 6/12) ……………………………….
Interest earned from 7/1 to 12/31/2014
($4,000,000 X 8% X 6/12) ……………………………….
Interest income ………………………………………………
$ 360,000
(7)
Interest Revenue—Note Receivable, Officer, for 2014
Interest earned 1/1 to 12/31/2014
($650,000 X 6%) ……………………………………………
$ 39,000
PROBLEM 7-11B
EDK COMPANY
Income Statement Effects
For the Year Ended December 31, 2014
Expenses resulting from accounts receivable
Schedule 1
Computation of Expense
for Accounts Receivable Assigned
Assignment expense:
*PROBLEM 7-12B
(a)
Petty Cash ……………………………………………………….
300.00
Cash …………………………..……………………………..
300.00
Postage Expense ……………………………………………….
61.50
Supplies …………………………………………………………….
31.00
Accounts Receivable (Employees) ………………………
25.00
Freight Out ……………………………………………………….
79.36
Advertising Expense …………………………………………..
38.00
Misc. Expense …………………………..……………………….
12.80
Cash ($300.00 – $52.34) ………………………………
247.66
Petty Cash ……………………………………………………….
100.00
Cash …………………………..……………………………..
(b)
Balances per bank: …………………………..………………..
$12,302
Add:
Cash on hand …………………………………………….
$ 425
Deposit in transit ………………………………………..
1,560
1,985
14,287
Deduct: Checks outstanding ……………………………….
1,800
Balance per books: …………………………………………….
Add: Note receivable (collected with interest) ……..
Deduct: Bank Service Charges …………………………..
20
*($12,172 + $36,200 – $37,450)
Cash …………………………..……………………………………..
1,585
Notes Receivable ……………………………………….
1,540
Interest Revenue ………………………………………..
45
Office Expense (Bank Charges) …………………………..
Cash …………………………..……………………………..
20
*PROBLEM 7-13B
(a) GREEN CO.
Bank Reconciliation
November 30, 2014
Balance per bank, November 30 …………………………..
$10,667.00
Add: Deposits in transit ……………………………………………
Deduct: Outstanding checks …………………………………….
(2,361.20)
Correct cash balance, November 30 …………………………..
$9,475.80
Balance per books, November 30 …………………………..
$8,650.90
Add: Error on check no. 8560
($850 – $580) ………………………………………………..
$ 270.00
Note collection ($1,500 + $61) …………………………..
1,561.00
1,831.00
10,481.00
Deduct: NSF check …………………………………………………..
Error in recording deposit ($210 – $240) …..
Error on check no. 8572 ($68.80 – $688)…….
Bank service charges ($30 + $8) …………………..
38.00
(1,005.20)
Correct cash balance, November 30 …………………………..
$9,475.80
(b) Cash …………………………..………………………………….
1,831.00
Accounts Payable………………………………………
270.00**
Notes Receivable ……………………………………….
1,500.00
Interest Revenue ……………………………………….
61.00
Accounts Receivable ………………………………………
Accounts Payable …………………………………………..
Accounts Receivable ………………………………………
Office Expense (Bank Charges) ……………………….
Cash ……………………………………………………….
*PROBLEM 7-14B
(a) WIZARDS INC.
Bank Reconciliation
September 30
Balance per bank statement, September 30 ……………..
$17,780.63
Add:
Cash on hand, not deposited …………………………..
1,680.91
19,461.54
Deduct:
Outstanding checks
#5641 …………………………..…………………………..
#5642 …………………………..…………………………..
#5644 …………………………..…………………………..
#5645 …………………………..…………………………..
Balance per books, September 30 …………………………..
$13,661.12*
Add:
Bond interest collected by bank …………………………
900.00
14,561.12
Deduct:
Bank charges not recorded in books ………………….
$ 31.00
Customer’s check returned NSF …………………………
*Computation of balance per books,
September 30
*PROBLEM 7-14B (Continued)
(b)
September 30
Cash …………………………………………………………………
900.00
Interest Revenue ……………………………………….
900.00
Office Expense (Bank Charges) ………………………….
Cash …………………………………………………………
Accounts Receivable …………………………………………
Cash …………………………………………………………
*PROBLEM 7-15B
(a) The entries for the issuance of the note on January 1, 2014:
The present value of the note is: $2,000,000 X 0.70496 = $1,409,920.
Octopus Company (Debtor):
Discount on Notes Payable …………………………..
Notes Payable …………………………..……………….
Zurich International Bank (Creditor):
Notes Receivable …………………………………………….
Cash ……………………………………………………….
(b) The amortization schedule for this note is:
SCHEDULE FOR INTEREST AND DISCOUNT AMORTIZATION—
EFFECTIVE-INTEREST METHOD
$2,000,000 Note Issued to Yield 6%
Date
Cash
Paid
Interest
Expense
Discount
Amortized
Carrying
Amount of
Note
1/1/2014
$1,409,920
12/31/2014
12/31/2018
Total
*PROBLEM 7-15B (Continued)
(c) The note can be considered to be impaired only when it is probable
(d)
The loss is computed as follows:
Carrying amount of loan (12/31/2015) ……………………….
$1,584,186a
Loss due to impairment …………………………………………..
December 31, 2015
Zurich International Bank (Creditor):
Bad Debt Expense …………………………………….
831,700
Allowance for Doubtful Accounts …………