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Angela Lansbury Company deposits all receipts and makes all payments by check. The following information is available from the cash records.
\r\n\r\n
Instructions
\r\n(a) Prepare a bank reconciliation going from balance per bank and balance per book to correct cash balance.
\r\n(b) Prepare the general journal entry or entries to correct the Cash account.
The petty cash fund of Fonzarelli’s Auto Repair Service, a sole proprietorship, contains the following.
\r\nThe general ledger account Petty Cash has a balance of $300.
\r\n1. Coins and currency $ 15.20
\r\n2. Postage stamps 2.90
\r\n3. An I.O.U. from Richie Cunningham, an employee, for cash advance 40.00
\r\n4. Check payable to Fonzarelli’s Auto Repair from
\r\nPottsie Weber, an employee, marked NSF 34.00
\r\n5. Vouchers for the following:
\r\nStamps $ 20.00
\r\nTwo Rose Bowl tickets for Nick Fonzarelli 170.00
\r\nPrinter cartridge 14.35 204.35
\r\n$296.45
\r\nInstructions
\r\nPrepare the journal entry to record the reimbursement of the petty cash fund.
Carolyn Keene, Inc. decided to establish a petty cash fund to help ensure internal control over its small cash expenditures. The following information is available for the month of April.
\r\n1. On April 1, it established a petty cash fund in the amount of $200.
\r\n2. A summary of the petty cash expenditures made by the petty cash custodian as of April 10 is as follows.
\r\nDelivery charges paid on merchandise purchased $60.00
\r\nSupplies purchased and used 25.00
\r\nPostage expense 33.00
\r\nI.O.U. from employees 17.00
\r\nMiscellaneous expense 36.00
\r\nThe petty cash fund was replenished on April 10. The balance in the fund was $27.
\r\n3. The petty cash fund balance was increased $100 to $300 on April 20.
\r\nInstructions
\r\nPrepare the journal entries to record transactions related to petty cash for the month of April.
Use the information for Jones Company as presented in E7-20. Jones is planning to factor some accounts receivable at the end of the year. Accounts totaling $25,000 will be transferred to Credit Factors, Inc. with recourse. Credit Factors will retain 5% of the balances for probable adjustments and assesses a finance charge of 4%. The fair value of the recourse obligation is $1,200.
\r\nInstructions
\r\n(a) Prepare the journal entry to record the sale of the receivables.
\r\n(b) Compute Jones’s accounts receivable turnover for the year, assuming the receivables are sold, and discuss how factoring of receivables affects the turnover ratio.
Presented below is information for Jones Company.
\r\n1. Beginning-of-the-year Accounts Receivable balance was $15,000.
\r\n2. Net sales (all on account) for the year were $100,000. Jones does not offer cash discounts.
\r\n3. Collections on accounts receivable during the year were $70,000.
\r\nInstructions
\r\n(a) Prepare (summary) journal entries to record the items noted above.
\r\n(b) Compute Jones’s accounts receivable turnover for the year. The company does not believe it will have any bad debts.
\r\n(c) Use the turnover ratio computed in (b) to analyze Jones’s liquidity. The turnover ratio last year was 6.0.
On December 31, 2012, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2014, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%.
\r\nInstructions
\r\n(a) Prepare the journal entry to record the transaction of December 31, 2012, for the Ed Abbey Co.
\r\n(b) Assuming Ed Abbey Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2013.
\r\n(c) Assuming Ed Abbey Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2014.
On July 1, 2014, Agincourt Inc. made two sales.
\r\n1. It sold land having a fair value of $700,000 in exchange for a 4-year zero-interest-bearing promissory note in the face amount of $1,101,460. The land is carried on Agincourt’s books at a cost of $590,000.
\r\n2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable annually).
\r\nAgincourt Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.
\r\nInstructions
\r\nRecord the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2014.
JFK Corp. factors $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2014. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1½% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.
\r\nInstructions
\r\n(a) Prepare the journal entry on July 1, 2014, for JFK Corp. to record the sale of receivables without recourse.
\r\n(b) Prepare the journal entry on July 1, 2014, for LBJ Finance Corporation to record the purchase of receivables without recourse.
Beyoncé Corporation factors $175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2014. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments.
\r\nInstructions
\r\n(a) What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?
\r\n(b) Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2014, for
\r\nBeyoncé to record the sale of receivables, assuming the recourse obligation has a fair value of $2,000.
Ames Quartet Inc. factors receivables with a carrying amount of $200,000 to Joffrey Company for $160,000 on a with recourse basis.
\r\nInstructions
\r\nThe recourse provision has a fair value of $1,000. This transaction should be recorded as a sale. Prepare the appropriate journal entry to record this transaction on the books of Ames Quartet Inc.
The trial balance before adjustment for Phil
\r\nCollins Company shows the following balances.
\r\nDr. Cr.
\r\nAccounts Receivable $82,000
\r\nAllowance for Doubtful Accounts 2,120
\r\nSales Revenue $430,000
\r\nInstructions
\r\nUsing the data above, give the journal entries required to record each of the following cases. (Each situation is independent.)
\r\n1. To obtain additional cash, Collins factors without recourse $25,000 of accounts receivable with Stills Finance. The finance charge is 10% of the amount factored.
\r\n2. To obtain a 1-year loan of $55,000, Collins assigns $65,000 of specific receivable accounts to Crosby Financial. The finance charge is 8% of the loan; the cash is received and the accounts turned over to Crosby Financial.
\r\n3. The company wants to maintain the Allowance for Doubtful Accounts at 5% of gross accounts receivable.
\r\n4. The company wishes to increase the allowance account by 1½% of net sales.
On April 1, 2014, Rasheed Company assigns $400,000 of its accounts receivable to the Third National Bank as collateral for a $200,000 loan due July 1, 2014. The assignment agreement calls for Rasheed Company to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type).
\r\nInstructions
\r\n(a) Prepare the April 1, 2014, journal entry for Rasheed Company.
\r\n(b) Prepare the journal entry for Rasheed’s collection of $350,000 of the accounts receivable during the period from April 1, 2014, through June 30, 2014.
\r\n(c) On July 1, 2014, Rasheed paid Third National all that was due from the loan it secured on April 1,
\r\n2014. Prepare the journal entry to record this payment.
Presented below is information related to James
\r\nGarfield Corp.
\r\nJuly 1 James Garfi eld Corp. sold to Warren Harding Co. merchandise having a sales price of $8,000 with terms 2/10, net/60. Garfi eld records its sales and receivables net.
\r\n5 Accounts receivable of $9,000 (gross) are factored with Andrew Jackson Credit Corp. without recourse at a fi nancing charge of 9%. Cash is received for the proceeds; collections are handled by the fi nance company. (These accounts were all past the discount period.)
\r\n9 Specifi c accounts receivable of $9,000 (gross) are pledged to Alf Landon Credit Corp. as security for a loan of $6,000 at a fi nance charge of 6% of the amount of the loan. The fi nance company will make the collections. (All the accounts receivable are past the discount period.)
\r\nDec. 29 Warren Harding Co. notifi es Garfi eld that it is bankrupt and will pay only 10% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.)
\r\nInstructions
\r\nPrepare all necessary entries in general journal form for Garfield Corp.
Danica Patrick, Inc. includes the following account among its trade receivables.
\r\n\r\n
Instructions
\r\nAge the balance and specify any items that apparently require particular attention at year-end.
The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year.
\r\nDate Customer Amount
\r\nMarch 31 E. L. Masters Company $7,800
\r\nJune 30 Stephen Crane Associates 6,700
\r\nSeptember 30 Amy Lowell’s Dress Shop 7,000
\r\nDecember 31 R. Frost, Inc. 9,830
\r\nDickinson Corporation follows the policy of debiting Bad Debt Expense as accounts are written off.
\r\nThe chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts.
\r\nAll of Dickinson Corporation’s sales are on a 30-day credit basis. Sales for the current year total $2,200,000, and research has determined that bad debt losses approximate 2% of sales.
\r\nInstructions
\r\n(a) Do you agree or disagree with Dickinson’s policy concerning recognition of bad debt expense? Why or why not?
\r\n(b) By what amount would net income differ if bad debt expense was computed using the percentageof- sales approach?
The trial balance before adjustment of Reba
\r\nMcIntyre Inc. shows the following balances
\r\nDr. Cr.
\r\nAccounts Receivable $90,000
\r\nAllowance for Doubtful Accounts 1,750
\r\nSales Revenue (all on credit) $680,000
\r\nInstructions
\r\nGive the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 1% of net sales.
At the end of 2014, Aramis Company has accounts receivable of $800,000 and an allowance for doubtful accounts of $40,000. On January 16, 2015, Aramis Company determined that its receivable from Ramirez Company of $6,000 will not be collected, and management authorized its write-off.
\r\nInstructions
\r\n(a) Prepare the journal entry for Aramis Company to write off the Ramirez receivable.
\r\n(b) What is the net realizable value of Aramis Company’s accounts receivable before the write-off of the Ramirez receivable?
\r\n(c) What is the net realizable value of Aramis Company’s accounts receivable after the write-off of the Ramirez receivable?
Question:
\r\nDuncan Company reports the following financial information before adjustments.
\r\nDr. Cr.
\r\nAccounts Receivable $100,000
\r\nAllowance for Doubtful Accounts $ 2,000
\r\nSales Revenue (all on credit) 900,000
\r\nSales Returns and Allowances 50,000
\r\nInstructions
\r\nPrepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 1% of net sales and (b) 5% of accounts receivable.
Presented below is information from Perez Computers Incorporated.
\r\nJuly 1 Sold $20,000 of computers to Robertson Company with terms 3/15, n/60. Perez uses the gross method to record cash discounts.
\r\n10 Perez received payment from Robertson for the full amount owed from the July transactions.
\r\n17 Sold $200,000 in computers and peripherals to The Clark Store with terms of 2/10, n/30.
\r\n30 The Clark Store paid Perez for its purchase of July 17.
\r\nInstructions
\r\nPrepare the necessary journal entries for Perez Computers.
On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On
\r\nJune 12, the company received a check for the balance due from Chester Company.
\r\nInstructions
\r\n(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.
\r\n(1) Sales and receivables are entered at gross selling price.
\r\n(2) Sales and receivables are entered at net of cash discounts.
\r\n(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.
Your accounts receivable clerk, Mitra Adams, to whom you pay a salary of $1,500 per month, has just purchased a new Acura. You decided to test the accuracy of the accounts receivable balance of $82,000 as shown in the ledger.
\r\nThe following information is available for your first year in business.
\r\n(1) Collections from customers $198,000
\r\n(2) Merchandise purchased 320,000
\r\n(3) Ending merchandise inventory 90,000
\r\n(4) Goods are marked to sell at 40% above cost
\r\nInstructions
\r\nCompute an estimate of the ending balance of accounts receivable from customers that should appear in the ledger and any apparent shortages. Assume that all sales are made on account.
Jim Carrie Company shows a balance of $181,140 in the Accounts Receivable account on December 31, 2013. The balance consists of the following.
\r\nInstallment accounts due in 2014 $23,000
\r\nInstallment accounts due after 2014 34,000
\r\nOverpayments to vendors 2,640
\r\nDue from regular customers, of which $40,000 represents accounts pledged as security for a bank loan 79,000
\r\nAdvances to employees 1,500
\r\nAdvance to subsidiary company (due in 2015) 81,000
\r\nInstructions
\r\nIllustrate how the information above should be shown on the balance sheet of Jim Carrie Company on
\r\nDecember 31, 2013.
Presented below are a number of independent situations.
\r\nInstructions
\r\nFor each individual situation, determine the amount that should be reported as cash. If the item(s) is not reported as cash, explain the rationale.
\r\n1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of
\r\n$980,000; utility deposit paid to gas company $180.
\r\n2. Checking account balance $600,000; an overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund
\r\n$300; coins and currency on hand $1,350.
\r\n3. Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9,800; postage stamps on hand $620.
\r\n4. Checking account balance at bank $37,000; money market balance at mutual fund (has checking privileges) $48,000; NSF check received from customer $800.
\r\n5. Checking account balance $700,000; cash restricted for future plant expansion $500,000; short-term
\r\nTreasury bills $180,000; cash advance received from customer $900 (not included in checking account balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract.
The controller for Clint Eastwood Co. is attempting to determine the amount of cash to be reported on its December 31, 2014, balance sheet. The following information is provided.
\r\n1. Commercial savings account of $600,000 and a commercial checking account balance of $900,000 are held at First National Bank of Yojimbo.
\r\n2. Money market fund account held at Volonte Co. (a mutual fund organization) permits Eastwood to write checks on this balance, $5,000,000.
\r\n3. Travel advances of $180,000 for executive travel for the first quarter of next year (employee to reimburse through salary reduction).
\r\n4. A separate cash fund in the amount of $1,500,000 is restricted for the retirement of long-term debt.
\r\n5. Petty cash fund of $1,000.
\r\n6. An I.O.U. from Marianne Koch, a company customer, in the amount of $190,000.
\r\n7. A bank overdraft of $110,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank.
\r\n8. The company has two certificates of deposit, each totaling $500,000. These CDs have a maturity of
\r\n120 days.
\r\n9. Eastwood has received a check that is dated January 12, 2015, in the amount of $125,000.
\r\n10. Eastwood has agreed to maintain a cash balance of $500,000 at all times at First National Bank of Yojimbo to ensure future credit availability.
\r\n11. Eastwood has purchased $2,100,000 of commercial paper of Sergio Leone Co. which is due in 60 days.
\r\n12. Currency and coin on hand amounted to $7,700.
\r\nInstructions
\r\n(a) Compute the amount of cash to be reported on Eastwood Co.’s balance sheet at December 31, 2014.
\r\n(b) Indicate the proper reporting for items that are not reported as cash on the December 31, 2014, balance sheet.
Assume that Toni Braxton Company has recently fallen into financial difficulties. By reviewing all available evidence on December 31, 2014, one of Toni Braxton’s creditors, the National American Bank, determined that Toni Braxton would pay back only 65% of the principal at maturity. As a result, the bank decided that the loan was impaired. If the loss is estimated to be $225,000, what entry(ies) should National American Bank make to record this loss?
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