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Use the information presented in BE7-15 for Horton Corporation. Prepare any entries necessary to make Horton’s accounting records correct and complete.
Horton Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. For each item, indicate if it is (1) added to balance per bank statement, (2) deducted from balance per bank statement, (3) added to balance per books, or (4) deducted from balance per books.
\r\n(a) Deposit in transit $5,500. (d) Outstanding checks $7,422.
\r\n(b) Bank service charges $25. (e) NSF check returned $377.
\r\n(c) Interest credited to Horton’s account $31.
Finman Company designated Jill Holland as petty cash custodian and established a petty cash fund of $200. The fund is reimbursed when the cash in the fund is at $15. Petty cash receipts indicate funds were disbursed for office supplies $94 and miscellaneous expense $87. Prepare journal entries for the establishment of the fund and the reimbursement.
Recent financial statements of General Mills, Inc. report net sales of $12,442,000,000. Accounts receivable are $912,000,000 at the beginning of the year and $953,000,000 at the end of the year. Compute General Mills’ accounts receivable turnover. Compute General Mills’ average collection period for accounts receivable in days.
Use the information presented in BE7-11 for Arness Woodcrafters but assume that the recourse liability has a fair value of $4,000, instead of $8,000. Prepare the journal entry and discuss the effects of this change in the value of the recourse liability on Arness’s financial statements
Arness Woodcrafters sells $250,000 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5% and retains an amount equal to 4% of accounts receivable.
\r\nArness estimates the fair value of the recourse liability to be $8,000. Prepare the journal entry for Arness to record the sale.
Use the information in BE7-9 for Wood. Assume that the receivables are sold with recourse. Prepare the journal entry for Wood to record the sale, assuming that the recourse liability has a fair value of $7,500.
Wood Incorporated factored $150,000 of accounts receivable with Engram Factors Inc. on a withoutrecourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram.
On October 1, 2014, Chung, Inc. assigns $1,000,000 of its accounts receivable to Seneca National Bank as collateral for a $750,000 note. The bank assesses a finance charge of 2% of the receivables assigned and interest on the note of 9%. Prepare the October 1 journal entries for both Chung and Seneca.
Dold Acrobats lent $16,529 to Donaldson, Inc., accepting Donaldson’s 2-year, $20,000, zero-interestbearing note. The implied interest rate is 10%. Prepare Dold’s journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity.
Milner Family Importers sold goods to Tung Decorators for $30,000 on November 1, 2014, accepting
\r\nTung’s $30,000, 6-month, 6% note. Prepare Milner’s November 1 entry, December 31 annual adjusting entry, and May 1 entry for the collection of the note and interest.
Use the information presented in BE7-4 for Wilton, Inc.
\r\n(a) Instead of estimating the uncollectibles at 2% of net sales, assume that 10% of accounts receivable will prove to be uncollectible. Prepare the entry to record bad debt expense.
\r\n(b) Instead of estimating uncollectibles at 2% of net sales, assume Wilton prepares an aging schedule that estimates total uncollectible accounts at $24,600. Prepare the entry to record bad debt expense.
Wilton, Inc. had net sales in 2014 of $1,400,000. At December 31, 2014, before adjusting entries, the balances in selected accounts were: Accounts Receivable $250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 2% of its net sales will prove to be uncollectible, prepare the December 31, 2014, journal entry to record bad debt expense.
Use the information from BE7-2, assuming Restin Co. uses the net method to account for cash discounts.
\r\nPrepare the required journal entries for Restin Co.
Restin Co. uses the gross method to record sales made on credit. On June 1, 2014, it made sales of $50,000 with terms 3/15, n/45. On June 12, 2014, Restin received full payment for the June 1 sale. Prepare the required journal entries for Restin Co.
Kraft Enterprises owns the following assets at December 31, 2014.
\r\nCash in bank—savings account 68,000 Checking account balance 17,000 Cash on hand 9,300 Postdated checks 750 Cash refund due from IRS 31,400 Certifi cates of deposit (180-day) 90,000
\r\nWhat amount should be reported as cash?
What is meant by impairment of a loan? Under what circumstances should a creditor recognize an impaired loan?
What are the general rules for measuring and recognizing gain or loss by both the debtor and the creditor in an impairment?
Distinguish among the following: (1) a general checking account, (2) an imprest bank account, and (3) a lockbox account.
You are evaluating Woodlawn Racetrack for a potential loan. An examination of the notes to the financial statements indicates restricted cash at year-end amounts to $100,000. Explain how you would use this information in evaluating Woodlawn’s liquidity.
\r\n
What is the accounts receivable turnover, and what type of information does it provide?
Horizon Outfitters Company includes in its trial balance for December 31 an item for Accounts Receivable $789,000.
\r\nThis balance consists of the following items:
\r\nDue from regular customers $523,000
\r\nRefund receivable on prior year’s income taxes (an established claim) 15,500
\r\nTravel advance to employees 22,000
\r\nLoan to wholly owned subsidiary 45,500
\r\nAdvances to creditors for goods ordered 61,000
\r\nAccounts receivable assigned as security for loans payable 75,000
\r\nNotes receivable past due plus interest on these notes 47,000
\r\nTotal $789,000
\r\nIllustrate how these items should be shown in the balance sheet as of December 31.
Moon Hardware is planning to factor some of its receivables.
\r\nThe cash received will be used to pay for inventory purchases. The factor has indicated that it will require recourse” on the sold receivables. Explain to the controller of Moon Hardware what “recourse” is and how the recourse will be reflected in Moon’s financial statements after the sale of the receivables.
When is the financial components approach to recording the transfers of receivables used? When should a transfer of receivables be recorded as a sale?
Indicate three reasons why a company might sell its receivables to another company.
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