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EXERCISES
Exercise 7-1Requirement 1
Sales price = 200 units x $800 = $160,000 x 80% = $128,000
April 6, 2011
Accounts receivable.................................................... 128,000
..............................................................Sales revenue
.......................................................................128,000
Requirement 2
April 6, 2011
Accounts receivable.................................................... 128,000
..............................................................Sales revenue
.......................................................................128,000
May 6, 2011
Cash............................................................................ 128,000
....................................................Accounts receivable
.......................................................................128,000
Requirement 2:
April 6, 2011
Accounts receivable.................................................... 126,720
.........................................................Sales revenue (99% x $128,000)
.................................................................................... 126,720
May 6, 2011
Cash............................................................................ 128,000
....................................................Accounts receivable
.......................................................................126,720
...........................................................Interest revenue
...........................................................................1,280
Exercise 7-2Requirement 1
To record the write-off of receivables.
Allowance for uncollectible accounts.........................
....................................................Accounts receivable
.........................................................................46,200
46,200
$68,000
(46,200)
21,800
(66,690)
$44,890
44,890
Requirement 2
Current assets:
Accounts receivable, net of $66,690 in allowance
for uncollectible accounts
$2,156,310
Exercise 7-3Requirement 1
The McGraw-Hill Companies, Inc., 2011
7-4
80,000
Requirement 2
$ 4,800 interest for 12 months
$75,200 sales price
= 6.38% = effective interest rate
Exercise 7-4
Cash (difference)................................
Loss on sale of receivables (to balance)........................
Receivable from factor ($7,000 fair value $1,000 fee). . .
................................Accounts receivable (balance sold)
.......................................................................100,000
90,000
4,000
6,000
Exercise 7-5
Alternate Exercise and Problem Solutions
Cash (difference)...........................................................
Loss on sale of receivables (to balance)........................
Receivable from factor ($7,000 fair value $1,000 fee) ...
.......................................................Recourse liability
...........................................................................4,000
................................Accounts receivable (balance sold)
.......................................................................100,000
90,000
8,000
6,000
Exercise 7-6
September 1, 2011
Interest receivable.......................................................
1,000
.............................................Interest revenue ($50,000 x 8% x 3/12)
....................................................................................
1,000
Face amount
Interest to maturity ($50,000 x 8%)
Maturity value
Discount ($54,000 x 10% x 9/12)
Cash proceeds
Step 4: To record a loss for the difference between the cash proceeds and the
notes book value.
September 1, 2011
Cash (proceeds determined above)....................................
Loss on sale of note receivable (difference)..................
.......................................Note receivable (face amount)
.........................................................................50,000
49,950
1,050
Exercise 7-7Requirement 1
Step 1:
$74,674
8,200
(8,420)
$74,454
$78,984
(50)
(680)
(2,000)
(1,800)
$74,454
Requirement 2
To record credits to cash revealed by the bank reconciliation.
Miscellaneous expense (bank service charges)................
Accounts receivable (NSF checks)................................
Cash - savings account................................................
Accounts payable........................................................
............................................................................Cash
...........................................................................4,530
50
680
2,000
1,800
Note: Each of the adjustments to the book balance required journal entries.
None of the adjustments to the bank balance require entries.
PROBLEMS
Problem 7-1Requirement 1
76,000
82,000
Requirement 2
Bad debt expense .......................................................
.............Allowance for uncollectible accounts (below)
...........................................................................4,700
4,700
Amount
$ 825,000
220,000
50,000
128,000
$1,223,000
Percent
Uncollectible
2%
10%
30%
40%
Estimated
Allowance
$ 16,500
22,000
15,000
51,200
$104,700
$106,000
76,000
(82,000)
100,000
104,700
$ 4,700
Requirement 3
Bad debt expense for 2011:
Monthly accruals
Year-end adjustment
Total
$76,000
4,700
$80,700
Balance sheet:
Current assets:
Accounts receivable, net of $104,700 in
allowance for uncollectible accounts
$1,118,300
Problem 7-2Requirement 1
March 31, 2011
Note receivable (face amount)....................................... 12,000
........................................................Discount ($12,000 x 10%)
...........................................................................1,200
.............................................Sales revenue (difference)
.........................................................................10,800
10,000
..............................................................Sales revenue
.........................................................................10,000
9,800
200
8,000
6,000
98,000
2,000
15,000
14,976
224
$15,000
600
15,600
(624)
$14,976
Face amount
Interest to maturity ($15,000 x 8% x 6/12)
Maturity value
Discount ($15,600 x 12% x 4/12)
Cash proceeds
Requirement 2
To accrue nine months' interest on the Misthos Co. note receivable.
Discount .....................................................................
900
.............................................Interest revenue ($12,000 x 10% x 9/12)
....................................................................................
900