Solution manual intermediate accounting 15th kiesoch07

The cash advance to subsidiary of $500,000 should be reported as a receivable, and the electric company deposit of $100 should be identified as a receivable from the electric company.. A

SOLUTIONS TO B EXERCISES

E7-1B (10–15 minutes)

1 Commercial savings account—

1 Commercial checking account—

5 Petty cash 2,000

receivable—employee in the amount of $360,000.

long-term debt should be reported as a noncurrent asset identified as

“Cash restricted for retirement of long-term debt.”

amount of $380,000.

liability.**

temporary investments.

receivable.

in cash A note disclosure indicating the arrangement and the amounts involved should be described in the notes.

E7-2B (10–15 minutes)

the savings account Only the checking account balance should be reported as cash The cash advance to subsidiary of $500,000 should be reported as a receivable, and the electric company deposit of $100 should

be identified as a receivable from the electric company.

Overdraft (5,000)

Petty cash 500

$108,000

Cash held in a bond sinking fund is restricted Assuming that the bonds are noncurrent, the restricted cash is also reported as noncurrent.

reported as cash.

The postdated check of $10,000 should be reported as a receivable Cash restricted due to compensating balance should be described in a note indicating the type of arrangement and amount Postage stamps on hand are reported as part of office supplies inventory or prepaid expenses Cash advance of $5,000 to company executive should be reported as a receivable;

$336,000 The NSF check received from customer should be reported as a receivable.

5 Cash balance is $171,900 computed as follows:

$171,900

Cash restricted for future plant expansion of $1,200,000 should be reported as a noncurrent asset Short-term Treasury bills of $200,000 should be reported as a temporary investment Cash advance received from customer of $900 should also be reported as a liability; refundable deposit of $50,000 paid to federal government should be reported as a receivable.

E7-3B (10–15 minutes)

Current assets

Accounts receivable

Customers

Accounts (of which accounts

in the amount of $40,000 have

have been pledged as security

for a bank loan) $261,000

Installment accounts due after

Investments

*This classification assumes that these receivables are collectible within the operating cycle of the business.

**These items could be separately classified, if considered material.

E7-4B (10–15 minutes)

Computation of cost of goods sold:

Cost of goods sold $230,000

Selling price = 1.5 (Cost of good sold)

E7-5B (15–20 minutes)

(a) 1 June 3 Accounts Receivable—Pham Inc 1,500

Sales 1,500

June 12 Cash 1,470

Sales Discounts ($1,500 X 2%) 30

Accounts Receivable—Pham 1,500

2 June 3 Accounts Receivable—Pham 1,470

Sales ($1,500 X 98%) 1,470

June 12 Cash 1,470

Accounts Receivable—Pham 1,470

(b) July 29 Cash 1,500

Accounts Receivable—Pham 1,470 Sales Discounts Forfeited 30

(Note: Sales discounts forfeited could have been recognized at the time the discount period lapsed The company, however, would probably not record this forfeiture until final cash settlement.)

July 1 Accounts Receivable 10,000

Sales 10,000

July 10 Cash 9,800*

Sales Discounts 200

Accounts Receivable 10,000

*$10,000 – (.02 X $10,000) = $9,800

July 17 Accounts Receivable 100,000

Sales 100,000

July 30 Cash 100,000

Accounts Receivable 100,000

E7-7B (10–15 minutes)

(a) Bad Debt Expense 6,375

*.03 X ($225,000 – $12,500) = $6,375

(b) Bad Debt Expense 1,500

account to $2,000 credit balance)

E7-8B (15–20 minutes)

(a) Allowance for Doubtful Accounts 3,000

E7-9B (8–10 minutes)

(a) Bad Debt Expense 12,500

Allowance for Doubtful Accounts

(b) Bad Debt Expense 10,000

Allowance for Doubtful Accounts

E7-10B (10–12 minutes)

required for income tax purposes The direct write-off method does not match expenses with revenues of the period, nor does it result in receivables being stated at estimated realizable value on the balance sheet.

Bad Debt Expense – Direct Write-Off = $60,920 ($6,000 + $10,200 +

$26,500 + $18,220)

Net income would be $15,080 ($76,000 – $60,920) lower under the percentage-of-sales approach.

Balance 1/1 ($1,400 – $310) $1,090 Over one year

$3,410

*($1,580 – $980)

Inasmuch as later invoices have been paid in full, all three of these amounts should be investigated in order to determine why Singh Co has not paid them The amounts in the beginning balance and #2412 should be of particular concern.

E7-12B (15–20 minutes)

8/1 Accounts Receivable—Sharper Co 20,790

8/5 Cash [$57,000 X (1 – 5%)] 54,150

Loss on Sale of Receivables 2,850

(Note: It is possible that the company already recorded the Sales Discounts Forfeited In this case, the credit to Accounts Receivable would be for $57,000 The same point applies to the next entry as well.)

8/9 Accounts Receivable 300

Sales Discounts Forfeited

Cash 18,800

Finance Charge ($20,000 X 6%) 1,200

Notes Payable 20,000

E7-12B (Continued)

Sales Discounts Forfeited

This entry may be made at the next time financial statements are prepared Also, it may occur on 9/29 when Sharper Company’s receivable is adjusted.

9/29 Allowance for Doubtful Accounts 16,800

Accounts Receivable—Sharper Co.

[$20,790 + $210 = $21,000;

E7-13B (10–15 minutes)

(a) Cash 94,000

Finance Charge 6,000 **

**3% X $200,000 = $6,000

(b) Cash 175,000

(c) Notes Payable 100,000

Interest Expense 2,000 *

Cash 102,000

*8% X $100,000 X 3/12 = $2,000

1 Cash 46,000

Loss on Sale of Receivables

($50,000 X 8%) 4,000

2 Cash 18,800

Finance Charge ($20,000 X 6%) 1,200

3 Bad Debt Expense 6,880

Allowance for Doubtful Accounts

4 Bad Debt Expense 16,200

Allowance for Doubtful Accounts

E7-15B (15–20 minutes)

(a) To be recorded as a sale, all of the following conditions would be met:

beyond reach of the transferor and its creditors).

either the transferred assets or beneficial interests in the transferred assets.

assets through an agreement to repurchase or redeem them before their maturity.

E7-15B (Continued)

(b) Computation of net proceeds:

Computation of gain or loss:

The following journal entry would be made:

Cash $241,500

Due from Factor 13,125

Loss on Sale of Receivables 10,875

E7-16B (15–20 minutes)

(a) To be recorded as a sale, all of the following conditions would be met:

beyond reach of the transferor and its creditors).

either the transferred assets or beneficial interests in the transferred assets.

trans-ferred assets through an agreement to repurchase or redeem them before their maturity.

(b) Computation of net proceeds:

Computation of gain or loss:

The following journal entry would be made:

Cash $184,000

Due from Factor 12,000

Loss on Sale of Receivables 8,500

E7-17B (10–15 minutes)

(a) July 1 Cash 93,000

Due from Factor 5,000 Loss on Sale of Receivables 2,000

Accounts Receivable 100,000 ($5,000 = 5% X $100,000)

($2,000 = 2% X $100,000)

(b) July 1 Accounts Receivable 100,000

Due to KTT Corp 5,000 Financing Revenue 2,000 Cash 93,000

E7-18B (10–15 minutes)

1 July 1 Notes Receivable 732,053.70

Discount on Notes Receivable 232,053.70 Land 375,000.00 Gain on Sale of Land 125,000.00 [($500,000.00 – $375,000.00)

$732,053.70 Face value of note 68301 Present value of 1 for 4 periods at 10%

$500,000.00 Present value of note 732,053.70 Face value of note

$232,053.70 Discount on note receivable]

2 July 1 Notes Receivable 400,000.00

Discount on Notes Receivable 128,037.12 Service Revenue 271,962.88

Computation of the present value of the note:

Maturity value $400,000.00 Present value of $400,000 due

in 8 years at 10%—$400,000

X 46651 $186,604.00 Present value of $16,000

payable annually for 8 years

at 10% annually—$16,000

X 5.33493 85,358.88 Present value of the note and

and interest 271,962.88 Discount $128,037.12

(a) Notes Receivable 100,000.00

*Computation of present value of note:

PV of $100,000 due in 2 years at 15%

$100,000 X 75614 = $75,614

(b) Discount on Notes Receivable 11,342.10

Interest Revenue 11,342.10*

*$75,614 X 15%

(c) Discount on Notes Receivable 13,043.90*

Interest Revenue 13,043.90

*($100,000.00 – $24,386.00 + $11,342.10) X 15

Rounded by $0.48.

Cash 100,000

E7-20B (10–15 minutes)

(a) Accounts Receivable 685,000

Sales 685,000

Cash 650,000

Average Trade Receivables (net)

E7-20B (Continued)

receivables 9.3 times a year and collections on receivables took 39 days.

In the prior year, the turnover ratio was slightly less (8.0) and collections took about 46 days This is a good trend in liquidity Monaco should continue its current credit and collection policies.

E7-21B (10–15 minutes)

(a) Cash [$50,000 X (1 – 10%)] 45,000

Due from Factor 3,000

Loss on Sale of Receivables 4,000

Computation of cash received

Computation of net proceeds (cash and other

assets received, less any liabilities incurred)

Cash received $45,000

Due from factor 3,000 $48,000

Computation of loss

(b) Accounts Receivable Turnover = Net Sales

Average Trade Receivables (net) Net Sales

*$56,000 + $685,000 – $650,000 – 50,000

14.1 With the factoring transaction, Monaco Company’s turnover ratio increases by even more than in the earlier exercise By factoring the receivables, Monaco is able to convert them to cash The cost of this approach to converting receivables to cash is captured in the Loss on Sale of Receivables account

*E7-22B (5–10 minutes)

1 April 1 Petty Cash 1,000

Cash 1,000

2 April 10 Cash Over and Short 10

Transportation-In (or Inventory) 300

Supplies Expense 125

Postage Expense 165

Receivables—Employees 85

Miscellaneous Expense 180

Cash ($1,000 – $135) 865

3 April 20 Petty Cash 500

Cash 500

*E7-23B (10–15 minutes)

Accounts Receivable—Employees

($25.00 + $12.00) 37.00

Repair Expense 61.15

*E7-24B (15–20 minutes)

Bank Reconciliation

July 31

Less: Bank service charge $ 30

NSF check 670 (700)

Deposits mailed and received in

Less: Outstanding checks

Checks written and cleared in

*Assumed to clear bank in July

(b) Cash 1,300

Accounts Receivable 670

(a) ELFEN COMPANY

Bank Reconciliation, October 31, 2014

Tri National Bank

Add: Cash on hand $ 250

Deposits in transit 4,800 5,050

21,140

Balance per books, October 31, 2014

19,600

(b) Cash 2,040

(To record collection of note and interest)

Cash 10 (To record August bank charges)

(To record error in recording check for

supplies)

(c) The corrected cash balance of $19,590 would be reported in the October

31, 2014, balance sheet.

*E7-26B (15-25 minutes)

December 31, 2014 Notes Receivable 100,000

Cash 50,663

$100,000 X Present value of 1 for 6 periods at 12%

$100,000 X 0.50663 = $50,663

(Before Impairment)

Date

Cash Received (0%)

Interest Revenue (12%)

Increase in Carrying Amount

Carrying Amount of Note

Computation of the impairment loss:

Less: Present value of $60,000 due in 3 years

The entry to record the loss by London Bank is as follows:

Bad Debt Expense 28,471

Note: Lloyds Company, the debtor, makes no entry because it still legally owes $100,000.

(a) Cash received by State Construction Company on December 31, 2014:

Cash received $832,396

(Before Impairment)

Date

Cash Received (10%)

Interest Revenue (15%)

Increase in Carrying Amount

Carrying Amount of Note

(c) Loss due to impairment:

Less: Present value of $700,000 due in

3 years ($700,000 X 0.65752) 460,264 Present value of $100,000 payable annually