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Chapter 7: 3E (page 365)

Jim Carrie Company shows a balance of \(181,140 in the Accounts Receivable account on December 31, 2017. The balance consists of the following.

Installment accounts due in 2018

\)23,000

Installment accounts due after 2018

34,000

Overpayment to vendors

2,640

Due from regular customers, of which $40,000 represents account pledge as security for a bank loan

79,000

Advances to employees

1,500

Advance to the subsidiary company (due in 2018)

81,000

Instructions

Illustrate how the information above should be shown on the balance sheet of Jim Carrie Company on December 31, 2017.

Short Answer

Expert verified

Item

Representation

Installment accounts due in 2018

Receivables

Installment accounts due after 2018

Receivables

Overpayment to vendors

Receivables

Due from regular customers, of which $40,000 represents account pledge as security for a bank loan

Receivables

Advances to employees

Receivables

Advance to the subsidiary company (due in 2018)

Investment

Step by step solution

01

Definition of Subsidiary Company

The company managed and controlled by another company or parent company is known as a subsidiary company. Such relation arises between two companies because of mergers and acquisitions.

02

Representation in the balance sheet

Particular

Amount $

Amount $

Receivables

Customer accounts

79,000

Installment accounts due in 2018

23,000

Installment accounts due after 2018

34,000

Vendors

2,640

Employees

1,500

Total receivables

140,140

Investment

Advance to subsidiary company

81,000

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Most popular questions from this chapter

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.

On September 30, 2016, Rolen Machinery Co. sold a machine and accepted the customer’s zero-interest-bearing note. Rolen normally makes sales on a cash basis. Since the machine was unique, its sales price was not determinable using Rolen’s normal pricing practices.

After receiving the first of two equal annual installments on September 30, 2017, Rolen immediately sold the note with recourse. On October 9, 2018, Rolen received notice that the note was dishonored, and it paid all amounts due. At all times prior to default, the note was reasonably expected to be paid in full.

Instructions

(1) How should Rolen determine the sales price of the machine?

(2) How should Rolen report the effects of the zero-interest-bearing note on its income statement for the year ended December 31, 2016? Why is this accounting presentation appropriate?

What is the normal procedure for handling the collection of accounts receivable previously written off using the direct write-off method? The allowance method?

Dold Acrobats lent \(16,529 to Donaldson, Inc., accepting Donaldson’s 2-year, \)20,000, zero-interest-bearing 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.

On October 1, 2017, 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.
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