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Chapter 7: Q4Q (page 362)
Springsteen Inc. reported in a recent annual report “Restricted cash for debt redemption.” What section of the balance sheet would report this item?
Theasset section of the balance sheet would report the above provided item.
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(Expected Cash Flows) On December 31, 2017, Iva Majoli Company borrowed \(62,092 from Paris Bank, signing a 5-year, \)100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2019, Majoli began to experience financial difficulty. As a result, at December 31, 2019, Paris Bank determined that it was probable that it would receive back only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.
Instructions
(a) Prepare the entry to record the issuance of the loan by Paris Bank on December 31, 2017.
(b) Prepare the entry, if any, to record the impairment of the loan on December 31, 2019, by Paris Bank.
Use the information from BE7-2, assuming Restin Co. uses the net method to account for cash discounts. Prepare the required journal entries for Restin Co.
(Journalize Various Accounts Receivable Transactions) The balance sheet of Starsky Company at December 31, 2016, includes the following.
Note receivable | \(36,000 | |
Accounts receivable | 182,100 | |
Less: Allowance for doubtful accounts | 17,300 | \)200,800 |
Transactions in 2017 include the following.
1. Accounts receivable of \(138,000 were collected including accounts of \)60,000, on which 2% sales discounts were allowed.
2. \(5,300 was received in payment of an account which was written off the books as worthless in 2016.
3. Customer accounts of \)17,500 were written off during the year.
4. At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $20,000. This estimate is based on an analysis of aged accounts receivable.
Instructions
Prepare all journal entries necessary to reflect the transactions above.
(Bank Reconciliation and Adjusting Entries) Logan Bruno Company has just received the August 31, 2017, bank statement, which is summarized below.
Country National Bank | Disbursement | Receipts | Balance |
Balance August 1 | \(9,369 | ||
Deposits during August | \)32,200 | \(41,569 | |
Note collected for depositor, including \)40 interest | 1,040 | 42,609 | |
Checks cleared during August | 34,500 | 8,109 | |
Bank service charges | 20 | 8,089 | |
Balance, August 31 | 8,089 |
The general ledger Cash account contained the following entries for the month of August.
Cash | |||
Balance, August 1 | 10,050 | Disbursement in August | 34,903 |
Receipt during August | 35,000 |
Deposits in transit at August 31 are \(3,800, and checks outstanding at August 31 total \)1,050. Cash on hand at August 31 is \(310. The bookkeeper improperly entered one check in the books at \)146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.
Instructions
(a) Prepare a bank reconciliation dated August 31, 2017, proceeding to a correct balance.
(b) Prepare any entries necessary to make the books correct and complete.
(c) What amount of cash should be reported in the August 31 balance sheet?
Simms Company has significant amounts of trade accounts receivable. Simms uses the allowance method to estimate bad debts instead of the direct write-off method. During the year, some specific accounts were written off as uncollectible, and some that were previously written off as uncollectible were collected.
Instructions
(a) What are the deficiencies of the direct write-off method?
(b) Briefly describe the allowance method to estimate bad debts and the theoretical justification for its use?
(c) How should Simms account for the collection of the specific accounts previously written off as uncollectible?
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