Instructions For each individual situation, determine the amount that should be reported as cash



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E7-2


(Determine Cash Balance)
Presented below are a number of independent situations.
Instructions
For each individual situation, determine the amount that should be reported as cash.


1.Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to subsidiary of $980,000; utility deposit paid to gas company $180.
$ 2,325,000
Cash balance of $925,000. Only the checking account balance should be reported as cash. The certificates of deposit should be reported as a temporary investment, the cash advance to subsidiary should be reported as accounts receivable, and the utility deposit should be identified as a receivable from the gas company.

2.Checking account balance $600,000; an overdraft in special checking account at same bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000; petty cash fund $300; coins and currency on hand $1,350.
$ 601,650
Cash balance is $584,650 = $600,000 - $17,000 + $300 + $1,350
Note: The Cash held in a bond sinking fund is restricted. Bonds are usually a noncurrent asset.

3.Checking account balance $590,000; postdated check from customer $11,000; cash restricted due to maintaining compensating balance requirement of $100,000; certified check from customer $9,800; postage stamps on hand $620.
$ 599,800
4. Checking account balance at bank $37,000; money market balance at mutual fund (has checking privileges) $48,000; NSF check received from customer $800.
$ 85,000


5Checking account balance $700,000; cash restricted for future plant expansion $500,000; short-term Treasury bills $180,000; cash advance received from customer $900 (not included in checking account balance); cash advance of $7,000 to company executive, payable on demand; refundable deposit of $26,000 paid to federal government to guarantee performance on construction contract.
$ 880,900

Cash balance is $700,900 = $700,000 + $900
Cash restricted for future plant expansion of $500,000 should be reported

as a noncurrent asset. Short-term treasury bills of $180,000 should be

reported as a temporary investment. Cash advance received from customer

of $900 should also be reported as a liability; cash advance of $7,000 to

company executive should be reported as a receivable; refundable deposit

of $26,000 paid to federal government should be reported as a receivable.

E7-7
(Recording Bad Debts)
Duncan Company reports the following financial information before adjustments.
Dr. Cr.
Accounts Receivable$100,000
Allowance for Doubtful Accounts$2,000
Sales (all on credit) 900,000
Sales Returns and Allowances 50,000

Instructions
Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 1% of net sales and (b) 5% of accounts receivable.
DescriptionDebitCredit
(a)
Bad Debt Expense9,000
Allowance for Doutful Accounts9,000
Bad Debt Expense $8,500

Allowance for Doubtful Accounts $8,500

10%* ($900,000 – $50,000) = $8,500

(b)
Bad Debt Expense $3,000
Allowance for Doubtful Accounts $3,000

E7-18
On July 1, 2007, Agincourt Inc. made two sales.

1. It sold land having a fair market value of $700,000 in exchange for a 4-year non-interest-bearing promissory note in the face amount of $1,101,460. The land is carried on Agincourt's books at a cost of $590,000.

2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000 (interest payable annually).

Agincourt Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest.

Instructions
Record the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above that took place on July 1, 2007. (For multiple debit/credit entries, list in order of magnitude. Round answers to 2 decimal places. Hint: Use tables in text.)

Description Debit Credit
Note Receivable 1,101,460
Land 590,000
Discount on Note Receivable 401,460
Gain on Sale 110,000

Note Receivable1,987.07
Service Revenue
Discount on Note Receivable
7/1/04 Notes Receivable $400,000.00

Discount on Notes Receivable $178,836.32

Service Revenue $221,163.68
To calculate the Discount on Notes Receivable:
PV of $400,000 due in 8 years at 12% = $400,000*0.40388

= $161,552

PV of $12,000 payable annually for 8 years at 12% = $12,000*4.96764

= $59,611.68
PV of the note and interest = $161,552 + $59,611.68 = $221,163.83

Discount = $400,000 - $221,163.68 = $178,836.32

E7-20

(Analysis of Receivables)
Presented below is information for Jones Company.
1. Beginning-of-the-year Accounts Receivable balance was $15,000.

2. Net sales (all on account) for the year were $100,000. Jones does not offer cash discounts.

3. Collections on accounts receivable during the year were $70,000.

Instructions
(a) Prepare (summary) journal entries to record the items noted above.
DescriptionDebitCredit
Account Receivable100,000
Sales 100,000
Cash70,000
Account Receivable70,000
Accounts Receivable $100,000

Sales $100,000
Cash $70,000

Accounts Receivable $70,000

(b) Compute Jones' accounts receivable turnover ratio for the year. The company does not believe it will have any bad debts. (Round answer to 2 decimal places.)
(4.44) times
Accounts Receivable Turnover = Sales / Average Receivables
Beginning Accounts Receivable = $15,000

Add: Sales $100,000

Total Receivables $115,000

Less: Cash Receipts $70,000

Ending Accounts Receivable $45,000

Accounts Receivable Turnover =




(c) Use the turnover ratio computed in (b) to analyze Jones' liquidity. The turnover ratio last year was 6.0. Has Jones' ratio increased or declined?
(Declined)
This could be a bad indication of future liquidity, if customers continue to pay slowly. Jones may want to consider offering early payment (cash) discounts.



E7-24


(Bank Reconciliation and Adjusting Entries)
Angela Lansbury Company deposits all receipts and makes all payments by check. The following information is available from the cash records.
June 30 Bank Reconciliation
Balance per bank$ 7,000
Add: Deposits in Transit 1,540
Deduct: Outstanding checks(2,000)
Balance per books$ 6,540
Month of July Results
Per BankPer Books
Balance July 31$8,650$9,250
July deposits 5,000 5,810
July checks4,000 3,100
July note collected (not included in July deposits)1,000-
July bank service charge15-
July NSF check from a customer, returned by the bank (recorded by bank as a charge)335-
Instructions

(a) Prepare a bank reconciliation going from balance per bank and balance per book to correct cash balance. (For multiple entries, list in order of magnitude. List all amounts as positive amounts and subtract where necessary.)
Angela Lansbury Company
Bank Reconciliation
July 31
Balance per bank statement, July 31 $ 8,650
Add: Deposit Transit2,150
Deduct: Outstanding Check900
Correct cash balance, July 31$ 9,900


Balance per books, July 31$ 9,250
Add: Note Correction1,000
Less: Service Charge$ 15
NSF335
350
Corrected cash balance, July 31$ 9,900
Angela Lansbury Company

Bank Reconciliation

July 31
Balance per bank statement, July 31 $8,650

Add: Deposits in transit $2,350

Less: Outstanding checks ($1,100)

Correct cash balance, July 31 $9,900
Balance per books, July 31 $9,250

Add: Collection of note $1,000

Less: Bank service charge $ 15

Less: NSF check 335 ($350)

Corrected cash balance, July 31 $9,900


(b) Prepare the general journal entry or entries to correct the Cash account. (For multiple debit/credit entries, list in order of magnitude.)


Cash $650

Office Expenses—Bank Service Charge $15

Accounts Receivable $335

Notes Receivable $1,000

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