(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 subsidiaryshould 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
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
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
(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 $45,000
Accounts Receivable Turnover =
(c) Use the turnover ratio computed in (b) to analyze Jones' liquidity. The turnover ratio last year was 6.0. Has Jones' ratio increased or declined? (Declined) This could be a bad indication of future liquidity, if customers continue to pay slowly. Jones may want to consider offering early payment (cash) discounts.
(Bank Reconciliation and Adjusting Entries) Angela Lansbury Company deposits all receipts and makes all payments by check. The following information is available from the cash records. June 30 Bank Reconciliation Balance per bank$ 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
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.)