Accounting semester winter 2014
TR7-1 Bank reconciliation
VL reported a cash balance of $36k in the general ledger, but the bank statement reported a balance of $27.9k at the end of Sept 2019. You have ascertained that the bank cashed a cheque on this account, in the amount of $5.5k, which was actually issued by ML; this was an error made by the bank. There was also an outstanding deposit of $4.9k, an amount that was deposited by VL at the end of September after the bank cut-off. Outstanding cheques were $2.5k, and there was an error made by Vish’s bookkeeper, who recorded a cheque to a supplier at $1.2k when it was really $2.1k. Bank fees of $400 have not yet been recorded by VL, and neither was a direct deposit of $1,1k by a customer, who paid VL directly to VL’s bank account.
Technical Review 7-1
Balance per bank ………………………………………………… $27,900
Additions:
Outstanding deposits ……………………………………. 4,900
Bank error…………………………………………………….. 5,500
Deductions:
Outstanding cheques …………………………………….. (2,500)
Adjusted balance………………………………………………… $35,800
Balance per books ………………………………………………. $36,000
Additions:
Direct deposit from customer………………………….. 1,100
Deductions:
Error in recording cheque……………………………….. (900)
Service charges……………………………………………… (400)
Adjusted balance………………………………………………… $35,800
TR7-2 Accounts Receivable—Allowances:
The accounts of Quickly Company provided the following 20×4 information at 31 December:
D
In fact, the allowance for sales discounts is not needed at the end of 20×5, the allowance for sales returns should be $14,000, and aging shows that the allowance for doubtful accounts should be $65,000.
Prepare journal entries to adjust all allowances.
By how much have these entries changed earnings?
What is the net balance of accounts receivable that will be included on the SFP?
Technical Review 7-2
Requirement 1
Allowance for sales discounts………………………………………………….. 5,500
Sales discounts………………………………………………………………… 5,500
Sales returns…………………………………………………………………………… 12,000
Allowance for sales returns……………………………………………….. 12,000
($14,000– $2,000)
Bad debts expense………………………………………………………………….. 25,000
Allowance for doubtful accounts……………………………………….. 25,000
($65,000 – $40,000)
Requirement 2
Earnings have decreased by $31,500 ($25,000 + $12,000 – $5,500)
Requirement 3
Accounts receivable, net………………………………………. $521,000*
*$600,000 – $14,000 – $65,000
R7-4 Transfer of Receivables:
Hum Corp. has accounts receivable of $460,000. The company transfers these accounts receivable to a financial institution. There are no bad debts associated with these accounts receivable. Proceeds of $444,500 are received from the transfer. The transfer is on a non-notification basis, which means that the customers pay Hum, and Hum remits the cash to the financial institution. The customers pay $460,000 to Hum on schedule, and the cash remittance is forwarded to the financial institution.
Record all journal entries for the sequence of events assuming:
the transfer is recorded as a sale/derecognition, and
the transfer is recorded as a borrowing
Technical Review 7-4
As a sale/derecognition:
Cash………………………………………………………………………………………… 444,500
Financing expense……………………………………………………………………… 15,500
Accounts receivable…………………………………………………………….. 460,000
On payment by the customer and payment to the finance company:
Cash………………………………………………………………………………………… 460,000
Cash………………………………………………………………………………….. 460,000
This is essentially a wash; is acceptable to say “no entry”, but the cash does physically arrive and has to be passed on.
As a borrowing:
Cash………………………………………………………………………………………… 444,500
Discount on note payable…………………………………………………………… 15,500
Note payable………………………………………………………………………. 460,000
On payment by the customer and payment to the finance company:
Cash………………………………………………………………………………………… 460,000
Accounts receivable…………………………………………………………….. 460,000
Note payable…………………………………………………………………………….. 460,000
Cash………………………………………………………………………………….. 460,000
Interest expense (1)……………………………………………………………………. 15,500
Discount on note payable ……………………………………………………. 15,500
(1) Recognized over the life of the agreement
TR7-5 Notes Receivable:
Dharma sold a piece of equipment at the beginning of Year 1, receiving a $10,000, two-year 1% note. Interest is paid at the end of each year. Market interest rates are in the range of 10%.
Calculate the present value of the note receivable.
Prepare entries for the sale, and cash collection each year for two years
Technical Review 7-5
Requirement 1
* Present value of principal:
$10,000 (P/F, 10%, 2) $8,265
Present value of interest annuity
$100 (P/A, 10%, 2) 174
$8,439
Requirement 2
To record sale and note:
Note receivable……………………………………………………………………. 10,000
Sales revenue…………………………………………………………………………. 8,439
Discount on notes receivable……………………………………………………. 1,561
End of first year:
Cash……………………………………………………………………………………….. 100
Discount on note receivable………………………………………………………. 744
Interest revenue ($8,439 x 10%)……………………………………………….. 844
End of second year:
Cash…………………………………………………………………………………… 10,100
Discount on note receivable ($1,561 – $744)……………………………….. 817
Note receivable………………………………………………………………………. 10,000
Interest revenue (($8,439 + $744) x 10%), rounded……………………. 917