33:010:272 Lecture Notes - Lecture 9: Accounts Receivable

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28 Oct 2016

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Lecture 9 (chapter 8): accounts receivable & notes receivable. Most companies make sales on account, that is, they give the buyer some amount of time to pay. The question is how to treat the default expense. Bad debt expense is an adjusting entry much like depreciation expense rather than a matching entry at the time of sale (although there is no conceptual reason why it cannot be booked along with cogs). Ace co is a wholesaler that sells goods on standard terms of 2/10 n/30. They sell all over the u. s. and expect credit losses to be 2% of gross sales. During january, they sold ,000 worth of goods. ,000 was paid within 10 days and ,000 within 30 days. At the end of the month, ,000 sales were in accounts receivable. Prepare the entries for cash collections and for bad debt expense. Write off: one customer who owed ,000 declared bankruptcy dr allowance for uncollectibles cr accounts receivable.

Related Questions

Hurricane Inc. purchased a portfolio of available-for-sale securities in 2016, its first year of operations. The cost and fair value of this portfolio on December 31, 2016, was as follows:

1	Name	Number of Shares	Total Cost	Total Fair Value
2	Tornado Inc.	830.00	$14,857.00	$16,185.00
3	Tsunami Corp.	1,230.00	31,488.00	34,809.00
4	Typhoon Corp.	2,170.00	44,268.00	43,834.00
5	Total		$90,613.00	$94,828.00

On June 12, 2017, Hurricane purchased 1,400 shares of Rogue Wave Inc. at $50 per share plus a $80 brokerage commission.

Required:

Provide the journal entries to record the following (refer to the Chart of Accounts for exact wording of account titles and be sure to enter the year as part of the date):

1.	The adjustment of the available-for-sale security portfolio to fair value on December 31, 2016.
2.	The June 12, 2017, purchase of Rogue Wave Inc. stock.

How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Chart of Accounts

CHART OF ACCOUNTS

Hurricane Inc.

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Investments-Rogue Wave Inc. Stock
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable
251	Sales Tax Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
350	Unrealized Gain (Loss) on Available-for-Sale Investments
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
611	Interest Revenue
612	Dividend Revenue
621	Income of Rogue Wave Inc.
631	Gain on Sale of Investments
641	Unrealized Gain on Trading Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
721	Loss of Rogue Wave Inc.
731	Loss on Sale of Investments
741	Unrealized Loss on Trading Investments

Journal

Shaded cells have feedback.

A. Provide the journal entries. Refer to the Chart of Accounts for exact wording of account titles. Be sure to enter the year as part of the date.

How does grading work?

PAGE 10

JOURNAL

Score: 33/51

	DATE	DESCRIPTION
1	?	?
2		?
3	?	?
4		?

Points:

6.47 / 10

Feedback

Check My Work

1. The gain or loss is the difference between the portfolio cost and its fair value. The offset account for the gain or loss entry is the valuation allowance account.

2. Increase the investment and decrease Cash for the purchase price (Shares x Per share amount) plus brokerage fee.

Final Question

Shaded cells have feedback.

B. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Unrealized gains and losses for available-for-sale securities are accumulated over time and reported as a credit (positive) or debit (negative) balance in the Stockholdersâ Equity section. As a result, the changes in fair valueare not reflected on the income statement, as is the case with trading securities. Bypassing the income statement issupported on the grounds that available-for-sale securities will be held for alonger time than trading securities; thus, fluctuations in market prices havea greater opportunity to âcancel outâ over time.

Points:

5 / 5

ACC 2301 Project 3 Budget Exercise

Bobcat Printing makes custom t---shirts and other promotionalproducts for student organizations and businesses. It is beginningits first year of operations and needs to plan for its firstquarter of operations. They would like to maximize their profits,and understand that accurate budgeting can help achieve that goal.The budgets will be prepared based on the followinginformation:

a. Sales are budgeted at $20,000 for Month 1, $25,000 for Month2, and $27,000 for Month 3. All sales will be done on account.Company does not expect to have any cash sales.

b. Sales are collected 60% in the month of the sale, and 40% inthe month following the sale.

c. Cost of Goods Sold is budgeted at 45% of Sales.

d. Monthly selling, general, and administrative expenses are asfollows: donations are 10% of sales; advertising is 3% of sales;miscellaneous is 1% of sales; and rent is $5,000 per month. AllSG&A expenses are paid in the month they are incurred.

e.Sincealloftheordersarecustommade,noinventoryiskeptonhandattheendofthemonth.

f. Inventory purchases are paid in full in the month followingthe purchase.

g. Bobcat Printing is planning to purchase a building in Month 3for $6,000 in cash.

h.Theywouldliketomaintainaminimumcashbalanceof$2,500attheendofeachmonth.Thecompanyhasanagreementwithalocalbankthatallowsthemtoborrow,withatotallineof credit of $20,000. The interest rate on these loans is 1% permonth (12% annual). They would as far as able, repay the loan onthe last day of the month when it has enough cash to pay the fullbalance and maintain an adequate ending cash balance.

i. Theownermakesadrawof$3,000everymonth.(Note:soleproprietorsandpartnerships take ownerâs draws, while stockholders receivedividends). Based upon the information provided, complete theoperating budgets provided in the excel template, and answer thequestions in TRACS. When making calculations always round up (forexample: 33 Ã 7% = 2.31, round up to 3.00).

Check Figures:
Gross Margin = $39,600
Total assets = $19,300
Ending Retained Earnings = $5,507

10. What is the total projected cash payments for SG&Aexpense? A. $15,000 B. $7,000 C. $25,080 D. $8,780

11. What is the projected beginning cash balance for Month 1? A.$0 B. $7,500 C. $300 D. $2,500

12. What is the projected ending cash balance for Month 1? A.$2,500 B. $1,100 C. $8,000 D. None of the above

13. Will Bobcat Printing need to borrow money in Month 1? A. YesB. No

14. If you answered "Yes" that Bobcat Printing had to borrowmoney in the first month, how much money will it need to borrow toensure it does not have a cash shortage? A. $500 B. $1,300 C.$1,800 D. Does not borrow money

15. If Bobcat Printing borrowed money in Month 1, what is theprojected interest expense it will incur for borrowing the money?A. $130 B. Bobcat Printing will not have interest because it doesnot need to borrow money in Month 1. C. $13 D. $170 E. $14

16. Bobcat Printing will have a cash surplus in Month 2. A. TrueB. False

17. If Bobcat Printing has a projected cash surplus in Month 2,how much cash will it repay for borrowing on its line of credit? A.Bobcat Printing will not have a cash surplus, therefore it willneed to borrow more money in Month 2. B. $1,100 C. $1,300 D.$1,800

18. Bobcat Printing will have cash shortage in Month 3. A. TrueB. False

19. Bobcat Printing will need to borrow money in Month 3. A.True B. False

20. How much will Bobcat Printing borrow in Month 3? A. BobcatPrinting will not have a projected cash shortage in Month 3, thusit will not borrow money B. $1,300 C. $1,643 D. $2,500

erinscorpion774

1. Which of the following identifies the proper order of theaccounting cycle?

A. Analyze, Journalize, Unadjusted Trial Balance

B. Analyze, Post, Unadjusted Trial Balance

C. Journalize, Post, Adjusted Trial Balance

D. Unadjusted Trial Balance, Adjusted Trial Balance, Close

E. Adjusted Trial Balance, Adjustments, Financial Statements

2. Interim financial statements refer to financial reports:

A. That cover less than one year, usually spanning one, three orsix-month periods

B. That are prepared before any adjustments have beenrecorded

C. That show the assets above the liabilities and theliabilities above the equity

D. Where revenues are reported on the income statement when cashis received and expenses are reported when cash is paid

E. Where the adjustment process is used to assign revenues tothe periods in which they are earned and to match expenses withrevenues

3. The accounting principle that requires revenue to be reportedwhen earned is the:

A. Matching principle

B. Revenue recognition principle

C. Time period principle

D. Accrual reporting principle

E. Going-concern principle

4. Adjusting entries:

A. Affect only income statement accounts

B. Affect only balance sheet accounts

C. Affect both income statement and balance sheet accounts

D. Affect only cash flow statement accounts

E. Affect only equity accounts

5. The system of preparing financial statements based onrecognizing revenues when the cash is received and reportingexpenses when the cash is paid is called:

A. Accrual basis accounting

B. Operating cycle accounting

C. Cash basis accounting

D. Revenue recognition accounting

E. Current basis accounting

6. If throughout an accounting period the fees for legalservices paid in advance by clients are recorded in an accountcalled Unearned Legal Fees, the end-of-period adjusting entry torecord the portion of those fees that has been earned is:

A. Debit Cash and credit Legal Fees Earned

B. Debit Cash and credit Unearned Legal Fees

C. Debit Unearned Legal Fees and credit Legal Fees Earned

D. Debit Legal Fees Earned and credit Unearned Legal Fees

E. Debit Unearned Legal Fees and credit Accounts Receivable

7. A company had no office supplies available at the beginningof the year. During the year, the company purchased $250 worth ofoffice supplies. On December 31, $75 worth of office suppliesremained. How much should the company report as office suppliesexpense for the year? A. $75 B. $125 C. $175 D. $250 E. $325 8. OnJanuary 1 a company purchased a five-year insurance policy for$1,800 with coverage starting immediately. If the purchase wasrecorded in the Prepaid Insurance account and the company recordsadjustments only at year-end, the adjusting entry at the end of thefirst year is:

A. Debit Prepaid Insurance, $1,800; credit Cash, $1,800

B. Debit Prepaid Insurance, $1,440; credit Insurance Expense,$1,440

C. Debit Prepaid Insurance, $360; credit Insurance Expense,$360

D. Debit Insurance Expense, $360; credit Prepaid Insurance,$360

E. Debit Insurance Expense, $360; credit Prepaid Insurance,$1,440

9. Unearned revenue is reported on the financial statementsas:

A. A revenue on the balance sheet

B. A liability on the balance sheet

C. An unearned revenue on the income statement

D. An asset on the balance sheet

E. An operating activity on the statement of cash flows

10. Which of the following assets is not depreciated?

A. Store fixtures

B. Computers

C. Land

D. Buildings

E. Vehicles

11. On April 30, 2011, a three-year insurance policy waspurchased for $18,000 with coverage to begin immediately. What isthe amount of insurance expense that would appear on the company'sincome statement for the year ended December 31, 2011? A. $500 B.$4,000 C. $6,000 D. $14,000 E. $18,000 12. Expenses incurred butunpaid that are recorded during the adjusting process with a debitto an expense and a credit to a liability are:

A. Intangible expenses

B. Prepaid expenses

C. Unearned expenses

D. Net expenses

E. Accrued expenses

13 The difference between the cost of an asset and theaccumulated depreciation for that asset is called

A. Depreciation Expense

B. Unearned Depreciation

C. Prepaid Depreciation

D. Depreciation Value

E. Book Value

14. A company purchased a new truck at a cost of $42,000 on July1, 2011. The truck is estimated to have a useful life of 6 yearsand a salvage value of $3,000. How much depreciation expense willbe recorded for the truck for the year ended December 31, 2011?

A. $3,250

B. $3,500

C. $4,000

D. $6,500

E. $7,000

15. A company's Office Supplies account shows a beginningbalance of $600 and an ending balance of $400. If office suppliesexpense for the year is $3,100, what amount of office supplies waspurchased during the period?

A. $2,700

B. $2,900

C. $3,300

D. $3,500

E. $3,700

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33:010:272 Lecture Notes - Lecture 9: Accounts Receivable

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