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12/10/13

Cash and Receivables

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BRIEF EXERCISES
BE7-1. 1 Kraft Enterprises owns the following assets at December 31, 2014. Cash in banksavings account 68,000 Checking account balance 17,000 Cash on hand 9,300 Postdated checks 750 Cash refund due from IRS 31,400 Certificates of deposit (180-day) 90,000 What amount should be reported as cash? BE7-2. 4 Restin Co. uses the gross method to record sales made on credit. On June 1, 2014, it made sales of $50,000 with terms 3/15, n/45. On June 12, 2014, Restin received full payment for the June 1 sale. Prepare the required journal entries for Restin Co. BE7-3. 4 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. BE7-4. 5 Wilton, Inc. had net sales in 2014 of $1,400,000. At December 31, 2014, before adjusting entries, the balances in selected accounts were: Accounts Receivable $250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 2% of its net sales will prove to be uncollectible, prepare the December 31, 2014, journal entry to record bad debt expense. BE7-5. 5 Use the information presented in BE7-4 for Wilton, Inc. (a) Instead of estimating the uncollectibles at 2% of net sales, assume that 10% of accounts receivable will prove to be uncollectible. Prepare the entry to record bad debt expense. (b) Instead of estimating uncollectibles at 2% of net sales, assume Wilton prepares an aging schedule that estimates total uncollectible accounts at $24,600. Prepare the entry to record bad debt expense. BE7-6. 6 Milner Family Importers sold goods to Tung Decorators for $30,000 on November 1, 2014, accepting Tung's $30,000, 6-month, 6% note. Prepare Milner's November 1 entry, December 31 annual adjusting entry, and May 1 entry for the collection of the note and interest. BE7-7. 6 Dold Acrobats lent $16,529 to Donaldson, Inc., accepting Donaldson's 2-year, $20,000, zero-interestbearing note. The implied interest rate is 10%. Prepare Dold's journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity. BE7-8. 8 On October 1, 2014, Chung, Inc. assigns $1,000,000 of its accounts receivable to Seneca National Bank as
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12/10/13

Cash and Receivables

collateral for a $750,000 note. The bank assesses a finance charge of 2% of the receivables assigned and interest on the note of 9%. Prepare the October 1 journal entries for both Chung and Seneca. BE7-9. 8 Wood Incorporated factored $150,000 of accounts receivable with Engram Factors Inc. on a withoutrecourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram. BE7-10. 8 Use the information in BE7-9 for Wood. Assume that the receivables are sold with recourse. Prepare the journal entry for Wood to record the sale, assuming that the recourse liability has a fair value of $7,500. BE7-11. 8 Arness Woodcrafters sells $250,000 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5% and retains an amount equal to 4% of accounts receivable. Arness estimates the fair value of the recourse liability to be $8,000. Prepare the journal entry for Arness to record the sale. BE7-12. 8 Use the information presented in BE7-11 for Arness Woodcrafters but assume that the recourse liability has a fair value of $4,000, instead of $8,000. Prepare the journal entry and discuss the effects of this change in the value of the recourse liability on Arness's financial statements. BE7-13. 9 Recent financial statements of General Mills, Inc. report net sales of $12,442,000,000. Accounts receivable are $912,000,000 at the beginning of the year and $953,000,000 at the end of the year. Compute General Mills' accounts receivable turnover. Compute General Mills' average collection period for accounts receivable in days. *BE7-14. 10 Finman Company designated Jill Holland as petty cash custodian and established a petty cash fund of $200. The fund is reimbursed when the cash in the fund is at $15. Petty cash receipts indicate funds were disbursed for office supplies $94 and miscellaneous expense $87. Prepare journal entries for the establishment of the fund and the reimbursement. *BE7-15. 10 Horton Corporation is preparing a bank reconciliation and has identified the following potential reconciling items. For each item, indicate if it is (1) added to balance per bank statement, (2) deducted from balance per bank statement, (3) added to balance per books, or (4) deducted from balance per books. (a) Deposit in transit $5,500. (b) Bank service charges $25. (c) Interest credited to Horton's account $31. (d) Outstanding checks $7,422. (e) NSF check returned $377. *BE7-16. 10
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12/10/13

Cash and Receivables

Use the information presented in *BE7-15 for Horton Corporation. Prepare any entries necessary to make Horton's accounting records correct and complete. *BE7-17. 11 Assume that Toni Braxton Company has recently fallen into financial difficulties. By reviewing all available evidence on December 31, 2014, one of Toni Braxton's creditors, the National American Bank, determined that Toni Braxton would pay back only 65% of the principal at maturity. As a result, the bank decided that the loan was impaired. If the loss is estimated to be $225,000, what entry(ies) should National American Bank make to record this loss?

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