ApplesConsolidatedBalanceSheets

(Partial)
ASSETS(inmillions)September25,September26,
2010
2009
Currentassets:
Cashandcashequivalents $11,261 $5,263
Shortterminvestments14,359 18,201
Accountsreceivable,less
allowancesof$55and$52,respectively5,510
3,361
Inventories 1,051
455
Deferredtaxassets1,6361,135
Vendornontradereceivables
4,414
1,696
Othercurrentassets 3,447
1,444
Totalcurrentassets
$41,678$31,555

ApplesConsolidatedBalance
Sheets(Partial)
ASSETS (inmillions)
Currentassets:
Cashandcashequivalents
Shortterminvestments
Accountsreceivable
Inventories
Deferredtaxassets
Vendornontradereceivables
Othercurrentassets
Totalcurrentassets

Less
liquid

AppleCorporationSample
AccountsReceivable
SubsidiaryLedger
TotalDue
Acme
$10,000
Baxter
50,000
Jones
15,000
Martin
20,000
Smith 5,000
GrossAccounts
$100,000
Receivable
LO1

ApplesConsolidatedBalance
Sheets(Partial)
September25,September26,
(amountsinmillions)2010
2009

Accountsreceivables,
lessallowancesof$55
and$52,respectively$5,510$3,361
Net
Realizable
Value

CreditSales
Slowsinflowofcash
Riskofuncollectibleaccounts
TradeCredit
RetailCustomer
Receivables

SalesInvoice
Terms:2/10,
net30

AccountingforBadDebts:
DirectWriteoffMethod
Periodofsale

Futureperiodcharged
withexpenseofbaddebt
writeoff

Journalentrytorecordwriteoffinperioddetermined
tobeuncollectible:
Bad Debts Expense
XXX
Accounts ReceivableDexter
XXX

AccountingforBadDebts:
AllowanceMethod
Period ofEstimatedbaddebt
sale

expense(and
allowanceaccount)
recordedinthesame
period

Accountingfor
BadDebts:
AllowanceMethod

Iestimate...

Journalentrytorecordestimatedbaddebt
expenseinperiodofsale:
BadDebtsExpense
XXX
AllowanceforDoubtfulAccountsXXX

BalanceSheetPresentation
AllowanceMethod
RobertsCorp.
PartialBalanceSheet
Accountsreceivable
$250,000
Less:Allowancefor
doubtfulaccounts 6,000
Netaccountsreceivable
$244,000

Accountingfor
BadDebts:
AllowanceMethod

Bankrupt

Journalentrytorecordbaddebtwriteoffin
perioddetermineduncollectible:
AllowanceforDoubtfulAccountsXXX
AccountsReceivableDexter

XXX

Approachesto
theAllowanceMethod
%ofNetCreditSales

Income
Statement
Approach

%ofAccountsReceivable Balance
AgingMethod
Sheet
Approach

PercentageofNetCredit
SalesMethod
Example:
Assumeprioryearsnetcreditsalesandbaddebt
expenseisasfollows:
Year
2007
2008
2009
2010
2011

NetCreditSales
$1,250,000
1,340,000
1,200,000
1,650,000
2,120,000
$7,560,000

BadDebts
$26,400
29,350
23,100
32,150
42,700
$153,700

PercentageofNet
CreditSalesMethod
Example:
Developbaddebtpercentage:
$153,700
=0.02033
$7,560,000

use2%

PercentageofNetCredit
SalesMethod
Assumenetcreditsalesare$2,340,000in2012:
Journalentry:
BadDebtsExpense46,800
AllowanceforDoubtfulAccounts46,800
Torecordestimatedbaddebts.
(2%x$2,340,000=$46,800)

PercentageofAccounts
ReceivableMethod

Example:

AssumeprioryearsendingAccountsReceivableand
baddebtsisasfollows:
December31
Year
AccountsReceivable
BadDebts
2007
$650,000
$5,250
2008
785,000
6,230
2009
854,000
6,950
2010
824,000
6,450
2011
925,000
7,450
$4,038,000
$32,330

PercentageofAccounts
ReceivableMethod

Example:

$32,330/$4,038,000=0.8%ratioofbaddebtstothe
endingaccountsreceivable
December31,2012AccountsReceivable$865,000

0.8%
CreditbalancerequiredinAllowance
accountafteradjustment$6,920

PercentageofAccounts
ReceivableMethod
AssumetheAllowanceforDoubtfulAccountshasa
beginningcreditbalanceof$2,100:
Creditbalancerequiredinallowance
accountafteradjustment
$6,920
Less: Creditbalanceinallowance
accountbeforeadjustment 2,100
Amountforbaddebtexpenseentry$4,820

PercentageofAccounts
ReceivableMethod
AssumetheAllowanceforDoubtfulAccounts
hasabeginningcreditbalanceof$2,100:
Journalentry:
BadDebtsExpense4,820
AllowanceforDoubtfulAccounts4,820
Torecordestimatedbaddebts.

PercentageofAccounts
ReceivableMethod
Thenetrealizablevalueofaccountsreceivable
wouldbedeterminedasfollows:
Accountsreceivable$865,000
Less:Allowancefordoubtfulaccount (6,920)
Netrealizablevalue$858,080

AgingMethod
EstimatedPercentEstimatedAmount
Amount
UncollectibleUncollectible
$85,600
1%
$856

Category
Current
Pastdue:
130days
31,2004%
3160days
24,500
10%
6190days
18,000
30%
90+days
9,200
50%
Totals
$168,500

1,248
2,450
5,400
4,600
$14,554

AgingMethod
AssumetheAllowanceforDoubtfulAccountshasa
beginningcreditbalanceof$1,230:
Creditbalancerequiredinallowance
accountafteradjustment
$14,554
Less: Creditbalanceinallowance
accountbeforeadjustment (1,230)
Amountforbaddebtexpenseentry$13,324

AgingMethod
AssumetheAllowanceforDoubtfulAccounts
hasabeginningcreditbalanceof$1,230:
Journalentry:
BadDebtsExpense13,324
AllowanceforDoubtfulAccounts13,324
Torecordestimatedbaddebts.

AgingMethod
Thenetrealizablevalueofaccountsreceivable
wouldbedeterminedasfollows:
Accountsreceivable$168,500
Less:Allowancefordoubtfulaccount (14,554)
Netrealizablevalue$153,946

AccountsReceivableTurnover
NetCreditSales
AverageAccountsReceivable
Indicateshowquicklya
companyiscollecting(i.e.,
turningover)itsreceivables
LO2

AccountsReceivableTurnover
Toofastmaymean:

creditpoliciestoo
stringent;maybe
losingsales

Tooslowmaymean:

creditdepartment
notoperating
effectively;
dissatisfiedcustomers

InterestBearingPromissoryNote
Principal

BakerCorporationpromisestopayHighTec,
Inc.$15,000plus12%annualintereston
March13,2013.
Interest

Date:December13,2012
Signed:_________
Baker Corporation

Maturity
Date

LO3

InterestBearing
PromissoryNote
Maker

Givesa
Noteto

Payee

ReceiptofInterestBearing
PromissoryNote
Journalentrytorecordthereceiptofthenote
onDecember13,2012:
NotesReceivable
15,000
SalesRevenue
15,000

InterestBearing
PromissoryNote
AdjustingentrytorecordinterestonDec.31,2012:
InterestReceivable
90
InterestRevenue
90*
*Interest=$15,000 12% 18/360

InterestBearing
PromissoryNote
Journalentrytorecordthecollectionofthe
noteonMarch13,2013:
Cash
15,450
NotesReceivable
15,000
InterestRevenue
360*
InterestReceivable
90
*15,000 12% 72/360

AcceleratingtheCash
InflowfromSales
Creditcardsales
Discountingnotesreceivable

LO4

CreditCardSales
Competitivenecessity
Creditcardcompany:
Chargesfee
Assumesriskofnonpayment

DiscountingNotesReceivable
Sellnotepriortomaturitydateforcash
Receivelessthanfacevalue(i.e.,

discountedamount)
Canbesoldwithorwithoutrecourse

ReasonsCompaniesInvestin
OtherCompanies
Shorttermcashexcesses
Longterminvestingforfuturecash

needs
Exertinfluenceoverinvestee
Obtaincontrolofinvestee
LO5

InvestmentinaCD
Example:
OnOctober2,2012,Crestoninvests$100,000of
excesscashina120dayCD.Principalplus
interest@6%dueuponinvestmentmaturity.

Purchaseofinvestment:
ShortTermInvestmentsCD100,000
Cash
100,000

InvestmentinaCD
Yearendadjustingentry:
InterestReceivable 1,500
InterestRevenue

1,500

Interest(I) =Principal(P) Rate(R) Time(T)

$1,500
=$100,000 6%
90*/360
*October= 29days
November= 30days
December= 31days
90days

InvestmentinaCD
Uponinvestmentmaturity:
Cash
102,000
ShortTermInvestmentsCD100,000
InterestReceivable
1,500
InterestRevenue*
500
*InterestearnedinJanuary:
$100,000 6% 30/360=$500

AccountingforCommonStock
Investments
Fair
Value
Method

Equity
Method

Consolidated
Financial
Statements

100%

0%
Nosignificant
influence
Our
focus
inAppendix

Significant
influence

Control

InvestmentinBonds
Bondsofothercompanies
Intentandabilitytoholduntilmaturity
$100,000,10%bondduetenyears

InvestmentinBonds
Example:
On1/1/12,Atlanticbuys:
$100,000,10%bonds@facevalue
Bondsmatureintenyears
Interestpayablesemiannually
Recordthepurchaseofthebondsand
receiptofthefirstinterestpayment

RecordingBondPurchase
InvestmentinBonds
100,000
Cash
TorecordpurchaseofABCbonds.
$100,000,10%bonddue2022

100,000

RecordingReceiptof
InterestPayment
6/30/12

Cash($100,000 10% 1/2)

InterestIncome

5,000

TorecordinterestincomeonABCbonds.

5,000

RecordingBondSale
7/1/12

Cash
LossonSaleofBonds
InvestmentinBonds
TorecordsaleofABCbonds.

99,000
1,000
100,000

InvestmentinStocks
Stocksofothercompanies
Recordedatcost,includingany

brokeragefees,commissionsor
otherfeespaidtoacquiretheshares

InvestmentinStocks
Example:

OnFebruary1,2012,DexterCorp.pays$50,000for
sharesofStuartcommonstockplus$1,000
commissions:
InvestmentinStuart
CommonStock51,000
Cash51,000
Recordthepurchaseofcommonstock

RecordingReceiptofDividends
Dexterreceives$500cashdividendsfromStuart
commonstockonMarch31,2012:
Cash
500
DividendIncome
Torecordthereceiptofdividends

500

SaleofInvestmentinStocks
SaleofInvestmentinStuartcommonstockon
May20,2012for$53,000:
Cash
53,000
InvestmentinStuart
CommonStock51,000
GainonSaleofStock2,000
TorecordthesaleofStuartcommonstock.

LiquidAssetsandtheStatementof
CashFlows IndirectMethod
OperatingActivities
Netincome
xxx
Increaseinaccountsreceivable
Decreaseinaccountsreceivable
+
Increaseinnotesreceivable

Decreaseinnotesreceivable
+
InvestingActivities
Purchasesofheldtomaturityand
availableforsalesecurities

Sales/maturitiesofheldtomaturityand
availableforsalesecurities
+
FinancingActivities
LO6

EndofChapter7