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Chapter 7: 3E (page 365)

Jim Carrie Company shows a balance of \(181,140 in the Accounts Receivable account on December 31, 2017. The balance consists of the following.

Installment accounts due in 2018

\)23,000

Installment accounts due after 2018

34,000

Overpayment to vendors

2,640

Due from regular customers, of which $40,000 represents account pledge as security for a bank loan

79,000

Advances to employees

1,500

Advance to the subsidiary company (due in 2018)

81,000

Instructions

Illustrate how the information above should be shown on the balance sheet of Jim Carrie Company on December 31, 2017.

Short Answer

Expert verified

Item

Representation

Installment accounts due in 2018

Receivables

Installment accounts due after 2018

Receivables

Overpayment to vendors

Receivables

Due from regular customers, of which $40,000 represents account pledge as security for a bank loan

Receivables

Advances to employees

Receivables

Advance to the subsidiary company (due in 2018)

Investment

Step by step solution

01

Definition of Subsidiary Company

The company managed and controlled by another company or parent company is known as a subsidiary company. Such relation arises between two companies because of mergers and acquisitions.

02

Representation in the balance sheet

Particular

Amount $

Amount $

Receivables

Customer accounts

79,000

Installment accounts due in 2018

23,000

Installment accounts due after 2018

34,000

Vendors

2,640

Employees

1,500

Total receivables

140,140

Investment

Advance to subsidiary company

81,000

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Most popular questions from this chapter

What are the basic problems that occur in the valuation of accounts receivable?

(Expected Cash Flows) On December 31, 2017, Iva Majoli Company borrowed \(62,092 from Paris Bank, signing a 5-year, \)100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2019, Majoli began to experience financial difficulty. As a result, at December 31, 2019, Paris Bank determined that it was probable that it would receive back only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.

Instructions

(a) Prepare the entry to record the issuance of the loan by Paris Bank on December 31, 2017.

(b) Prepare the entry, if any, to record the impairment of the loan on December 31, 2019, by Paris Bank.

Of what merit is the contention that the allowance method lacks the objectivity of the direct write-off method? Discuss in terms of accounting鈥檚 measurement function.

Horizon Outfitters Company includes in its trial balance for December 31 an item for Accounts Receivable \(789,000. This balance consists of the following items:

Due from regular customer

\)523,000

Refund receivable on prior year鈥檚 income taxes (an established claim)

15,500

Travel advance to employees

22,000

Loan to wholly owned subsidiary

45,500

Advance to creditor for goods ordered

61,000

Accounts receivables assigned security for loans payable

75,000

Notes receivable past due plus interest on these notes

47,000

Total

$789,000

Illustrate how these items should be shown in the balance sheet as of December 31.

Corrs Wholesalers Co. sells industrial equipment for a standard 3-year note receivable. Revenue is recognized at time of sale. Each note is secured by a lien on the equipment and has a face amount equal to the equipment鈥檚 list price. Each note鈥檚 stated interest rate is below the customer鈥檚 market rate at date of sale. All notes are to be collected in three equal annual installments beginning one year after sale. Some of the notes are subsequently sold to a bank with recourse, some are subsequently sold without recourse, and some are retained by Corrs. At year end, Corrs evaluates all outstanding notes receivable and provides for estimated losses arising from defaults.

Instructions

At December 31, 2017, how should Corrs measure and account for the impact of estimated losses resulting from notes receivable that it

(1) Retained and did not sell?

(2) Sold to bank with recourse?
See all solutions

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