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Chapter 7: Q1Q (page 362)
What may be included under the heading of 鈥渃ash鈥�?
Bank deposits, cash in hand, checks issued, money orders received, etc.
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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?
(Transfer of Receivables) Use the information for Jones Company as presented in E7-20. Jones is planning to factor some accounts receivable at the end of the year. Accounts totaling \(25,000 will be transferred to Credit Factors, Inc. with recourse. Credit Factors will retain 5% of the balances for probable adjustments and assesses a finance charge of 4%. The fair value of the recourse obligation is \)1,200.
Instructions
(a) Prepare the journal entry to record the sale of the receivables.
(b) Compute Jones鈥檚 accounts receivable turnover for the year, assuming the receivables are sold, and discuss how factoring of receivables affects the turnover ratio.
(Petty Cash, Bank Reconciliation) Bill Jovi is reviewing the cash accounting for Nottleman, Inc., a local mailing service. Jovi鈥檚 review will focus on the petty cash account and the bank reconciliation for the month ended May 31, 2017. He has collected the following information from Nottleman鈥檚 bookkeeper for this task.
Petty Cash
1. The petty cash fund was established on May 10, 2017, in the amount of \(250.
2. Expenditures from the fund by the custodian as of May 31, 2017, were evidenced by approved receipts for the following.
Postage expenses | \)33.00 |
Mailing Labels and Other Supplies | 65.00 |
I.O.U from employees | 30.00 |
Shipping charges | 57.45 |
Newspaper advertising | 22.80 |
Miscellaneous expenses | 15.35 |
On May 31, 2017, the petty cash fund was replenished and increased to \(300; currency and coin in the fund at that time totaled \)26.40.
Bank Reconciliation
THIRD NATIONAL BANK | |||
BANK STATEMENT | |||
Disbursements | Receipts | Balance | |
Balance 1 May, 2017 | \(8,769 | ||
Deposits | \)28,000 | ||
Note payment direct from customer (\(30) | 930 | ||
Check clearing during May | \)31,150 | ||
Bank service charges | 27 | ||
Balance 31 May, 2017 | 6,522 |
Nottleman鈥檚 Cash Account | |
Balance 1 May 2017 | \(8,850 |
Deposit during May 2017 | 31,000 |
Checks written during May 2017 | (31,835) |
Deposits in transit are determined to be \)3,000, and checks outstanding at May 31 total \(850. Cash on hand (besides petty cash) at May 31, 2017, is \)246.
Instructions
(a) Prepare the journal entries to record the transactions related to the petty cash fund for May.
(b) Prepare a bank reconciliation dated May 31, 2017, proceeding to a correct cash balance, and prepare the journal entries necessary to make the books correct and complete.
(c) What amount of cash should be reported in the May 31, 2017, balance sheet?
Kraft Enterprises owns the following assets at December 31, 2017.
Cash in bank 鈥� saving account | 68,000 | Checking account balance | 17,000 |
Cash on hand | 9,300 | Post-dated Checks | 750 |
Cash refunded due from IRS | 31,400 | Certificate of deposits (180-days) | 90,000 |
What amount should be reported as cash?
What is the theoretical justification of the allowance method as contrasted with the direct write-off method of accounting for bad debts?
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