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Chapter 7: Q2Q (page 362)

In what accounts should the following items be classified? (a) Coins and currency. (b) U.S. Treasury (government) bonds. (c) Certificate of deposit (matures in 5 months). (d) Cash in a bank that is in receivership. (e) NSF check (returned with bank statement). (f) Deposit in foreign bank (exchangeability limited). (g) Postdated checks. (h) Cash to be used for retirement of long-term bonds. (i) Deposits in transit. (j) 100 shares of HP stock (intention is to sell in one year or less). (k) Savings and checking accounts. (l) Petty cash. (m) Stamps. (n) Travel advances.

Short Answer

Expert verified

Items classified are as follows

(a)Cash

(b) Trading securities

(c) Temporary investment

(d) Receivable

(e) Receivable

(f) Other assets

(g) Receivable

(h) Investment

(i) Cash

(j) Trading securities

(k) Cash

(l) Cash

(m) Prepaid expenses

(n) Receivables

Step by step solution

01

Meaning of balance sheet

A balance sheet is a statement that includes various types of accounts such as current assets, non-current assets, liabilities, non-current liabilities, and equities.

02

Classification of items are as follows

Items

Classification

Explanation

a

Cash

Coins and currency are considered cash commodities because they are not unrestricted.

b

Trading securities

U.S. Treasury bonds are considered trading securities because they are used to control financial activities.

c

Temporary investment

Certificate of Deposit issued for only 5 months is considered as a temporary investment as it invests for a shorter duration.

d

Receivable

Cash in a bank that is in receivership is a transaction that is considered receivable from the bank.

e

Receivable

NSF check is a transaction that is considered to be receivable from the bank.

f

Other assets

Deposits in a foreign bank where exchange capacity is limited are treated like other assets like investments.

g

Receivable

A post-dated check is considered receivable because it is considered collectible.

h

Investment

The cash used for the retirement of long-term bonds is treated as an investment to settle the bonds.

i

Cash

Deposits in transit are considered cash because it is the amount of cash that is yet to be processed by the bank.

j

Trading securities

Stocks are considered to be trading securities as these stocks are for a short duration of 3 to 12 months.

K

Cash

Savings and checking accounts are considered cash items because they are unrestricted items.

l

Cash

Petty cash is considered a cash item because it is an unrestricted item.

m

Prepaid expenses

Stamps are considered a prepaid expense or are also treated as an office supply inventory.

n

Receivable

Travel advances are considered receivable as they can be collected from employees through deduction of salaries.

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Most popular questions from this chapter

(Notes Receivable Journal Entries) On December 31, 2017, Oakbrook Inc. rendered services to Beghun Corporation at an agreed price of \(102,049, accepting \)40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed.

Instructions

Prepare the entries that would be recorded by Oakbrook Inc. for the sale and the receipts and interest on the following dates (prepare an amortization schedule). (Assume that the effective-interest method is used for amortization purposes.)

(a) December 31, 2017.

(b) December 31, 2018.

(c) December 31, 2019.

(d) December 31, 2020.

(e) December 31, 2021.

(Journalizing Various Receivable Transactions) Presented below is information related to James Garfield Corp., which sells merchandise with terms 2/10, net 60. Garfield records its sales and receivables net.

July 1 James Garfield Corp. sold to Warren Harding Co. merchandise having a sales price of \(8,000.

5 Accounts receivable of \)9,000 (gross) are factored with Andrew Jackson Credit Corp. without recourse at a financing charge of 9%. Cash is received for the proceeds; collections are handled by the finance company. (These accounts were all past the discount period.)

9 Specific accounts receivable of \(9,000 (gross) are pledged to Alf Landon Credit Corp. as security for a loan of \)6,000 at a finance charge of 6% of the amount of the loan. The finance company will make the collections. (All the accounts receivable are past the discount period.)

Dec. 29 Warren Harding Co. notifies Garfield that it is bankrupt and will pay only 10% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.)

Instructions

Prepare all necessary entries in general journal form for Garfield Corp

What are two methods of recording accounts receivable transactions when a cash discount situation is involved? Which is more theoretically correct? Which is used in practice more of the time? Why?

(Bad-Debt Reporting) Presented below is information related to the Accounts Receivable accounts of Gulistan Inc. during the current year 2017.

1. An aging schedule of the accounts receivable as of December 31, 2017, is as follows.

Age

Net Debit Balance

% to be applied after correction is made

Under 60-days

\(172,342

1%

60-90 days

136,490

3%

91-120 days

39,924

6%

Over 120 days

23,644

\)3,700 definitely uncollectible; estimated remainder uncollectible is 25%

\(372,400

*The \)3,240 write-off of receivables is related to the 91-to-120 day category.

2. The Accounts Receivable control account has a debit balance of \(372,400 on December 31, 2017.

3. Two entries were made in the Bad Debt Expense account during the year: (1) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (2) a credit for \)3,240 on November 3, 2017, and a debit to Allowance for Doubtful Accounts because of a bankruptcy.

4. Allowance for Doubtful Accounts is as follows for 2017.

Allowance for Doubtful Accounts

Nov 3

Uncollectible accounts written off

3,240

Jan 1

Beginning balance

8,750

Dec 31

5% of \(372,400

18,620

5. A credit balance exists in Accounts Receivable (60鈥�90 days) of \)4,840, which represents an advance on a sales contract.

Instructions

Assuming that the books have not been closed for 2017, make the necessary correcting entries.

(Bank Reconciliation and Adjusting Entries) Logan Bruno Company has just received the August 31, 2017, bank statement, which is summarized below.

Country National Bank

Disbursement

Receipts

Balance

Balance August 1

\(9,369

Deposits during August

\)32,200

\(41,569

Note collected for depositor, including \)40 interest

1,040

42,609

Checks cleared during August

34,500

8,109

Bank service charges

20

8,089

Balance, August 31

8,089

The general ledger Cash account contained the following entries for the month of August.

Cash

Balance, August 1

10,050

Disbursement in August

34,903

Receipt during August

35,000

Deposits in transit at August 31 are \(3,800, and checks outstanding at August 31 total \)1,050. Cash on hand at August 31 is \(310. The bookkeeper improperly entered one check in the books at \)146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.

Instructions

(a) Prepare a bank reconciliation dated August 31, 2017, proceeding to a correct balance.

(b) Prepare any entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the August 31 balance sheet?
See all solutions

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