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Chapter 7: Q4Q (page 362)
Springsteen Inc. reported in a recent annual report 鈥淩estricted cash for debt redemption.鈥� What section of the balance sheet would report this item?
Theasset section of the balance sheet would report the above provided item.
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(Journalize Various Accounts Receivable Transactions) The balance sheet of Starsky Company at December 31, 2016, includes the following.
Note receivable | \(36,000 | |
Accounts receivable | 182,100 | |
Less: Allowance for doubtful accounts | 17,300 | \)200,800 |
Transactions in 2017 include the following.
1. Accounts receivable of \(138,000 were collected including accounts of \)60,000, on which 2% sales discounts were allowed.
2. \(5,300 was received in payment of an account which was written off the books as worthless in 2016.
3. Customer accounts of \)17,500 were written off during the year.
4. At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $20,000. This estimate is based on an analysis of aged accounts receivable.
Instructions
Prepare all journal entries necessary to reflect the transactions above.
(Assigned Accounts Receivable鈥擩ournal Entries) Salen Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2017, it assigned, under guarantee, specific accounts amounting to \(150,000. The finance company advanced to Salen 80% of the accounts assigned (20% of the total to be withheld until the finance company has made its full recovery), less a finance charge of 陆% of the total accounts assigned.
On July 31, Salen Company received a statement that the finance company had collected \)80,000 of these accounts and had made an additional charge of 陆% of the total accounts outstanding as of July 31. This charge is to be deducted at the time of the first remittance due Salen Company from the finance company. (Hint: Make entries at this time.) On August 31, 2017, Salen Company received a second statement from the finance company, together with a check for the amount due. The statement indicated that the finance company had collected an additional $50,000 and had made a further charge of 陆% of the balance outstanding as of August 31.
Instructions
Make all entries on the books of Salen Company that are involved in the transactions above.
Which of the following statements is true?
(a) The fair value option requires that some types of financial instruments be recorded at fair value.
(b) The fair value option requires that all noncurrent financial instruments be recorded at amortized cost.
(c) The fair value option allows, but does not require, that some types of financial instruments be recorded at fair value.
(d) The FASB and IASB would like to reduce the reliance on fair value accounting for financial instruments in the future.
(Assigning Accounts Receivable) On April 1, 2017, Rasheed Company assigns \(400,000 of its accounts receivable to the Third National Bank as collateral for a \)200,000 loan due July 1, 2017. The assignment agreement calls for Rasheed to continue to collect the receivables. Third National Bank assesses a finance charge of 2% of the accounts receivable, and interest on the loan is 10% (a realistic rate of interest for a note of this type).
Instructions
(a) Prepare the April 1, 2017, journal entry for Rasheed Company.
(b) Prepare the journal entry for Rasheed鈥檚 collection of $350,000 of the accounts receivable during the period from April 1, 2017, through June 30, 2017.
(c) On July 1, 2017, Rasheed paid Third National all that was due from the loan it secured on April 1, 2017. Prepare the journal entry to record this payment.
(Bad-Debt Reporting) The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year.
Date | Customer | Amount \( |
March 31 | E.L Masters Company | \)7,800 |
June 30 | Stephen Crane Associates | 6,700 |
September 30 | Amy Lowell鈥檚 Dress Shop | 7,000 |
December 31 | R. Frost. Inc | 9,830 |
Dickinson follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts.
All of Dickinson鈥檚 sales are on a 30-day credit basis. Sales for the current year total \(2,200,000. The balance in Accounts Receivable at year-end is \)77,000 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible (assume a zero balance in the allowance).
Instructions
(a) Do you agree or disagree with Dickinson鈥檚 policy concerning recognition of bad debt expense? Why or why not?
(b) By what amount would net income differ if bad debt expense was computed using the percentage-of-receivables approach?
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