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Chapter 7: Question E7-23 (page 369)

(Petty Cash) The petty cash fund of Fonzarelli鈥檚 Auto Repair Service, a sole proprietorship, contains the following.

1. Coins and Currency

\(15.20

2. Postage Stamps

2.90

3. An I.O.U from Cunningham, an employee, for cash advance

40

4. Check payable to Fonzarelli鈥檚 Auto Repair from Pottsie Weber, an employee, marked NSF

34

5. Vouchers for the following:

Stamps

20

Two Rose Bowl tickets for Nick Fonzarelli

170

Printer cartridge

14.35

204.35

\)296.45

The general ledger account Petty Cash has a balance of $300.

Instructions

Prepare the journal entry to record the reimbursement of the petty cash fund.

Short Answer

Expert verified

Cash short and over of the business entity equals$6.45.

Step by step solution

01

Definition of Prepaid Expenses

The expenses incurred by the business entity for any service or product that will be received in a future period is known as prepaid expense. It is reported as an asset of the business.

02

Journal Entry to Record the reimbursement of Petty Cash Funds

Date

Accounts and Explanation

Debit $

Credit $

Accounts receivables$40+$34

$74

Maintenance expenses

$14.35

Drawings

$170

Postage expenses$20+$2路90

$17.10

Prepaid expenses (postage)

$2.90

Cash short and over (balancing figure)

$6.45

Cash$300+$15路20

$284.80

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Most popular questions from this chapter

Kimmel Company uses the net method of accounting for sales discounts. Kimmel also offers trade discounts to various groups of buyers.

On August 1, 2017, Kimmel sold some accounts receivable on a without recourse basis. Kimmel incurred a finance charge.

Kimmel also has some notes receivable bearing an appropriate rate of interest. The principal and total interest are due at maturity. The notes were received on October 1, 2017, and mature on September 30, 2019. Kimmel鈥檚 operating cycle is less than one year.

Instructions

(a) (1) Using the net method, how should Kimmel account for the sales discounts at the date of sale? What is the rationale for the amount recorded as sales under the net method?

(2) Using the net method, what is the effect on Kimmel鈥檚 sales revenues and net income when customers do not take the sales discounts?

(b) What is the effect of trade discounts on sales revenues and accounts receivable? Why?

(c) How should Kimmel account for the accounts receivable factor on August 1, 2017? Why?

(d) How should Kimmel account for the note receivable and the related interest on December 31, 2017? Why?

Restin Co. uses the gross method to record sales made on credit. On June 1, 2017, it made sales of $50,000 with terms 3/15, n/45. On June 12, 2017, Restin received full payment for the June 1 sale. Prepare the required journal entries for Restin Co.

(Transfer of Receivables with Recourse) Beyonc茅 Corporation factors \(175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2017. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments.

Instructions

(a) What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?

(b) Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2017, for Beyonc茅 to record the sale of receivables, assuming the recourse obligation has a fair value of \)2,000.

(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.

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.
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