Financial Accounting Questions and Answers

Old Town Co. wholesales bathroom fixtures. During the current fiscal year, Old Town Co. received the following notes:                     Date                Face Amount      Term              Interest Rate  1.              Apr. 10                 $45,000          60 days                     4%  2.              June 24                  18,000           30 days                    6  3.              July 1                     36,000     ...

Tel-Com Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ¾% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts: Year of Origin of Accounts Receivable Written Off  as Uncollectible Year Sales Uncollectible Accounts Written off 1st 2nd 3rd 4th 1st $   700,000 $2,000 $2,000 2nd    900,000 3,400 1,800 $1,600 3rd 1,200,000 6,450 1,000 3,700 $1,750 4th 2,000,000 9,200 1,260 3,...

Angler’s Dream Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Angler’s Dream prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2011: The following accounts were unintentionally omitted from the aging schedule: Customer                                            Due Date                        Balance  Antelope Sports & Flies                June 21, 2011                      $ 3,000  Big Hole Flies                               Aug. 30, 2011         ...

The following transactions were completed by Axiom Management Company during the current fiscal year ended December 31: Feb.  17. Received 25% of the $30,000 balance owed by Gillespie Co., a bankrupt business, and wrote off the remainder as uncollectible. Apr.  11. Reinstated the account of Colleen Bertram, which had been written off in the preceding year as uncollectible. Journalized the receipt of $4,250 cash in full payment of Colleen’s account. July  6. Wrote off the $9,000 balance owed by Covered Wagon Co., which has no assets. Nov. 20. Reinstated the account of Dugan Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $5,900 cash in full payment of the account. Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Kipp Co., $3,000; Moore Co., $4,000; Butte Distributors, $8,000; Parker Towers, $6,700.          31. Based on an analysis of the $1,200,000 of accounts receivabl...

Use the data in Exercises 9-27 and 9-28 to analyze the accounts receivable turnover ratios of H.J. Heinz Company and The Limited Brands Inc. a. Compute the average accounts receivable turnover ratio for The Limited Brands Inc. and H.J. Heinz Company for the years shown in Exercises 9-27 and 9-28. b. Does The Limited Brands or H.J. Heinz Company have the higher average accounts receivable turnover ratio? c. Explain the logic underlying your answer in (b). Answer: a. The average accounts receivable turnover ratios are as follows: The Limited Brands Inc.: 28.9 [(30.7 + 27.1)/2]   H.J. Heinz Company: 9.0 [(8.7 + 9.3)/2]  Note: For computations of the individual ratios, see Ex. 9–27 and Ex. 9–28. b. The Limited Brands has the higher average accounts receivable turnover  ratio. c. The Limited Brands operates a specialty retail chain of stores that sell directly to individual consumers. Many of these consumers (retail customers) pay with MasterCards or VISAs that are recorded as...

The Limited Brands Inc. sells women’s clothing and personal health care products through specialty retail stores including Victoria’s Secret and Bath & Body Works stores. The Limited Brands reported the following (in millions):                                                                 For the Period Ending                                                          Jan. 31, 2010    Jan. 31, 2009 Net sales                                               $8,632                $9,043 Accounts receivable      ...

H.J. Heinz Company was founded in 1869 at Sharpsburg, Pennsylvania, by Henry J. Heinz. The company manufactures and markets food products throughout the world, including ketchup, condiments and sauces, frozen food, pet food, soups, and tuna. For the fiscal years 2009 and 2008, H.J. Heinz reported the following (in thousands):                                                                             Year Ending                                                             April 29, 2009     April 30, 2008  Net sales                                   ...

Polo Ralph Lauren Corporation designs, markets, and distributes a variety of apparel, home decor, accessory, and fragrance products. The company’s products include such brands as Polo by Ralph Lauren, Ralph Lauren Purple Label, Ralph Lauren, Polo Jeans Co., and Chaps. Polo Ralph Lauren reported the following (in thousands):                                                                             For the Period Ending                                                                 March 29, 2009     March 29, 2008 Net sales                               ...

List any errors you can find in the following partial balance sheet: Tulips Company  Balance Sheet  December 31, 2012  Assets Current assets:  Cash                                                                                            $138,000  Notes receivable                                            $400,000  Less interest receivable                                     20,000                380,000  Accounts receivable                   ...

Journalize the following transactions in the accounts of Jamba Co., which operates a riverboat casino: Mar.  1. Received an $80,000, 60-day, 6% note dated March 1 from Tomekia Co. on account.         18. Received a $75,000, 60-day, 8% note dated March 18 from Mystic Co. on account. Apr. 30. The note dated March 1 from Tomekia Co. is dishonored, and the customer’s account is charged for the note, including interest. May 17. The note dated March 18 from Mystic Co. is dishonored, and the customer’s account is charged for the note, including interest. July 29. Cash is received for the amount due on the dishonored note dated March 1 plus interest for 90 days at 8% on the total amount debited to Tomekia Co. on April 30. Aug. 23. Wrote off against the allowance account the amount charged to Mystic Co. on May 17 for the dishonored note dated March 18. Answer: Mar. 1 Notes Receivable............................................... 80,000          ...

Journalize the following transactions of Frankenstein Productions: May  3. Received a $150,000, 120-day, 6% note dated May 3 from Sunrider Co. on account. Aug. 31. The note is dishonored by Sunrider Co. Oct. 30. Received the amount due on the dishonored note plus interest for 60 days at 9% on the total amount charged to Sunrider Co. on August 31. Answer: May 3 Notes Receivable............................................. 150,000                        Accounts Receivable—Sunrider Co. .......  150,000     Aug. 31 Accounts Receivable—Sunrider Co. ............ 153,000                      Notes Receivable .......................................  150,000                      Interest Revenue........................................  3,000*                 ...

The following selected transactions were completed by Zip-Up Co., a supplier of zippers for clothing: 2011 Dec. 10. Received from Point Loma Clothing & Bags Co., on account, a $36,000, 90-day, 4% note dated December 10.          31. Recorded an adjusting entry for accrued interest on the note of December 10.          31. Recorded the closing entry for interest revenue. 2012 Mar.  9. Received payment of note and interest from Point Loma Clothing & Bags Co. Journalize the transactions. Answer: 2011 Dec. 10 Notes Receivable............................................... 36,000                         Accounts Receivable—Point Loma                                Clothing & Bags Co. ...............................  36,000            31 Interest Receivabl...

Oregon Interior Decorators issued a 90-day, 6% note for $90,000, dated April 9, to Corvallis Furniture Company on account. a. Determine the due date of the note. b. Determine the maturity value of the note. c. Journalize the entries to record the following: (1) receipt of the note by Corvallis Furniture and (2) receipt of payment of the note at maturity. Answer: a. July 8 (21 + 31 + 30 + 8) b. $91,350 [($90,000 × 6% × 90/360) + $90,000] c. (1) Notes Receivable.................................................... 90,000                         Accounts Rec.—Oregon Interior Decorators  90,000   (2) Cash......................................................................... 91,350                         Notes Receivable...............................................  90,000                       ...

The series of seven transactions recorded in the following T accounts were related to a sale to a customer on account and the receipt of the amount owed. Briefly describe each transaction. CASH NOTES RECEIVABLE (7) 40,602 (5) 40,000 (6) 40,000 ACCOUNTS RECEIVABLE SALES RETURNS AND ALLOWANCES (1) 50,000 (3) 10,000 (3) 10,000 (6) 40,400 (5) 40,000 (7) 40,400 MERCHANDISE INVENTORY COST OF MERCHANDISE SOLD (4) 6,000 (2) 30,000 (2) 30,000 (4) 6,000 SALES INTEREST REVENUE (1) 50,000 (6) 400 (7) 202 Answer: 1. Sale on account. 2. Cost of merchandise sold for the sale on account. 3. A sale return or allowance. 4. Cost of merchandise returned. 5. Note received from customer on account. 6. Note dishonored and charged maturity value of note to customer’s account receivable. 7. Payment received from customer for dishonored note plus interest earned after due date. 

Determine the due date and the amount of interest due at maturity on the following notes:                  Date of Note       Face Amount       Interest Rate       Term of Note a.                 May 15               $40,000                    6%                    90 days b.                 March 20             15,000                     4                       60 days c.                 May 19                24,000                 ...

Magnetics International wrote off the following accounts receivable as uncollectible for the year ending December 31, 2012:                      Customer                          Amount                      Trey Betts                         $15,500                      Cheryl Carson                      9,000                      Irene Harris                        29,700                      Renee Putman                      ...

Spangler Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31, 2012:               Customer                     Amount                Will Boyette                $10,000                Stan Frey                        8,000                Tammy Imes                  5,000                Shana Wagner                6,000                Total                           $29,000...

The following selected transactions were taken from the records of Silhouette Company for the year ending December 31, 2012: Mar.  4. Wrote off account of Myron Rimando, $7,500. May 19. Received $2,000 as partial payment on the $10,000 account of Shirley Mason. Wrote off the remaining balance as uncollectible. Aug.  7. Received the $7,500 from Myron Rimando, which had been written off on March 4. Reinstated the account and recorded the cash receipt. Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry):            Brandon Peele                 $ 5,000            Clyde Stringer                    9,000            Ned Berry                         13,000            Mary Adams ...

During its first year of operations, Filippi’s Plumbing Supply Co. had net sales of $4,800,000, wrote off $65,000 of accounts as uncollectible using the direct write-off method, and reported net income of $375,000. Determine what the net income would have been if the allowance method had been used, and the company estimated that 1½% of net sales would be uncollectible. Answer: $368,000 [$375,000 + $65,000 – ($4,800,000 × 1½%)]

Using the data in Exercise 9-15, assume that during the second year of operations Filippi’s Plumbing Supply Co. had net sales of $5,500,000, wrote off $70,000 of accounts as uncollectible using the direct write-off method, and reported net income of $450,000. a. Determine what net income would have been in the second year if the allowance method (using 1½% of net sales) had been used in both the first and second years. b. Determine what the balance of the allowance for doubtful accounts would have been at the end of the second year if the allowance method had been used in both the first and second years. Answer: a. $437,500 [$450,000 + $70,000 – ($5,500,000 × 1½%)] b. $19,500 [($72,000 – $65,000) + ($82,500 – $70,000)]

The following selected transactions were taken from the records of Aprilla Company for the first year of its operations ending December 31, 2012: Jan. 27. Wrote off account of C. Knoll, $6,000. Feb. 17. Received $1,000 as partial payment on the $3,000 account of Joni Lester. Wrote off the remaining balance as uncollectible. Mar. 3. Received $6,000 from C. Knoll, which had been written off on January 27. Reinstated the account and recorded the cash receipt. Dec. 31. Wrote off the following accounts as uncollectible (record as one journal entry): Jason Short            $4,500 Kim Snider             1,500 Sue Pascall             1,100 Tracy Lane             3,500 Randy Pape               500            31. If necessary, record the year-end adjusting entry for uncollectible accounts. a. Journalize the transac...

Using the data in Exercise 9-11, assume that the allowance for doubtful accounts for Imperial Bikes Co. had a debit balance of $1,400 as of December 31, 2012. Journalize the adjusting entry for uncollectible accounts as of December 31, 2012. Answer: 2012 Dec. 31 Bad Debt Expense............................................. 40,000                   Allowance for Doubtful Accounts...............  40,000                         Uncollectible accounts estimate.                         ($38,600 + $1,400)

Imperial Bikes Co. is a wholesaler of motorcycle supplies. An aging of the company’s accounts receivable on December 31, 2012, and a historical analysis of the percentage of uncollectible accounts in each age category are as follows: Age Interval                      Balance                       Percent Uncollectible Not past due                    $600,000                                       ¼% 1–30 days past due           120,000                                         2 31–60 days past due          60,000                       ...

Quigley Industries has a past history of uncollectible accounts, as shown below. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule you completed in Exercise 9-8. Age Class                                      Percent Uncollectible Not past due                                              1% 1–30 days past due                                     4 31–60 days past due                                  15 61–90 days past due                                  35 Over 90 days past due   ...

Using data in Exercise 9-9, assume that the allowance for doubtful accounts for Quigley Industries has a credit balance of $14,280 before adjustment on November 30. Journalize the adjusting entry for uncollectible accounts as of November 30. Answer: Nov. 30 Bad Debt Expense............................................. 53,850                               Allowance for Doubtful Accounts...............  53,850                               Uncollectible accounts estimate.                                 ($68,130 – $14,280)

The accounts receivable clerk for Quigley Industries prepared the following partially completed aging of receivables schedule as of the end of business on November 30: 1 2 3 4 5 21 22 Able Brothers Inc. Accent Company Zumpano Company Subtotals 3,000 4,500 5,000 830,000 25,000 5,000 80,000 3,000 500,000 4,500 180,000 45,000 1–30 31–60 61–90 Not Due Past 90 Over Customer Balance Days Past Due A The following accounts were unintentionally omitted from the aging schedule and not included in the subtotals above: Customer                                               Balance                    Due Date Beltran Industries                                 $12,000                       July 10 Doodle ...

Honest Abe’s Auto Supply distributes new and used automobile parts to local dealers throughout the Northeast. Honest Abe’s credit terms are n/30. As of the end of business on July 31, the following accounts receivable were past due: Account                                              Due Date                   Amount Alpha Auto                                           May 15                    $ 9,000 Best Auto                                              July 8                         3,000 Downtown Rep...

Journalize the following transactions in the accounts of Metromark Company, a restaurant supply company that uses the allowance method of accounting for uncollectible receivables: Feb. 11. Sold merchandise on account to Dakota Co., $29,000. The cost of the merchandise sold was $17,400. Apr. 15. Received $7,500 from Dakota Co. and wrote off the remainder owed on the sale of February 11 as uncollectible. Sept. 3. Reinstated the account of Dakota Co. that had been written off on April 15 and received $21,500 cash in full payment. Answer: Feb. 11 Accounts Receivable—Dakota Co. ................. 29,000                         Sales..............................................................  29,000          11 Cost of Merchandise Sold ................................ 17,400                          Merchandise Inventory.....................