ACCT 301 Connect Homework Chapter 7 solutions complete answers

ACCT 301 Connect Homework Chapter 7 solutions complete answers 

 

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Question 1

 

At the end of the first year of operations, Gaur Manufacturing had gross accounts receivable of $224,000. Gaur's management estimates that 7% of the accounts will prove uncollectible.

 

What journal entry should Gaur record to establish an allowance for uncollectible accounts? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Question 2

 

The controller of the Red Wing Corporation is in the process of preparing the company’s 2021 financial statements. She is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset in the balance sheet. The following items are being considered:

 

Balances in the company’s accounts at the First National Bank; checking $14,900, savings $23,500.

 

Undeposited customer checks of $6,600.

 

Currency and coins on hand of $720.

 

Savings account at the East Bay Bank with a balance of $540,000. This account is being used to accumulate cash for future plant expansion (in 2023).

 

$36,000 in a checking account at the East Bay Bank. The balance in the account represents a 15% compensating balance for a $240,000 loan with the bank. Red Wing may not withdraw the funds until the loan is due in 2024.

 

U.S. Treasury bills; 2-month maturity bills totaling $29,000, and 7-month bills totaling $34,000.

 

1. Determine the correct balance of cash and cash equivalents to be reported in the current asset section of the 2021 balance sheet.

 

Cash and cash equivalents includes:

 

Question 3

 

Tracy Company, a manufacturer of air conditioners, sold 150 units to Thomas Company on November 17, 2021. The units have a list price of $760 each, but Thomas was given a 25% trade discount. The terms of the sale were 2/10, n/30.

 

1. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on November 26, 2021, assuming that the gross method of accounting for cash discounts is used.

 

2. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on December 15, 2021, assuming that the gross method of accounting for cash discounts is used.

 

Question 4

 

Johnson Company calculates its allowance for uncollectible accounts as 10% of its ending balance in gross accounts receivable. The allowance for uncollectible accounts had a credit balance of $24,000 at the beginning of 2021.  No previously written-off accounts receivable were reinstated during 2021.  At 12/31/2021, gross accounts receivable totaled $400,100, and prior to recording the adjusting entry to recognize bad debts expense for 2021, the allowance for uncollectible accounts had a debit balance of 43,900.

 

1. What was the balance in gross accounts receivable as of 12/31/2020?

 

2. What journal entry should Johnson record to recognize bad debt expense for 2021?

 

3. Assume Johnson made no other adjustment of the allowance for uncollectible accounts during 2021. Determine the amount of accounts receivable written off during 2021.

 

4. If Johnson instead used the direct write-off method, what would bad debt expense be for 2021?

 

Question 5

 

On June 30, 2021, the Esquire Company sold some merchandise to a customer for $42,000. In payment, Esquire agreed to accept a 6% note requiring the payment of interest and principal on March 31, 2022. The 6% rate is appropriate in this situation.

 

1. Prepare journal entries to record the sale of merchandise (omit any entry that might be required for the cost of the goods sold), the December 31, 2021 interest accrual, and the March 31, 2022 collection. (Do not round intermediate calculations.)

 

2. If the December 31 adjusting entry for the interest accrual is not prepared, by how much will income before income taxes be over-or understated in 2021 and 2022?

 

Question 6

 

Swathmore Clothing Corporation grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 2% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.

 

At the end of 2020, accounts receivable were $592,000 and the allowance account had a credit balance of $56,000. Accounts receivable activity for 2021 was as follows:

 

The company’s controller prepared the following aging summary of year-end accounts receivable:

 

1. Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year.

 

2. Prepare the necessary year-end adjusting entry for bad debt expense.

 

3-a. What is total bad debt expense for 2021?

 

3-b. How would accounts receivable appear in the 2021 balance sheet?

 

Question 7

 

Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company’s fiscal year-end. The 2020 balance sheet disclosed the following:

 

During 2021, credit sales were $1,825,000, cash collections from customers $1,905,000, and $54,000 in accounts receivable were written off. In addition, $4,500 was collected from a customer whose account was written off in 2020. An aging of accounts receivable at December 31, 2021, reveals the following:

 

1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previously written off.

 

2. Prepare the year-end adjusting entry for bad debts according to each of the following situations:

 

Bad debt expense is estimated to be 4% of credit sales for the year.

 

Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable.

 

Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of accounts receivable to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by an aging of accounts receivable.

 

3. For situations (a)−(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2021 balance sheet?

 

Question 8

 

Lonergan Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June 2021, the company had accounts receivable of $960,000. Lonergan needs approximately $590,000 to capitalize on a unique investment opportunity. On July 1, 2021, a local bank offers Lonergan the following two alternatives:

 

Borrow $590,000, sign a note payable, and assign the entire receivable balance as collateral. At the end of each month, a remittance will be made to the bank that equals the amount of receivables collected plus 12% interest on the unpaid balance of the note at the beginning of the period.

 

Transfer $640,000 of specific receivables to the bank without recourse. The bank will charge a 4% factoring fee on the amount of receivables transferred. The bank will collect the receivables directly from customers. The sale criteria are met.

 

1. Prepare the journal entries that would be recorded on  July 1 for:

 

2. Assuming that 80% of all June 30 receivables are collected during July, prepare the necessary journal entries to record the collection and the remittance to the bank for:

 

Question 9

 

Samson Wholesale Beverage Company regularly factors its accounts receivable with the Milpitas Finance Company. On April 30, 2021, the company transferred $990,000 of accounts receivable to Milpitas. The transfer was made without recourse. Milpitas remits 90% of the factored amount and retains 10%. When Milpitas collects the receivables, it remits to Samson the retained amount less a 5% fee (5% of the total factored amount). Samson estimates the fair value of the last 10% of its receivables to be $79,000.

 

Prepare the journal entry for Samson Wholesale Beverage for the transfer of accounts receivable on April 30, assuming the sale criteria are met. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

 

Question 10

 

Evergreen Company sells lawn and garden products to wholesalers. The company's fiscal year-end is December 31. During 2021, the following transactions related to receivables occurred: 

 

Sold merchandise to Lennox, Inc., for $40,000 and accepted a 6%, 7-month note. 6% is an appropriate rate for this type of note.

 

Sold merchandise to Maddox Co. that had a fair value of $28,200, and accepted a noninterest-bearing note for which $30,000 payment is due on March 31, 2022.

 

Sold merchandise to Carr Co. for $15,000 with terms 2/10, n/30. Evergreen uses the gross method to account for cash discounts.

 

Collected the entire amount due from Carr Co.

 

A customer returned merchandise costing $4,400. Evergreen reduced the customer’s receivable balance by $6,200, the sales price of the merchandise. Sales returns are recorded by the company as they occur.

 

Transferred receivables of $62,000 to a factor without recourse. The factor charged Evergreen a 1% finance charge on the receivables transferred. The sale criteria are met.

 

Discounted the Lennox, Inc., note at the bank. The bank’s discount rate is 8%. The note was discounted without recourse.

 

Lennox, Inc., paid the note amount plus interest to the bank.