acct504 Chapter 5 Short Exercise Solutions

acct504 Chapter 5 Short Exercise Solutions - Chapter 5...

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Chapter 5 Short-Term Investments & Receivables Short Exercises (5 min.) S 5-1 1. Trading investments are reported at their current market value. 2. A trading investment is always a current asset because the investor intends to sell the trading investment in the very near future—days, weeks, or only a few months. A current asset is to be sold within 1 year or within the company’s operating cycle if longer than a year. (10 min.) S 5-2 BALANCE SHEET Current assets: Short-term trading investment, at market value… $96,000 INCOME STATEMENT Other revenue and gains (losses): Unrealized gain on investment…………………….. $11,000* _____ *$96,000 $85,000 = $11,000 5-1 C hapter 5 Short Term Investments and Receivables
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(10 min.) S 5-3 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Unrealized Loss on Investment ($109,000 $100,000) ..... 9,000 Short-Term Trading Investment……….. 9,000 Adjusted investment to market value. BALANCE SHEET Current assets: Short-term trading investment, at market value $100,000 INCOME STATEMENT Other revenues and gains (losses): Unrealized (loss) on investment……………… $(9,000) (5 min.) S 5-4 Peel, the accountant, should not handle the company’s cash. With cash-handling duties, the accountant can steal cash and hide the theft by writing off a customer’s account receivable as uncollectible. (5 min.) S 5-5 No sales revenue should be reported because the goods were sold FOB destination, and revenue is not recorded until the goods are received. (5 min.) S 5-6 2/10, n/30 means that Sports R Us will get a 2% discount if it pays the invoice in 10 days; otherwise, the full amount is due within 30 days. Sports R Us will only have to pay $123,480 ($126,000 × .98), resulting in a potential savings of $2,520. Assuming the invoice is dated December 23, 2012, Sports R Us needs to pay Big Sky by January 2, 2013, in order to receive the discount. 5-2 Financial Accounting 9/e Solutions Manual
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(5 min.) S 5-7 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT Sales Returns and Allowances..…………….. 5,000 Accounts Receivable………………………. 5,000 (5-10 min.) S 5-8 MEMORANDUM DATE: TO: Zeke Pitt FROM: Student Name RE: Essential element of internal control over collection from customers Separation of duties
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