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Chap005 - Accounting for and Presentation of Current Assets...

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Accounting for and Presentation of Current Assets SOLUTIONS: E5-1. Balance per bank .................... $373 Balance per books ......................... $844 Less: Outstanding checks Less: NSF check . ......................... (75) ($13 + $50) .......................... (63) Error in recording check Add: Deposit in transit ....................... 450 (as $56 instead of $65) ............. (9) Reconciled balance ................. $760 Reconciled balance ...................... $760 E5-2. Balance per bank ..................... $1,860 Balance per books ........................ $1,698 Less: Outstanding Less: Check charge ..................... (6) checks .................................. (315) Add: Interest earned ..................... 18 Add: Deposit in transit ....................... 210 Error in recording payment ......... 45 Reconciled balance ................. $1,755 Reconciled balance ...................... $1,755 E5-3. a. Dr. Accounts Receivable (for NSF check) .................................... $75 Dr. Expense (or other account originally debited for error ) ......... 9 Cr. Cash .................................................................................... $84 Balance Sheet Income Statement Assets = Liabilities + Owners’ Equity Net income = Revenues - Expenses Accounts Expense Receivable (or other +75 account) Cash - 9 - 84 b. The cash amount to be shown on the balance sheet is the $760 reconciled amount. E5-4. a. Dr. Cash ....................................................................................... $57 Dr. Miscellaneous Expense (check charge) .................................. 6 Cr. Interest Revenue ................................................................ $18 Cr. Accounts Payable ............................................................... 45 Balance Sheet Income Statement Assets = Liabilities + Owners’ Equity Net income = Revenues - Expenses Cash Acc. Pay. Int.Rev. Misc.Exp. +57 +45 +18 - 6 b. The cash amount to be shown on the balance sheet is the $1,755 reconciled amount. E5-5. Allowance for Bad Debts Bad debt write-offs 1/1/02 balance ..................... $13,400 (from 1/1 to 11/30) ................ ? Bad debt expense
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Chapter 5 (from 1/1 to 11/30) .......... 21,462 1/30/02 balance ...................... $ 9,763 Adjustment required (11/30/02). ? 12/31/02 balance ................. $ 9,500 a. Solution approach : The bad debt write-offs from January through November can be determined by subtracting the November 30 balance from the total of the beginning balance and the bad debts expense recognized for the first 11 months. Bad debt write-offs = $13,400 + $21,462 - $9,763 = $25,099 b. The adjustment required at December 31, 2002 can be determined by comparing the November 30 balance in the allowance account to the desired ending balance. Bad debt expense adjustment = $9,763 - $9,500 = $263 Dr. Allowance for Bad Debts ....................................................... $263 Cr. Bad Debts Expense ........................................................... $263 To adjust the allowance account to the appropriate balance, and to correct the overstatement of expense recorded in the January through November period. Balance Sheet Income Statement Assets = Liabilities + Owners’ Equity Net income = Revenues - Expenses Allowance (Note: A reduction in an expense increases net Bad Debts for Bad Debts income, and a reduction in a contra-asset account Expense +263 increases total assets.) +263 E5-5. (continued) c. The write-off will not have any effect on 2002 net income, because the write-off decreases both the accounts receivable asset and the allowance account contra-asset for equal amounts. Net income was affected when the expense was recognized. E5-6. Allowance for Bad Debts Bad debt write-offs 1/1/02 balance ...................... $1,210 (during the year). . . . . . . . $3,605 Bad debt expense ................ ? 12/31/02 balance .................... $1,450 Adjustment required ............ ? 12/31/02 balance, as adjusted ............................. $4,300 a. Solution approach : The bad debt expense recognized during the year can be determined by comparing the bad debt write-offs during the year to the change in the balance of the allowance account from the beginning to the end of the year (before considering the year- end adjustment). Since the allowance account balance increased during the year, there
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