A_Series_SolutionsChap8

# A_Series_SolutionsChap8 - SOLUTIONS TO EXERCISES SERIES A...

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SOLUTIONS TO EXERCISES - SERIES A - CHAPTER 8 EXERCISE 8-1A a. and c. Big A’s Auto Service T-Accounts Assets = Liabilities + Stockholders’ Equity Cash Retained Earnings 2005  2005 2. 25,000 cl 300  cl 30,000 Bal. 25,000  Bal. 29,700 2006 3. 31,000 Service Revenue Bal. 56,000  2005 cl 30,000   1. 30,000 Accounts Receivable  Bal. -0- 2005  2006 1. 30,000   2. 25,000  2. 35,000 Bal. 5,000  Bal. 35,000 2006 2. 35,000   1. 280 Bad Debts Expense   3. 31,000 2005 Bal. 8,720 3. 300  cl 300 Bal. -0- Allow. For Doubt. Accts. 2006  2005 4. 350   3. 300 1 Bal. 350  Bal. 300  2006 8-5

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1. 280   4. 350 2  Bal. 370 1 \$30,000 x 1% = \$300 2 \$35,000 x 1% = \$350 Note:  Closing entries for 2006 were not made because they were not  necessary to answer the questions. 8-6
EXERCISE 8-1A (cont.) b. (1)Net Income for 2005: \$29,700 (\$30,000  -  \$300) c.  Net Cash Flow from Operating Activities: \$25,000 d. Balance of Accounts Receivable, 12/31/2005: \$5,000 e.  Net Realizable Value of Accounts Receivable, 12/31/2005: \$4,700 (\$5,000  -  \$300) c.  (1)Net Income for 2006: \$34,650 (\$35,000  -  \$350) d.  Net Cash Flow from Operating Activities: \$31,000 e.  Balance of Accounts Receivable, 12/31/2006: \$8,720 f.  Net Realizable Value of Accounts Receivable, 12/31/2006: \$8,350 (\$8,720  -  \$370) 8-7

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EXERCISE 8-2A Event Assets = Liab. + Stk. Equity Rev. Exp. = Net Inc. Cash Flow Cash A. Rec. All for DA = + Ret. Earn. 1. NA + NA NA + + NA + NA 2. + - NA NA NA NA NA NA +  OA 3. NA - - NA NA NA NA NA NA 4. NA NA + NA - NA + - NA
EXERCISE 8-3A a.  Analyze the Accounts Receivable account: Accounts Receivable Beginning Balance \$ 3,000 Plus: Revenue on Account  12,000 Less: Write-off (150) Less: Ending Balance (3,500) Collections of Accounts Rec. \$11,350 b.  Analyze the Allowance for Doubtful Accounts account: Allowance for Doubtful Accounts Beginning Balance \$120 Less: Write-off (150) Less: Ending Balance (200) Bad Debts Expense \$230 Note to Instructor:  This information can also be shown in T-Account  format.

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EXERCISE 8-4A Selected T-Accounts: Cash Allowance for Doubt Acct. Sales Revenue 2b. 150 Bal. 2,400 3. 218,000 4. 220,000 1. 2,100 2a. 150 5. 2,180 Accounts Receivable Bal. 2,630 Bad Debts Expense Bal. 84,000 5. 2,180 2a.  150 1. 2,100 3. 218,000 2b. 150 4. 220,000 Bal. 79,900 2007 transactions: 1. Bad accounts written off: \$2,100 2a. Reinstated previously written off accounts: 150 2b. Collected reinstated accounts: 150 3. Sales on account: 218,000 4.  Collections of accounts receivable: 220,000 5.  Bad Debts Expense (218,000 x 1%): 2,180 a. (1) Allowance for Doubtful Accounts, 12/31/07: \$  2,630 (2) Accounts Receivable, 12/31/07: 79,900 (3) Net Realizable Value (\$79,900 – \$2,630): 77,270 b. Bad Debts Expense 2007 (\$218,000 x 1%): \$2,180
c. The recovery of previously written off accounts will cause two  asset exchange transactions.  First, reinstate the accounts  receivable; + Accounts Receivable, +Allowance for Doubtful  Accounts.  Second, record the collection of the accounts  receivable; +Cash, – Accounts Receivable.

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EXERCISE 8-5A Accounts Receivable Allowance for Doubt. Accts.
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