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fin-acctg7-sm-ch05 - Chapter 5 Short-Term Investments and...

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Chapter 5 Short-Term Investments and Receivables Short Exercises (5 min.) S 5-1 1. 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 one year or within the company’s operating cycle if longer than a year. 2. Trading investments are reported at their current market value. (10 min.) S 5-2 BALANCE SHEET Current assets: Short-term trading investments, at market value... $84,000 INCOME STATEMENT Other revenue and gains (losses): Unrealized gain on investment…………………… .... $ 4,000* _____ *$84,000 $80,000 = $4,000 Chapter 5 Short-Term Investments and Receivables 25
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(10 min.) S 5-3 Unrealized Loss on Investment ($104,000 $98,000) 6,000 Short-Term Investment……………………………….. 6,000 Adjusted investment to market value. BALANCE SHEET Current assets: Short-term trading investment, at market value……… $98,000 INCOME STATEMENT Other revenue (loss): Unrealized (loss) on investment………………………… $ (6,000) (5 min.) S 5-4 Roose, 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. Financial Accounting 7/e Solutions Manual 26
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(5 min.) S 5-5 1. Uncollectible-Account Expense ($900,000 × .02)….. 18,000 Allowance for Uncollectible Accounts…………… 18,000 2. Balance sheet Accounts receivable………………………………… $80,000 Less Allowance for uncollectible accounts…….. (18,000 ) Accounts receivable, net…………………………… $62,000 (5-10 min.) S 5-6 1. Accounts Receivable…………………………………… 1,000,000 Sales Revenue……………………………………….. 1,000,000 2. Cash……………………………………………………….. 880,000 Accounts Receivable……………………………….. 880,000 3. Allowance for Uncollectible Accounts………………. 16,000 Accounts Receivable………………………………... 16,000 4. Uncollectible-Account Expense ($1,000,000 × .015). 15,000 Allowance for Uncollectible Accounts…………… 15,000 Chapter 5 Short-Term Investments and Receivables 27
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(10 min.) S 5-7 1. Accounts Receivable Beg. bal. 80,000 Net credit sales 1,000,000 Collections 880,000 Write-offs 16,000 End. bal. 184,000 Amount customers owe the company 2. Allowance for Uncollectible Accounts Beg. bal. 18,000 Write-offs 16,000 Uncollectible- account expense 15,000 End. bal. 17,000 Amount the company expects not to collect 3. Accounts receivable, net ($184,000 $17,000)……………………… $167,000 Financial Accounting 7/e Solutions Manual 28
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(5-10 min.) S 5-8 (a) Accounts Receivable……………………….. 400,000 Sales Revenue……………………………. 400,000 (b) Cash……………………………………………. 410,000 Accounts Receivable……………………. 410,000 (c) Allowance for Uncollectible Accounts….. 7,000 Accounts Receivable……………………. 7,000 (d) Uncollectible-Account Expense………….. 9,000 Allowance for Uncollectible Accounts.. 9,000 Allowance for Uncollectible Accounts Beg. bal. 8,000 Write-offs 7,000 Uncollectible – account expense X = 9,000 End. bal. 10,000 Chapter 5 Short-Term Investments and Receivables 29
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(10 min.)
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