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Ch. 7 - EXERCISE 7-3(1015 minutes Current assets Accounts...

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EXERCISE 7-3 (10–15 minutes) Current assets Accounts receivable Customers Accounts (of which accounts in the amount of $40,000 have been pledged as security for a bank loan) $79,000 Installment accounts collectible due in 2007 23,000 Installment accounts collectible due after December 31, 2007* 34,000 $136,000 Other** ($2,640 + $1,500) 4,140 $140,140 Investments Advance to subsidiary company 81,000 *This classification assumes that these receivables are collectible within the operating cycle of the business. **These items could be separately classified, if considered material. EXERCISE 7-6 (5–10 minutes) July 1 Accounts Receivable .................................. 20,000 Sales ................................................... 20,000 July 10 Cash ............................................................. ...................................................................... 19,400* Sales Discounts .......................................... 600
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Accounts Receivable ........................ 20,000 *$20,000 – (.03 X $20,000) = $19,400 July 17 Accounts Receivable .................................. 200,000 Sales ................................................... 200,000 July 30 Cash ............................................................. ...................................................................... 200,000 Accounts Receivable ........................ 200,000 EXERCISE 7-7 (10–15 minutes) (a) Bad Debt Expense ......................................... 8,500 Allowance for Doubtful Accounts ...... 8,500* *.01 X ($900,000 – $50,000) = $8,500 (b) Bad Debt Expense ......................................... 3,000 Allowance for Doubtful Accounts ...... 3,000* *Step 1: .05 X $100,000 = $5,000 (desired credit balance in Allowance account) Step 2: $5,000 – $2,000 = $3,000 (required credit entry to bring
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