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Chapter 07 Solution

Chapter 07 Solution - Exercise 7-3 Requirement 1 Sales...

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Exercise 7-3 Requirement 1 Sales price = 1,000 units x 55 = 55,000 July 15, 2006 Accounts receivable ................................................... 55,000 .............................................................. Sales revenue ......................................................................... 55,000 July 23, 2006 Cash (98% x 55,000) ...................................................... 53,900 Sales discounts (2% x 55,000) ....................................... 1,100 ................................................... Accounts receivable ......................................................................... 55,000 Requirement 2 July 15, 2006 Accounts receivable ................................................... 55,000 .............................................................. Sales revenue ......................................................................... 55,000 Aug. 15, 2006 Cash ............................................................................ 55,000 ................................................... Accounts receivable ......................................................................... 55,000

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Exercise 7-4 Requirement 1 July 15, 2006 Accounts receivable ................................................... 53,900 ........................................................ Sales revenue (98% x 55,000) .................................................................................... 53,900 July 23, 2006 Cash ............................................................................ 53,900 ................................................... Accounts receivable ......................................................................... 53,900 Requirement 2 July 15, 2006 Accounts receivable ................................................... 53,900 ........................................................ Sales revenue (98% x 55,000) .................................................................................... 53,900 August 15, 2006 Cash ............................................................................ 55,000 ................................................... Accounts receivable ......................................................................... 53,900 .......................................................... Interest revenue ........................................................................... 1,100
Exercise 7-5 Requirement 1 Sales price = 100 units x 500 = 50,000 x 70% = 35,000 November 17, 2006 Accounts receivable ................................................... 35,000 .............................................................. Sales revenue ......................................................................... 35,000 November 26, 2006 Cash (98% x 35,000) ...................................................... 34,300 Sales discounts (2% x 35,000) ....................................... 700 ................................................... Accounts receivable ......................................................................... 35,000 Requirement 2 November 17, 2006 Accounts receivable ................................................... 35,000 .............................................................. Sales revenue ......................................................................... 35,000 December 15, 2006 Cash ............................................................................ 35,000 ................................................... Accounts receivable ......................................................................... 35,000

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Exercise 7-5 (concluded) Requirement 3 Requirement 1: November 17, 2006 Accounts receivable ................................................... 34,300 ........................................................ Sales revenue (98% x 35,000) .................................................................................... 34,300 November 26, 2006 Cash ............................................................................ 34,300 ................................................... Accounts receivable ......................................................................... 34,300 Requirement 2: November 17, 2006 Accounts receivable ................................................... 34,300 ........................................................ Sales revenue (98% x 35,000) .................................................................................... 34,300 December 15, 2006 Cash ............................................................................ 35,000 ................................................... Accounts receivable ......................................................................... 34,300 .......................................................... Interest revenue .............................................................................. 700
Exercise 7- 6 Requirement 1 To record the write-off of receivables. Allowance for uncollectible accounts ........................ 20,000 ................................................... Accounts receivable ......................................................................... 20,000 To record the collection of a receivable previously written off. Accounts receivable ................................................... 1,200 ........................ Allowance for uncollectible accounts ........................................................................... 1,200 Cash ............................................................................ 1,200 ................................................... Accounts receivable ........................................................................... 1,200 Allowance for uncollectible accounts: EUR Balance, beginning of year 32,000 Deduct: Receivables written off (20,000) Add: Collection of receivable previously written off 1,200 Balance, before adjusting entry for 2006 bad debts 13,200 Required allowance: 10% x 625,000 (62,500 ) Bad debt expense 49,300 To record bad debt expense for the year. Bad debt expense ........................................................ 49,300 ........................ Allowance for uncollectible accounts ......................................................................... 49,300 Requirement 2

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Current assets: EUR Accounts receivable, net of 62,500 in allowance for uncollectible accounts 562,500 Exercise 7-11 Requirement 1 June 30, 2006 Note receivable ........................................................... 60,000 .............................................................. Sales revenue ......................................................................... 60,000 December 31, 2006 Interest receivable ....................................................... 1,800 ............................................... Interest revenue (60,000 x 6% x 6 / 12 ) ...................................................................................................................... 1,800 March 31, 2007 Cash [60,000 + (60,000 x 6% x 9 / 12 )] ............................... 62,700 ............................................... Interest revenue (60,000 x 6% x 3 / 12 ) ...................................................................................................................... 900 ................... Interest receivable (accrued at December 31) ........................................................................... 1,800 .......................................................... Note receivable ......................................................................... 60,000 Requirement 2 2006 income before income taxes would be understated by 1,800 2007 income before income taxes would be overstated by 1.800.
Exercise 7-12 Requirement 1 June 30, 2006 Note receivable (face amount) ....................................... 60,000 ............................ Discount on note receivable (60,000 x 8% x 9 / 12 ) .................................................................................... 3,600 ............................................. Sales revenue (difference) ......................................................................... 56,400 December 31, 2006 Discount on note receivable ...................................... 2,400 ............................................... Interest revenue (60,000 x 8% x 6 / 12 ) .................................................................................... 2,400 March 31, 2007 Discount on note receivable ...................................... 1,200 ............................................... Interest revenue (60,000 x 8% x 3 / 12 ) .................................................................................... 1,200 Cash ........................................................................... 60,000 ....................................... Note receivable (face amount) ......................................................................... 60,000 Requirement 2 3,600 interest for 9 months ÷ 56,400 sales price = 6.38% rate for 9 months x 12 / 9 to annualize the rate _______ = 8.51% effective interest rate

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Exercise 7-13 Cash (difference) ........................................................... 219,600 Finance charge expense (1.8% x 300,000) ..................... 5,400 ............................. Liability – financing arrangement ....................................................................... 225,000 Exercise 7-15 Step 1: Accrue interest earned.
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