2007-04-06_163146_Chapter_7

# 07 service revenue discount on note receivable 7104

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Note Receivable1,987.07 Service Revenue Discount on Note Receivable 7/1/04 Notes Receivable \$400,000.00 Discount on Notes Receivable \$178,836.32 Service Revenue \$221,163.68 To calculate the Discount on Notes Receivable: PV of \$400,000 due in 8 years at 12% = \$400,000*0.40388 = \$161,552 PV of \$12,000 payable annually for 8 years at 12% = \$12,000*4.96764 = \$59,611.68 PV of the note and interest = \$161,552 + \$59,611.68 = \$221,163.83 Discount = \$400,000 - \$221,163.68 = \$178,836.32 E7-20 (Analysis of Receivables) Presented below is information for Jones Company. 1. Beginning-of-the-year Accounts Receivable balance was \$15,000. 2. Net sales (all on account) for the year were \$100,000. Jones does not offer cash discounts. 3. Collections on accounts receivable during the year were \$70,000.

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Instructions (a) Prepare (summary) journal entries to record the items noted above. DescriptionDebitCredit Account Receivable100,000 Sales 100,000 Cash70,000 Account Receivable70,000 Accounts Receivable \$100,000 Sales \$100,000 Cash \$70,000 Accounts Receivable \$70,000 (b) Compute Jones' accounts receivable turnover ratio for the year. The company does not believe it will have any bad debts. (Round answer to 2 decimal places.) (4.44) times Accounts Receivable Turnover = Sales / Average Receivables Beginning Accounts Receivable = \$15,000 Add: Sales \$100,000 Total Receivables \$115,000 Less: Cash Receipts \$70,000 Ending Accounts Receivable \$45,000 Accounts Receivable Turnover = \$100,000 3.33 \$15,000 \$45,000 2 = + (c) Use the turnover ratio computed in (b) to analyze Jones' liquidity. The turnover ratio last year was 6.0. Has Jones' ratio increased or declined? (Declined) This could be a bad indication of future liquidity, if customers continue to pay slowly. Jones may want to consider offering early payment (cash) discounts. E7-24 (Bank Reconciliation and Adjusting Entries) Angela Lansbury Company deposits all receipts and makes all payments by check. The following information is available from the cash records. June 30 Bank Reconciliation Balance per bank\$ 7,000
Add: Deposits in Transit 1,540 Deduct: Outstanding checks(2,000) Balance per books\$ 6,540 Month of July Results Per BankPer Books Balance July 31\$8,650\$9,250 July deposits 5,000 5,810 July checks4,000 3,100 July note collected (not included in July deposits)1,000-

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• Spring '12
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• Revenue, Cheque, Generally Accepted Accounting Principles, note receivable

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