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Principles of Accounting, Volume 1: Financial Accounting

Exercise Set A

Principles of Accounting, Volume 1: Financial AccountingExercise Set A
EA 1.

LO 9.1Prepare journal entries for the following transactions from Restaurant Depot.

Nov. 8 Customer Miles Shandy purchased 200 pans at $35 per pan, costing Restaurant Depot $21 per pan. Terms of the sale are 2/10, n/30, invoice dated November 8.
Nov. 17 Miles Shandy pays in full with cash for his purchase of November 8.
EA 2.

LO 9.1Prepare journal entries for the following transactions from Cars Plus.

Oct. 18 Customer Angela Sosa purchased $132,980 worth of car parts with her Standard credit card. The cost to Cars Plus for the sale is $86,250. Standard credit card charges Cars Plus a fee of 4% of the sale.
Oct. 24 Standard remits payment to Cars Plus, less any fees.
EA 3.

LO 9.1Consider the following transaction: On March 6, Fun Cards sells 540 card decks with a sales price of $7 per deck to Padma Singh. The cost to Fun Cards is $4 per deck. Prepare a journal entry under each of the following conditions. Assume MoneyPlus charges a 2% fee for each sales transaction using its card.

  1. Payment is made using a credit, in-house account.
  2. Payment is made using a MoneyPlus credit card.
EA 4.

LO 9.2Window World extended credit to customer Nile Jenkins in the amount of $130,900 for his purchase of window treatments on April 2. Terms of the sale are n/150. The cost of the purchase to Window World is $56,200. On September 4, Window World determined that Nile Jenkins’s account was uncollectible and wrote off the debt. On December 3, Mr. Jenkins unexpectedly paid in full on his account. Record each Window World transaction with Nile Jenkins. In order to demonstrate the write-off and then subsequent collection of an account receivable, assume in this example that Window World rarely extends credit directly, so this transaction is permitted to use the direct write-off method. Remember, however, that in most cases the direct write-off method is not allowed.

EA 5.

LO 9.2Millennium Associates records bad debt using the allowance, income statement method. They recorded $299,420 in accounts receivable for the year, and $773,270 in credit sales. The uncollectible percentage is 3.2%. On February 5, Millennium Associates identifies one uncollectible account from Molar Corp in the amount of $1,330. On April 15, Molar Corp unexpectedly pays its account in full. Record journal entries for the following.

  1. Year-end adjusting entry for 2017 bad debt
  2. February 5, 2018 identification entry
  3. Entry for payment on April 15, 2018
EA 6.

LO 9.2Millennium Associates records bad debt using the allowance, balance sheet method. They recorded $299,420 in accounts receivable for the year, and $773,270 in credit sales. The uncollectible percentage is 3.2%. On November 22, Millennium Associates identifies one uncollectible account from Angel’s Hardware in the amount of $3,650. On December 18, Angel’s Hardware unexpectedly pays its account in full. Record journal entries for the following.

  1. Year-end adjusting entry for 2017 bad debt
  2. November 22, 2018 identification entry
  3. Entry for payment on December 18, 2018
EA 7.

LO 9.2The following accounts receivable information pertains to Marshall Inc.

Past Due Category, Accounts Receivable Total, Uncollectible Percentage, respectively are: 0–30 days, $84,550, 8 percent; 31–90 days, 32,230, 16 percent; Over 90 days, 22,170, 37 percent.

Determine the estimated uncollectible bad debt from Marshall Inc. using the balance sheet aging of receivables method, and record the year-end adjusting journal entry for bad debt.

EA 8.

LO 9.3Using the following select financial statement information from Black Water Industries, compute the accounts receivable turnover ratios for 2018 and 2019 (round answers to two decimal places). What do the outcomes tell a potential investor about Black Water Industries?

Year, Net Credit Sales, and Ending Accounts Receivable, respectively: 2017, $685,430, 330,250; 2018, 700,290, 360,450; 2019, 768,500, 401,650.
EA 9.

LO 9.3Using the following select financial statement information from Black Water Industries, compute the number of days’ sales in receivables ratios for 2018 and 2019 (round answers to two decimal places). What do the outcomes tell a potential investor about Black Water Industries?

Year, Net Credit Sales, and Ending Accounts Receivable, respectively: 2017, $685,430, 330,250; 2018, 700,290, 360,450; 2019, 768,500, 401,650.
EA 10.

LO 9.3Millennial Manufacturing has net credit sales for 2018 in the amount of $1,433,630, beginning accounts receivable balance of $585,900, and an ending accounts receivable balance of $621,450. Compute the accounts receivable turnover ratio and the number of days’ sales in receivables ratio for 2018 (round answers to two decimal places). What do the outcomes tell a potential investor about Millennial Manufacturing if industry average is 2.6 times and number of day’s sales ratio is 180 days?

EA 11.

LO 9.4Mirror Mart uses the balance sheet aging method to account for uncollectible debt on receivables. The following is the past-due category information for outstanding receivable debt for 2019.

0–30 days past due, 31–90 days past due, and Over 90 days past due, respectively: Accounts Receivable amount $50,000, 30,000, 15,000; Percent uncollectible 8 percent, 15 percent, 30 percent; Total per category ?, ?, ?; Total uncollectible ?

To manage earnings more efficiently, Mirror Mart decided to change past-due categories as follows.

0–60 days past due, 61–120 days past due, and Over 120 days past due, respectively: Accounts Receivable amount $80,000, 10,000, 5,000; Percent uncollectible 8 percent, 15 percent, 30 percent; Total per category ?, ?, ?; Total uncollectible ?

Complete the following.

  1. Complete each table by filling in the blanks.
  2. Determine the difference between total uncollectible.
  3. Explain how the new total uncollectible amount affects net income and accounts receivable.
EA 12.

LO 9.4Aerospace Electronics reports $567,000 in credit sales for 2018 and $632,500 in 2019. They have a $499,000 accounts receivable balance at the end of 2018, and $600,000 at the end of 2019. Aerospace uses the income statement method to record bad debt estimation at 5% during 2018. To manage earnings more favorably, Aerospace changes bad debt estimation to the balance sheet method at 7% during 2019.

  1. Determine the bad debt estimation for 2018.
  2. Determine the bad debt estimation for 2019.
  3. Describe a benefit to Aerospace Electronics in 2019 as a result of its earnings management.
EA 13.

LO 9.4Dortmund Stockyard reports $896,000 in credit sales for 2018 and $802,670 in 2019. It has a $675,000 accounts receivable balance at the end of 2018, and $682,000 at the end of 2019. Dortmund uses the balance sheet method to record bad debt estimation at 8% during 2018. To manage earnings more favorably, Dortmund changes bad debt estimation to the income statement method at 6% during 2019.

  1. Determine the bad debt estimation for 2018.
  2. Determine the bad debt estimation for 2019.
  3. Describe a benefit to Dortmund Stockyard in 2019 as a result of its earnings management.
EA 14.

LO 9.6Arvan Patel is a customer of Bank’s Hardware Store. For Mr. Patel’s latest purchase on January 1, 2018, Bank’s Hardware issues a note with a principal amount of $480,000, 13% annual interest rate, and a 24-month maturity date on December 31, 2019. Record the journal entries for Bank’s Hardware Store for the following transactions.

  1. Note issuance
  2. Subsequent interest entry on December 31, 2018
  3. Honored note entry at maturity on December 31, 2019.
EA 15.

LO 9.6Resin Milling issued a $390,500 note on January 1, 2018 to a customer in exchange for merchandise. The merchandise had a cost to Resin Milling of $170,000. The terms of the note are 24-month maturity date on December 31, 2019 at a 5% annual interest rate. The customer does not pay on its account and dishonors the note. Record the journal entries for Resin Milling for the following transactions.

  1. Initial sale on January 1, 2018
  2. Dishonored note entry on January 1, 2020, assuming interest has not been recognized before note maturity
EA 16.

LO 9.6Mystic Magic issued a $120,250 note on January 1, 2018 to a customer, Amy Arnold, in exchange for merchandise. Terms of the note are 9-month maturity date on October 1, 2018 at a 9.6% annual interest rate. Amy Arnold does not pay on her account and dishonors the note. On November 10, 2018, Mystic Magic decides to sell the dishonored note to a collection agency for 25% of its value. Record the journal entries for Mystic Magic for the following transactions.

  1. Initial sale on January 1, 2018
  2. Dishonored note entry on October 1, 2018
  3. Receivable sale on November 10, 2018
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