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Intermediate Accounting 17th Edition James D. Stice, Earl K. Stice, Fred Skousen - Solutions

How are attitudes regarding the financing of accounts receivable changing? Why do you think this is so?
(a) Distinguish between the practices of (1) Selling receivables and (2) Using receivables as collateral for borrowing.(b) Describe the accounting procedures to be followed in each case.
According to FASB Statement No. 140, what three conditions must be met to record the transfer of receivables with recourse as a sale?
Describe the 2-step test required under the provisions of IAS 39 to determine whether a receivable should be derecognized.
(a) When should a note receivable be recorded at an amount different from its face amount?(b) Describe the procedures employed in accounting for the difference between a note’s face amount and its recorded value.
Explain what special accounting procedures are required when receivables are assigned as collateral for a secured loan.
What is meant by imputing a rate of interest? How is such a rate determined?
Credit sales for the year were $100,000. Collections on account were $88,000. Make the necessary summary journal entries to record this information.
On January 16, two credit sales were made, one for $300 and one for $400. Terms for both sales were 3/15, n/30. Cash for the $300 sale was collected on January 25; cash for the $400 sale was collected on February 14. Make all journal entries necessary to record both the sales and the cash
Refer to Practice 7-2. Make all journal entries necessary to record both the sales and the cash collections. Use the net method of accounting for sales discounts.
On July 15, goods costing $7,000 were sold for $10,000 on account. The customer returned the goods before paying for them. Make the journal entry or entries necessary on the books of the seller to record the return of the goods. Assume that the goods are not damaged and can be resold at their
Bad debt expense for the year was estimated to be $12,000. Total accounts written off as uncollectible during the year were $8,100. Make the necessary summary journal entries to record this information.
Because of the extreme deterioration in the financial condition of a customer, the customer’s account in the amount of $7,500 was written off as uncollectible on July 23. By November 1, the customer’s financial condition had improved such that the customer was able to pay the account in full.
Bad debt expense is estimated using the percentage-of-sales method. Total sales for the year were $500,000. The ending balance in Accounts Receivable was $100,000. Historically, bad debts have been 3% of total sales. The economic circumstances of credit customers this year are about the same as
Bad debt expense is estimated using the percentage-of-accounts-receivable method. Total sales for the year were $600,000. The ending balance in Accounts Receivable was $200,000. An examination of the outstanding accounts at the end of the year indicates that approximately 14% of these accounts
The following aging of accounts receivable is as of the end of the year:Historical experience indicates the following: Percentage UltimatelyAge of Account UncollectibleLess than 30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2%31 to 60 days . . . . . . . . .
Historically, warranty expenditures have been equal to 4% of sales. Total sales for the year were $650,000. Actual warranty repairs made during the year totaled $29,000. Make the necessary summary journal entries to record this warranty-related information.
The company offers a 1-year warranty to its customers. Warranty expenditures are estimated to be 4% of sales. Sales occur evenly throughout the year. The following information relates to the company’s first two years of business:Sales—Year 1 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales for the year were $400,000. The Accounts Receivable balance was $50,000 at the beginning of the year and $65,000 at the end of the year. Compute the average collection period using (1) The average accounts receivable balance and (2) The ending accounts receivable balance.
Using the following information, compute the cash balance.Restricted deposits in foreign bank accounts . . . . . . . . . . . . . . . . . $ 5,200Cash overdraft . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,000)Postdated customer checks . . . . . . . . . .
The company received a bank statement at the end of the month. The statement contained the following:Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $9,500Bank service charge for the month . . . . . . . . . . . . . . . . . . . . . . . . .
Cammo Company sold receivables (without recourse) for $53,000. Cammo received $50,000 cash immediately from the factor (the company to whom the receivables were sold). The remaining $3,000 will be received once the factor verifies that none of the receivables is in dispute. The receivables had a
Refer to Practice 7-15. Assume that the sale of the receivables was done with recourse. The estimated value of the recourse obligation is $1,300. Make the journal entry necessary on Cammo’s books to record the sale of these receivables with recourse.
Refer to Practice 7-15. Assume that Cammo received the entire $53,000 in cash immediately. Also assume that the transfer of receivables did not satisfy the three conditions contained in SFAS No. 140. Make the journal entry necessary on Cammo’s books to record the transfer of these receivables.
As payment for services rendered, the company received an 18-month note on January 1. The face amount of the note is $3,000, and the stated rate of interest is 9%, compounded annually. The 9% rate is equal to the market rate. The full amount of the note, including accrued interest, will be received
As payment for services rendered, the company received a 24-month note on January 1. The face amount of the note is $1,000; the note is non-interest-bearing. The cash price of the services rendered is $857. The market rate of interest is 8%, compounded annually. The $1,000 face amount of the note
In exchange for land, the company received a 12-month note on January 1. The face amount of the note is $2,000, and the stated rate of interest is 12%, compounded annually. The 12% rate is equal to the market rate. The original cost of the land was $2,450. The full amount of the note, including
As payment for services rendered, the company received a 36-month note on January 1. The face amount of the note is $1,000; the note is non-interest-bearing. There is no reasonable basis for determining the cash price of the services rendered. The market rate of interest is 10%, compounded
Bad Debts and the Direct MethodPrepare the Operating Activities section of the statement of cash flows using the directmethod.
Refer to Practice 7-22. Prepare the Operating Activities section of the statement of cash flows using the indirect method.
Classify each of the following items as: (A) Accounts Receivable, (B) Notes Receivable, (C) Trade Receivables, (D) Nontrade Receivables, or (E) Other (indicate nature of item). Because the classifications are not mutually exclusive, more than one classification may be appropriate. Also indicate
The following information from Tiny Company’s first year of operations is to be used in testing the accuracy of Accounts Receivable. The December 31, 2011, balance is $28,300.(a) Collections from customers, $48,000.(b) Merchandise purchased, $74,000.(c) Ending merchandise inventory, $31,500.(d)
On November 1, Rosario Company sold goods on account for $7,000. The terms of the sale were 3/10, n/40. Payment in satisfaction of $3,000 of this amount was received on November 9. Payment in satisfaction of the remaining $4,000 was received on December 9.1. How much cash did Rosario Company
On July 23, Louie Company sold goods costing $3,000 on account for $4,500. The terms of the sale were n/30. Payment in satisfaction of $3,000 of this amount was received on August 17. Also on August 17, the customer returned goods costing $1,000 (with a sales price of $1,500). The customer reported
Accounts Receivable of the Chalet Housing Co. on December 31, 2011, had a balance of $550,000. Allowance for Bad Debts had a $4,500 debit balance. Sales in 2011 were $3,450,000 less sales discounts of $51,000. Give the adjusting entry for estimated Bad Debt Expense under each of the following
McGraw Medical Center has received a bankruptcy notice for Phillip Hollister. Hollister owes the medical center $1,350. The bankruptcy notice indicates that the medical center can’t expect to receive payment of any of the $1,350.1. Make the journal entry necessitated by receipt of the bankruptcy
Blanchard Company's accounts receivable subsidiary ledger reveals the following information:Blanchard Company's receivable collection experience indicates that, on average, losses have occurred as follows:Age of Accounts Uncollectible Percentage0â€“30 days . . . . . . . . . . . . . . . . . .
The Intercontinental Publishing Company follows the procedure of debiting Bad Debt Expense for 2% of all new sales. Sales for four consecutive years and year-end allowance account balances were as follows:1. Compute the amount of accounts written off for the years 2009, 2010, and 2011.2. The
In 2010, Carver Electronics Co. began selling a new computer that carried a 2-year warranty against defects. Based on the manufacturer's recommendations, Carver projects estimated warranty costs (as a percentage of dollar sales) as follows:First year of warranty . . . . . . . . . . . . . . . . . .
Hitech Appliance Company's accountant has been reviewing the firm's past television sales. For the past two years, Hitech has been offering an extended service contract on all televisions sold. With the purchase of a television, the customer has the right to purchase a 3-year service contract for
Trend Industries Company reported the following amounts on its 2010 and 2011 financial statements:1. Compute the accounts receivable turnover for 2011.2. What is the average collection period during 2011? (Use 365days.)
Reporting Cash on the Balance Sheet1. Indicate how each of the following items below should be reported using the following classifications: (a) Cash, (b) Restricted cash, (c) Temporary investment, (d) Receivable, (e) Liability, or (f) Office supplies.(1) Checking account at First Security . . . .
Baltic Group, Inc., operates Baltic Group resorts in the United States, Mexico, the Caribbean, Asia, the South Pacific, and the Indian Ocean Basin. Baltic Group routinely receives payment in advance from vacationers. In some countries, Baltic Group is required by law to deposit cash received as
Ortiz Company had the following cash balances at December 31, 2011:Undeposited coin and currency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 29,500Unrestricted demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,375,000
Sterling Company’s bank statement for the month of March included the following information:Ending balance, March 31 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $28,046Bank service charge for March . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
What are the principal advantages to a lessee in leasing rather than purchasing property?
Lewiston Corporation’s bank statement for the month of April included the following information:Bank service charge for April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $110 Check deposited by Lewiston during April was not collectibleand has been marked
The accounting department supplied the following data in reconciling the September30 bank statement for Clegg Auto.Ending cash balance per bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $18,972.67Ending cash balance per books . . . . . . . . . . . . . . . . . .
The following information was included in the bank reconciliation for Bryant, Inc., for June. What was the total of outstanding checks at the beginning of June? Assume all other reconciling items are listed.Checks and charges recorded by bank in June, including a June service charge of $35 . .
On July 15, Mann Company sold $600,000 in accounts receivable for cash of $500,000. The factor withheld 10% of the cash proceeds to allow for possible customer returns or account adjustments. An Allowance for Bad Debts of $80,000 had previously been established by Mann in relation to these
Zobell Corporation sells equipment with a book value of $8,000, receiving a non-interest-bearing note due in three years with a face amount of $10,000. There is no established market value for the equipment. The interest rate on similar obligations is estimated at 12%. Compute the gain or loss on
Abacus, Inc., purchased inventory costing $95,000. Terms of the purchase were 3/10, n/30. Abacus uses a perpetual inventory system. In order to take advantage of the cash discount, Abacus borrowed $75,000 from Commercial First Bank, signing a 2-month, 8% note. The bank requires monthly interest
The following selected information is provided for Lynez Company. All sales are credit sales and all receivables are trade receivables.Accounts receivable, January 1 net balance . . . . . . . . . . . . . . . . . . . $125,000Accounts receivable, December 31 net balance . . . . . . . . . . . . . . .
The following transactions affecting the accounts receivable of Wonderland Corporation took place during the year ended January 31, 2011:Sales (cash and credit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $591,050Cash received from credit
Stockton Company sold goods on account with a sales price of $70,000 on August 17. The terms of the sale were 2/10, n/30.Instructions:1. Record the sale using the gross method of accounting for cash discounts.2. Record the sale using the net method of accounting for cash discounts.3. Assume that
During 2011, Lacee Enterprises had gross sales of $247,000. At the end of 2011, Lacee had accounts receivable of $83,000 and a credit balance of $5,600 in Allowance for Bad Debts. Lacee has used the percentage-of-sales method to estimate the bad debt expense. For the past several years, the amount
Rainy Day Company, a wholesaler, uses the aging method to estimate bad debt losses. The following schedule of aged accounts receivable was prepared at December 31, 2011.Age of Accounts Amount0€“30 days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sound Portal Corporation sells stereos under a 2-year warranty contract that requires Sound Portal to replace defective parts and provide free labor on all repairs. During 2010, 1,290 units were sold at $950 each. In 2011, Sound Portal sold an additional 1,100 units at $980. Based on past
Lafayette Corporation, a client, requests that you compute the appropriate balance of its estimated liability for product warranty account for a statement as of June 30, 2011. Lafayette Corporation manufactures television components and sells them with a 6-month warranty under which defective
The balance sheet for The Itex Corporation on December 31, 2010, includes the following cash and receivables balances.Current liabilities reported in the December 31, 2010, balance sheet included:Obligation on discounted notes receivable . . . . . . . . . . . . . . . . . . . . . . . .
What are the principal advantages to a lessor in leasing rather than selling property?
Krebsbach Company is negotiating a loan with FIS Bank. Krebsbach needs $900,000. As part of the loan agreement, FIS Bank will require Krebsbach to maintain a compensating balance of 15% of the loan amount on deposit in a checking account at the bank. Krebsbach currently maintains a balance of
Conceptually, what is the difference between a capital lease and an operating lease?
The cash account of Abstract, Inc., disclosed a balance of $16,348.82 on October 31. The bank statement as of October 31 showed a balance of $19,711.75. Upon comparing the statement with the cash records, the following facts were developed.(a) Abstract€™s account was charged on October 26
The following data were taken from Tyrone Tardieff€™s check register for the month of April. Tyrone€™s bank reconciliation for March showed one outstanding check, Check No. 78 for $57.00 (written on March 23), and one deposit in transit, Deposit No. 10499 for $96.00 (made on
What is a bargain purchase option?
On July 1, 2011, McEnroe Company used receivables totaling $150,000 as collateral on a $100,000, 15% note from Standard One Bank. The transaction is not structured such that receivables are being sold. McEnroe will continue to collect the assigned receivables. In addition to the interest on the
During its second year of operations, Shank Corporation found itself in financial difficulties. Shank decided to use its accounts receivable as a means of obtaining cash to continue operations. On July 1, 2011, Shank sold $75,000 of accounts receivable for cash proceeds of $69,500. No bad debt
How is the lease term measured?
Freemont Factors provides financing to other companies by purchasing their accounts receivable on a nonrecourse basis. Freemont charges its clients a commission of 15% of all receivables factored. In addition, Freemont withholds 10% of receivables factored as protection against sales returns or
On January 1, 2011, Rapid River Realty sold a tract of land to three doctors as an investment. The land, purchased 10 years ago, was carried on Rapid River’s books at a value of $210,000. Rapid River received a non-interest-bearing note for $275,000 from the doctors. The note is due December 31,
(a) What discount rate is used to determine the present value of a lease by the lessee?(b) By the lessor?
On January 1, 2011, Denver Company sold land that originally cost $400,000 to Boise Company. As payment, Boise gave Denver a $600,000 note. The note bears an interest rate of 4% and is to be repaid in three annual installments of $200,000 (plus interest on the outstanding balance). The first
Strata Company had a $275,000 balance in Accounts Receivable on January 1. The balance in Allowance for Bad Debts on January 1 was $68,000. Sales for the year totaled $2,100,000. All sales were credit sales. Bad debts expense is estimated to be 3% of sales. Write-offs of uncollectible accounts for
What criteria must be met before a lease can be properly accounted for as a capital lease on the books of the lessee?
1. At December 31, 2011, Kale Co. had the following balances in the accounts it maintains at First State Bank:Checking account No. 001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $175,000Checking account No. 201 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Olin Company currently makes only cash sales. Given the number of potential customers who have requested to buy on credit, Olin is considering allowing credit sales. What factors should Olin consider in making the decision whether to allow credit sales?
In determining the classification of a lease, a lessor uses the criteria of the lessee plus two additional criteria. What are these additional criteria, and why are they included in the classification of leases by lessors?
Ultimate Corporation is a computer products supplier. Ultimate sells products to dealers who then sell the products to the end users. Most of the company’s competitors require dealers to pay for shipments within 45 to 60 days. Ultimate has followed a more relaxed policy; in 2011 the average
What is the basic difference between an operating lease and a capital lease from the viewpoint of the lessee?
During the audit of accounts receivable of Montana Company, the new CEO, Joe Frisco, asked why the company had debited the current-year expense for bad debts on the assumption that some accounts will become uncollectible next year. Frisco believes that the financial statements should be based on
Jackie Wilson, manager of Expert Building Company, is a valued and trusted employee. She has been with the company from its start two years ago. Because of the demands of her job, she has not taken a vacation since she began working. She is in charge of recording collections on account, making the
If an operating lease requires the payment of uneven rental amounts over its life, how should the lessee recognize rental expense?
Bruno Johnson, chief financial officer of Tollerud Company, has determined that Tollerud should keep on hand $35 million in cash or near-cash assets in order to maintain proper liquidity. Bruno is now trying to determine how to allocate the $35 million among the checking account, certificates of
Jonathan Mitchell is the accountant for Mantua Service Company. Due to heavy investments in lottery tickets, Jonathan found himself short of cash and decided to “borrow” funds from Mantua. Jonathan received and deposited cash receipts, recorded the checks written in the cash disbursements
What amount should be recorded as an asset and a liability for capital leases on the books of the lessee?
Assume you are the treasurer for Fullmer Products Inc. and one of your responsibilities is to ensure that the company always takes available cash discounts on purchases. The corporation needs $150,000 within one week in order to take advantage of current cash discounts. The lending officer at the
Locate the 2007 financial statements for The Walt Disney Company on the Internet. Use the information contained in these statements to answer the following questions:1. Review The Walt Disney Company’s note disclosure to determine how the company recognizes revenue from its various sources.2.
Why do asset and liability balances for capital leases usually differ after the first year?
Use the financial information for Wal-Mart Stores, Inc., given on page 379, to answer the following questions:1. For the most recent year given, compute Wal-Mart€™s average collection period.2. For the most recent year given, what percentage of total current assets is accounts receivable
From the notes of the 2007 annual report for Harley-Davidson, Inc., we find the following information relating to Allowance for Bad Debts:Balance at beginning of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $27,283Provision for finance credit losses . . . . . . . .
A capitalized lease should be amortized in accordance with the lessee’s normal depreciation policy. What time period should be used for lease amortization?
In July 1990, U.S. federal regulators ordered U.S. banks to write off 20% of their $11.1 billion in loans to Brazil and also 20% of their $2.9 billion in loans to Argentina. The action significantly affected the loan loss reserves, that is, Allowance for Bad Debts, of the banks. For example,
The use of the capital lease method for a given lease will always result in a lower net income than the operating lease method. Do you agree? Explain fully.
(a) How does a capital lease for equipment affect the lessee’s statement of cash flows? (b) How would the treatment on the statement of cash flows differ if the contract was identified as a purchase of equipment with a down payment and a long-term note payable for the balance?
Distinguish a sales-type lease from a direct financing lease.
Unguaranteed residual values accrue to the lessor at the expiration of the lease. How are these values treated in a sales-type lease?
Under what circumstances are the minimum lease payments for the lessee different from those of the lessor?
Why is the principal portion of a lease receipt of a financing lease treated as an investment inflow on the lessor’s books while the principal portion of a lease payment is treated as a financial cash outflow on the lessee’s books?
Describe the specific lease disclosure requirements for lessees.

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