1. Home Work #7 Dr. Yan Xiong

2. The Central Copy Center (CCC) ending cash balance for October was $9,110.45. The owner deposited $773.14 on October 31 that did not appear on the bank statement. The bank collected a note of $500 for CCC and charged $25 for the service. The ending balance on the bank statement for October was $9,022.39. After comparing the company’s records with the bank statement, checks totaling $503.65 were found to be outstanding. Besides the collection fee, there was $30 in other service charges. Also, the statement showed that CCC earned $180 in interest revenue on the account and that checks amounting to $380.57 turned to be NSF. Finally, a bank error was discovered: check number 4320 for $318.04 was paid to one of the CCC vendors. The bank incorrectly deducted $381.04 from the CCC account referencing check number 4320.

3. Information about credit sales and collection for June Company for the fiscal year ending June 30 follows: a. June had credit sales of $560,000 during the year. B. June began the year with accounts receivable of $23,500 and an allowance for uncollectible accounts of $(800). During the year the company collected $555,000 cash for payments of accounts receivable. The company also wrote off the balances of two bankrupt customers, totaling $750. c. June uses the accounts receivable balance to estimate uncollectible accounts. D. June decides that 4% of accounts receivable will be uncollectible. Required: Calculate the bad debt expense and the net realized value of accounts receivable for June company for the year ended June 30, 2002.

4. P company purchased a new printing press in 2004. The invoice price was $158,500, but the manufacturer of the press gave P company a 3% discount for paying cash for the machine on delivery. Delivery costs amounted to $2,500, and P company paid $900 for a special insurance policy to cover the press while in transit. Installation cost $2800; and P company spent $5,00 training the employees to use the new press. Additionally, P company hired a new supervisor at an annual salary of $75,000 to be responsible for keeping the press online during business hours. What amount should be capitalized for this new asset?

5. a. Accounts receivable, 07/01/01$ 23,500 + Credit sales560,000 – Write offs–750 – Cash collections–555,000 Accounts receivable, 06/30/02$ 27,750 Allowance, beg. bal.$ 800 – Write offs –750 Allowance, before expense$ 50 Allowance, after expense –1,110($27,750 4%) Bad debt expense (changes in allowance) $ 1,060

6. Balance sheet: Accounts receivable$ 27,750 Less: Allowance for uncollectible accounts 1,110 Net realizable value of accounts receivable $ 26,640

7. G Mart has provided the following information about the company’s sales and accounts receivables for the fiscal year ending December 31, 2003. A/R at 12/31/2002 $42,500 Allowance at 12/31/2002 (after adjustment) $1275 Credit sales for the year ended 12/31/2003 $135,750 Cash collections on A/R during 2003 $142,600 Specific accounts written off during 2003 1,050 Required: a. Suppose G Mart used A/R method in year 2002. Can you tell if G has over or under estimated the uncollectible accounts in year 2002. b. If G Mart used sales method, can you tell what percentage of the sale the company used?

8. c. Use A/R method. Assume 3% of A/R is estimated to be uncollectible, computer(1) the uncollectible account expense at 12/31/2003 and (2) Net realized value of A/R at 12/31/2003. d. Using sales method and assume 1% of sales is estimated to be uncollectible, computer(1) the uncollectible account expense at 12/31/2003 and (2) Net realized value of A/R at 12/31/2003.

9. 3. Accounts receivable, 12/31/02$ 42,500 + Credit sales135,750 – Write offs–1,050 – Cash collections–142,600 Accounts receivable, 12/31/03$ 34,600 Allowance for uncollectible accounts, 12/31/02 $ 1,275 – Write offs –1,050 Allowance, before expense$ 225 – Allowance, after expense –1,038 Bad debt expense (changes in allowance) $ 813

10. On balance sheet: Accounts receivable$ 34,600 Less: Allowance for uncollectible accounts 1,038 Net realizable value of accounts receivable $ 33,562

11. Accounts receivable, 12/31/02$ 42,500 + Credit sales135,750 – Write offs–1,050 – Cash collections –142,600 Accounts receivable, 12/31/03$ 34,600 Allowance, 12/31/02$ 1,275.00 – Write offs –1,050.00 Allowance, before expense$ 225.00 + Bad debt adjustment 1,357.50 Allowance, 12/31/03$(1,582.50

12. Balance sheet: Accounts receivable$34,600.00 Less: Allowance 1,582.50 Net realizable value$33,017.50

13. P7-7A t Holly Hoops sold $5,000 of hoops during month July. Each is guaranteed for 12 months. Any defective hoop will be repaired or replaced free of charge during the period. t Holly estimated that it will cost $250 to honor warranties related to July sales. t During August, Holly spent $250 to honor warranties related to July sales. t The company did not sell any hoops in August. Required: What is the warranty expense for July. b. What is the warranty liability for July? c. What is the warranty expense for August? d. What effect did recording warranty expense have on owner’s equity? f. What effect did spending $250 have on owner’s equity?