Chapter 5 Solutions 2241

Chapter 5
Short-Term Investments and Receivables

Exercises
(15-20 min.)
E 5-20
Journal
DATE
2011
Dec.
31
ACCOUNT TITLES AND EXPLANATION
Year-end entry:
Uncollectible Account Expense
($800,000 0.01)....
Allowance for Uncollectible Accounts.
DEBIT
8,000
BALANCE SHEET
Current assets:
Accounts receivable, net of allowance for
uncollectible accounts of
$10,0001..
_____
1
$2,000 + $8,000 = $10,000
2
$101,000$10,000 = $91,000
Chapter 5
CREDIT
8,000
$91,0002

Copyright 2012 Pearson Canada Inc.
333
(15 min.)
Req. 1
E 5-21
Journal
DATE
DEBIT
July
Accounts Receivable..............................................................
Sales Revenue...................................................................
75,000
July
Cash.........................................................................................
Accounts Receivable........................................................
60,000
July
Allowance for Uncollectible Accounts..................................

Accounts Receivable........................................................
2,200
July
Uncollectible-Account Expense
($75,000 0.02)........................................................................
Allowance for Uncollectible Accounts
July
July
CREDIT
75,000
60,000
1,500
Accounts Receivable..............................................................
1,000
Cash.........................................................................................
Accounts Receivable..........................................................
1,000
2,200
1,500
1,000
1,000
Req. 2
Allowance for
Uncollectible Accounts
Accounts Receivable
40,000
75,000
1,000
60,000
2,200
1,000
3,000
1,500
1,000
2,200
52,800
3,300
Net accounts receivable = $49,500 ($52,800$3,300)

Perfect Party Planners expect to collect the net receivable amount.
(continued)
Req. 3
BALANCE SHEET
Current assets:
Accounts receivable, net of allowance for
334
Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

E 5-21
uncollectible accounts of $3,300..
Chapter 5

$49,500
335
(10-15 min.)
E 5-22
Req. 1
Journal
DATE
July
DEBIT
Uncollectible-Account Expense.................................
Accounts Receivable.............................................
2,200
CREDIT
2,200
Req. 2
Net accounts receivable would be $52,800, the balance in Accounts Receivable, computed
as follows:
Accounts Receivable
Beg. bal.
Cr. sales
End. bal.
40,000
75,000 Collections
Write-offs
52,800
60,000
2,200
Perfect Party Planners do not expect to collect the full $52,800 because some credit
customers are likely not to pay their accounts.
336

(15-30 min.)
Req. 1
E 5-23
The credit balance at December 31 in Allowance for Uncollectible Accounts should be

$10,150.
($110,000
0.005)
+
($60,000
0.010)
+
($50,000
0.06)
+ ($15,000 0.40) = $10,150. The current balance is $6,500. Thus, the balance of the
allowance account is too low.
Req. 2
Journal
DATE
DEBIT
Uncollectible Account Expense..........................................

Allowance for Uncollectible Accounts..........................
3,650
CREDIT
3,650

6,500
3,650
10,150
Req. 3
BALANCE SHEET
Current assets:
Cash.....................................................................................
Short-term investments......................................................
Accounts receivable, net of allowance
for uncollectible accounts of $10,150.........................
_____
*Other ways to report accounts receivable is
1. Accounts receivable.
Less Allowance for uncollectible
accounts
224,850*
$235,000
(10,150)
2. Accounts receivable
Chapter 5
XX
XX

224,850
224,850
337
10-15 min.)
E 5-25
Journal
DATE
DEBIT
Oct.
Note Receivable Springfield Co...................................

Cash.............................................................................
50,000
Nov.
Note Receivable Joplin Corp.......................................

Service Revenue..........................................................
10,000
16
Note Receivable Afton, Inc..........................................

Accounts Receivable Afton, Inc.
2,000
31
Interest Receivable...........................................................
Interest Revenue.........................................................
1,326*
Dec.
Extra: Record note payment from Nov 3: (90 days later)

Feb
1
Cash
Note receivable
Interest revenue
Interest receivable
_____
CREDIT
50,000
10,000
2,000
1,326
10,296 ***
10,000
105
191
($50,000 0.09 3/12) + ($10,000 0.12 58/365) + ($2,000 0.12 15/365**) = $1,326
$1,125
$191
$10
*Town & Country earned interest revenue of $1,326 this year as calculated above.
**Fraction can also be stated as 0.5/12 or 1/24.
*** 10,000x 0.12 x 90/365=$296 interest for 90 days + $10,000 principal pmt
(15 min.)
2010
BALANCE SHEET
Current assets:
Note receivable....................................................................................... $20,000
Interest receivable ($20,000 0.05 9/12)............................................
750
338

E 5-26
2011
INCOME STATEMENT
Interest revenue............................................................................................
_____
*$20,000 0.05 3/12 = $250
Chapter 5
750

250*
339
(10 min.)
E 5-27
1. True
2. The net amount of receivables the amount the company expects to collect is more
interesting because the company will probably collect this amount in cash.
3.
Accounts receivable.......................................................................................... $XXX

Less Allowance for uncollectible accounts..................................................... (X)
Accounts receivable, net...................................................................................
$ XX
4. False. The direct write-off method overstates assets because it fails to show the amount
of the receivables the company actually expects to collect.
5. Caisse Desjardins has interest receivable and interest revenue.
Chicoutimi Lte has interest payable and interest expense.
Interest for one month ($100,000 0.06 1/12) $500
6. Caisse Desjardins:
Accrual of interest
340
Assets = Liabilities + Equity

0

Problems
Group A
(15-20 min.)
(All amounts in millions)
P 5-50A
Reqs. 1, 3, and 4
Accounts Receivable
Req. 2
4,078
37,953
2
4,517
Allowance for Uncollectibles

37,314
200
2
136
380
2
318
200
Journal
DATE
DEBIT
CREDIT
a.
Accounts Receivable..................................................
Service Revenue...................................................
37,953
b.
Cash.............................................................................
37,314
Uncollectible-Account Expense.................................
Allowance for Uncollectible
Accounts ($37,953 0.01).....................................
380
d.
Allowance for Uncollectible Accounts.........................

200
e.
Accounts Receivable..................................................
Allowance for Uncollectible Accounts...................
Cash.............................................................................
Accounts receivable...................................................
c.
37,953
37,314
380
200
(continued)
P 5-50A
Req. 4
These balances agree with the actual FEDEX amounts.
Chapter 5

341
Req. 5
INCOME STATEMENT
Service revenue.
Uncollectible-account expense.
342
$37,953
(380)

(20-30 min.)
P 5-53A
Journal
DATE
DEBIT
CREDIT
2011
Nov.
30
Note Receivable Sobeys..................................................
50,000
Sales Revenue................................................................
Dec.
31
50,000
Interest Receivable
($50,000 0.05 1/12)..........................................................
208
Interest Revenue.............................................................
208
2012
Feb.
28
Cash
50,625
Note Receivable Sobeys............................................
50,000
Interest Receivable.........................................................
208
Interest Revenue
417
($50,000 0.05 2/12)..............................................

Mar.
Note Receivable Louis Joli Got....................................
6,000
Accounts Receivable
Louis Joli Got............................................................
1
Cash
6,000
5,900
Financing Expense...............................................................
100
Note Receivable Louis Joli Got..............................
Chapter 5

6,000
343
(continued)
P 5-53A
Journal
DATE
DEBIT
CREDIT
2012
Dec.
16 Note Receivable Betty Crocker Brands............................
25,000
Cash
25,000
31 Interest Receivable.................................................................
82
82
Interest Revenue ($25,000 0.08 15/365)
Req. 2
BALANCE SHEET
Current assets:
Note receivable............................................................
Interest receivable.......................................................
344
December 31,
2011
2010
$25,000
82

$50,000
208
Problems
Group B
(15-20 min.)
P 5-57B
(All amounts in thousands)

Reqs. 1, 3, and 4
Accounts Receivable
400
6,700
500
Allowance for Uncollectibles

6,300
300
60
335
95
300
Req. 2
Journal
DATE
a.
Accounts Receivable.................................................
Service Revenue..................................................
6,700
b.
Cash............................................................................
Accounts Receivable...........................................
6,300
c.
Uncollectible-Account Expense...............................
Accounts ($6,700 0.05).....................................
335
d.
e.

Accounts................................................................
Accounts Receivable...........................................
DEBIT
CREDIT
6,700
6,300
335
300
Accounts Receivable.................................................
Accounts..........................................................
5,000
Cash............................................................................
Accounts Receivable
5,000
300
5,000
5,000
Req. 4
These balances agree with the Brubacher amounts.
Req. 5
Chapter 5

345
INCOME STATEMENT
Service revenue...
Uncollectible-account expense...
346
$6,700
(335)

(25-35 min.)
P 5-58B
Req. 1
Journal
DATE
Oct.
31 Allowance for Uncollectible Accounts..................................
DEBIT
1,800
Accounts Receivable Cisco Foods.............................
300
Accounts Receivable Tindall Storage
400
1,100
Accounts Receivable Tiffany Energy..........................

Dec.
CREDIT
31 Uncollectible-Account Expense.............................................
2,500
Allowance for Uncollectible Accounts............................
2,500*
_____
*Computation:
Required credit balance in Allowance for
Uncollectible
Accounts based on aging of Accounts
Receivable ($80,000 0.005) + ($20,000 0.01) +
($4,000 0.05) + ($10,000 0.40)...............................................................
$4,800
Credit balance in Allowance for Uncollectible

Accounts
before the December 31 entry (see the
T-account in the answer to Req. 2;
$4,100$1,800)..........................................................................................
2,300
Credit entry needed to produce the required credit

balance in Allowance for Uncollectible Accounts...................................
$2,500
Chapter 5

347
(continued)
P 5-58B
Req. 2
Oct. 31 Write-offs
1,800 Sept. 30 Balance

Dec. 31 Adjusting
Dec. 31 Balance
4,100
2,500
4,800
Req. 3
1.
Synetics Computers
Comparative Balance Sheet
December 31, 2011 and December 31, 2010
2011
2.
2010
Accounts receivable...................................................
$114,000
$111,000
Less: Allowance for uncollectible

accounts......................................................................
Accounts receivable, net............................................
(4,800)
$109,200
(3,700)
$107,300
Synetics Computers
Comparative Balance Sheet
December 31, 2011 and December 31, 2010
2011
Accounts receivable...
348
$109,200

2010
$107,300
(20-30 min.)
P 5-60B
Req. 1
Journal
DATE
DEBIT
CREDIT
2010
Oct.
31
Note Receivable Berger................................................................

30,000
Service Revenue...........................................................................
Dec.
31
Interest Receivable ($30,000 0.05 2/12).
30,000
250
Interest Revenue..........................................................................
250
2011
Jan.
Feb.
31
18
Cash....................................................................................................
30,375
Note Receivable Berger...........................................................
30,000
Interest Receivable.......................................................................
250
Interest Revenue ($30,000 0.05 1/12).........................................
125
Note Receivable Emerson.............................................................

10,000
Accounts Receivable Emerson...............................................
19
10,000
Cash....................................................................................................
9,700
Financing Expense............................................................................
300
Note Receivable Emerson.......................................................
Chapter 5

10,000
349
(continued)
P 5-60B
Journal
DATE
DEBIT
CREDIT
2011
Nov.
11
Note Receivable Diaz.............................................................. 20,000

Cash.......................................................................................
Dec.
31
Interest Receivable.....................................................................
20,000
247
247
Interest Revenue ($20,000 0.09 50/365)
Req. 2
BALANCE SHEET
Current assets:
Note receivable............................................................
Interest receivable.......................................................
350
December 31
2011
2010
$20,000
247

$30,000
250

Chapter 5 Solutions 2241

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Chapter 5

Short-Term Investments and Receivables

ACCOUNT TITLES AND EXPLANATION

Short-Term Investments and Receivables

ACCOUNT TITLES AND EXPLANATION

Allowance for Uncollectible Accounts..................................

Net accounts receivable = $49,500 ($52,800$3,300)

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

uncollectible accounts of $3,300..

Short-Term Investments and Receivables

ACCOUNT TITLES AND EXPLANATION

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

The credit balance at December 31 in Allowance for Uncollectible Accounts should be

ACCOUNT TITLES AND EXPLANATION

Uncollectible Account Expense..........................................

Allowance for Uncollectible Accounts

Short-Term Investments and Receivables

ACCOUNT TITLES AND EXPLANATION

Note Receivable Springfield Co...................................

Note Receivable Joplin Corp.......................................

Note Receivable Afton, Inc..........................................

Extra: Record note payment from Nov 3: (90 days later)

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

Short-Term Investments and Receivables

Accounts receivable.......................................................................................... $XXX

Assets = Liabilities + Equity

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

Allowance for Uncollectibles

ACCOUNT TITLES AND EXPLANATION

Allowance for Uncollectible Accounts.........................

Short-Term Investments and Receivables

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

ACCOUNT TITLES AND EXPLANATION

Note Receivable Sobeys..................................................

Note Receivable Sobeys............................................

($50,000 0.05 2/12)..............................................

Note Receivable Louis Joli Got....................................

Note Receivable Louis Joli Got..............................

Short-Term Investments and Receivables

ACCOUNT TITLES AND EXPLANATION

16 Note Receivable Betty Crocker Brands............................

Interest Revenue ($25,000 0.08 15/365)

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

(All amounts in thousands)

Allowance for Uncollectibles

ACCOUNT TITLES AND EXPLANATION

Allowance for Uncollectible

Short-Term Investments and Receivables

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

ACCOUNT TITLES AND EXPLANATION

31 Allowance for Uncollectible Accounts..................................

Accounts Receivable Cisco Foods.............................

Accounts Receivable Tindall Storage

Accounts Receivable Tiffany Energy..........................

Allowance for Uncollectible Accounts............................

Credit balance in Allowance for Uncollectible

Credit entry needed to produce the required credit

Short-Term Investments and Receivables

1,800 Sept. 30 Balance

Less: Allowance for uncollectible

Financial Accounting Fourth Canadian Edition Instructors Solutions Manual

ACCOUNT TITLES AND EXPLANATION

Note Receivable Berger................................................................

Interest Receivable ($30,000 0.05 2/12).