Chapter 7: Cash and Receivables

(Petty Cash) The petty cash fund of Fonzarelli’s Auto Repair Service, a sole proprietorship, contains the following.

The general ledger account Petty Cash has a balance of $300.

Instructions

Prepare the journal entry to record the reimbursement of the petty cash fund.

(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.

Instructions

(a) Prepare a bank reconciliation going from balance per bank and balance per book to correct cash balance.

(b) Prepare the general journal entry or entries to correct the Cash account.

Answer

(Bank Reconciliation and Adjusting Entries) Logan Bruno Company has just received the August 31, 2017, bank statement, which is summarized below.

The general ledger Cash account contained the following entries for the month of August.

Deposits in transit at August 31 are $3,800,andchecksoutstandingatAugust31total$1,050. Cash on hand at August 31 is $310.Thebookkeeperimproperlyenteredonecheckinthebooksat$146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.

Instructions

(a) Prepare a bank reconciliation dated August 31, 2017, proceeding to a correct balance.

(b) Prepare any entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the August 31 balance sheet?

(Expected Cash Flows) On December 31, 2017, Iva Majoli Company borrowed $62,092fromParisBank,signinga5-year,$100,000 zero-interest-bearing note. The note was issued to yield 10% interest. Unfortunately, during 2019, Majoli began to experience financial difficulty. As a result, at December 31, 2019, Paris Bank determined that it was probable that it would receive back only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.

Instructions

(a) Prepare the entry to record the issuance of the loan by Paris Bank on December 31, 2017.

(b) Prepare the entry, if any, to record the impairment of the loan on December 31, 2019, by Paris Bank.

(Expected Cash Flows) On December 31, 2017, Conchita Martinez Company signed a $1,000,000notetoSaukCityBank.Themarketinterestrateatthattimewas12$600,000 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,000,000 loan.

Instructions

(a) Determine the amount of cash Conchita Martinez received from the loan on December 31, 2017.

(b) Prepare a note amortization schedule for Sauk City Bank up to December 31, 2019.

(c) Determine the loss on impairment that Sauk City Bank should recognize on December 31, 2019.

(Recording Bad Debts) Duncan Company reports the following financial information before adjustments.

Instructions

Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.

(Recording Bad Debts) At the end of 2017, Aramis Company has accounts receivable of $800,000andanallowancefordoubtfulaccountsof$40,000. On January 16, 2018, Aramis Company determined that its receivable from Ramirez Company of $6,000 will not be collected, and management authorized its write-off.

Instructions

(a) Prepare the journal entry for Aramis Company to write off the Ramirez receivable.

(b) What is the net realizable value of Aramis Company’s accounts receivable before the write-off of the Ramirez receivable?

(c) What is the net realizable value of Aramis Company’s accounts receivable after the write-off of the Ramirez receivable?

Computing Bad Debts and Preparing Journal Entries) The trial balance before adjustment of Taylor Swift Inc. shows the following balances.

Instructions

Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 5% of gross accounts receivable and Allowance for Doubtful Accounts has a $1,700 credit balance.

What are some steps taken by both the FASB and IASB to move to fair value measurement for financial instruments? In what ways have some of the approaches differed?

On December 31, 2017, Firth Company borrowed $62,092fromParisBank,signinga5-year,$100,000 zero-interest-rate note. The note was issued to yield 10% interest. Unfortunately, during 2019, Firth began to experience financial difficulty. As a result, at December 31, 2019, Paris Bank determined that it was probable that it would collect only $75,000 at maturity. The market rate of interest on loans of this nature is now 11%.

Instructions

(a) Prepare the entry (if any) to record the impairment of the loan on December 31, 2019, by Paris Bank.

(b) Prepare the entry on March 31, 2020, if Paris learns that Firth will be able to repay the loan under the original terms.