Chapter 7: Question 8 (page 362)
What are the basic problems that occur in the valuation of accounts receivable?
A business entity faces difficulties relating to face value determination, probability of collection, and determination of outstanding period while valuing accounts receivable.
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Kraft Enterprises owns the following assets at December 31, 2017.
Cash in bank – saving account | 68,000 | Checking account balance | 17,000 |
Cash on hand | 9,300 | Post-dated Checks | 750 |
Cash refunded due from IRS | 31,400 | Certificate of deposits (180-days) | 90,000 |
What amount should be reported as cash?
(Bad Debts—Aging) Danica Patrick, Inc. includes the following account among its trade receivables.
Hopkins Company | |||||
1/1 | Balance forward | 700 | 1/28 | Cash (#1710) | $1,100 |
1/20 | Invoice #1710 | 1,100 | 4/2 | Cash (#2116) | 1,350 |
3/14 | Invoice #2116 | 1,350 | 4/10 | Cash (1/1 Balance) | 155 |
4/12 | Invoice #2412 | 1,710 | 4/30 | Cash (#2412) | 1,000 |
9/5 | Invoice #3614 | 490 | 9/20 | Cash (#3614 and part of #2412) | 790 |
10/17 | Invoice #4912 | 860 | 10/31 | Cash (#4912) | 860 |
11/18 | Invoice #5681 | 2,000 | 12/1 | Cash (#5681) | 1,250 |
12/20 | Invoice #6347 | 800 | 12/29 | Cash (#6347) | 800 |
Instructions
Age the balance and specify any items that apparently require particular attention at year-end
Assume that Toni Braxton Company has recently fallen into financial difficulties. By reviewing all available evidence on December 31, 2017, one of Toni Braxton’s creditors, the National American Bank, determined that Toni Braxton would pay back only 65% of the principal at maturity. As a result, the bank decided that the loan was impaired. If the loss is estimated to be $225,000, what entry(ies) should National American Bank make to record this loss?
The controller for Clint Eastwood Co. is attempting to determine the amount of cash to be reported on its December 31, 2017, balance sheet. The following information is provided.
1. Commercial savings account of \(600,000 and a commercial checking account balance of \)900,000 are held at First National Bank of Yojimbo.
2. Money market fund account held at Volonte Co. (a mutual fund organization) permits Eastwood to write checks on this balance, \(5,000,000.
3. Travel advances of \)180,000 for executive travel for the first quarter of next year (employee to reimburse through salary reduction).
4. A separate cash fund in the amount of \(1,500,000 is restricted for the retirement of long-term debt.
5. Petty cash fund of \)1,000.
6. An I.O.U. from Marianne Koch, a company customer, in the amount of \(190,000.
7. A bank overdraft of \)110,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank.
8. The company has two certificates of deposit, each totaling \(500,000. These CDs have a maturity of 120 days.
9. Eastwood has received a check that is dated January 12, 2018, in the amount of \)125,000.
10. Eastwood has agreed to maintain a cash balance of \(500,000 at all times at First National Bank of Yojimbo to ensure future credit availability.
11. Eastwood has purchased \)2,100,000 of commercial paper of Sergio Leone Co. which is due in 60 days.
12. Currency and coin on hand amounted to $7,700.
Instructions
(a) Compute the amount of cash to be reported on Eastwood Co.’s balance sheet at December 31, 2017.
(b) Indicate the proper reporting for items that are not reported as cash on the December 31, 2017, balance sheet.
Indicate three reasons why a company might sell its receivables to another company.
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