Exercise 4
Question 1
Multi Media Ltd. completed the following transactions: September 14, 2016: Provided services to Inga Corporation on account, $3,000, terms 30 days. November 1, 2016: Accepted a one­year, 12% note from Inga Corporation to settle its account. December 31, 2016: Accrued interest on the note from Inga Corporation (round to the nearest dollar). November 1, 2017: Received amount due from Inga Corporation. Required:
Record entries for the above transactions. Question 2
Compute the unknowns for the following transactions dealing with interest on notes receivable. 365 days per year. Round your answers to the nearest dollar. Principal Rate Interest Duration $10,000 10% 120 days $25,000 12%
A 6% Interest Value Maturity
E G C $2,515 H 180 days $2,959 I $493 J F $36,710 $50,000 B 60 days $36,000 9% D Question 3
Dunder Mifflin had the following balances in selected accounts at the end of 2015 and 2016. Cash 2015 2016 $58,000 $45,000 Exercise 4
Short­term investments 46,000 39,000 Accounts receivable 54,000 61,000 3,500 5,000 Inventory 78,000 98,000 Accounts payable 91,000 102,000 Wages payable 17,000 25,000 4,500 6,500 Note payable (due 2022) 100,000 100,000 Sales 415,000 525,000 Cost of goods sold 225,000 304,000 Allowance for uncollectible accounts Income tax payable The accounts receivable at the end of 2014 were $50,000 and the allowance for uncollectible accounts was $2,500.
1. Calculate the acid test ratio for 2015 and 2016 for Dunder Mifflin. 2. Calculate the days sales in receivables for 2015 and 2016 for Dunder Mifflin. 3. Determine whether the acid­test ratio improved or deteriorated from 2015 to 2016. 4. Determine whether the collection period increased or decreased from 2015 to 2016. Question 4
StorageTek Corporation gathered the following information from its accounting records for the year ended December, 31, 2016, prior to adjustment: Net credit sales for the year = $1,150,000 Accounts Receivable (Dec 31, 2016) = $93,000 Allowance for Uncollectible Accounts, prior to adjustment (Dec 31, 2016) = $6,000 debit balance Exercise 4 StorageTek Corporation uses the allowance method of accounting for bad debts and estimates bad debts at 2.5% of net credit sales. Required:
1. Prepare the adjusting entry on December 31, 2016. 2. Determine the balance in the Allowance for Uncollectible Accounts account after the adjusting entry is recorded. 3. Show how the receivables would be reported on the December 31, 2016, Balance Sheet for Storage Tek Corporation. Question 5
Assume Deloitte & Touche, the accounting firm, advises Deep Sea Seafood that their financial statements must be changed to confirm with GAAP. At December 31, 2016, Deep Sea Seafood accounts include the following:
Cash $51,000 Short­term trading investments, at cost 19,000 Accounts receivable 37,000 Inventory 61,000 Prepaid expenses 14,000 Total current assets $182,000 Accounts payable
Other current liabilities $62,000
41,000 Total current liabilities $103,000 Deloitte & Touche advised Deep Sea Seafood that: Cash includes $20,000 that is deposited in a compensating balance account that is tied up until 2018. The fair value of the short­term trading investments is $17,000. Deep Sea Seafood purchased the investments a couple of weeks ago. Deep Sea Seafood has been using the direct write­off method to account for uncollectible receivables. During 2016, Deep Sea Seafood wrote off bad receivables of $7,000. Deloitte & Exercise 4
Touche determines that bad debt expense for the year should be 2.5% of sales revenue, which totaled $600,000 in 2016. Deep Sea Seafood reported net income of $92,000 in 2016. Restate Deep Sea Seafood’s current accounts to conform to GAAP.
Compute Deep Sea Seafood’s current ratio and acid­test ratio before and after your corrections.
Determine Deep Sea Seafood’s correct net income for 2016. Evaluation
Financial Accounting focuses heavily on finding solutions to numerical problems. With that in mind, most units will include a number of problems. For each problem, you will need to provide more than a simple numerical response. Your solutions should thoroughly address the issue and present the findings in a meaningful format similar to those developed within the chapters and as part of the review exercises solutions. Part value may be assigned for incorrect responses providing evidence of understanding of the principles exist.