I&E Introduction Accounting 2023

EXAMPLE SOLUTIONS HOMEWORK WEEK 6

 PROBLEM 8.1

(a) 1. Accounts Receivable ................................ 3,700,000

Sales Revenue ................................... 3,700,000

2. Sales Returns and Allowances ................ 50,000

Accounts Receivable ........................ 50,000

3. Cash ........................................................... 2,810,000

Accounts Receivable ........................ 2,810,000

4. Allowance for Doubtful Accounts ............ 90,000

Accounts Receivable ........................ 90,000

5. Accounts Receivable ................................ 29,000

Allowance for Doubtful Accounts....... 29,000

Cash ........................................................... 29,000

Accounts Receivable ........................ 29,000

(b)
Accounts Receivable Allowance for Doubtful Accounts
Bal. 960,000 (2) 50,000 (4) 90,000 Bal. 80,000
(1) 3,700,000 (3) 2,810,000 (5) 29,000
(5) 29,000 (4) 90,000
(5) 29,000
Bal. 1,710,000 Bal. 19,000
PROBLEM 8.1 (Continued)

(c) Balance before adjustment [see (b)] .................................... R$ 19,000

Less: Balance needed ........................................................... 115,000
Adjustment required .............................................................. R$ 96,000

The journal entry would therefore be as follows:

Bad Debt Expense........................................... 96,000

Allowance for Doubtful Accounts .......... 96,000

R$3,700,000 – R$50,000 R$3,650,000

(d) = = 2.95 times
(R$880,000 + R$1,595,000) ÷ 2 R$ 1,237 ,5 00
 PROBLEM 8.2

(a) £33,000.

(b) £49,500 [(£875,000 X 6%) – £3,000].

[($875,000 x 6%) - $3,000 = $49,500]

(c) £55,500 [(£875,000 X 6%) + £3,000].

[($875,000 x 6%) + $3,000 = $55,500]

(d) The weakness of the direct write-off method is two-fold. First, it does not
match expenses with revenues. Second, the accounts receivable are not
stated at cash realizable value at the statement of financial position date.
 CT 8.1 FINANCIAL REPORTING PROBLEM

(a) CAF AG
Accounts Receivable Aging Schedule
May 31, 2020
Proportion Amount Probability Estimated
of in of Non- Uncollectible
Total Category Collection Amount
Not yet due .600 € 840,000 .02 €16,800
Less than 30 days past due .220 308,000 .04 12,320
30 to 60 days past due .090 126,000 .06 7,560
61 to 120 days past due .050 70,000 .09 6,300
121 to 180 days past due .025 35,000 .25 8,750
Over 180 days past due .015 21,000 .70 14,700
1.000 €1,400,000 €66,430

(b) CAF AG
Analysis of Allowance for Doubtful Accounts
May 31, 2020

June 1, 2019 balance .................................................... € 29,500

Bad debts expense accrual (€2,800,000 X .045) ......... 126,000
Balance before write-offs of bad accounts ................. 155,500
Write-offs of bad accounts ........................................... (102,000)
Balance before year-end adjustment .......................... 53,500
Estimated uncollectible amount .................................. (66,430)
Additional allowance needed ....................................... € (12,930)

Bad Debt Expense ........................................................ 12,930

Allowance for Doubtful Accounts ........................ 12,930
CT 8.1 (Continued)
(c) 1. Steps to Improve the
Accounts Receivable Situation
Establish more selective credit-
granting policies, such as more
restrictive credit requirements or
more thorough credit investigations.
Establish a more rigorous collec-
tion policy either through external
collection agencies or by its own
personnel.
Charge interest on overdue accounts.
Insist on cash on delivery (cod) or
cash on order (coo) for new cus-
tomers or poor credit risks.
2. Risks and
Costs Involved
This policy could result in lost sales
and increased costs of credit
evaluation. The company may be all
but forced to adhere to the pre-
vailing credit-granting policies of
the office equipment and supplies
industry.
This policy may offend current
customers and thus risk future
sales. Increased collection costs
could result from this policy.
This policy could result in lost sales
and increased administrative costs.
 CT 8.2 COMPARATIVE ANALYSIS PROBLEM

(a) (1) Accounts receivable turnover

Delfi Limited Nestlé

US$402,083 CHF89,469
(US$56,280 + US$61,756) ÷ 2 (CHF12,411 + CHF12,252) ÷ 2

US$402,083 CHF89,469
= 6.81 times = 7.26 times
US$59,018 CHF12,331.5

(2) Average collection period

365 = 53.6 days 365 = 50.3 days

6.81 7.26

(b) Nestlé’s average collection period is about 3 days shorter than Delfi’s.
 PROBLEM 7.5

(a) SHOU FLORISTS

Bank Reconciliation
December 31, 2020

Cash balance per bank statement ............... HK$19,239.10

Add: Deposits in transit ............................. 1,690.40
20,929.50
Less: Outstanding checks
No. 3470 .......................................... HK $720.10
No. 3474 .......................................... 1,050.00
No. 3478 .......................................... 621.30
No. 3481 .......................................... 807.40
No. 3484 .......................................... 798.00
No. 3486 .......................................... 889.50 4,886.30
Adjusted cash balance per bank ................. HK$16,043.20
Cash balance per books ............................... HK$13,985.20
Add: Electronic funds transfer received
............................................................ 2,242.00
16,227.20
Less: Check printing fee ............................. HK$ 85.00
Error in recording check No. 3485.... 90.00*
Error in 12-21 deposit
(HK $2,954 – HK $2,945) ............... 9.00 184.00
Adjusted cash balance per books ............... HK$16,043.20
*HK $540.80 – HK $450.80
(b) Dec. 31 Cash .............................................. 2,242.00
Accounts Receivable ........... 2,242.00
31 Bank Charge Expense ................... 85.00
Cash ...................................... 85.00
31 Accounts Payable ......................... 90.00
Cash ...................................... 90.00

31 Accounts Receivable.................... 9.00

Cash ...................................... 9.00