Textbook: Accounting 9e Horngren
Week Four Problems.
a. Chapter 7, P 7-27A (Dunlap Insurance)
b. Chapter 7, P 7-31A
c. Chapter 8, P8-26A
d. Chapter 8, P8-27A (Mountain Terrace Medical Center)
e. Chapter 8, P8-32A
P7-27A Preparing a bank reconciliation and journal entries [20–25 min]
The December cash records of Dunlap Insurance follow
Date Cash Debit Chech No. Cash Credit
4-Dec $4,170 1416 $860
9 510 1417 130
14 530 1418 650
17 2,180 1419 1,490
31 1,850 1420 1,440
1421 900
1422 630
Additional data for the bank reconciliation follows:
The EFT credit was a receipt of rent. The EFT debit was an insurance payment.
The NSF check was received from a customer.
The $1,400 bank collection was for a note receivable.
The correct amount of check 1419 for rent expense is $1,940. Dunlap’s controller
mistakenly recorded the check for $1,490.
Requirements
1. Prepare the bank reconciliation of Dunlap Insurance at December 31, 2012.
2. Journalize any required entries from the bank reconciliation.
P7-31A Accounting for petty cash transactions [20–30 min]
Suppose that on June 1, Rockin’ Gyrations, a disc jockey service, creates a petty cash
fund with an imprest balance of $500. During June, Michael Martell, fund custodian,
signs the following petty cash tickets
On June 30, prior to replenishment, the fund contains these tickets plus cash of
$325. The accounts affected by petty cash payments are Office supplies expense,
Entertainment expense, and Postage expense.
Requirements
1. On June 30, how much cash should this petty cash fund hold before it is
replenished?
2. Journalize all required entries to (a) create the fund and (b) replenish it. Include
explanations.
3. Make the entry on July 1 to increase the fund balance to $550. Include
an explanation.
P8-26A Accounting for uncollectible accounts using the allowance and
direct write-off methods, and reporting receivables on the balance sheet
[20–30 min]
On August 31, 2012, Daisy Floral Supply had a $155,000 debit balance in Accounts
receivable and a $6,200 credit balance in Allowance for uncollectible accounts.
During September, Daisy made
2 3 6
sales on account, $590,000.
collections on account, $627,000.
write-offs of uncollectible receivables, $7,000
Requirements
1. Journalize all September entries using the allowance method. Uncollectible
account expense was estimated at 3% of credit sales. Show all September activity
in Accounts receivable, Allowance for uncollectible accounts, and
Uncollectible account expense (post to these T-accounts).
2. Using the same facts, assume instead that Daisy used the direct write-off method
to account for uncollectible receivables. Journalize all September entries using
the direct write-off method. Post to Accounts receivable and Uncollectible
account expense and show their balances at September 30, 2012.
3. What amount of uncollectible account expense would Daisy report on its
September income statement under each of the two methods? Which amount
better matches expense with revenue? Give your reason.
4. What amount of net accounts receivable would Daisy report on its September 30,
2012 balance sheet under each of the two methods? Which amount is more realistic?
Give your reason.
P8-27A Accounting for uncollectible accounts using the allowance method,
and reporting receivables on the balance sheet [25–35 min]
At September 30, 2012, the accounts of Mountain Terrace Medical Center (MTMC)
include the following:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .145,000
Allowance for uncollectible accounts (credit balance) . . .3,500
Requirements
1. Journalize the transactions.
2. Open the Allowance for uncollectible accounts T-account, and post entries
affecting that account. Keep a running balance.
3. Show how Mountain Terrace Medical Center should report net accounts receivable
on its December 31, 2012 balance sheet. Use the three line reporting format.
P8-32AUsing ratio data to evaluate a company's financial position.
The comparative financial statements of Lakeland Cosmetic Supply for 2012, 2011,
and 2010 include the data shown here:
2012 2011 2010
Balance sheet-partial
Current assets:
Cash ................................................. $ 90,000 $ 70,000 $ 30,000
Short-term investments ....................... 145,000 175,000 125,000
Receivables, net ……………………………………. 290,000 260,000 250,000
Inventories……………………………………………. 370,000 335,000 325,000
Prepaid expenses…………………………………… 60,000 15,000 50,000
________ ________ ________
Total current assets ........................... $ 955,000 $ 855,000 $ 780,000
Total current liabilities…………………………. $ 560,000 $ 600,000 $ 690,000
Income statement-partial
Sales revenue (all on account) ............ $5,860,000 $5,140,000 $4,200,000
Requirements:
1. Compute these ratios for 2012 and 2011:
a. Acid-test ratio
b. Days' sales in receivables
c. Accounts receivable turnover
2. Considering each ratio individually, which ratios improved from 2011 to 2012 and
which ratios deteriorated? Is the trend favorable or unfavorable for the company?
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