Problem 1 On January 10 Donna Stark uses her Baver Co. credit card to purchase merchandise from Baver Co. for $2,600. On February 10, she is billed for the amount due of $2,600. On February 12 Stark pays $1,600 on the balance due. On March 10 Stark is billed for the amount due, including interest at 1% per month on the unpaid balance as of February 12. Instructions Prepare the entries on Baver Co.â€™s books related to the transactions that occurred on January 10, February 12, and March 10. Problem 2 At the beginning of the current period, Emler Corp. had balances in Accounts Receivable of $200,000 and in Allowance for Doubtful Accounts of $9,000 (credit). During the period, it had net credit sales of $650,000 and collections of $590,000. It wrote off as uncollectible accounts receivable of $5,000. However, a $3,000 account previously written off as uncollectible was recovered before the end of the current period. Uncollectible accounts are estimated to total $20,000 at the end of the period. Instructions (a) Prepare the entries to record sales and collections during the period. (b) Prepare the entry to record the write-off of uncollectible accounts during the period. (c) Prepare the entries to record the recovery of the uncollectible account during the period.
(d) Prepare the entry to record bad debts expense for the period. (e) Determine the ending balances in Accounts Receivable and Allowance for Doubtful Accounts. (f) Calculate the net realizable value of the receivables at the end of the period. Problem 3 The December 31, 2013, balance sheet of the Kramer Company had Accounts Receivable of $650,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2014, the following transactions occurred: sales on account $1,550,000; sales returns and allowances, $100,000; collections from customers, $1,250,000; accounts written off, $35,000; previously written off accounts of $8,000 were collected. Instructions (a) Journalize the 2014 transactions. (b) If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 6% of accounts receivable, what is the adjusting entry at December 31, 2014? Problem 4 For each entry below make a correcting entry if necessary. If the entry given is correct, then state “No entry required.” (a) The $70 cost of repairing a printer was charged to Equipment. (b) The $5,500 cost of a major engine overhaul was debited to Maintenance and Repairs Expense. The overhaul is expected to increase the operating efficiency of the truck. (c) The $6,000 closing costs associated with the acquisition of land were debited to Operating Expenses. (d) A $300 charge for transportation expenses on new equipment purchased was debited to Freight-In. Problem 5 Kendrick Company was organized on January 1. During the first year of operations, the following expenditures and receipts were recorded in random order. Debits 1. Cost of real estate purchased as a plant site (land and building) $ 130,000 2. Accrued real estate taxes paid at the time of the purchase of the real estate 4,000 3. Cost of demolishing building to make land suitable for construction of a new building 10,000 4. Architect’s fees on building plans 14,000 5. Excavation costs for new building 30,000 6. Cost of filling and grading the land 5,000 7. Insurance and taxes during construction of building 6,000 8. Cost of repairs caused by a small fire shortly after completion of building 7,000 9. Interest paid during the year, of which $45,000 pertains to the construction period 74,000 10. Full payment to building contractor 955,000 11. Cost of parking lots and driveways 36,000 12. Real estate taxes paid for the current year on the land 4,000 Total Debits $1,275,000 Credits 13. Insurance proceeds for fire damage $3,000 14. Proceeds from salvage of demolished building 3,500 Total Credits $6,500 Instructions
Analyze the foregoing transactions using the following tabular arrangement. Insert the number of each transaction in the Item space and insert the amounts in the appropriate columns. Item Land Buildings Other Account Title Problem 6 On March 1, 2014, Geoffrey Company acquired real estate, on which it planned to construct a small office building, by paying $85,000 in cash. An old warehouse on the property was demolished at a cost of $8,200; the salvaged materials were sold for $2,200. Additional expenditures before construction began included $1,500 attorney’s fee for work concerning the land purchase, $5,500 real estate broker’s fee, $9,100 architect’s fee, and $16,000 to put in driveways and a parking lot. Instructions (a) Determine the amount to be reported as the cost of the land. (b) For each cost not used in part (a), indicate the account to be debited. Problem 7 Brewer Company has the following selected accounts after posting adjusting entries: Accounts Payable $ 55,000 Notes Payable, 3-month 90,000 Accumulated Depreciation—Equipment 14,000 Notes Payable, 5-year, 8% 75,000 Payroll Taxes Expense 6,000 Interest Payable 5,000 Mortgage Payable 180,000 Sales Taxes Payable 23,000 Instructions (a) Prepare the current liability section of Brewer Company’s balance sheet, assuming $12,000 of the mortgage is payable next year. (b) Comment on Brewer’s liquidity, assuming total current assets are $450,000. Problem 8 On March 1, Cooper Company borrows $80,000 from New National Bank by signing a 6-month, 6%, interest-bearing note. Instructions Prepare the necessary entries below associated with the note payable on the books of Cooper Company. (a) Prepare the entry on March 1 when the note was issued. (b) Prepare any adjusting entries necessary on June 30 in order to prepare the semiannual financial statements. Assume no other interest accrual entries have been made. (c) Prepare the entry to record payment of the note at maturity. Problem 9 On June 1, Huntley Company borrows $50,000 from the bank by signing a 60-day, 6%, interest-bearing note. Instructions Prepare the necessary entries below associated with the note payable on the books of Huntley Company. (a) Prepare the entry on June 1 when the note was issued. (b) Prepare any adjusting entries necessary on June 30 in order to prepare the monthly financial statements. Assume no other interest accrual entries have been made. Prepare the entry to record payment of the note at maturity. Problem 10
On May 15, Holtâ€™s Clothiers borrowed some money on a 4-month note to provide cash during the slow season of the year. The interest rate on the note was 8%. At the time the note was due, the amount of interest owed was $1,200. Instructions (a) Determine the amount borrowed by Holtâ€™s. (b) Assume the amount borrowed was $54,000. What was the interest rate if the amount of interest owed was $900? (c) Prepare the entry for the initial borrowing and the repayment for the facts in part (a).