Hm6 Accounting Chapter 7

HM6

I. Brief Exercise 7-1 Accounting for Bad Debts, p. 349

Badger recorded $500,000 of net sales for the year of which 2% is estimated to be uncollectible.

Identify and analyze the adjustment required at the end of the year to record bad debts.

Net Sales of $500,000 x 2% uncollectible = $10,000 in Allowance for Doubtful Accounts. Assets & SE will decrease on the Balance Sheet, while Expenses will increase on the Income Statement and lower Net Income.

Balance Sheet Income Statement

Assets = Liabilities + Stockholder equity Revenues_ Expenses=Net income

Allowance for Doubtful Accounts:

-$10,000 -$10,000 -$10,000 -$10,000

II. Brief Exercise 7-3 Accounting for Notes Receivable, p. 349

Hint: Both 7-1 and 7-3 are simple exercises, but be sure to show your work and explain the adjustment clearly.

On November 1, 2014, Gopher received a $50,000, 6%, 90-day promissory note. Identify and analyze the adjustment required on December 31, the end of the company's fiscal year.

So the $50,000 x 6% x 90/360 or .25 = $750 in interest due on the maturity date. This gives us $50,750 recorded as Cash. We need to recognize the 60 days of earned interest and the 30 days not yet earned by 31 Dec. The interest due by 31 Dec is $50,000 x .06 x 60/360 or .16 is $480. With subtract the notes receivable and interest already paid from the cash, leaving us with a balance of $270 in earned interest not paid as of 31 Dec 2014.

III. Exercise 9-2 Current Liabilities, p. 452

Hint: The dates are very important in determining whether a liability is current or long-term so be sure to read each date carefully.

1. For each item, state whether it should be classified as a current liability on the December 31, 2014, balance sheet. Assume that the operating cycle is shorter...