Brief Exercise 7-09

Emil Family Importers sold goods to Acme Decorators for $20,000 on November 1, 2020,
accepting Acme’s $20,000, six-month, 6% note.

Your answer is correct.

   
Prepare Emil’s November 1 entry, December 31 annual adjusting entry, and May 1 entry for the
collection of the note and interest. (Credit account titles are automatically indented when
amount is entered. Do not indent manually. If no entry is required, select "No Entry" for
the account titles and enter 0 for the amounts. Record journal entries in the order
presented in the problem.)

Account Titles and

Date Debit Credit
Explanation
choose a transaction enter a debit enter a credit
enter an account title
date amount amount
Notes Recei
11/1/20 20000

enter a debit enter a credit

enter an account title
amount amount
Sales Reven
20000

choose a transaction enter a debit enter a credit

enter an account title
date amount amount
Interest Rec
12/31/20 200

enter a debit enter a credit

enter an account title
amount amount
Interest Inco
200

choose a transaction enter a debit enter a credit

enter an account title
date amount amount
Cash
5/1/21 20600

enter a debit enter a credit

enter an account title
amount amount
Notes Recei
20000

enter a debit enter a credit

enter an account title
amount amount
Interest Inco
400

enter a debit enter a credit

enter an account title
amount amount
Interest Rec
200

Solution
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Brief Exercise 7-09

12/31/2 Interest $20,000 x 6% x

= $200
0 Income 2/12
Interest $20,000 x 6% x
5/1/21 = $400
Income 4/12

Assume instead that Emil uses reversing entries. Prepare any appropriate reversing entry at January
1, 2021, and the May 1, 2021 entry for the collection of the note and interest.  (Credit account titles
are automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts. Record
journal entries in the order presented in the problem.)

Date Account Titles and Explanation Debit Credit

choose a transaction
enter an account title enter a debit amount enter a credit amount
date
Interest Inco 200
1/1/21

enter an account title enter a debit amount enter a credit amount

Interest Rec 200

choose a transaction
enter an account title enter a debit amount enter a credit amount
date
Cash 20600
5/1/21

enter an account title enter a debit amount enter a credit amount

Notes Recei 20000

enter an account title enter a debit amount enter a credit amount

Interest Inco 600

Brief Exercise 7-17

Your answer is correct.

   
Keyser Woodcrafters sells $600,000 of receivables with a fair value of $620,000 to Keyser Trust in a
securitization transaction that meets the criteria for a sale. Keyser Woodcrafters receives full fair value
for the receivables and agrees to continue to service them, estimating that the fair value of this
service liability component is $26,000.

Prepare the journal entry for Keyser Woodcrafters to record the sale. (Credit account titles are
automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and

Debit Credit
Explanation
enter an account title enter a debit amount enter a credit amount
Cash 620000

enter an account title enter a debit amount enter a credit amount

Loss on Dispo 6000
enter an account title enter a debit amount enter a credit amount
Servicing Liab 26000

enter an account title enter a debit amount enter a credit amount

Accounts Rec 600000

Brief Exercise 7-19

Your answer is correct.

   
The financial statements of BCE Inc. reported net sales of $21,719 million for its year ended
December 31, 2016, and $21,514 million for its year ended December 31, 2015. Accounts receivable
(net) were $2,979 million at December 31, 2016, $3,009 million at December 31, 2015, and $3,069
million at December 31, 2014.

Calculate the company’s accounts receivable turnover ratio for 2015 and 2016. (Round answers to
2 decimal places, e.g. 15.25.)

enter Accounts receivable turnover ratio for 2015 in times

Accounts receivable turnover rounded to 2 decimal places  times
ratio for 2015 7.08
enter Accounts receivable turnover ratio for 2016 in times
Accounts receivable turnover rounded to 2 decimal places  times
ratio for 2016 7.25

Did accounts receivable turnover ratio improve in 2016?

select an option
Yes

Solution
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Brief Exercise 7-19

2015:

The accounts receivable turnover ratio is calculated as follows:

Net Sales
Average Trade Receivables (net)

$21,514
$3,009 + = 7.08 times
$3,069
2

The average collection period for accounts receivable in days is

365 days = 365 = 51.55 days

 Accounts Receivable 7.0
Turnover 8

2016:

The accounts receivable turnover ratio is calculated as follows:

Net Sales
Average Trade Receivables (net)

$21,719
$2,979 + = 7.25 times
$3,009
2

The average collection period for accounts receivable in days is

365 days 365

Accounts Receivable = 7.2 = 50.34 days
Turnover 5

Yes, As indicated from these ratios, BCE Inc.’s accounts receivable turnover ratio improved in 2016
(to 7.25 times from 7.08 times in 2015). BCE’s average collection period improved as well, to 50.34
days from 51.55 days in 2015).

Exercise 7-01 a

Your answer is incorrect.

   
The controller for Fashion Co. is trying to determine the amount of cash to report on the December
31, 2020 statement of financial position. The following information is provided:

1. A commercial savings account with $600,000 and a commercial chequing account balance of
$900,000 are held at First National Bank. There is also a bank overdraft of $35,000 in a chequing
account at the Royal Scotia Bank. No other accounts are held at the Royal Scotia Bank.
2. Fashion has agreed to maintain a cash balance of $100,000 at all times in its chequing account at
First National Bank to ensure that credit is available in the future.
3. Fashion has a $5-million investment in a Commercial Bank of Montreal money-market mutual
fund. This fund has chequing account privileges.
4. There are travel advances of $18,000 for executive travel for the first quarter of next year.
(Employees will complete expense reports after they travel.)
5. A separate cash fund in the amount of $1.5 million is restricted for the retirement of long-term
debt.
6. There is a petty cash fund of $3,000.
7. A $1,900 IOU from Marianne Koch, a company officer, will be withheld from her salary in January
2021.
8. There are 20 cash floats for retail operation cash registers: 8 at $475, and 12 at $600.
9. The company has two certificates of deposit, each for $500,000. These certificates of deposit
each had a maturity of 120 days when they were acquired. One was purchased on October 15
and the other on December 27.
10 Fashion has received a cheque dated January 12, 2021, in the amount of $25,000 from a
. customer owing funds at December 31. It has also received a cheque dated January 8, 2021, in
the amount of $11,500 from a customer as an advance on an order that was placed on December
29 and will be delivered February 1, 2021.
11
Fashion holds $2.1 million of commercial paper of Rocco Leone Co., which is due in 60 days.
.
12
Currency and coin on hand amounted to $7,700.
.
13 Fashion acquired 1,000 shares of Sortel for $3.90 per share in late November and is holding them
. for trading. The shares are still on hand at year end and have a fair value of $4.10 per share on
December 31, 2020.

(a)

Calculate the amount of cash to be reported on Fashion’s statement of financial position at December
31, 2020.

$enter a dollar amount of Cash reported on

Cash reported on December 31, 2020, balance December 31
sheet 6521700

Solution
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Exercise 7-01 a

Cash includes the following:

1. Commercial savings account— First National Bank $600,000

1. Commercial chequing account— First National Bank 900,000
3. Money market fund—Commercial Bank of Montreal 5,000,000
6. Petty cash 3,000
8. Cash floats (8 × $475 + 12 × $600) 11,000
12. Currency and coin on hand 7,700
Cash reported on December 31, 2020, statement of financial position $6,521,700

Exercise 7-03

Your answer is correct.

   
LeBlanc Inc. shows a balance of $519,289 in the Accounts Receivable account on December 31, 2020.
The balance consists of the following:

Instalment accounts due in 2021 $91,000

Instalment accounts due after 2021 80,000
Overpayments to creditors 12,640
Due from regular customers, of which $40,000 represents accounts pledged as security for
165,000
a bank loan
Advances to employees 69,649
Advance to subsidiary company (made in 2015) 101,000
$519,289

Show how the information above should be presented on the statement of financial position of LeBlanc
Inc. at December 31, 2020.

LeBlanc Inc.
Statement of Financial Position
choose the accounting period
December 31, 2020

select an opening section name

 Current Assets

     select an opening name for subsection one

Accounts receivable

     select a balance sheet item

Customers

       select a balance sheet item $enter a dollar

amount
Accounts 165000

       select a balance sheet item enter a dollar

amount
Instalment accounts collectible due in 2021 91000

enter a subtotal
of the two
     select a balance sheet item
previous
Total from customers amounts
256000

     select a balance sheet item $enter a total

enter a dollar
amount for
amount
subsection one
Other 82289
338289

select an opening name for subsection two

Non-Current Accounts Receivable

     select a balance sheet item enter a dollar

amount
Advance to subsidiary company 101000

     select a balance sheet item enter a dollar

amount
Instalment accounts collectible due after December 31, 2021 80000

Solution
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Exercise 7-03

Other ($12,640 + $69,649) = $82,289

Exercise 7-09 a1-a4

The trial balance before adjustment of Chloe Inc. shows the following balances:

Dr. Cr.
Accounts receivable $105,000
Allowance for doubtful
1,950
accounts
Sales revenue (all on credit) $684,000
 Sales returns and allowances 30,000

Your answer is correct.

   
Give the entry for bad debt expense for the current year assuming the allowance should be 4% of
gross accounts receivable. (Credit account titles are automatically indented when amount
is entered. Do not indent manually. If no entry is required, select "No Entry" for the
account titles and enter 0 for the amounts.)

Account Titles and

Debit Credit
Explanation
enter an account title enter a debit amount enter a credit amount
Bad Debt Expe 6150

enter an account title enter a debit amount enter a credit amount

Allow ance for 6150

Solution
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Exercise 7-09 a1-a4

Allowance for Doubtful Accounts ($105,000 x 4%) + $1,950 = $6,150

Give the entry for bad debt expense for the current year assuming historical records show that, based
on accounts receivable aging, the following percentages will not be collected: (Credit account titles
are automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts.)

Percentage Estimated
Balance to Be Uncollectible
0–30 days outstanding $36,000 1%
31–60 days outstanding 48,000 5%
61–90 days outstanding 12,200 12%
Over 90 days
8,800 18%
outstanding

Account Titles and

Debit Credit
Explanation
enter an account title enter a debit amount enter a credit amount
Bad Debt Expe 7758

enter an account title enter a debit amount enter a credit amount

Allow ance for 7758

Solution
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Exercise 7-09 a1-a4

Allowance for Doubtful Accounts ($36,000 x 0.01 + $48,000 x 0.05 + $12,200 x 0.12 + $8,800 x
0.18) + $1,950 = $7,758

Give the entry for bad debt expense for the current year assuming allowance for doubtful accounts is
$1,950 but it is a credit balance and the allowance should be 4% of gross accounts
receivable. (Credit account titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the account titles and enter 0
for the amounts.)

Account Titles and

Debit Credit
Explanation
enter an account title enter a debit amount enter a credit amount
Bad Debt Expe 2250

enter an account title enter a debit amount enter a credit amount

Allow ance for 2250

Solution
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Exercise 7-09 a1-a4

Allowance for Doubtful Accounts ($105,000 x 4%) - $1,950 = $2,250

Give the entry for bad debt expense for the current year assuming allowance for doubtful accounts is
$1,950 but it is a credit balance and historical records show that the following percentages will not be
collected: (Credit account titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the account titles and enter 0
for the amounts.)

Percentage Estimated
Balance to Be Uncollectible
0–30 days outstanding $36,000 1%
31–60 days outstanding 48,000 5%
61–90 days outstanding 12,200 12%
Over 90 days
8,800 18%
outstanding

Account Titles and

Debit Credit
Explanation
enter an account title enter a debit amount enter a credit amount
Bad Debt Expe 3858

enter an account title enter a debit amount enter a credit amount

Allow ance for 3858

Solution
CLOSE
Exercise 7-09 a1-a4

Allowance for Doubtful Accounts ($36,000 x 0.01 + $48,000 x 0.05 + $12,200 x 0.12 + $8,800 x
0.18) − $1,950 = $3,858

Exercise 7-14 a-e

By December 31, 2020, Clearing Corp. had performed a significant amount of environmental
consulting services for Rank Ltd. Rank was short of cash, and Clearing agreed to accept a
$200,000, non–interest-bearing note due December 31, 2022, as payment in full. Rank is a bit of
a credit risk and typically borrows funds at a rate of 12%. Clearing is much more creditworthy
and has various lines of credit at 9%. Clearing Corp. reports under IFRS. The tables in this
problem are to be used as a reference for this problem.

Click here to view the factor table PRESENT VALUE OF AN ANNUITY OF 1.

Your answer is correct.

   
Prepare the journal entry to record the transaction on December 31, 2020, for Clearing
Corp. (For calculation purposes, use 5 decimal places as displayed in the factor table
provided. Credit account titles are automatically indented when amount is entered. Do
not indent manually. If no entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.)

Account Titles and

Debit Credit
Explanation
enter an account title enter a debit amount enter a credit amount
Notes Receiva 159438

enter an account title enter a debit amount enter a credit amount

Service Reven 159438

Solution
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Exercise 7-14 a-e

Using a financial calculator:

PV ? Yield $(159,439)
I 12%
N 2
PMT 0
FV $200,000
Typ
0
e

Excel formula: = PV (rate,nper,pmt,fv,type)

Present value of note:
PV of $200,000 due in 2 years at 12%
$200,000 × 0.79719 = $159,438

Assuming Clearing’s fiscal year end is December 31, prepare the journal entry required at December
31, 2021. (For calculation purposes, use 5 decimal places as displayed in the factor table
provided. Credit account titles are automatically indented when amount is entered. Do not
indent manually. If no entry is required, select "No Entry" for the account titles and enter 0
for the amounts.)

Account Titles and

Debit Credit
Explanation
enter an account title enter a debit amount enter a credit amount
Notes Receiva 19133

enter an account title enter a debit amount enter a credit amount

Interest Incom 19133

Solution
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Exercise 7-14 a-e

Interest Income ($159,438 × 12%) = $19,133

Assuming Clearing’s fiscal year end is December 31, prepare the journal entry required at
December 31, 2022. (Round answers to 0 decimal places, e.g. 58,971. Credit account titles are
automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit

enter an account title to record interest
enter a debit amount enter a credit amount
income
21429
Notes Receiva

enter an account title to record interest

enter a debit amount enter a credit amount
income
21429
Interest Incom

(To record interest income)

enter an account title to record maturity enter a debit amount enter a credit amount
Cash 200000

enter an account title to record maturity enter a debit amount enter a credit amount
Notes Receiva 200000

(To record maturity)

Solution
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Exercise 7-14 a-e

Interest Income ($159,438 + $19,133) × 12% = $21,429

What are the amount and classification of the note on Clearing Corp.’s statement of financial position
as at December 31, 2021? (Round answer to 0 decimal places, e.g. 58,971.)

$enter The balance of the note at December 31, 2021 in dollars

The balance of the note at rounded to 0 decimal places
December 31, 2021 178571

The note would be classified as a select an option

current asset

 on the balance sheet.

Solution
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Exercise 7-14 a-e

The balance of the note at December 31, 2021 is $178,571 ($200,000 less discount balance of
$21,429). The note would be classified as a current asset on the statement of financial position as
the maturity date of the note of December 31, 2022 is within the next fiscal year.

Assume instead that Clearing reports under ASPE and uses the straight-line method to amortize the
discount on the note. What would the interest income be relating to the note for 2021 and
2022? (Round answer to 0 decimal places, e.g. 58,971.)

$enter a dollar amount rounded to 0 decimal places

Interest income for 2021 20281

$enter a dollar amount rounded to 0 decimal places

Interest income for 2022 20281

Solution
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Exercise 7-14 a-e

2021 & 2022 interest income would be $20,281 per year. [($200,000 – 159,438) / 2 = $40,562 / 2
years = $20,281]

Exercise 7-18 a

Your answer is correct.

   
Lute Retail Ltd. follows ASPE. It transfers $355,000 of its accounts receivable to an independent trust
in a securitization transaction on July 11, 2020, receiving 96% of the receivables balance as proceeds.
Lute will continue to manage the customer accounts, including their collection. Lute estimates this
obligation has a liability value of $12,500. In addition, the agreement includes a recourse provision
with an estimated value of $9,900. The transaction is to be recorded as a sale.
(a) Prepare the journal entry on July 11, 2020, for Lute Retail Ltd. to record the securitization of the
receivables. (Credit account titles are automatically indented when amount is entered. Do
not indent manually. If no entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.)

Account Titles and

Debit Credit
Explanation
enter an account title enter a debit amount enter a credit amount
Cash 340800

enter an account title enter a debit amount enter a credit amount

Loss on Dispo 36600

enter an account title enter a debit amount enter a credit amount

Recourse Liab 9900

enter an account title enter a debit amount enter a credit amount

Servicing Liab 12500

enter an account title enter a debit amount enter a credit amount

Accounts Rec 355000

Solution
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Exercise 7-18 a

Calculation of net proceeds:

Cash received ($355,000 x 96%) $340,800

Less: Recourse obligation $9,900
Less: Unrecovered Service Costs 12,500 22,400
Net proceeds $318,400

Calculation of gain or loss:

Carrying amount of
$355,000
receivables
Net proceeds 318,400
Loss on disposal of receivables $36,600

Exercise 7-21 a

Your answer is correct.

   
Kali Corp. established a petty cash fund early in 2020 to increase the efficiency of accounting for small
cash transactions and to improve control over many of the small expenditures it makes. The company
decided to set up the imprest fund at $500 and a cheque was issued for this amount and given to the
petty cash custodian.
During January, the petty cash custodian made the following disbursements and placed a receipt for
each in the cash box provided.

Tim Hortons coffee order for a management meeting $28.62

Supplies purchased 49.50
Freight charge to ship goods to a customer 25.00
Travel advance to employee 150.00
Card, wrapping paper for gift for employee in
19.40
hospital

The petty cash was replenished on January 22 when the amount of cash in the fund was $225.15. In
June, after six months’ experience with the fund, management decided to increase the imprest fund to
$700.

(a)

Prepare the journal entries to establish the petty cash fund, to reimburse it on January 22, and to
increase the fund in June. (Credit account titles are automatically indented when amount is
entered. Do not indent manually. If no entry is required, select "No Entry" for the account
titles and enter 0 for the amounts. Round answers to 2 decimal places, e.g. 52.75. Record
journal entries in the order presented in the problem.)

Account Titles and

Date Debit Credit
Explanation
choose a transaction date enter an account title enter a debit amount enter a credit amount
Jan. 1 Petty Cash 500

enter an account title enter a debit amount enter a credit amount

Cash 500

choose a transaction date enter an account title enter a debit amount enter a credit amount
Jan. 22 Cash Over an 2.33

enter an account title enter a debit amount enter a credit amount

Supplies 49.50

enter an account title enter a debit amount enter a credit amount

Freight out 25.00

enter an account title enter a debit amount enter a credit amount

Advances to E 150.00

enter an account title enter a debit amount enter a credit amount

Miscellaneous 48.02

enter an account title enter a debit amount enter a credit amount

Cash 274.85

choose a transaction date enter an account title enter a debit amount enter a credit amount
June 30 Petty Cash 200

enter an account title enter a debit amount enter a credit amount

Cash 200

Solution
CLOSE

Exercise 7-21 a

Jan.
Miscellaneous Expense = $28.62 + $19.40 = $48.02
22
Cash = ($500 – $225.15) = $274.85