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E7-1 (Determining Cash Balance) The controller for Clint Eastwood Co. is attempting to determine the
amount of cash to be reported on its December 31, 2014, balance sheet. The following information is provided.
1. Commercial savings account of $600,000 and a commercial checking account balance of $900,000 are
held at First National Bank of Yojimbo
2. Money market fund account held at Volonte Co. (a mutual fund organization) permits Eastwood to
write checks on this balance, $5,000,000.
3. Travel advances of $180,000 for executive travel for the first quarter of next year (employee to reimburse
through salary reduction).
4. A separate cash fund in the amount of $1,500,000 is restricted for the retirement of long-term debt.
5. Petty cash fund of $1,000.
6. An I.O.U. from Marianne Koch, a company customer, in the amount of $190,000.
7. A bank overdraft of $110,000 has occurred at one of the banks the company uses to deposit its cash
receipts. At the present time, the company has no deposits at this bank.
8. The company has two certificates of deposit, each totaling $500,000. These CDs have a maturity of
9. Eastwood has received a check that is dated January 12, 2015, in the amount of $125,000.
10. Eastwood has agreed to maintain a cash balance of $500,000 at all times at First National Bank of
Yojimbo to ensure future credit availability.
11. Eastwood has purchased $2,100,000 of commercial paper of Sergio Leone Co. which is due in 60 days.
12. Currency and coin on hand amounted to $7,700.
(a) Compute the amount of cash to be reported on Eastwood Co.’s balance sheet at December 31, 2014.
(b) Indicate the proper reporting for items that are not reported as cash on the December 31, 2014,
E7-3 (Financial Statement Presentation of Receivables) Jim Carrie Company shows a balance of $181,140
in the Accounts Receivable account on December 31, 2013. The balance consists of the following.
Installment accounts due in 2014 $23,000
Installment accounts due after 2014 34,000
Overpayments to vendors 2,640
Due from regular customers, of which $40,000 represents
accounts pledged as security for a bank loan 79,000
Advances to employees 1,500
Advance to subsidiary company (due in 2015) 81,000
Illustrate how the information above should be shown on the balance sheet of Jim Carrie Company on
December 31, 2013.
E7-5 (Recording Sales Gross and Net) On June 3, Arnold Company sold to Chester Company merchandise
having a sale price of $3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $90,
terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On
June 12, the company received a check for the balance due from Chester Company.
(a) Prepare journal entries on the Arnold Company books to record all the events noted above under
each of the following bases.
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered at net of cash discounts.
(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment
until July 29
E7-6 (Recording Sales Transactions) Presented below is information from Perez Computers Incorporated.
July 1 Sold $20,000 of computers to Robertson Company with terms 3/15, n/60. Perez uses the gross
method to record cash discounts.
10 Perez received payment from Robertson for the full amount owed from the July transactions.
17 Sold $200,000 in computers and peripherals to The Clark Store with terms of 2/10, n/30.
30 The Clark Store paid Perez for its purchase of July 17.
Prepare the necessary journal entries for Perez Computers
E7-7 (Recording Bad Debts) Duncan Company reports the following financial information before
Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on
the basis of (a) 4% of gross accounts receivable and (b) 1% of net sales.
E7-10 (Bad-Debt Reporting) The chief accountant for Dickinson Corporation provides you with the
following list of accounts receivable written off in the current year.
Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at
(a) 1% of net sales and (b) 5% of accounts receivable.
E7-11 (Bad Debts—Aging) Danica Patrick, Inc. includes the following account among its trade receivables.
Age the balance and specify any items that apparently require particular attention at year-end.
E7-18 (Note Transactions at Unrealistic Interest Rates) On July 1, 2014, Agincourt Inc. made two sales.
1. It sold land having a fair value of $700,000 in exchange for a 4-year zero-interest-bearing promissory
note in the face amount of $1,101,460. The land is carried on Agincourt’s books at a cost of $590,000.
2. It rendered services in exchange for a 3%, 8-year promissory note having a face value of $400,000
(interest payable annually).
Agincourt Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The
customers in these two transactions have credit ratings that require them to borrow money at 12% interest.
Record the two journal entries that should be recorded by Agincourt Inc. for the sales transactions above
that took place on July 1, 2014.
P7-3 (Bad-Debt Reporting—Aging) Manilow Corporation operates in an industry that has a high rate of
bad debts. Before any year-end adjustments, the balance in Manilow’s Accounts Receivable account was
$555,000 and Allowance for Doubtful Accounts had a credit balance of $40,000. The year-end balance
reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedule
(a) What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
(b) Show how accounts receivable would be presented on the balance sheet.
(c) What is the dollar effect of the year-end bad debt adjustment on the before-tax income?