ACCT 210 Homework Chapter 7, Fall 2011

30 Minutes Medium PROBLEM 7.4A WILCOX MILLS a. General Journal 2011 Var.* 165,000 165,000 Var.* 15,000 15,000 Var.* Cash 15,000 15,000 Dec 31 160,000 160,000 $ 80,000 Allowance for Doubtful Accounts Accounts Receivab le Entry summarizing the write-off of receivables throughout the year. Accounts Receivable Allowanc e for Doubtful Accounts Entry summarizing the reinstatement of accounts proving to be collectible. Accounts Receivab le Entry to record the collection of accounts reinstated. Uncollectible Accounts Expense Allowanc e for Doubtful Accounts To adjust allowance for doubtful accounts to $90,000 credit balance: Balance at Dec. 31, 2010 (165,000) 15,000 (70,000) 90,000 ### *The first three entries summarize entries occurring at various dates throughout 2011. b. Less: Write-offs during 2011 Add: Accounts reinstated Unadjusted balance (debit balance) Desired balance (credit) Required adjustment ($70,000 + $90,000) A case can probably be made that the allowance is unreasonably low. The amount of the allowance at the end of 2010 was $80,000, but $165,000 were written off during the following year which may imply that the allowance should have been higher. A counter argument, which may justify the $80,000 balance, is that the allowance at the end of a year is not necessarily intended to provide for all accounts that will be written off during the coming year. Rather, it represents only the portion of the receivables existing at year-end estimated to be uncollectible. As Wilcox Mills sells on 30-day terms, it should turn over its receivables about 12 times each year. Thus, the year-end receivables should equal only about 1/12 of a year’s credit sales, and the balance in the allowance should provide for about 1/12 of the accounts written off during the year. 40 Minutes, Strong WESTON MANU a. Current assets: b. Apr. 10 Cash 20,950 above cost. Aug. 7 Cash 27,940 6,060 c. Marketab le securitie s (cost, $153,000) Stockholders' equity: Unrealize d holding gain on investme nts Marketab le securitie s Gain on Sale of Investme nts Sold 1,000 shares of Footlocker, Inc. at a price above cost. Loss on Sale of Investments Marketab le Securitie s Sold 2,000 shares of Gap, Inc. at a loss. Marketable Securities account: Balance at Dec. 31, 2010 $ 17,000 34,000 d. Cost $ 68,000 34,000 Totals $ 102,000 e. 5,000 f. Current assets: Less: Sale of securitie s on Apr. 10 Sale of securitie s on Aug. 7 Balance at Dec. 31, 2011 (prior to adjustmen t) Unrealized Holding Gain on Investments (no change since Dec. 31, 2010) Footlocker, Inc. (4,000 shares; cost $17 per share; market value, $18) Gap, Inc. (2,000 shares; cost, $17 per share; market market value, $16) Unrealized Holding Gain on Investments Marketab le Securitie s To reduce unadjusted balance in Marketable Securities account to current market value ($109,000 - $104,000). Marketab le securitie s (cost, $102,000) Stockholders' equity: Unrealize d holding gain on investme nts PROBLEM 7.5A WESTON MANUFACTURING CO. $ 160,000 $ 7,000 17,000 3,950 34,000 $ 160,000 51,000 $ 109,000 $ 7,000 Current Market Value $ 72,000 32,000 $ 104,000 5,000 $ 104,000 $ 2,000 PROBLEM WESTON MANUFACTURING CO. (concl g. Nonoperating items: Computation: Realized gain $ 3,950 Less: realized loss 6,060 Net realized loss $ (2,110) h. Loss on sales of investments Unrealized gains and losses are not reported in a company’s income tax return. The realized loss on the sa marketable securities will reduce both taxable income and the company's income tax liability. PROBLEM 7.5A WESTON MANUFACTURING CO. (concluded) $ 2,110 e not reported in a company’s income tax return. The realized loss on the sale of uce both taxable income and the company's income tax liability.