Project #4382 - Accounting present/future values and receivables

P 7-1   Uncollectible accounts; allowance method; income statement and balance sheet approach    LO5 LO6   Swathmore Clothing Corporation grants its customers 30 days' credit. The company uses the allowance method for its uncollectible accounts receivable. During the year, a monthly bad debt accrual is made by multiplying 3% times the amount of credit sales for the month. At the fiscal year-end of December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly.      At the end of 2010, accounts receivable were $574,000 and the allowance account had a credit balance of $54,000. Accounts receivable activity for 2011 was as follows: p. 385    The company's controller prepared the following aging summary of year-end accounts receivable: Required: 1.   Prepare a summary journal entry to record the monthly bad debt accrual and the write-offs during the year. 2.   Prepare the necessary year-end adjusting entry for bad debt expense. 3.   What is total bad debt expense for 2011? How would accounts receivable appear in the 2011 balance sheet? Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company's fiscal year-end. The 2010 balance sheet disclosed the following: Current assets:    Receivables, net of allowance for uncollectible accounts of $30,000 $432,000      During 2011, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in accounts receivable were written off. In addition, $3,000 was collected from a customer whose account was written off in 2010. An aging of accounts receivable at December 31, 2011, reveals the following:   P 7-7   Factoring versus assigning of accounts receivable    LO8 Lonergan Company occasionally uses its accounts receivable to obtain immediate cash. At the end of June 2011, the company had accounts receivable of $780,000. Lonergan needs approximately $500,000 to capitalize on a unique investment opportunity. On July 1, 2011, a local bank offers Lonergan the following two alternatives: a.   Borrow $500,000, sign a note payable, and assign the entire receivable balance as collateral. At the end of each month, a remittance will be made to the bank that equals the amount of receivables collected plus 12% interest on the unpaid balance of the note at the beginning of the period. b.   Transfer $550,000 of specific receivables to the bank without recourse. The bank will charge a 2% finance charge on the amount of receivables transferred. The bank will collect the receivables directly from customers. The sale criteria are met. Required: 1.   Prepare the journal entries that would be recorded on July 1 for each of the alternatives. 2.   Assuming that 80% of all June 30 receivables are collected during July, prepare the necessary journal entries to record the collection and the remittance to the bank. 3.   For each alternative, explain any required note disclosures that would be included in the July 31, 2011, financial statements. P 7-11   Discounting a note receivable    LO7 Descriptors are provided below for six situations involving notes receivable being discounted at a bank. In each case, the maturity date of the note is December 31, 2011, and the principal and interest are due at maturity. For each, determine the proceeds received from the bank on discounting the note. E 6-1   Future value; single amount   ● LO2 Determine the future value of the following single amounts: 15k      6%     12 periods 20k     8      10 periods 30k     12      20 periods 50k     4      12 periods E 6-3   Present value; single amount   ● LO3 Determine the present value of the following single amounts: 20k     7%     10 periods 14k     8        12 25k     12       20 40k     10     8   E 6-8   Present value; annuities   ● LO7 Using the appropriate present value table and assuming a 12% annual interest rate, determine the present value on December 31, 2011, of a five-period annual annuity of $5,000 under each of the following situations: 1.   The first payment is received on December 31, 2012, and interest is compounded annually. 2.   The first payment is received on December 31, 2011, and interest is compounded annually. 3.   The first payment is received on December 31, 2012, and interest is compounded quarterly. P 6-1   Analysis of alternatives   ● LO3 LO7 Esquire Company needs to acquire a molding machine to be used in its manufacturing process. Two types of machines that would be appropriate are presently on the market. The company has determined the following:    Machine A could be purchased for $48,000. It will last 10 years with annual maintenance costs of $1,000 per year. After 10 years the machine can be sold for $5,000.    Machine B could be purchased for $40,000. It also will last 10 years and will require maintenance costs of $4,000 in year three, $5,000 in year six, and $6,000 in year eight. After 10 years, the machine will have no salvage value. Required: Determine which machine Esquire should purchase. Assume an interest rate of 8% properly reflects the time value of money in this situation and that maintenance costs are paid at the end of each year. Ignore income tax considerations. P 6-2   Present and future value   ● LO6 LO7 LO9 Johnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. 1.   On June 30, 2011, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $10,000 on the purchase date and the balance in five annual installments of $8,000 on each June 30 beginning June 30, 2012. Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment? 2.   Johnstone needs to accumulate sufficient funds to pay a $400,000 debt that comes due on December 31, 2016. The company will accumulate the funds by making five equal annual deposits to an account paying 6% interest compounded annually. Determine the required annual deposit if the first deposit is made on December 31, 2011. 3.   On January 1, 2011, Johnstone leased an office building. Terms of the lease require Johnstone to make 20 annual lease payments of $120,000 beginning on January 1, 2011. A 10% interest rate is implicit in the lease agreement. At what amount should Johnstone record the lease liability on January 1, 2011, before any lease payments are made? P 6-3   Analysis of alternatives   ● LO3 LO7 Harding Company is in the process of purchasing several large pieces of equipment from Danning Machine Corporation. Several financing alternatives have been offered by Danning: 1.   Pay $1,000,000 in cash immediately. 2.   Pay $420,000 immediately and the remainder in 10 annual installments of $80,000, with the first installment due in one year. 3.   Make 10 annual installments of $135,000 with the first payment due immediately. 4.   Make one lump-sum payment of $1,500,000 five years from date of purchase. Required: Determine the best alternative for Harding, assuming that Harding can borrow funds at an 8% interest rate.   WILL PROVIVDE EXCEL TEMPLATES FOR 7-1, 4, ,11 THAT VERIFY ANSWERS

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Due By (Pacific Time) 04/20/2013 05:00 pm
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