Reference no: EM132277089
Problem Set A
Copeland Company had the following account balances at December 31, 2016, before recording bad debt expense for the year:
| Unadjusted Trial Balance |
|
|
| Accounts receivable |
|
$1,400,000 |
| Allowance for uncollectible accounts (credit balance) |
22,000 |
| Credit sales for 2016 |
|
1,950,000 |
| Ending 12/31/2015 |
|
|
| Balance in Accounts receivable on 1/1/2016 |
|
$1,200,000 |
| Balance in Allowance for uncollectible accounts (credit balance) on 1/1/2016 |
24,000 |
Copeland is considering the following approaches for estimating bad debts for 2016:
Option A: Based on 3% of credit sales
Option B: Based on an aging of year-end accounts receivable
| Days |
Amount Outstanding |
Estimated % Uncollectible |
| 0-30 |
$800,000 |
3% |
| 31-60 |
300,000 |
6% |
| 61-120 |
200,000 |
9% |
| Over 120 |
100,000 |
24% |
|
$1,400,000 |
|
REQUIRED:
1 Do the adjusting journal entry under Option A and Option B.
2 What amounts would be reported on the 12/31/2016 financial statements related to Accounts Receivable under Option A and Option B?
Make sure to include the effect on the Income Statement, Balance Sheet and Statement of Cash Flows (under the Direct AND Indirect Method), and the Statement of Stockholders' Equity.
3 What is the difference in accounts receivable turnover and the credit risk ratio under Option A v. Option B?
4 Which option may management prefer? Which option may shareholders or regulators prefer? Please discuss
Problem Set B
You are the accountant for Madie Corporation, a manufacturer of jets.
On January 1, 2013 Madie Corporation sold a new Lear Jet to a customer, Animal, Inc.
Animal, Inc. did not have the cash upfront and therefore opted to issue a note to Madie Corporation as payment for the jet.
The note contained terms for Animal, Inc. (the customer) to pay interest semiannually on June 30 and December 31.
Portions of the amortization schedule appear below:
| Payment |
Cash Interest Payment |
Effective Interest |
Discount or Premium Amortization |
Carrying Value |
|
|
|
|
6,627,273 |
| 1 |
320,000 |
331,364 |
11,364 |
6,638,637 |
| 2 |
320,000 |
331,932 |
11,932 |
6,650,569 |
| 3 |
320,000 |
332,528 |
12,528 |
6,663,097 |
| 4 |
320,000 |
333,155 |
13,155 |
6,676,252 |
| 5 |
320,000 |
333,813 |
13,813 |
6,690,065 |
| 6 |
320,000 |
334,503 |
14,503 |
6,704,568 |
| - |
- |
- |
- |
- |
| - |
- |
- |
- |
- |
| - |
- |
- |
- |
- |
| 38 |
320,000 |
389,107 |
69,107 |
7,851,247 |
| 39 |
320,000 |
392,562 |
72,562 |
7,923,809 |
| 40 |
320,000 |
396,191 |
76,191 |
8,000,000 |
REQUIRED:
1. What is the face value of the note?
2. What was the initial selling price of the Lear Jet?
3. Did the note indicate a premium or discount?
4. What is the term to maturity in years?
5. What is the stated annual interest rate?
6. What is the effective (market) annual interest rate?
7. Do the journal entry for the note received by Madie Corporation on January 1, 2013.
8. Do the journal entry for the first interest payment received on June 30, 2013.
9. Assuming Madie Corporation's fiscal year end is September 30, do the adjusting journal entry for September 30, 2013.
10. If the customer repaid the note at 95 on January 1, 2016 (after the recording and payment of interest on December 31, 2015), would Madie record a gain or loss?
Attachment:- Excel Assignment.rar