Lonergan Company occasionally uses its accounts receivable to obtain immediate

Lonergan Company occasionally uses its to obtain immediate cash. At the end of June 2021, the company had of $780,000. Lonergan needs approximately $500,000 to capitalize on a unique investment opportunity. On July 1, 2021, 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% factoring fee 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, 2021, financial statements.

Samson Wholesale Beverage Company regularly factors its accounts receivable with

Samson Wholesale Beverage Company regularly factors its with the Milpitas Finance Company. On April 30, 2021, the company transferred $800,000 of to Milpitas. The transfer was made without recourse. Milpitas remits 90% of the factored amount and retains 10%. When Milpitas collects the receivables, it remits to Samson the retained amount less a 4% fee (4% of the total factored amount). Samson estimates the fair value of the last 10% of its receivables to be $60,000.

Required:
Prepare the journal entry for Samson Wholesale Beverage for the transfer of on April 30, assuming the sale criteria are met.

Target Corporation prepares its financial statements according to U.S. GAAP.

Target prepares its according to U.S. GAAP. Target’s and disclosure notes for the year ended February 3, 2018, are available in Connect. This material also is available under the Investor Relations link at the company’s website (www.target.com).

Required:
1. On what line of Target’s income statement is revenue reported? What was the amount of revenue Target reported for the fiscal year ended February 3, 2018?
2. Disclosure Note 2 indicates that Target generally records revenue in retail stores at the point of sale. Does that suggest that Target generally records revenue at a point in time or over a period of time? Explain.
3. Disclosure Note 2 indicates that customers (“guests”) can return some merchandise within 90 days of purchase and can return other merchandise within a year of purchase. How is Target’s revenue and net income affected by returns, given that it does not know at the time a sale is made which items will be returned?
4. Disclosure Note 2 indicates that “Commissions earned on sales generated by leased departments are included within sales and were $44 million . . . in 2017.” Do you think it likely that Target is accounting for those sales as a principal or an agent? Explain.

Raintree Cosmetic Company sells its products to customers on a

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 2020 disclosed the following:

Current assets:
Receivables, net of allowance for uncollectible accounts of $30,000 …..$432,000

During 2021, credit sales were $1,750,000, cash collections from customers $1,830,000, and $35,000 in were written off. In addition, $3,000 was collected from a customer whose account was written off in 2020. An aging of at December 31, 2021, reveals the following:

Required:
1. Prepare summary journal entries to account for the 2021 write-offs and the collection of the receivable previously written off.
2. Prepare the year-end adjusting entry for bad debts according to each of the following situations:
a. Bad debt expense is estimated to be 3% of credit sales for the year.
b. Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of to the amount of cash expected to be collected. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in Bad debt expense is estimated by adjusting the allowance for uncollectible accounts to the balance that reduces the carrying value of to the amount of cash expected to be collected. The allowance for uncollectible accounts is determined by an aging of For situations (a)–(c) in requirement 2 above, what would be the net amount of reported in the 2021 balance sheet?

Nike, Inc., is a leading manufacturer of sports apparel, shoes,

Nike, Inc., is a leading manufacturer of sports apparel, shoes, and equipment. The company’s 2017 contain the following information ($ in millions):

A note disclosed that the allowance for uncollectible accounts had a balance of $19 million and $43 million at the end of 2017 and 2016, respectively. Bad debt expense for 2017 was $40 million. Assume that all sales are made on a credit basis.

Required:
1. What is the amount of gross (total) accounts receivable due from customers at the end of 2017 and 2016?
2. What is the amount of bad debt write-offs during 2017?
3. Analyze changes in the gross accounts receivable account to calculate the amount of cash received from customers during 2017.
4. Analyze changes in net accounts receivable to calculate the amount of cash received from customers during 2017.

EMC Corporation manufactures large-scale, high-performance computer systems. In a recent

EMC manufactures large-scale, high-performance computer systems. In a recent annual report, the included the following information ($ in millions):

In addition, the income statement reported sales revenue of $24,704 ($ in millions) for the current year. All sales are made on a credit basis. The statement of cash flows indicates that cash collected from customers during the current year was $25,737 ($ in millions). There were no recoveries of previously written off.

Required:
1. Compute the following ($ in millions):
a. The amount of bad debts written off by EMC during 2015.
b. The amount of bad debt expense that EMC included in its income statement for 2015.
c. The approximate percentage that EMC used to estimate bad debts for 2015, assuming that it used the income statement approach.
2. Suppose that EMC had used the direct write-off method to account for bad debts. Compute the following ($ in millions):
a. The information that would be included in the 2015 year-end The amount of bad debt expense that EMC would include in its 2015 income statement.

Swathmore Clothing Corporation grants its customers 30 days’ credit. The

Swathmore Clothing grants its customers 30 days’ credit. The company uses the allowance method for its uncollectible 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 schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. At the end of 2020, were $574,000 and the allowance account had a credit balance of $54,000. activity for 2021 was as follows:

Beginning balance ……………………$ 574,000
Credit sales ……………………………..2,620,000
Collections ……………………………..(2,483,000)
Write-offs ……………………………………(68,000)
Ending balance ………………………..$ 643,000

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 2021? How would appear in the 2021 balance sheet?

Hogan Company uses the net method of accounting for sales

Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to various groups of buyers.

On August 1, 2021, Hogan factored some on a without recourse basis. Hogan incurred a finance charge.
Hogan also has some notes receivable bearing an appropriate rate of interest. The principal and total interest are due at maturity. The notes were received on October 1, 2021, and mature on September 30, 2022. Hogan’s operating cycle is less than one year.

Required:
1. a. Using the net method, do sales discounts affect the amount recorded as sales revenue and at the time of sale? What is the rationale for the amount recorded as sales under the net method?
b. Using the net method, is there an effect on Hogan’s sales revenues and net income when customers do not take the sales discounts?
2. Do trade discounts affect the amount recorded as sales revenue and Why?
3. Should Hogan decrease to account for the receivables factored on August 1, 2021? Why?
4. Would Hogan classify the interest-bearing notes receivable as current or non-current in its December 31, 2021, balance sheet? Why?

The controller of the Red Wing Corporation is in the

The controller of the Red Wing is in the process of preparing the company’s 2021 financial statements. She is trying to determine the correct balance of cash and cash equivalents to be reported as a current asset in the balance sheet. The following items are being considered:
a. Balances in the company’s accounts at the First National Bank; checking $13,500, savings $22,100.
b. Undeposited customer checks of $5,200.
c. Currency and coins on hand of $580.
d. Savings account at the East Bay Bank with a balance of $400,000. This account is being used to accumulate cash for future plant expansion (in 2023).
e. $20,000 in a checking account at the East Bay Bank. The balance in the account represents a 20% compensating balance for a $100,000 loan with the bank. Red Wing may not withdraw the funds until the loan is due in 2024.
f. U.S. Treasury bills; 2-month bills totaling $15,000, and 7-month bills totaling $20,000.

Required:
1. Determine the correct balance of cash and cash equivalents to be reported in the current asset section of the 2021 balance sheet.
2. For each of the items not included in your answer to requirement 1, explain the correct classification of the item.

Tracy Company, a manufacturer of air conditioners, sold 100 units

Tracy Company, a manufacturer of air conditioners, sold 100 units to Thomas Company on November 17, 2021. The units have a list price of $600 each, but Thomas was given a 30% trade discount. The terms of the sale were 2/10, n/30.

Required:
1. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on November 26, 2021, assuming that the gross method of accounting for cash discounts is used.
2. Prepare the journal entries to record the sale on November 17 (ignore cost of goods) and collection on December 15, 2021, assuming that the gross method of accounting for cash discounts is used.
3. Repeat requirements 1 and 2 assuming that the net method of accounting for cash discounts is used.