Credit Sales, Accounts Receivables, and Shareholders Equity

1. JAC Company sells sports equipment on credit. It provides for uncollectible accounts using a percentage of 6% of Accounts Receivable on December 31, 20X2 to determine the desired balance under the allowance method. On January 1, 20X2, the following selected account balances existed: DR. CR. Accounts Receivable Allowance for Uncollectible Accounts $40,000 2,400

During 20X2, the following summary transactions occurred: a. Sales on account were $450,000. b. Accounts of Wingert Company, written off on September 1, 20X2, as uncollectible, totaled $6,000. c. Collections of customers on account were $350,000. Required: Prepare the general journal entries to write off the accounts receivable determined to be uncollectible during 20X2, and the adjusting entry for bad debts as of December 31, 20X2.
2. Direct Rentals has many accounts receivable. Direct Rentals' balance sheet as of December 31, 20X2, showed Accounts Receivable of $36,000 and an Allowance for Uncollectible Accounts of $3,400 credit. In early 20X3, write-offs of customer accounts of $2,800 were made. In late 20X3, a customer named Jeremy, whose $1,000 debt had been written off earlier, won a $1 million promotion cash prize. He immediately remitted $1,000 to Direct Rentals. Prepare the journal entries for the a. $2,800 write-off in early 20X3. b. receipt from Jeremy in late 20X3.

3.

Sequential, Inc. has the following information available as of December 31, 20X3: Total Accounts 1-30 31-60 61-90 Over 90 Receivable Days Days Days Days $60,000 $46,500 $7,400 $3,700 $2,400 Total credit sales for the year ended December 31, 20X3, were $825,000. The balance in the Allowance for Uncollectible Accounts at December 31, 20X3, is a $500 debit. The estimated bad debts percentages are as follows: as a percentage of credit sales 1% as a percentage of ending accounts receivable 10% as a percentage of aging accounts receivable: 1-30 days 3% 31-60 days 15% 61-90 days 35% Over 90 days 75% Given the previous information, prepare the journal entry on December 31, 20X3, to estimate bad debts under the allowance method using the a. percentage of credit sales method. b. percentage of ending accounts receivable method. c. aging of accounts receivable method.

Page 1 of 4

4.

In its first year of operations, 20X2, Flow Crafts, Inc., had credit sales of $420,000 to many different customers. Of this amount, P. Walker purchased $400 and J. Jocke purchased $180 on account. During the year, cash collections of $389,000 were made, of which P. Walker paid $360 and J. Jocke paid $60. At the end of 20X2, bad debts expense was estimated to be 5% of ending accounts receivable. At December 31, 20X2, the Allowance for Uncollectible Accounts is $0. On February 23, 20X3, the balance in J. Jocke's account was written off as uncollectible.

Prepare the appropriate journal entry on the books of Flow Crafts, Inc. for a. the $420,000 in credit sales. b. the collection of $389,000 from credit customers. c. the estimation of bad debts expense. d. the write-off of J. Jocke's account.

5.

Record the following entries in the books of the Winters Corporation:

a. b. c. d. e. f. Issued 2,000 shares of common stock for $25 cash per share. The common shares have a $20 par value. Issued a 10% common stock dividend. At the time of issuance there were 200,000 shares outstanding; each share was currently trading on the market for $26 per share. Repurchased 700 shares of common stock (treasury shares) paying $9,000. Issued 500 shares of preferred stock for $60 per share. The preferred stock has a $40 par value. Declared a cash dividend to common shareholders totaling $300,000. Paid cash dividend declared in (e) above.

6.

Florenza Establishment had 2,500,000 shares of common stock authorized. Shares issued were 1,050,000. There were 50,000 shares in treasury.

a. How many shares have been sold to shareholders? b. How many shares are outstanding? c. How many shares are unissued? d. If the company declared a $2.00 per share cash dividend on January 1, 20X4, for those of record on January 15, 20X4, payable on January 31, 20X4, prepare the journal entry for each of those dates assuming there were no changes over that period in the number of shares authorized, issued, or outstanding. 7. The stockholders' equity section of the balance sheet for Alaska Outfitters' at December 31, 2X03 follows: $ 20,000 10,000 80,000 110,000 10,000 $ ?

Common stock, $2 par, 25,000 shares authorized Additional paid-in capital Retained earnings Total contributed capital and retained earnings Less: Treasury stock, 1,000 shares at cost Total stockholders' equity

1. ________ How many shares of common stock are issued? 2. ________ How many shares of common stock are outstanding? 3. ________ How many shares of common stock will receive dividends if dividends are declared? 4. ________ What is the cost of the treasury stock per share? 5. ________ What is the value of total stockholders equity? 6. ________ Suppose Alaska Outfitters issues 10,000 additional shares of common stock and receives $50,000. What is the journal entry to record the additional issuance of stock?

Page 2 of 4

1.

2. 3. 4. 5.

Hortel, Inc., had the following transactions during 2X03, its first year of operations. For each transaction, determine the effect each transaction had on the various stockholders' equity accounts by placing a plus sign (+), a minus sign (-), or an X in each column. Additional Common paid-in Retained Dividends stock capital earnings payable Cash Hortel issued 2,500 shares above par for cash Hortel declared dividends The date of record for dividends Hortel paid dividends Hortel authorized 800 additional shares 9. For each of the following items, state whether its effect will be to increase, decrease, or have no change in total stockholders' equity. Issue common stock at a price greater than par value Issue common stock at par value Issue preferred stock at a price greater than par value Issue preferred stock at par value Declare the current year preferred stock dividend Pay the declared dividend in e. above Not declaring any dividends on cumulative preferred stock, thus having dividends in arrears Declaring dividends in arrears for cumulative preferred stock Paying for the dividends in arrears declared in h. above Having a company call all callable preferred stock

8.

a) b) c) d) e) f) g) h) i) j)

10. Boardman Pet Supplies began operations on January 1, 20X3, and issued preferred and common stock. The stockholders' equity section of the Boardman Pet Supplies's balance sheet immediately after the issuance of the preferred and common stock was as follows: Preferred stock, $100 par, 9%, 100,000 shares authorized, 55,000 shares issued and outstanding $ 5,500,000 Common stock, $2 par, 2,000,000 shares authorized, 1,200,000 shares issued and outstanding 2,400,000 Additional paid-in capital, preferred 110,000 Additional paid-in capital, common 19,200,000 Retained earnings 0 Total stockholders' equity $27,210,000 Dividend payments were as follows: 20X3 $0 20X4 $0 20X5 $1,980,000 20X6 $2,200,000 No additional shares of preferred or common stock were issued after January 1, 20X3, nor did the company ever have treasury stock. Assume there was sufficient Retained Earnings to declare dividends in each year. How would the dividends be distributed for 20X3 through 20X6 between the preferred stock and the common stock if a. the preferred stock were cumulative? b. the preferred stock were noncumulative?

Page 3 of 4

11. Caston Company had net income of $5,000,000 for the year ended December 31, 2X10. The stockholders' equity section of the Caston Company at December 31, 2X10 and 20X9, is as follows: Caston Company Stockholders' Equity Section of the Balance Sheet December 31, 2X10 and 20X9 12/31/2X10 11% Preferred stock, $100 par, noncumulative, 75,000 shares authorized; 20,000 shares issued and outstanding Common stock, $1.25 par, 4,000,000 shares authorized; 1,100,000 and 1,050,000 shares issued Additional paid-in capital-preferred Additional paid-in capital-common Total paid-in capital Retained earnings Total paid-in capital and retained earnings Treasury stock, 12,000 and 10,000 shares of common stock Total stockholders' equity 12/31/2X09

$ 2,000,000

$ 2,000,000

1,375,000 100,000 15,200,000 $18,675,000 17,900,000 $36,575,000 (180,000) $36,395,000

1,312,500 100,000 14,437,500 $17,850,000 14,600,000 $32,450,000 (150,000) $32,300,000

Determine a. the book value per share of common stock at the end of 2X10. b. the rate of return on common equity for 2X10. c. the amount of cash dividends on common stock declared during 2X10.

Page 4 of 4