Homework Chapter 7
BE7-1 (L01) Kraft Enterprises owns the following assets at December 31, 2017.
Cash in bank-savings account
68,00
Checking account balance
0
Cash on hand
9,300
Postdated checks
Cash refund due from IRS
31,40
Certificates of deposit (180-day)
0
What amount should be reported as cash?
750
90,000
68,000
9,300
17,000
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Cash in bank-savings account
Cash on hand
Checking account balance
17,000
Amount reported as cash
$94,300
BE7-2 (L02) Restin Co. uses the gross method to record sales made on credit. On June 1, 2017, it
made sales of $50,000 with terms 3/15, n/45. On June 12, 2017, Restin received full payment for
the June 1 sale. Prepare the required journal entries for Restin Co.
Date
1 June
12 June
Account Title and Explanation
Ref
.
Accounts Receivable
Sales Revenue
Cash (50,000 - (50,000 x 0.03) = 48,500)
Sales Discounts
Accounts Receivable
Debit
Credit
50,000
50,000
48,500
1,500
50,000
BE7-3 (L02) Use the information from BE7-2, assuming Restin Co. uses the net method to
account for cash discounts. Prepare the required journal entries for Restin Co.
Account Title and Explanation
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Date
12 June
Accounts Receivable
Sales Revenue
Cash
Accounts Receivable
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1 June
Ref
.
Debit
Credit
48,500
48,500
48,500
48,500
BE7-4 (L02) Roeher Company sold $9,000 of its specialty shelving to Elkins Office Supply Co.
on account. Prepare the entries when (a) Roeher makes the sale, (b) Roeher grants an allowance
of $700 when some of the shelving does not meet exact specifications but still could be sold by
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Elkins, and (c) at year-end; Roeher estimates that an additional $200 in allowances will be
granted to Elkins.
Date
Account Title and Explanation
Ref
.
Accounts Receivable
Sales Revenue
Allowance for Sale Returns and Allowances
Accounts Receivable
Sales Returns and Allowances
Allowances for Sales Returns and Allowances
(a)
(b)
(c)
Debit
Credit
9,000
9,000
700
700
200
200
Date
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BE7-5 (L03) Wilton, Inc. had net sales in 2017 of $1,400,000. At December 31, 2017, before
adjusting entries, the balances in selected accounts were Accounts Receivable $250,000 debit,
and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 8% of its
receivables will prove to be uncollectible, prepare the December 31, 2017, journal entry to
record bad debt expense.
Account Title and Explanation
Ref
.
Bad Debt Expense ((250,000 x 0.08) - 2,400 = 17,600)
Allowance for Doubtful Account
Debit
Credit
17,600
17,600
E7-1 (L01) EXCEL (Determining Cash Balance) The controller for Clint Eastwood Co. is
attempting to determine the amount of cash to be reported on its December 31, 2017, balance
sheet. The following information is provided.
1. Commercial savings account of $600,000 and a commercial checking account balance of
$900,000 are held at First National Bank of Yojimbo.
2. Money market fund account held at Volonte Co. (a mutual fund organization) permits
Eastwood to write checks on this balance, $5,000,000.
3. Travel advances of $180,000 for executive travel for the first quarter of next year
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(employee to reimburse through salary reduction).
4. A separate cash fund in the amount of $1,500,000 is restricted for the retirement of long-
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term debt.
5. Petty cash fund of $1,000.
6. An I.O.U. from Marianne Koch, a company customer, in the amount of $190,000.
7. A bank overdraft of $110,000 has occurred at one of the banks the company uses to
deposit its cash receipts. At the present time, the company has no deposits at this bank.
8. The company has two certificates of deposit, each totaling $500,000. These CDs have a
maturity of 120 days.
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9. Eastwood has received a check that is dated January 12, 2018, in the amount of $125,000.
10. Eastwood has agreed to maintain a cash balance of $500,000 at all times at First National
Bank of Yojimbo to ensure future credit availability.
11. Eastwood has purchased $2,100,000 of commercial paper of Sergio Leone Co. which is
due in 60 days.
12. Currency and coin on hand amounted to $7,700.
Instructions:
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(a) Compute the amount of cash to be reported on Eastwood Co.’s balance sheet at
December 31, 2017.
 (1) Commercial savings account at First National Bank of Yojimbo in the amount
of $600,000
 (1) Commercial checking account at First National Bank of Yojimbo in the
amount of $900,000
 (2) Money Market Fund at Volonte Co. in the amount of $5,000,000
 (5) Petty Cash in the amount of $1,000
 (11) Commercial Paper of Sergio Leone Co. in the amount of $2,100,000
 (12) Currency and Coin on hand in the amount of $7,700
Total cash reported on December 31, 2017 balance sheet is $8,608,700.
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(b) Indicate the proper reporting for items that are not reported as cash on the December 31,
2017, balance sheet.
 (3) Travel advances in the amount of $180,000 from employees should be
reported as a receivable
 (4) Cash restricted in the amount of $1,500,000 for the retirement long-term debt
should be reported as a noncurrent asset
 (6) IOU from Marianne Koch should be reported as an account receivable in the
amount of $190,000
 (7) Bank overdraft in the amount of $110,000 should be reported as a current
liability
 (8) Certificates of Deposits in the amount of $500,000 should be classified as
temporary investments
 (9) Postdated check in the amount of $125,000 should be reported as an accounts
receivable
 Does not affect the cash balance of the company. A disclosure in the notes section
should be placed to indicate the arrangement and the amounts involved.
E7-2 (L01) (Determining Cash Balance) Presented below are a number of independent
situations.
Instructions:
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For each individual situation, determine the amount that should be reported as cash. If the item(s)
is not reported as cash, explain the rationale.
1. Checking account balance $925,000; certificate of deposit $1,400,000; cash advance to
subsidiary of $980,000; utility deposit paid to gas company $180.
 The amount to be reported as cash is the balance of $925,000 in the checking
account. The certificate of deposit in the amount of $1,400,000 should be reported
as a temporary investment. The cash advance to subsidiary in the amount of
$980,000 should be reported as a non-trade receivable. The utility deposit in the
amount of $180 should be identified as a non-trade receivable from the gas
company.
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2. Checking account balance $600,000; an overdraft in special checking account at same
bank as normal checking account of $17,000; cash held in a bond sinking fund $200,000;
petty cash fund $300; coins and currency on hand $1,350.
 The amount to be reported as cash is $584,650, which is the checking account
balance of $600,000 minus the overdraft of $17,000 plus the petty cash of $300
and the coins and currency of $1,350. Cash held in a bonding sinking fund of
$200,000 is restricted and should be reported as noncurrent.
3. Checking account balance $590,000; postdated check from customer $11,000; cash
restricted due to maintaining compensating balance requirement of $100,000; certified
check from customer $9,800; postage stamps on hand $620.
 The amount to be reported as cash is $599,800, which is the checking account
balance of $590,000 plus the certified check from customer in the amount of
$9,800. The postdated check of $11,000 should be reported as an account
receivable. Postage stamps should be reported as part of supplies. Cash restricted
due to compensating balance should be described in notes section stating the
arrangement and amounts.
4. Checking account balance at bank $37,000; money market balance at mutual fund (has
checking privileges) $48,000; NSF check received from customer $800.
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 The amount to be reported as cash is $85,000, which is the checking account
balance of $37,000 plus the Money Market Mutual Fund of $48,000. The NSF
check received from a customer in the amount of $800 should be reported as an
account receivable.
5. Checking account balance $700,000; cash restricted for future plant expansion $500,000;
short-term Treasury bills $180,000; cash advance received from customer $900 (not
included in checking account balance); cash advance of $7,000 to company executive,
payable on demand; refundable deposit of $26,000 paid to federal government to
guarantee performance on construction contract.
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 The amount to be reported as cash is $700,900, which is the checking account
balance of $700,000 plus the cash advance received from customer in the amount
of $900. Short-term Treasury Bills in the amount of $180,000 should be reported
as a temporary investment. Cash advance from customer of $900 should also be
reported as a liability. Cash advance from customer of $7,000 to the company
executive should be reported as a receivable. Refundable deposit of $26,000 paid
to Federal Government to guarantee performance on construction contract should
be reported as a receivable. Cash restricted for future plant expansion in the
amount of $500,000 should be reposted as a noncurrent asset.
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