Chapter 5: Cash to Accrual
CHAPTER 5: CASH TO ACCRUAL
PROBLEM 5-1 (Computation of Sales under cash basis)
Accounts receivable/Notes receivable trade/Advances from customers
Beg. balance – AR
200,000
180,000 Balance end - AR
Beg. balance – NR
240,000
170,000 Balance end - NR
Balance end - Advances
40,000
55,000 Beg. balance - Advances
Sales on account
600,000
4,000 Sales ret. and allowance
Recoveries
2,000 Sales discounts
Collections including
666,000 recoveries
3,000 Write-off
Total
1,080,000 1,080,000
Suggested answer: A
PROBLEM 5-2 Computation of Bad Debts
Allowance for bad debts
Ending balance
Write-off
40,000
8,000
25,000
21,000
2,000
Total
48,000
48,000
Beginning balance
Bad debts expense
Recoveries
Suggested answer: C
PROBLEM 5-3 (Computation of Purchases)
Accounts Payable / Notes Payable / Advances to Suppliers
Payments
800,000
200,000 Beg. balance - AP
Purchase ret. and allow.
6,000
400,000 Beg. balance - NP
Purchase discount
3,000
68,000 Balance end - Advances
Beg. balance - Advances
50,000
651,000 Purchases (gross)
Balance end – AP
250,000
Balance end – NP
210,000
Total
1,319,000 1,319,000
Suggested answer: A
1
Chapter 5: Cash to Accrual
PROBLEM 5-4 Computation of Cost of Sales
Accounts Payable (AP) / Notes Payable (NP)
Payments
800,000
200,000 Beg. balance - AP
Purchase ret. and allow.
6,000
- Beg. balance - NP
Purchase discount
3,000
859,000 Purchases (gross)
Balance end - AP
250,000
Balance end - NP
Total
1,059,000 1,059,000
Beginning balance
Net purchases
Total
Merchandise Inventory
400,000
210,000 Ending balance
860,000 1,050,000 Cost of sales
1,260,000 1,260,000
Computation of the net purchases:
Gross purchases on account
Add cash purchases
Total
Less: Purchase returns and allowances
Purchase discount
Net purchases
859,000
10,000
869,000
6,000
3,000
860,000
Suggested answer: B
PROBLEM 5-5 (Computation of Income Other Than Sales)
Rent Receivable/Unearned rent income
Beg. Balance - Rent
Receivable
Balance end - Unearned
rent income
Rent Income (squeeze)
Total
200,000
250,000
30,000
90,000
770,000
660,000
1,000,000
1,000,000
Balance end - Rent
Receivable
Beg. Balance – Unearned
rent income
Collections
Suggested answer: B
PROBLEM 5-6 (Computation of Expenses in General)
Prepaid Rent/Rent payable
Beg. Balance - Prepaid
Salaries
Balance end - Accrued
Salaries
Payments
Total
200,000
250,000
65,000
80,000
850,000
785,000
1,115,000
1,115,000
2
Balance end - Prepaid
Rent
Beg. Balance – Rent
payable
Rent Expense
Chapter 5: Cash to Accrual
Suggested answer: C
PROBLEM 5-7 (Computation of Cost of Machine Acquired and Sold)
Question No. 1
Carrying amount of equipment sold
Add: Accumulated depreciation
Cost
Question No. 2
25,000
15,000
40,000
Equipment
Beg. Balance
Cost of PPE acquired
(squeeze)
100,000
60,000
120,000
40,000
Total
160,000
160,000
Balance end
Cost of PPE disposed
Accumulated depreciation
Balance end
Accumulated depreciation
of PPE disposed
18,000
Total
33,000
15,000
18,000
Beg. Balance
Depreciation expense
15,000
33,000
SUMMARY OF ANSWERS:
1. D
2. A
PROBLEM 5-8
Question No. 1
Prepaid Insurance
Beg. Balance
Payments
7,500
41,500
6,000
43,000
Total
49,000
49,000
Balance end
Expenses (squeeze)
Question No. 2
Interest Receivable
Beg. Balance
Income (squeeze)
14,500
112,700
3,700
123,500
Total
127,200
127,200
3
Balance end
Collections
Chapter 5: Cash to Accrual
Question No. 3
Salaries payable
Balance end
Payments
61,500
481,000
53,000
489,500
Total
542,500
542,500
Question No. 4
Beg. Balance
Expenses
Accounts receivable trade
Beg. Balance
Sales
415,000
1,980,000
550,000
1,845,000
Total
2,395,000
2,395,000
Balance end
Collections (squeeze)
Question No. 5
Accounts receivable trade
Beg. Balance
Sales
415,000
1,980,000
550,000
1,820,000
25,000
Total
2,395,000
2,395,000
Balance end
Collections (squeeze)
Write-off
Question No. 6
Accounts receivable trade
Beg. Balance
Sales
Recoveries
415,000
1,980,000
20,000
550,000
1,840,000
25,000
Total
2,415,000
2,415,000
SUMMARY OF ANSWERS:
1. C
2. B
3. C
4.
A
5.
Balance end
Collections (squeeze)
Write-off
A
6.
B
PROBLEM 5-9
Question No. 1
Accounts/Notes receivable trade
Decrease in A/R
Sales on account
(squeeze)
100,000
4,260,000
100,000
10,000
4,200,000
30,000
20,000
Total
4,360,000
4,360,000
4
Increase in N/R
Write-off
Collections
Sales discounts
Sales ret. and allow.
Chapter 5: Cash to Accrual
Question No. 2
Accounts payable
Cash paid to creditors
2,800,000
200,000
Purchase discounts
40,000
2,650,000
Purchase returns
10,000
Total
2,850,000
Decrease in Accounts
payable
Gross
purchases
(squeeze)
2,850,000
Question No. 3
Merchandise inventory
Decrease in Inventory
Gross purchases
25,000
2,650,000
40,000
10,000
2,625,000
Total
2,675,000
2,675,000
Purchase discounts
Purchase returns
Cost of sales (squeeze)
Question No. 4
Rental receivable/Unearned Rent Income
Rental
(squeeze)
revenue
454,000
14,000
40,000
400,000
Total
454,000
Increase
in
Rental
receivable
Decrease in Unearned
rental
Collections from tenants
454,000
Question No. 5
Prepaid interest/Interest Payable
Decrease in
interest
Increase in
payable
Interest paid
Total
Prepaid
5,500
Interest
8,500
114,000
Interest
(squeeze)
100,000
114,000
SUMMARY OF ANSWERS:
1. D
2. D
3. A
4.
114,000
A
5
5.
D
expense
Chapter 5: Cash to Accrual
PROBLEM 5-10
Question No. 1
Accounts Receivable/Notes receivable trade
Beg. Balance – A/R
Beg. Balance – N/R
Sales on account
(squeeze)
200,000
300,000
1,000,000
250,000
100,000
20,000
10,000
1,120,000
Total
1,500,000
1,500,000
Bal. end – A/R
Bal. end – N/R
Sales ret. and allow.
Sales discount
Collections
Question No. 2
Accounts payable/Notes payable
Balance end – A/P
Balance end – N/P
Purchase returns
allow
Purchase discount
Payments
and
Total
25,000
75,000
40,000
50,000
100,000
650,000
Beg. Balance – A/P
Beg. Balance – N/P
Gross
purchases
(squeeze)
10,000
650,000
800,000
800,000
Gross purchases
Less: Purchase ret and allow
Purchase discounts
Net Purchases
650,000
40,000
10,000
Question No. 3
Sales
Less: Sales ret and allow
Sales discounts
Net Sales
Less: Cost of Sales
Merchandise inventory beg.
Add: Net Purchases
Purchases
Add: Freight-in
Gross Purchases
Less: Purch. Ret and allow
Purchase discounts
Total goods available for sale
Less: Merchandise inventory, end
Gross Income / Gross Profit
50,000
600,000
20,000
10,000
1,000,000
30,000
970,000
200,000
600,000
650,000
40,000
10,000
6
600,000
800,000
100,000
700,000
270,000
Chapter 5: Cash to Accrual
Question No. 4
Prepaid/Accrued Salaries
Beg. Balance -Prepaid
Salaries
Balance end - Accrued
Salaries
Payments
100,000
125,000
50,000
75,000
350,000
300,000
Total
500,000
500,000
Question No. 5
Balance end - Prepaid
Salaries
Beg. Balance - Accrued
Salaries
Salaries
expense
(squeeze)
Accrued rent/Unearned rent
Beg. Balance - Accrued
rent
Balance end - Unearned
rent
Rent income (squeeze)
Total
SUMMARY OF ANSWERS:
1. A
2. B
3. C
70,000
40,000
40,000
80,000
490,000
300,000
600,000
600,000
4.
B
5.
Balance end - Accrued
rent
Beg. Balance - Unearned
rent
Collection of rent
B
PROBLEM 5-11
Question No. 1
Accounts receivable trade
Beg. Balance
Recoveries
Sales (squeeze)
200,000
8,000
1,570,000
300,000
20,000
1,408,000
50,000
Total
Sales
Less: Sales discount
Net Sales
1,778,000
Balance end
Sales discounts
Collections
including
recoveries (1,498,00080,000+20,00-30,000)
Accounts written-off
1,778,000
1,570,000
20,000
1,550,000
Question No. 2
Accounts payable trade
Payment (1,210,00020,000+30,000)
Purchase ret. and allow.
Balance end
1,210,000
10,000
100,000
7
150,000
1,170,000
Beg. Balance
Purchases (squeeze)
Chapter 5: Cash to Accrual
Total
1,320,000
Purchases
Less: Purchases discount
Net Purchases
1,320,000
1,170,000
10,000
1,160,000
Question No. 3
Merchandise inventory
Beg. Balance
Net
Purchases
(1,170,000-10,000)
380,000
1,160,000
330,000
1,210,000
Total
1,540,000
1,540,000
Balance end
Cost of Sales (squeeze)
Question No. 4
Rent Receivable
Beg. Balance
Rent income (squeeze)
70,000
130,000
80,000
120,000
Total
200,000
200,000
Balance end
Collections
Question No. 5
Allowance for Doubtful accounts
Accounts written off
Balance end
50,000
30,000
20,000
52,000
8,000
Total
80,000
SUMMARY OF ANSWERS:
1. B
2. B
3. B
4.
Beg. Balance
Doubtful
account
expense(squeeze)
Recoveries
80,000
A
5.
A
PROBLEM 5-12 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance
Professional
(squeeze)
Total
fees
500,000
5,250,000
750,000
5,000,000
5,750,000
5,750,000
8
Balance end
Collections
Chapter 5: Cash to Accrual
Question No. 2
Professional Fees (See No. 1)
Less: Rent expense (1.2M +100,000)
Supplies expense
(800,000+300,000-250,000)
Other operating expense
Interest expense (1M x 12% x 9/12)
Depreciation expense (2,500,000/10)
Net income
Question No. 3
Cash
Accounts Receivable
Supplies
Total Current Assets
1,300,000
850,000
750,000
90,000
250,000
5,250,000
3,240,000
2,010,000
1,500,000
750,000
250,000
2,500,000
Question No. 4
Furniture and fixtures
Less: Accumulated Depreciation
(125,000 + 250,000)
Total Noncurrent Assets
375,000
2,125,000
Question No. 5
Total current assets (See No. 3)
Total noncurrent assets (See No. 4)
Total Assets
2,500,000
2,125,000
4,625,000
2,500,000
Question No. 6
Notes Payable
Accrued rent
Accrued interest on notes payable
(1,000,000 x 12% x 9/12)
Total Current Liabilities
1,000,000
100,000
90,000
1,190,000
Question No. 7
Total assets (See No. 5)
Less: Total liabilities (See No. 6) – all are
current
Total Owner’s Equity
1,190,000
3,435,000
SUMMARY OF ANSWERS:
1. B
2. B
3. A
5.
4.
A
9
4,625,000
A
6.
C
7.
B
Chapter 5: Cash to Accrual
PROBLEM 5-13
Question No. 1
Accounts receivable trade
Beg. Balance
Sales on account
(squeeze)
124,000
1,535,000
146,000
13,000
1,500,000
Total
1,659,000
1,659,000
Balance end
Sales discount
Collections
Sales on account
Add: Cash sales
Total sales
1,535,000
160,000
1,695,000
Question No. 2
Gross sales (see No. 1)
Less: Sales discount
Net sales
1,695,000
13,000
1,682,000
Question No. 3
Accounts Payable
Payments
Balance end
1,206,000
410,000
382,000
1,234,000
Total
1,616,000
1,616,000
Purchases on account
Add: Cash purchases
Total Purchases
Beg. Balance
Purchases (squeeze)
1,234,000
120,000
1,354,000
Question No. 4
Merchandise Inventory
Beg. Balance
Net purchases
186,000
1,354,000
190,000
1,350,000
Total
1,540,000
1,540,000
Question No. 5
Balance end
Cost of sales (squeeze)
Prepaid G&A/Accrued G&A
Beg. Balance - Prepaid
Interest
Balance end – Accrued
Interest
Payments
Total
9,600
8,400
9,000
7,000
204,000
207,200
222,600
222,600
10
Balance end - Prepaid
Interest
Beg. Balance – Accrued
Interest
Expenses
Chapter 5: Cash to Accrual
Question No. 6
General and administrative expense (see No. 5)
Depreciation expense
Warranty expense
Total operating expense
207,200
84,000
6,400
297,600
Question No. 7
Selling price of land
Less: Book value of land
Gain on sale of land
20,000
16,000
4,000
Question No. 8
Selling Price
Less Book value
Cost
Less: Accumulated depreciation
Gain on sale of warehouse equipment
12,000
25,000
16,000
Question No. 9
Selling Price
Less: Book value
Cost
Less: Accumulated depreciation
Gain on sale of boiler
42,000
48,000
20,000
Question No. 10
Net Sales
Less: Cost of Sales
Gross Profit
Less: Operating expenses
Gain on sale (14,000+3,000+4,000)
Net income
SUMMARY OF ANSWERS:
1. B
2. C
3. D
6. A
7. A
8. C
9,000
3,000
4.
9.
A
B
28,000
14,000
1,682,000
1,350,000
332,000
297,600
21,000
55,400
5.
10.
B
A
PROBLEM 5-14 Comprehensive
Question No. 1
Accounts receivable trade
Beg. Balance
Sales (squeeze)
150,000
800,000
200,000
10,000
740,000
Total
950,000
950,000
11
Balance end
Sales returns
Collections
Chapter 5: Cash to Accrual
Question No. 2
Sales on account
Add: Cash sales
Total sales
Less: Sales returns and allowances
Net sales
Less: Cost of sales (squeeze)
Gross profit (200,000/40%)
800,000
100,000
900,000
10,000
890,000
390,000
500,000
Merchandise inventory
Beg. Balance
Net Purchases (squeeze)
190,000
420,000
220,000
390,000
Total
610,000
610,000
Balance end
Cost of Sales
Question No. 3
Accounts Payable trade
Payments (squeeze)
470,000
230,000
Purchase returns and
allowances
Balance end – Accounts
payable
8,000
428,000
Total
Beg. Balance - Accounts
payable
Gross
purchases
(420,000+8,000)
180,000
658,000
658,000
Question No. 4
Total payment of Accounts payable and admin expenses
Less: Payment of Accounts payable
Payment of admin expenses
Question No. 5
Payment of admin expenses
Divided by: Percentage of cash expenses to total admin
expense
Total admin expenses
Add: Selling expenses
Total selling and administrative expense
Question No. 6
Total administrative expenses
Less: Payment of administrative expense
Non-cash administrative expenses
Less: Depreciation for building
(440,000 x 60% x 5% x 9/12)
12
518,000
470,000
48,000
48,000
80%
60,000
200,000
260,000
60,000
48,000
12,000
9,000
Chapter 5: Cash to Accrual
Depreciation for furniture and fixtures
Divided by: Number of months used over 12 months
Annual depreciation
Divided by: Depreciation rate
Cost of Furniture and Fixtures (no residual value)
SUMMARY OF ANSWERS:
1. A
2. A
3.
B
4.
A
3,000
6/12
6,000
10%
60,000
5.
C
6.
PROBLEM 5-15
Question No. 1
Cash Receipts:
From customers
From issue of ordinary shares
From bank loan
Cash disbursements:
Purchase of inventory
Rent
Salaries
Utilities
Insurance
Purchase of equipment and furniture
Cash
360,000
100,000
100,000
300,000
15,000
30,000
5,000
3,000
40,000
Question Nos. 2 and 3
Current assets
Cash
Inventories
Prepaid rent (1,000 x 3)
Total current assets (No. 2)
Noncurrent assets
Property, plant and equipment
Less accumulated depreciation
Total assets (No. 3)
560,000
393,000
167,000
167,000
100,000
3,000
270,000
40,000
4,000
Question No. 4
Accounts payable
Utilities payable
Loans payable
Interest on loans payable (100,000 x 12% x 9/12)
Total current liabilities
13
36,000
306,000
20,000
1,000
100,000
9,000
130,000
A
Chapter 5: Cash to Accrual
Question No. 5
Ordinary shares
Retained earnings (net income)
Shareholders’ equity
SUMMARY OF ANSWERS:
1. B
2. B
3.
100,000
176,000
176,000
A
4.
D
5.
A
PROBLEM 5-16
Question No. 1
Notes receivable – December 31
Accounts receivable – December 31
Collection of notes and accounts
Note receivable discounted
Total
Less: Notes receivable – January 1
Accounts receivable – January 1
Sales on account
210,000
950,000
2,950,000
200,000
4,310,000
200,000
740,000
Question No. 2
Notes payable – December 31
Less: Note payable – bank
Notes payable – trade
Accounts payable – December 31
Payment of notes and accounts
Total
Less: Notes payable – January 1
Accounts payable – January 1
Purchases on account
750,000
600,000
940,000
3,370,000
580,000
300,000
280,000
750,000
2,100,000
3,130,000
1,350,000
1,780,000
Question No. 3
Equipment – January 1
Add: Acquisition
Total
Less: Equipment – December 31
Depreciation
1,000,000
280,000
1,280,000
1,200,000
80,000
Question No. 4
Interest accrued on note issued to bank (300,000 x 12% x 10/12)
Interest expense
30,000
30,000
Question No. 5
Volks Company
Income Statement
Year ended December 31, 2016
14
Chapter 5: Cash to Accrual
Sales
Cost of sales:
Inventory – January 1
Purchases
Goods available for sale
Less: Inventory – December 31
Gross income
Expenses:
*Expenses
Depreciation
**Loss on sale of investment
***Loss on note receivable discounted
Interest expense
Net income
3,370,000
1,600,000
1,780,000
3,380,000
1,500,000
1,880,000
1,490,000
820,000
80,000
50,000
10,000
30,000
*Expenses paid
Add: Prepaid expenses – January 1
Accrued expenses – December 31
Total
Less: Prepaid expenses – December 31
Accrued expenses – January 1
Expenses
990,000
500,000
790,000
120,000
50,000
960,000
100,000
40,000 140,000
820,000
**Sales price
Less: Cost of investment sold
Loss on sale of investment
250,000
300,000
( 50,000)
***Loss on note receivable discounted (200,000 – 190,000)
10,000
OR
Retained earnings – December 31
Add: Dividends
Total
Less: Retained earnings – January 1
Net income
SUMMARY OF ANSWERS:
1. A
2. A
3.
C
600,000
400,000
1,000,000
500,000
500,000
4.
15
C
5.
D