Chapter 8 Accounting for Receivables BIAL PROBLEM: KATE'S CARE SERIAL PRO This is a continuation of the serial Problem: Kate's Cards from Chapters 1 through 7.) (Note: This is a continuatio SP8. Kat Kate has put a lot of time and effort into stre and entort into streamlining the process to design and produce a greet- ing card. She has documented the entire process in a QuickTime video she produced on her iMac. The video takes the viewer through the sten.hu trougn the step-by-step process of selecting hardware and software, and shows how to design and produce the card. Kate has met many people who would like to get into the production of greeting cards, but are overwhelmed by the process. Kate has decided to sell the entire package (hardware, software, and video tutorial) to aspiring card producers. The cost of the entire package to Kate is $4,500 and she plans to mark it up by $500 and sell it for $5,000. John Stevens, an individual Kate met recently at a greeting card conference, would like to buy the pack- age from Kate. Unfortunately, John does not have this much cash and would like for Kate to extend credit. Kate believes that many of her customers will not be able to pay cash and, therefore, she will need to find some way to provide financing. One option she is exploring is to accept credit cards. She learned that the credit card provider charges a 2.5 percent fee and provides immediate cash upon receiving the sales receipts. Kate would like you to answer the following questions: 1. What are the advantages and disadvantages of offering credit?! 2. What precautions should she take before offering credit to people like John?! 3. If Kate grants credit to John, the terms will be 2/10, n/30. Assuming the payment is made during the 10-day discount period, what would be the journal entry to record the sale and then the subsequent payment? 4. If instead of paying early, John pays in 25 days, what would be the journal entry to record the payment? 3. Rather than providing the financing directly, assume that Kate decides to allow the use of credit cards. Further, assume that during the month there is $15,000 worth of credit card sales. Provide the journal entry to record the sales, along with the associated credit card fee. The cost of the goods sold total $13,500. SERIAL PROBLEM: KATE'S CARDS (Note: This is a continuation of the Serial Problem: Kate's Cards from Chapters 1 through 8 SP9. he will need to purchase is much faster if het running out of free space k drive crashes and the Kate's business is growing faster than she had predicted. In order to keep up, she will neer improved computer hardware. Kate has learned that the software that she uses runs much fas computer has a lot of memory. In addition, her files are very large and she is running out of on her existing hard drive. Finally, Kate has heard horror stories about hard disk drive crashes possibility that all of her work will be destroyed. In order to protect against this possibility, she decided to invest in a large commercial grade backup system The cost of the memory and hard disk drive upgrade to Kate's computer will total $420. The of the backup system is $3,000. The memory and hard disk upgrade will increase the productiviti Kate's current computer; however, it will not extend its useful life. The backup system is expected have a five-year useful life. Kate would like to know the following items: 1. How should the expenditure for the memory and hard disk drive upgrade be recorded? Provide the journal entry. 2. Kate's current computer has 42 months remaining for depreciation purposes (under the straight-line method). The original cost of the computer was $4,800 and had a four-year useful life. The current monthly depreciation is $100. How will this current expenditure affect the monthly depreciation, 3. Kate would like to know how depreciation on the backup system under both the straight- method and the double-declining method differ. She is assigning a $500 salvage value to the eye ment. Construct a table showing yearly depreciation under both methods