Question 1

Multi Media Ltd. completed the following transactions:

• September 14, 2016: Provided services to Inga Corporation on account, $3,000, terms 30 days.
• November 1, 2016: Accepted a one-year, 12% note from Inga Corporation to settle its account.
• December 31, 2016: Accrued interest on the note from Inga Corporation (round to the nearest dollar).
• November 1, 2017: Received amount due from Inga Corporation.

Required:

Record entries for the above transactions.

Question 2

Compute the unknowns for the following transactions dealing with interest on notes receivable. 365 days per year. Round your answers to the nearest dollar.

Principal Rate

Interest

Duration

Interest Value

Maturity

$10,000

10%

120 days

E

G

$25,000

12%

C

$2,515

H

A

6%

180 days

$2,959

I

$50,000

B

60 days

$493

J

$36,000

9%

D

F

$36,710

Question 3

Dunder Mifflin had the following balances in selected accounts at the end of 2015 and 2016.

2015

2016

Cash

$58,000

$45,000

Short-term investments

46,000

39,000

Accounts receivable

54,000

61,000

Allowance for uncollectible accounts

3,500

5,000

Inventory

78,000

98,000

Accounts payable

91,000

102,000

Wages payable

17,000

25,000

Income tax payable

4,500

6,500

Note payable (due 2022)

100,000

100,000

Sales

415,000

525,000

Cost of goods sold

225,000

304,000

The accounts receivable at the end of 2014 were $50,000 and the allowance for uncollectible accounts was $2,500.

Required:

1. Calculate the acid test ratio for 2015 and 2016 for Dunder Mifflin.
2. Calculate the days sales in receivables for 2015 and 2016 for Dunder Mifflin.
3. Determine whether the acid-test ratio improved or deteriorated from 2015 to 2016.
4. Determine whether the collection period increased or decreased from 2015 to 2016.

Question 4

StorageTek Corporation gathered the following information from its accounting records for the year ended December, 31, 2016, prior to adjustment:

• Net credit sales for the year = $1,150,000
• Accounts Receivable (Dec 31, 2016) = $93,000
• Allowance for Uncollectible Accounts, prior to adjustment (Dec 31, 2016) = $6,000 debit balance
• StorageTek Corporation uses the allowance method of accounting for bad debts and estimates bad debts at 3% of net credit sales.

Required:

1. Prepare the adjusting entry on December 31, 2016.
2. Determine the balance in the Allowance for Uncollectible Accounts account after the adjusting entry is recorded.
3. Show how the receivables would be reported on the December 31, 2016, Balance Sheet for Storage Tek Corporation.

Question 5

Assume Deloitte & Touche, the accounting firm, advises Deep Sea Seafood that their financial statements must be changed to confirm with GAAP. At December 31, 2016, Deep Sea Seafood accounts include the following:

Cash

$51,000

Short-term trading investments, at cost

19,000

Accounts receivable

37,000

Inventory

61,000

Prepaid expenses

14,000

Total current assets

$182,000

Accounts payable$62,000Other current liabilities

41,000

Total current liabilities

$103,000

Deloitte & Touche advised Deep Sea Seafood that:

• Cash includes $20,000 that is deposited in a compensating balance account that is tied up until 2018.
• The fair value of the short-term trading investments is $17,000. Deep Sea Seafood purchased the investments a couple of weeks ago.
• Deep Sea Seafood has been using the direct write-off method to account for uncollectible receivables. During 2016, Deep Sea Seafood wrote off bad receivables of $7,000. Deloitte & Touche determines that bad debt expense for the year should be 2.5% of sales revenue, which totaled $600,000 in 2016.
• Deep Sea Seafood reported net income of $92,000 in 2016.

Restate Deep Sea Seafood's current accounts to conform to GAAP.

Compute Deep Sea Seafood's current ratio and acid-test ratio before and after your corrections.

Determine Deep Sea Seafood's correct net income for 2016.