Question 8

In preparing a statement of cash flows, cash flows from operating activitiescan be calculated by appropriately adding to or deducting from net income those items in the income statement that DO NOT affect cash.

Explain why this statement is correct and provide two examples (one adding and one deducting) from net income.

Question 9

The normal journal entry for recording bad debt expense under the allowance method?

a. Debit Accounts Receivable, credit Allowance for Doubtful Accounts.

b. Debit Allowance for Doubtful Accounts, credit Bad Debt Expense.

c. Debit Bad Debt Expense, credit Allowance for Doubtful Accounts.

d. Debit Allowance for Doubtful Accounts, credit Accounts Receivable.

Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account

a. has no effect on net income

b. decreases net income

c. increases the allowance for uncollectible accounts

d. has no effect on the allowance for uncollectible accounts

Note: The correct answer has been highlighted for the above two questions.

Assuming the company uses the allowance method, prepare the necessary journal entries for the following two scenarios:

Data:

Current balance in Accounts Receivable is $100,000

Current balance in Allowance for Doubtful Accounts is $5,000

Scenario 1 - The company has now determined that the Allowance for doubtful accounts balance should be 10% of the current balance in Accounts Receivable.

Make the necessary journal entry. Debit Credit

Scenario 2 - The company has determined that the $3,000 receivable balance due from Archer Corp (a customer) should be written-off.

Make the necessary journal entry. Debit Credit

After accounting for the two scenarios above,

What is the balance in the Allowance for Doubtful Accounts?

What is the balance in Accounts Receivable?

What is the NET Accounts Receivable balance?

Question 10

On December 15^th Polaris Co. purchases on account $1.5 million in merchandise. The credit terms are 2/10, n/30. Prepare the journal entry(s) on December 15^th to record the purchase. On December 30^th Polaris Co. pays for their purchase. Record the necessary journal entry(s) on December 30^th.

Note: Assume Polaris Company records their purchases net.

Note: The above transaction is a PURCHASE, NOT A SALE!

Question 11

Ice Cold Co. needed additional cash to run its company. Therefore, on March 1, 2017, Ice Cold Co. issued a note payable to North Star Bank in the amount of $6,900,000, bearing interest at 8%, and payable in three equal annual principal payments of $2,300,000.

Prepare the necessary journal entries for March 1, 2017 and December 31, 2017.

Debit Credit

March 3, 2017

Cash $6,900.000

$6,900,000

December 31, 2017

? $460,000

? $460,000

Note: As of December 31, 2017 (company year-end) the interest owed is $460,000. Show how this amount is calcuated.