Badger recorded $500,000 of net sales for the year of which 2% is estimated to be uncollectible.

MGMT 210 6-5 Assignment Homework 6

Brief Exercise 7-1 Accounting for Bad Debts

Badger recorded $500,000 of net sales for the year of which 2% is estimated to be uncollectible. Identify and analyze the adjustment required at the end of the year to record bad debts.


Brief Exercise 7-3 Accounting for Notes Receivable

On November 1, 2014, Gopher received a $50,000, 6%, 90-day promissory note. Identify and analyze the adjustment required on December 31, the end of the company’s fiscal year.



Exercise 9-2 Current Liabilities

The following items represent liabilities on a firm’s balance sheet:

a. An amount of money owed to a supplier based on the terms 2/20, n/40, for which no note was executed.

b. An amount of money owed to a creditor on a note due April 30, 2015.

c. An amount of money owed to a creditor on a note due August 15, 2016.

d. An amount of money owed to employees for work performed during the last week in December.

e. An amount of money owed to a bank for the use of borrowed funds due on March 1, 2015.

f. An amount of money owed to a creditor as an annual installment payment on a ten-year note.

g. An amount of money owed to the federal government based on the company’s annual income.



Required

1. For each item, state whether it should be classified as a current liability on the December 31, 2014, balance sheet. Assume that the operating cycle is shorter than one year. If the item should not be classified as a current liability, indicate where on the balance sheet it should be presented.

2. For each item identified as a current liability in part (1), state the account title that is normally used to report the item on the balance sheet.

3. Why would an investor or a creditor be interested in whether an item is a current or a longterm liability?



Exercise 9-5 Current Liabilities and Ratios

Several accounts that appeared on Kruse’s 2014 balance sheet are as follows:

Accounts Payable $ 55,000

Equipment $950,000

Marketable Securities 40,000 

Taxes Payable 15,000

Accounts Receivable 180,000 

Retained Earnings 250,000

Notes Payable, 12%, due in 60 days 20,000 

Inventory 85,000

Capital Stock 1,150,000 

Allowance for Doubtful Accounts 20,000

Salaries Payable 10,000 

Land 600,000

Cash 15,000

Required

1. Prepare the Current Liabilities section of Kruse’s 2014 balance sheet.

2. Compute Kruse’s working capital.

3. Compute Kruse’s current ratio. What does this ratio indicate about Kruse’s condition?