Brief Exercise 7-1 Accounting for Bad Debts

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, 2012, 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, 2013.
c. An amount of money owed to a creditor on a note due August 15, 2014.
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, 2013.
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,
2012, 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 2012 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 2012 balance sheet.
2. Compute Kruse’s working capital.
3. Compute Kruse’s current ratio. What does this ratio indicate about Kruse’s condition?