Accounting homework

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QUESTION 1 (15 marks)

Max Corporation is closing its accounting books and records for the year 2015. All sales at Max are

made on credit. The unadjusted trial balance of the company includes the following balances at 31

December 2015:

Dr. Cr.

Sales returns and allowances ........................................................... $22,500

Sales ................................................................................................ $ 510,000

Allowance for doubtful accounts ................................................... 2,625

Accounts receivable ........................................................................ 112,500

During the year, Max Corp. estimates bad debt expense and the allowance for doubtful accounts using a

percentage of sales, and then, at year-end, after a careful and detailed analysis of the collectability of

accounts receivable, adjusts the balance of the allowance for doubtful accounts.

Required:

1. Prepare and present the entry for estimated bad debts and the allowance for doubtful accounts for the

year assuming that doubtful accounts are estimated to be 1% of net sales.

2. After the entry in 1 above relating to the estimate is made, Max performs a detailed analysis of the

aged accounts receivable and determines that an allowance for doubtful accounts of $6,000 is

required based on that analysis in order to finalize the allowance for doubtful accounts on the 31

December 2015 statement of financial position. Present the entry, if any is necessary, to make this

adjustment.

3. Assume that all the information above about Max's procedures and balances is the same, except that

the allowance for doubtful accounts has an unadjusted debit balance of $2,625 instead of a credit

balance of $2,625. Re-calculate the requirements presented in 1 and 2 above using this alternative

balance in the allowance for doubtful accounts.

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QUESTION 2 (20 marks)

It is early November 2016, and NS Inc. is in the process of reconciling its cash balances in its various

checking accounts. As the new staff accountant, you have been asked to reconcile a new account that NS

Inc. opened at the beginning of last month (October). The book balance of cash (from the general ledger)

before any adjustments, at the end of the month (31 October 2016) is $24,466. The bank statement from

Halifax Bank (received by the company on 7 November) is presented below, followed by information

from NS Inc.’s accounting books and records.

Halifax Bank

Bank Statement

1 Oct to 6 Nov 2016

Date Transaction

Description Debit Credit Balance

Notes made by

accountant

Oct 01 Deposit - open acct

$ 40,000 $40,000

Oct 02 Chq002 $198 39,802

Oct 02 Chq003 260

39,542

Bank recorded /deducted

incorrect amount

Oct 02 Chq006

2,860 36,682

Oct 05 Deposit 3,872 40,554

Oct 12 Deposit 8,800 49,354

Oct 14

Telecom service auto-

deduct

2,420 46,934

October telecom -

amount is correct

Oct 15 Chq005

1,760 45,174

Oct 16 Chq004 564 44,610

Bookkeeper error - bank

has correct amount

Oct 19 Deposit 1,980 46,590

Oct 22 Deposit 1,650 48,240

Oct 27 Chq008 968 47,272

Oct 29 Chq011 6,600 40,672

Oct 29 Deposit 3,300 43,972

Oct 30 Chq007

3,916 40,056

Oct 30 Chq012

9,240 30,816

Oct 30 Fees - Halifax Bank 75 30,741

Oct 30 Interest earned - chq acct 102 30,843

Nov 04 Chq010

7,040 23,803

Nov 06 Deposit 1,584 $ 25,387

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NS Inc.

Summary of Cheque Book

Transactions

October 2016

Cheque

Number Date Paid to Amount

1 Oct 01 Smith Inc. $ 352

2 Oct 01 Penguins Co. 198

3 Oct 02 Dieter Co. 220

4 Oct 02 Sam Jones 456

5 Oct 02 Steel Company 1,760

6 Oct 02 Canada Minerals 2,860

7 Oct 11 Health Insurance Inc. 3,916

8 Oct 19 Pirates Company 968

9 Oct 22 South Bend Inc. 242

10 Oct 23 Sally Smith 7,040

11 Oct 25 Batman Robin Co. 6,600

12 Oct 25 Toronto Co. 9,240

13 Oct 28 Xiao Co. 2,868

$ 36,720

NS Inc.

Listing of Bank Deposits

October 2016

Date Notes Amount

OCT 03 Currency and Cheques

$3,872

OCT 09 Currency and Cheques

8,800

OCT 17 Currency and Cheques

1,980

OCT 20 Currency and Cheques

1,650

OCT 28 Currency and Cheques

3,300

OCT 30 Currency and Cheques

1,584

$21,186

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Required:

a) Using the information provided above, prepare in good form the bank reconciliation for NS Inc's

bank account at 31 October 2016.

b) Prepare the adjusting journal entries, if any, that are necessary as a result of the bank

reconciliation that you prepared in a) above.

c) Briefly explain why companies prepare bank reconciliations?

QUESTION 3 (15 marks)

Simon Corporation is a small manufacturing company in Nova Scotia. Simon reports the following

information in its audited financial statements for the years ended 31 December 2016, 2015, and 2014:

You are an analyst and you are reviewing these results.

Required:

(a) Calculate accounts receivable turnover and days sales outstanding (that is, the average collection

period of accounts receivable in days) for 2016 and 2015.

(b) Briefly explain what your analysis indicates.

(c) Briefly, state 2 possible reasons why the balance of accounts receivable declined in 2016.

Accounts receivable, net of allowance:

31 December 2016 $ 81,100

31 December 2015 156,700

31 December 2014 134,700

Sales (on credit) 31 December 2016 $ 5,053,300

31 December 2015 5,223,200

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QUESTION 4 (10 marks)

On 31 December 2015, Big Cat Corporation’s cash balance in its cheque-book was $22,000.

You are the accountant at Big Cat, and you note the following additional items at 31 December.

1. The company advanced $2,500 cash to the CEO for travel expenses on 28 December.

2 Big Cat Corporation received a certified-cheque in the amount of $630 December 30, 2015,

and was included in the balance mentioned above. The cheque was temporarily misplaced,

and therefore the cheque was not deposited until January 2, 2016.

3. On 27 December 2015, Big Cat received and deposited a personal cheque from Little Dog in

the amount of $550. On 3 January 2016, it was returned to Big Cat's bank marked “NSF.”

Big Cat contacted Little Dog about the matter and Little Dog promised to deposit funds to

cover the cheque. The cheque was re-deposited by Big Cat on January 3, 2012. The original

amount had been included in the 31 December cash balance in the cheque-book.

4. Coin and currency on hand in various petty cash accounts was $1,600. The Corporation had

$40 of postage stamps in its safe.

5. Big Cat also had $1,000 in Republic of FarAway dollars ($1,200 CAN) in its safe.

Required:

Calculate and present the proper amount to be reported as "Cash" on Big Cat Corporation’s

statement of financial position at December 31, 2015.

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QUESTION 5 (20 marks)

On 1 January 2015, Hamster Inc., a company that has a 31 December year-end, purchased a 6%,

$100,000 bond that pays interest on 1 July and 1 January (the first interest payment is 1 July 2015). At

the time of purchase, the market rate of interest was 8%. The bond matures on 1 January 2020, and

Hamster intends to hold the bond until it matures. Hamster follows ASPE and uses the amortized cost

method to account for the bond. Hamster uses the effective interest method to amortize discounts and

premiums. Rounding calculated amounts to the nearest whole dollar is acceptable.

Required:

a) Calculate the purchase price of the bond on the date of purchase using the following methods: i. Use Excel to calculate the purchase price of the bond.

ii. Use present value tables to calculate the purchase price of the bond. b) Prepare and present the journal entry to record the purchase of the bond on 1 January 2015. c) Prepare and present the journal entry or entries necessary at 1 July 2015 and any adjusting entry or

entries that might be necessary, if any, on December 31, 2015.

d) Prepare the complete bond amortization schedule from the date of the purchase of the bond to the date of maturity of the bond on 1 January 2020.

e) What is the carrying amount of the investment on the statement of financial position at December

31, 2018?

f) Hint: Remember to account for the fact that interest is paid semi-annually on this bond. This will require adjustments to the interest rate, and the amount of cash paid to Hamster.

QUESTION 6 (20 marks)

Mouse Inc., a company with a 31 December year-end, purchased an equity investment on 1 January 2015

for $6,000. Broker costs for this investment were $75. The investment was in the common shares of

Gerbil Company. At 31 December 2015, Mouse was still holding the investment in Gerbil, and the fair

value of the investment at this date was $5,500. On 15 December 2015, Gerbil paid $95 in dividends to

Mouse. Gerbil remains a viable company and the investment is not considered to be impaired. Please

ignore income tax effects in your work below.

Required:

a) Prepare and present all necessary journal entries for 2015 assuming the investment in Gerbil is accounted for under the following models:

i. Cost ii. Fair value through net income

iii. Fair value through other comprehensive income

b) Indicate what amounts are reported on Mouse's statement of comprehensive income for 2015 (and where on the statement of comprehensive income those amounts are reported) assuming the

investment is designated:

i. Cost ii. Fair value through net income

iii. Fair value through other comprehensive income