Question

Study the following items related to transactions during the year to September 30, 2020 for Thompson’s Tours’ Inc. All transactions are reported on the financial statements in $XCD.

I. A bank overdraft of $200,000 in a chequing account at St Kitts National Bank.

II. A saving account with a balance of $400,000 at Open Campus Bank and chequing account with an overdraft of $100,000 at the same bank repayable on demand.

III. The Operation Manager was given a salary advance of $2,000 on August 24, 2020 and this amount was deducted from his October salary.

IV. CAD$3,045 on hand from tips up to March 31, 2020, its pre-COVID operations when the exchange rate was CAD$1 = $2.01 XCD. On September 30, 2020, the exchange rate was CAD$1 = $1.95 XCD

V. Special Edition Independence postage stamps on hand valued at $200.

VI. Cash holdings of US$100,000, the exchange rate on September 30, 2020 is $2.70.

VII. Petty cash on hand valued at $1,500.

VIII. A cheque in the amount of $5,000 and dated October 23, 2020 was received from a customer on September 27, 2020.

IX. Short term 60 days treasury bill valued at $35,000.

X. Thompson’s Tours’ Inc. invested $1,000,000 in a money market fund with Mona Campus Bank on July 10, 2020 which will mature on October 9, 2020.

Required:

a. List all items from above that would NOT be classified as cash or cash equivalents in the current asset section of Thompson’s Tours’ Inc. Statement of Financial Position as at September 30, 2020? State how each of these items would then be classified in the financials.

b. Prepare the necessary journal entry at September 30, 2020 to account for Item IV.

C. Using the information in B above, calculate the cash and cash equivalent value that would appear in Thompson’s Tours’ Inc. Statement of Financial Position on September 30,2020.

Question 2 .

A. List two (2) policies a company may adopt to lessen the risk of uncollectible accounts and improve its cashflows. (1 mark)

B. Joseph Corporation a mobile phone wholesaler sells mobile phones to PhoneTech Ltd, a mobile phone retailer on August 1, 2020 for $500 each, the value of the sale is $50,000, with credit terms of 3/10, n/30. Assume the company uses the net method to record accounts receivables.

Required:

a. Prepare the journal entry to record the sale.

b. On August 8, 2020, collection on $15,000 of the sales was received from PhoneTech. Record the necessary journal entry for the cash received.

c. The remaining $35,000 of the sales was collected on August 28, 2020 from Phone Tech. Record the necessary journal entry for the transaction on this date.

Question 3

A. J & B Company uses the percentage of sales approach to estimate its uncollectible accounts. The company’s annual sales for its first financial year of operations ending July 31, 2020 was $500,000, cash sales contributed to 2% of the overall sales and the 3 accounts receivable balance at year end was $75,000. Based on industry expectations, it estimated that 3% of its credit sales would be uncollectible.

Required:

a. Calculate the bad debt expense at July 31, 2020.

b. Calculate the net receivable balance that would be reported in the Statement of Financial Position as at July 31, 2020.

B. Tosh and Sons Inc. uses the percentage of receivables approach to estimate its uncollectible accounts. The company had sales of $100,000 at the end of its financial year on June 30, 2020. The allowance for doubtful debts account had a debit balance of $400, the accounts receivable balance was $30,000at year end and the company estimates the uncollectible percentages as follows:

Current (1 - 30 days) $15,000 0.5%

31 - 60 days $10,000 2.0%

61 - 90 days $3,000 10.0%

Over 90 days $2000 60.0%

Required:

a. Calculate the bad debt expense at June 30, 2020.

b. Prepare the necessary journal entry to record the bad debt expense for the year.

C. During the financial year ending May 31, 2020 the Board of Directors of Chung Sa Corporation authorised the write off of a $3,000 two-year debt belonging to a previous customer Jap Inc. On July 2, 2020 Chung Sa Corporation received an electronic funds transfer from Jap Inc. in the amount of $3,000.

Required: Prepare all necessary journal entries to record this transaction.

Answer 1

Question 1.a: item no ||| and X are not cash and cash equivalents, rest are as the meet the definition of cash and cash equivalents

explaination: |||. It is an advance from the salary wich will be deducted in the month that salary pertains to and net amount t will be paid to the operation manager

X. The investment in money market fund with mona campus bank even though a money market fund exceed 90days period of maturity thus classified as NOT Cash and cash equivalents

classification of each item in Financial statement:

|, ||, |V, V|,V|| as cash and bank balance

V as inventory

V||| as receivables

|X as short term investment

Question 1.b: journal entry for |V -

Cash....dr. 5937.75
net investment in foreign operations....dr 182.7

to cash received as tips account...cr 6120.45

Question 1.c: Total cash and equivalents amount: $47637.75

Question 2.a: policy 1- past performance evaluation plus discount on early payment

policy 2- reminders

Question 2.b:

Receivables account debited $50000

sales account credited $50000

on aug 8:

Bank account debited 15000

receivables account credited 15000

on aug 28:

Bank account debited 35000

receivables account credited 35000

Question 3.a: bad debt expense- 500000*98/100*3/100= 14700

Record in FINANCIAL STATEMENT: net receivables- 550300

Question 3.b: bad debt expense 2175

(opening plus all the %of the amounts= 400+1775)

journal entry

bad debts expense debited 1775

to debtors credited 1775

(opening 400 will not be included as it is the opening balance and this amount is added as it is estimated in current year)

Question 3.c: journal entry-

for receipt of electronic fund transfers

bank account debited 3000

debtors account credited 3000

for write off:

profit and loss statement debited 3000

bad debt - debtor account credited