Question

chapter 8 - 01

intro

You have just been hired as the accountant for Fan-Tastic Sports Gear Inc., a wholesaler of sporting goods and apparel. The previous accountant left abruptly in late December, 20Y7, and an accounting intern has been drafting the journal entries since January. You are examining the accounting records before finalizing the journal entries for the first quarter of 20Y8. The following journal shows some of the accounts receivable transactions that you are reviewing.

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JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Jan. 17	Sales		9,600.00				↓
2		Bad Debt Expense			9,600.00			↑
3	17	Bad Debt Expense		9,600.00				↓
4		Accounts Receivable-CJ’s Sports Corp.			9,600.00	↓
5	21	Cash		10,700.00		↑
6		Bad Debt Expense		2,200.00				↓
7		Accounts Receivable-Four Seasons Sportswear Co.			12,900.00	↓
8	Feb. 15	Accounts Receivable-Healthy Running Inc.		3,000.00		↑
9		Bad Debt Expense		500.00				↓
10		Sales			3,500.00			↑
11	Mar. 4	Accounts Receivable-Four Seasons Sportswear Co.		2,200.00		↑
12		Bad Debt Expense			2,200.00			↑
13	4	Cash		2,200.00		↑
14		Bad Debt Expense			2,200.00			↑
15	13	Cash		5,540.00		↑
16		Accounts Receivable-Barb’s Best Gear			5,540.00	↓
17	31	Bad Debt Expense		20,970.00				↓
18		Accounts Receivable-Healthy Running Inc.			5,150.00	↓
19		Accounts Receivable-The Locker Room			4,100.00	↓
20		Accounts Receivable-CJ’s Sports Corp.			2,780.00	↓
21		Accounts Receivable-Get Your Gear Inc.			7,050.00	↓
22		Accounts Receivable-Ready-2-Go			1,890.00	↓

CHART OF ACCOUNTS
Fan-Tastic Sports Gear Inc.
General Ledger
ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable-Healthy Running Inc. 122 Accounts Receivable-The Locker Room 123 Accounts Receivable-CJ’s Sports Corp. 124 Accounts Receivable-Get Your Gear Inc. 125 Accounts Receivable-Four Seasons Sportswear Co. 126 Accounts Receivable-Ready-2-Go 127 Accounts Receivable-Barb’s Best Gear 132 Notes Receivable-Fast Feet Co. 136 Interest Receivable 141 Inventory 145 Office Supplies 151 Prepaid Insurance 181 Land 191 Store Equipment 192 Accumulated Depreciation-Store Equipment 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 211 Salaries Payable 212 Unearned Rent 213 Customer Refunds Payable 215 Notes Payable EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 313 Income Summary	REVENUE 410 Sales 610 Rent Revenue 612 Interest Revenue EXPENSES 510 Cost of Goods Sold 520 Sales Salaries Expense 521 Advertising Expense 522 Depreciation Expense-Store Equipment 523 Delivery Expense 529 Miscellaneous Selling Expense 530 Office Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Office Supplies Expense 536 Credit Card Expense 537 Cash Short and Over 538 Bad Debt Expense 539 Misc. Administrative Expense 710 Interest Expense

Points:

1 / 1

2. Finalize the journal entries shown on the Fan-Tastic Sports Gear Inc. panel and make any necessary changes. Refer to the Chart of Accounts for the exact wording of account titles. You may also use any items from the preceding list shown in (1), if needed.

How does grading work?

The grader is designed to give you the best score possible, even when you skip lines or enter them out of order. It does this by taking every line you have entered and comparing it to every line in the answer. When it finds the line that gives you the best score, it considers that a match.

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JOURNAL

ACCOUNTING EQUATION

Score: 159/236

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	✔			✔
2
3
4		✔			✔
5	✔	✔		✔
6				✔
7		✔			✔
8	✔	✔
9
10		✔			✔
11	✔	✔		✔
12					✔
13	✔	✔		✔
14					✔
15	✔	✔		✔
16		✔			✔
17	✔			✔
18		✔			✔
19		✔			✔

3. Journalize the entry needed to record information about the note receivable from Fast Feet for the year 20Y7. Assume that the entry on November 19, 20Y7 is correct. Refer to the Chart of Accounts of exact wording of account titles. Round all amounts to the nearest dollar.

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JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	✔	✔
2		✔

4. Journalize the entry needed to record collection of the note at maturity on March 19, 20Y8. Assume that the entry on November 19, 20Y7 is correct. Refer to the Chart of Accounts of exact wording of account titles. Round all amounts to the nearest dollar.

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JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	✔	✔		✔		✔
2		✔
3					✔
4		✔

Answer 1

Part 1: Correction of Journal entries:

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Jan. 17	Cash	110	9,600.00		↑
2		Bad Debt Expense	538		9,600.00			↑
3	17	Bad Debt Expense	538	9,600.00				↓
4		Accounts Receivable-CJ’s Sports Corp.	123		9,600.00	↓
5	21	Cash	110	10,700.00		↑
6		Bad Debt Expense	538	2,200.00				↓
7		Accounts Receivable-Four Seasons Sportswear Co.	125		12,900.00	↓
8	Feb. 15	Accounts Receivable-Healthy Running Inc.	121	3,000.00		↑
9		Bad Debt Expense	538	0
10		Sales	410		3,000.00			↑
11	Mar. 4	Cash	110	2,200.00		↑
12		Bad Debt Expense	538		2,200.00			↑
13	4	Cash	110	2,200.00		↑
14		Bad Debt Expense	538		2,200.00			↑
15	13	Cash	110	5,540.00		↑
16		Accounts Receivable-Barb’s Best Gear	127		5,540.00	↓
17	31	Bad Debt Expense	538	20,970.00				↓
18		Accounts Receivable-Healthy Running Inc.	121		5,150.00	↓
19		Accounts Receivable-The Locker Room	122		4,100.00	↓
20		Accounts Receivable-CJ’s Sports Corp.	123		2,780.00	↓
21		Accounts Receivable-Get Your Gear Inc.	124		7,050.00	↓
22		Accounts Receivable-Ready-2-Go	126		1,890.00	↓

Part 2:

Interest on notes receivables accrued till 31st Dec, 20X7
	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Dec. 31	Interest Receivable	136	47.25		↑
2		Interest Revenue	612		47.25			↑

Amount of interest accrued calculations:

Total interest amount = (4635-4500 ) = 135

Total period of note: 19-Nov 2017 to 19-Mar-2018, i.e. 120 days.

Rate of interest = 135/4500 = 3% for 120 days

Interest upto 31-Dec-2017, i.e. 42 days = 4500*(0.03*42/120) = 47.25

Part 3:

Receipt of payment agianst the note on 19th March, 20X8
	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1	Mar. 19	Cash		4635		↑
2		Interest Receivable			47.25	↓
3		Interest Revenue			87.75			↑
4		Notes Receivable-Fast Feet Co.	132		4500	↓

Interest revenue for the period from 1-Jan-2018 to 19-Mar-2018, i.e. 78 days = 4500*(0.03*78/120) = 87.75