Review Questions -Chapters 7 and 12, Fall Semester 2005
Instructions: Please read every question carefully. Complete your answers in the space provided.
- Spencer Company deposits all receipts and makes all payments by check. The following information is available from the cash records.
a)Prepare the reconciliation per bank for September 30th.
Prepare the reconciliation per book for September 30th.
b)Prepare the appropriate adjusting journal entries related to the bank reconciliation for the month ended September 30th.
- In payment for services, Spencer Company received a $10,000, 5% note receivable from a client on March 31, 2003. The note is due and payable on October 1, 2003. Spencer Company was short of cash on so May 1, 2003 it discounted the note at Bank of the West. The bank’s discount rate is 12%.
a)Calculate the accrued interest to the date of discount
b)Calculate the maturity value of the note
c)Calculate the discount on the note
d)Calculate the proceeds that Spencer Company will receive
e)Prepare the appropriate journal entries to record the discounting of the note.
- In exchange for a $50,000 account receivable, Spencer Company received five year a non interest bearning note in the amount of $65,950. The implicit interest rate on the note is 10% per annum. The five equal payments are to be made at the end of each year.
a)Prepare the journal entry to record the exchange of the note for the account receivable.
b)Prepare the journal entry at the end of the first year to record the receipt of the first payment.
- Spencer Company purchase 5,000 shares of Pets Food Company for $165,000 on March 2, 2003. At December 31, 2004 the market value reported in The Wall Street Journal was $31 per share. The fair value adjustment account had a debit balance of $10,000 on January 1, 2004 (FVat December 31, 2003 was $175,000). Management classifies the investment in Pets Food Company as an available-for-sale security.
Prepare a T-Account Analysis of the Fair Value Adjustment, Available-for-Sale Account.
Prepare the year-end adjusting journal entry for the year ended December 31, 2004.
- Spencer Company purchased 2,000 shares of Bones Inc. common stock for $22 per share on March 1, 2001. In April the company purchased 1,500 shares of Pet Grooming Products Inc. for $10 per share. In July the company purchased 5,000 shares of Pets Supply Company common stock of $3 per share. This portfolio of investments is classified by management as trading securities. The fair values of each stock for the year ended December 31, 2002 and 2003 were as follows:
Analyze the unrealized holding gain/loss at December 31, 2002.
Prepare a T-Account Analysis of the FVA, Trading Securities Account as December 31, 2002.
Prepare the appropriate adjusting journal entry to record unrealized holding gains/losses as of December 31, 2002.
Prepare an analysis of the unrealized holding gains/losses as of December 31, 2003.
Prepare a T-Account Analysis of the Fair Value Adjustment, Trading Securities Account at December 31, 2003.
Prepare the appropriate adjusting journal entry to record unrealized holding gains/losses at December 31, 2003.
- Spencer Company prepared an aging of its accounts receivable at December 31, 2002 and determined that the net realizable value of the receivables was $298,000. Additional information is available as follows:
a)The company uses the allowance method with the balance sheet approach for recording bad debt expense. Using the format provided, prepare the T-Account analysis of the allowance for doubtful accounts to determine the unadjusted balance at year-end and the required adjusting journal entry.
b)Based on the above analysis prepare the required year-end adjusting journal entry in the format provided.
- Spencer Company purchased a 45% interest in Fido Chow Company for $500,000. During the year Fido Chow Company reported net income of $300,000 and paid dividends in the amount of $70,000. What is Spencer Company’s investment balance at the end of the first year?
1