7-10
Review the financial information pertaining to Evergreen Company and prepare the following:
1. Prepare the necessary journal entries for Evergreen for each of the dates listed in the problem. For transactions involving the sale of merchandise, ignore the entry for the cost of goods sold (round all calculations to the nearest dollar).
2. Prepare any necessary adjusting entries at December 31, 2011. Adjusting entries are only recorded at year-end (round all calculations to the nearest dollar).
3. Prepare a schedule showing the effect of the journal entries in requirements 1 and 2 on 2011 income before taxes.
Evergreen Company sells lawn and garden products to wholesalers. The company’s fiscal year-end is December 31. During 2011, the following transactions related to receivables occurred:
February 28
Sold merchandise to Lennox, Inc. for $10,000 and accepted a 10%, 7-month note. 10% is an approximate rate for this type of note.
March 31
Sold Merchandise to Maddox Co. and accepted a noninterest-bearing note with a discount rate of 10%. The $8,000 payment is due on March 31, 2012.
April 3
Sold merchandise to Carr Co. for $7,000 with terms 2/10, n/30 Evergreen uses the gross method to account for cash discounts.
11
Collected the entire amount due from Carr Co.
17
A customer returned merchandise costing $3,200. Evergreen reduced the customer’s receivable balance by $5,000, the sales price of the merchandise. Sales returns are recorded by the company as they occur.
30
Transferred receivables of $50,000 to a factor without recourse. The factor charged Evergreen a 1% finance charge on the receivables transferred. The sale criteria are met.
June 30
Discounted the Lennox, Inc. note at the bank. The bank’s discount rate is 12%. The note was discounted without recourse.
August 31
Lennox, Inc. paid the note plus interest to the bank.
7-14
Review the information pertaining to El Gato Painting Company and prepare the following:
1. Prepare a bank reconciliation for the El Gato checking account at December 31, 2011.
2. Prepare any necessary adjusting journal entries indicated.
El Gato Painting Company maintains a checking account at American Bank. Bank statements are prepared at the end of each month. The November 30, 2011 reconciliation of the bank balance is as follows:
Balance per bank, November 30
$3231
Add: Deposits outstanding
1,200
Less: Checks Outstanding:
#363
$123
#365
201
#380
56
#381
86
#382
340
(806)
Adjusted balance per bank, November 30
$3,625
The company’s general ledger checking account showed the following for December:
Balance, December 1
$3,625
Receipts
42,650
Disbursements
(41,853)
Balance, December 31
$4,422
The December bank statement contained the following information:
Balance, December 1
$3,231
Deposits
43,000
Checks Processed
(41,918)
Service Charges
(22)
NSF Checks
(440)
Balance, December 31
$3,851
The Checks that were processed by the bank in December include all of the outstanding che.
7-10Review the financial information pertaining to Evergreen Com.docx
1. 7-10
Review the financial information pertaining to Evergreen
Company and prepare the following:
1. Prepare the necessary journal entries for Evergreen for each
of the dates listed in the problem. For transactions involving the
sale of merchandise, ignore the entry for the cost of goods sold
(round all calculations to the nearest dollar).
2. Prepare any necessary adjusting entries at December 31,
2011. Adjusting entries are only recorded at year-end (round all
calculations to the nearest dollar).
3. Prepare a schedule showing the effect of the journal entries
in requirements 1 and 2 on 2011 income before taxes.
Evergreen Company sells lawn and garden products to
wholesalers. The company’s fiscal year-end is December 31.
During 2011, the following transactions related to receivables
occurred:
February 28
Sold merchandise to Lennox, Inc. for $10,000 and accepted a
10%, 7-month note. 10% is an approximate rate for this type of
note.
March 31
Sold Merchandise to Maddox Co. and accepted a noninterest-
bearing note with a discount rate of 10%. The $8,000 payment
is due on March 31, 2012.
April 3
Sold merchandise to Carr Co. for $7,000 with terms 2/10, n/30
Evergreen uses the gross method to account for cash discounts.
11
Collected the entire amount due from Carr Co.
17
A customer returned merchandise costing $3,200. Evergreen
reduced the customer’s receivable balance by $5,000, the sales
price of the merchandise. Sales returns are recorded by the
2. company as they occur.
30
Transferred receivables of $50,000 to a factor without recourse.
The factor charged Evergreen a 1% finance charge on the
receivables transferred. The sale criteria are met.
June 30
Discounted the Lennox, Inc. note at the bank. The bank’s
discount rate is 12%. The note was discounted without recourse.
August 31
Lennox, Inc. paid the note plus interest to the bank.
7-14
Review the information pertaining to El Gato Painting Company
and prepare the following:
1. Prepare a bank reconciliation for the El Gato checking
account at December 31, 2011.
2. Prepare any necessary adjusting journal entries indicated.
El Gato Painting Company maintains a checking account at
American Bank. Bank statements are prepared at the end of each
month. The November 30, 2011 reconciliation of the bank
balance is as follows:
Balance per bank, November 30
$3231
Add: Deposits outstanding
1,200
Less: Checks Outstanding:
#363
$123
#365
201
3. #380
56
#381
86
#382
340
(806)
Adjusted balance per bank, November 30
$3,625
The company’s general ledger checking account showed the
following for December:
Balance, December 1
$3,625
Receipts
42,650
Disbursements
(41,853)
Balance, December 31
$4,422
The December bank statement contained the following
information:
Balance, December 1
$3,231
Deposits
43,000
Checks Processed
(41,918)
Service Charges
(22)
4. NSF Checks
(440)
Balance, December 31
$3,851
The Checks that were processed by the bank in December
include all of the outstanding checks at the end of November
except for check #365. In addition, there are some December
checks that had not been processed by the bank by the end of
the month. Also, you discover that check #411 for $320 was
correctly recorded by the bank but was incorrectly recorded on
the books as a $230 disbursement for advertising expense.
Included in the bank’s deposits is a $1,300 deposit incorrectly
credited to the company’s account. The deposit should have
been posted to the credit of the Los Gatos Company. The NSF
checks have not been re-deposited and the company will seek
payment from the customers involved.
Make the following changes to the exercises and problems:
Nov 13
Pb. 7-10
Date
End Date
Total
Months
Note
Amount
A/R Collections
28-Feb
Sep-11
6. Pb 7-14
Balance per bank
6848
Balance per books
7419
Problem 7-10
Requirement 1
February 28, 2011
Note receivable
Sales revenue
7. March 31, 2011
Note receivable (face amount)
Discount
Sales revenue (difference)
April 3, 2011
Accounts receivable
Sales revenue
April 11, 2011
Cash
$
Sales discounts
8. Accounts receivable
April 17, 2011
Sales returns
Accounts receivable
Inventory
Cost of goods sold
Problem 7-10 (continued)
April 30, 2011
Cash
9. Loss on sale of receivables
Accounts receivable
To accrue interest on note receivable for four months.
June 30, 2011
Interest receivable
Interest revenue
To record discounting of note receivable.
June 30, 2011
Cash
Loss on sale of note receivable (to balance)
10. Interest receivable (from adjusting entry)
Note receivable (face amount)
August 31, 2011 — NO ENTRY REQUIRED
Problem 7-10 (concluded)
Requirement 2
To accrue nine months' interest on the Maddox Co. note
receivable.
Discount
Interest revenue
Requirement 3
Income
12. June 30
December 31
Total effect
$
Requirement 1
Step 1:Bank Balance to Corrected BalanceBalance per bank
statement
$
Add: Deposits outstanding
(1)
Deduct:
Bank error - deposit incorrectly
credited to company account
Outstanding checks
(2)
Corrected cash balance
13. $
Step 2:Book Balance to Corrected Balance
Balance per books
$
Deduct:
Error in recording check #411
Service charges
NSF checks
Corrected book balance
$
(1) Receipts
$
Less: December receipts deposited:
Bank deposits
$
15. #
#
#
December checks outstanding
Add: check # 365
Total checks outstanding, Dec. 31
$
Problem 7-14 (concluded)
Requirement 2
To record credits to cash revealed by the bank reconciliation.
Advertising expense
Miscellaneous expense (bank service charges)