Current Assets Minus Current Liabilities

1. Sullivan Co.'s accounts receivable show the following balances by age:

Age of Receivable Balance
0-30 days $600,000
31-60 days 175,000
61-120 days 70,000 more than 120 days 10,000

The credit balance in the allowance for uncollectible accounts is $2,500. Sullivan Co. uses the following percentages to compute the estimated amounts of receivables that will eventually prove uncollectible: 0-30 days, 0.7%; 31-60 days, 1.2%; 61-120 days, 11%; and more than 120 days, 65%.

Required:

Prepare the adjusting journal entry.

2. The following cash-basis income statement has been prepared for the first year of business.

.
Statement of Cash Receipts and Expenditures
For the Year Ending December 31, Year 1
Cash Receipts from Sales of Merchandise $25,000
Less: Cash Expenditures for Merchandise and Services
Merchandise $10,000
Salaries 5,000
Rent 7,000
Total Cash Expenditures 22,000
Excess of Cash Receipts over Cash Expenditures $ 3,000

At year-end, the firm had inventory with a cost of $2,000 remaining. Also, customers owed $1,000 for goods that had already been delivered. The utilities for December were $500 and were billed to but not yet paid by the company. The rent of $3,500 for January, Year 2, was paid in December, Year 1.

Prepare an accrual-basis income statement for the year.

3. A friend of yours has prepared the following balance sheet for his bicycle shop but it has a problem. He thought his total assets did not reflect the assets available to the firm. He has asked you to take a look at this balance sheet and help him out.

Assets
Current Assets:

Eric's Bike Shop, Inc.
Balance Sheet
As of December 31, Year 1

Cash $15,000
Merchandise Inventory 30,000
Merchandise Sold, at cost 37,500
Prepaid Insurance 1,000
Advance from Customer (1,000) Total Current Assets $82,500
Property, Plant, and Equipment:

Shareholders' Equity:

Required:

Prepare a corrected balance sheet for Eric's Bike Shop, Inc.

4. Compute the missing amount affecting retained earnings for Year 2 in each of the five independent cases that follow. Amounts shown are in millions.

CASE A CASE B CASE C CASE D CASE E

Retained earnings, Dec. 31,
Year 1

$95 B $75 $ 87 $175

Net income 30 $450 45 D (50)
Dividends declared and paid 10 120 C 35 E
Retained earnings, Dec. 31, A 670 60 105 75
Year 2

5. Compute the missing amounts affecting the net income for Year 1 in each of the five independent cases that follow. Amounts shown are in thousands.

Sales revenue CASE A
$650 CASE B
B CASE C
$400 CASE D
$800 CASE E
$390
Cost of goods sold 300 $110 C 400 200
Selling and 150 150 120 65 E
administrative expenses
Income tax expense 56 30 55 D 0
Net income A 10 75 235 (15)

6. Compute the missing balance sheet amounts in each of the three independent cases that follow:

Noncurrent assets CASE A
$460,000 CASE B
$ 90,000 CASE C
$280,000
Shareholders' equity A 870,000 340,000
Total assets B E 500,000
Current liabilities 270,000 20,000 I
Current assets 250,000 F J
Noncurrent liabilities 100,000 G K
Total liabilities and shareholders' equity C 990,000 L
Current assets minus current liabilities D H 200,000