Week 6 Assignment 6 Financial Accounting - 20777

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1.     What is meant by the net realizable value for accounts receivable?

2.     What is aging of accounts receivable, and how is it used to account for uncollectible accounts?

3.     How is the accounts receivable turnover computed? What information does this ratio provide?

4.     Describe what is meant by the term "goodwill."

5.     Exercise 7-13A on p. 369

Effect of credit card sales on financial statements

Royal carpet Cleaning provided $90,000 of services during 2011, its first year of operations. All customers paid for the services with major credit cards. Royal submitted the credit card receipts to the credit care company immediately. The credit card company paid Royal cash in the amount of face value less a 3% service charge.

A. Record the credit card sales and the subsequent collections of accounts receivable in a horizontal statements model like the one shown here. In  the Cash Flow column, indicate whether the item is an operating activity (OA), Investing activity (IA), or financing activity (FA). Use N/A to indicate that an element is not affected by the event.

Assets               = Liab   +          Equity               Rev.      -     Exp = Net Income    CASH FLOW

Cash + Accts REC

B. Answer the following Questions

1. What is the amount of total assets at the end of the accounting period.

2. What is the amount of total revenue reported on the income statement?

3. What is the amount of cash flow from operating activities reported on the statement of cash flow?

4. Why would Royal Carpet Cleaning accept credit cards instead of providing credit directly to its customers? In other words, why would Royal be willing to pay 3% of sales to have the credit card company handle its sales on account?









6.     Exercise 8-34A on p. 434


Mia-Tora Company purchased a fast food restaurant for $1,400,000. The fair market values of the assets purchases were are follows. No liabilities were assumed.

Equipment $320,000

Land $200,000

Building $650,000

Franchise (5 year life) $100,000


1. Calculate the amount of goodwill purchased.

2. Prepare the journal entry to record the amortization of the franchise fee at the end of the year.



7.     Exercise 8-9A on p. 425


Events related to the acquisition, use, and disposal of tangible plant asset, straight line depreciation.

CJ’s Pizza purchased a delivery can on January 1, 2011 for $25,000. In addition, CJ’s paid sales tax &title fee3s of $1,000.00 for the van. The can expected to have a four year life and a salvage value of $6,000.00.

1. using straight-line method, compute the depreciation expense for 2011 and 2012.

            (25000+1000 - 6000)/4Years  =  5,000.00 per year

2. Prepare the general journal entry to record the 2011 depreciation.

3. Assume the van was sold on January 1, 2014 for $12,000.00.

Prepare the journal entry for the sales of the van in 2014.


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Week 6 Assignment 6


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