Part 1
Answer the following Problems:
What is meant by the net realizable value for accounts receivable?
What is aging of accounts receivable, and how is it used to account for uncollectible accounts?
How is the accounts receivable turnover computed? What information does this ratio provide?
Describe what is meant by the term "goodwill."
Part 2
1. Effect of credit card sales on financial statements
Ultra Day Spa provided $120,000 of services during 2016. All customers paid for the services with credit cards. Ultra submitted the credit card receipts to the credit card company immediately. The credit card company paid Ultra cash in the amount of face value less a 5 percent service charge.
Required
Record the credit card sales and the subsequent collection 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 NA to indicate that an clement is not affected by the event.
2. Accounting for intangible assets
Mitre Company acquired Midwest Transportation Co. for $1,400,000. The fair market values the assets acquired were as follows. No liabilities were assumed.
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Equipment
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$510,000
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Land
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150,000
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Building
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520,000
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Franchise (10-year life)
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40,000
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Required
a. Calculate the amount of goodwill acquired.
b. Prepare the journal entry to record the amortization of the franchise fee at the end of year I.
3. Events related to the acquisition, use, and disposal of a tangible plant asset: straight-line depreciation
City taxi Service purchased a new auto to use as a taxi on January I, 2016. for $36,000. In addition, City paid sales tax and title fees of $1,200 for the vehicle. The taxi is expected to have a five-year life and a salvage value of $4,000.
Required
a. Using the straight-line method, compute the depreciation expense for 2016 and 2017.
b. Prepare the general journal entry to record the 2016 depreciation.
c. Assume that the taxi was sold on January I, 2018, for $22,000. Prepare the journal entry for the sale of the taxi in 2018.