Melaney Parks purchased HealthPlus Fitness in January 2019. Melaney wanted to increase the size of the business by selling 3-year memberships for $3,000, payable at the beginning of the membership period. The normal yearly membership fee is $1,500. Since few prospective members were expected to want to spend $3,000 at the beginning of the membership period, Melaney arranged for a local bank to provide a $3,000 installment loan to prospective members. By the end of 2019, 250 customers had purchased the 3-year memberships using the loan provided by the bank. Melaney prepared her income statement for 2019 and included $750,000 ($3,000 3 250 members) as revenue because the club had collected the entire amount in cash. Melaney’s accountant objected to the inclusion of the entire $750,000. The accountant argued that the $750,000 should be recognized as revenue as the club provides services for these members during the membership period. Melaney countered that memberships have been sold and the collection of the selling price has occurred. Therefore, she argues that all $750,000 is revenue in 2019. Required: 1. Write a short statement supporting either Melaney or the accountant in this dispute. 2. Would your answer change if the $3,000 fee were nonrefundable? Why or why not?
> On January 1, 2019, Hungry man Inc. has the following balances for accounts receivable and allowance for doubtful accounts: Accounts Receivable ....................................................................$1,280,000 Allowance for Doubtful Account
> The Rock has credit sales of $425,000 during 2019 and estimates at the end of 2019 that 1.5% of these credit sales will eventually default. Also, during 2019 a customer defaults on a $1,200 balance related to goods purchased in 2019. Required: 1. Prepar
> Clarissa Company has credit sales of $550,000 during 2019 and estimates at the end of 2019 that 2.5% of these credit sales will eventually default. Also, during 2019 a customer defaults on a $775 balance related to goods purchased in 2018. Prior to the w
> Bolton sold a customer service contract with a price of $37,000 to Sammy’s Wholesale Company. Bolton offered terms of 1/10, n/30 and expects Sammy to pay within the discount period. Required: Prepare the journal entry assuming the payment is made after
> Four adjusting entries are shown below. a. Interest Expense ............................... 1,875 Interest Payable ............................ 1,875 b. Interest Receivable ........................... 1,150 Interest Income ............................
> Bolton sold a customer service contract with a price of $37,000 to Sammy’s Wholesale Company. Bolton offered terms of 1/10, n/30 and expects Sammy to pay within the discount period. Required: Prepare the journal entry to record the sale. Then prepare th
> Kibitz Fitness received $30,000 from customers on August 1, 2019. These payments were advance payments of yearly membership dues. Required: At December 31, 2019, calculate what the balances in the Unearned Service Revenue and Service Revenue accounts wi
> Bo Sports’ net sales, average net trade accounts receivable, and net income were $5,700,000, $629,000, and $340,000, respectively. Required: Calculate Bo’s (1) Accounts receivable turnover and (2) Net profit margin ratio.
> Alan Spalding is CEO of a large appliance wholesaler. Alan is under pressure from Wall Street Analysts to meet his aggressive sales revenue growth projections. Unfortunately, near the end of the year he realizes that sales must dramatically improve if hi
> While Front Row Entertainment has had considerable success in signing artists and promoting concerts, Cam and Anna still had a few ideas to grow their business that they wanted to implement. One idea that they both agree on is to start an online fan ‘‘co
> Refer to the 10-K reports of Under Armour, Inc., and Columbia Sportswear that are available for download from the companion website at CengageBrain.com. Required: 1. Look at Under Armour’s Note 2 (Summary of Significant Accounting Policies) under the he
> After comparing cash register tapes with inventory records, the accountant for Good Times Music store is concerned that someone at one of the stores is not recording some of that store’s cash sales and is stealing the cash from the unreported sales. Req
> A customer of Mutare paid for merchandise originally purchased on account with a check that has been erroneously entered into Mutare’s cash account for $570 (it actually has been issued and paid for $750). Required: Record the appropriate journal entry
> Obtain Whirlpool’s Fiscal 2016 10-K (filed Feb. 13, 2017) through the ‘‘Investor Relations’’ portion of its website (do a web search for Whirlpool investor relations). Once at the Investor Relations section of the website, look for ‘‘SEC Filings’’ under
> The credit manager and the accountant for Goldsmith Company are attempting to assess the effect on net income of writing off $100,000 of receivables. Goldsmith uses the aging method of determining bad debt expense and has the following aging schedule for
> Dobby’s income statement lists net sales of $179,000 and a gross margin of $111,000. All other expenses not included in the gross margin totaled $46,500. Required: 1. Calculate Dobby’s gross profit ratio. 2. Calculate Dobby’s net profit margin ratio.
> A chain of retail stores located in Kansas and Nebraska has requested a loan from the bank at which you work. The balance sheet of the retail chain shows significant accounts receivable related to its in-house credit card. You have been assigned to evalu
> Consider three businesses, all of which offer price reductions to their customers. The first is an independently owned gas station located at a busy intersection in Cincinnati, Ohio, that offers a 3% discount for cash purchases of gasoline. The second is
> Beth Rader purchased North Shore Health Club in June 2019. Beth wanted to increase the size of the business by selling 5-year memberships for $2,000, payable at the beginning of the membership period. The normal yearly membership fee is $500. Since few p
> Jackson Dunlap is president of New Miami Maintenance Inc. which provides building maintenance services. On October 15, 2019, Jackson signed a service contract with Western College, and, Western made a down payment of $12,000. Under the contract, New Miam
> Ruby Red manufactures, markets, and distributes citrus flavored soft drinks across the globe. Ruby Red hired a collection agency in 2018 to increase collection rates from customers. As a result, Ruby estimates that only 2% of its 2019 credit sales will b
> Melrose Milk Delivery provides weekly gourmet milk delivery to the residents of Nice town. Melrose charges each customer $45 per week for its milk delivery, and it received advance payments for 2,000 weeks of milk delivery services in 2019. At December 3
> Harry Gardner provides tax services for small businesses. This year’s tax season has proved especially lucrative for Harry; he earned $45,000 for providing his services. Harry uses terms of 1/10, n/30 in billing his customers. Required: 1. Prepare the n
> Sean and Liz Kinsella are planning to open and operate a coffee shop on a university campus. Sean and Liz are concerned that part of the cash that customers pay for food might be kept by some of the store’s employees. Required: Identify some internal co
> Watts Inc. specializes in imported goods, focusing particularly on food products. For 2019, the company realized net sales of $9,700,000 and average net trade accounts receivable were $1,057,000. In 2018, Watts had realized a net loss for the year in the
> The accountant for Bellows Corp. was preparing a bank reconciliation as of April 30. The following items were identified: Bellows’ book balance....................................................... $28,750 Outstanding checks............................
> West Beach Resort operates a resort complex that specializes in hosting small business and professional meetings. West Beach closes its fiscal year on January 31, a time when it has few meetings under way. At January 31, 2020, the following data are avai
> Refer to the 10-K reports of Under Armour, Inc., and Columbia Sportswear that are available for download from the companion website at CengageBrain.com. Required: 1. How much cash and equivalents and short-term investments (or current marketable securit
> Obtain Microsoft’s June 30, 2016, 10-K either through the ‘‘Investor Relations’’ portion of its website (do a search for Microsoft investor relations) or go to www.sec.gov and click ‘‘Company Filings Search’’ under ‘‘Filings.’’ Required: 1. How much cas
> Hollis Corporation has the following budgeted schedule for expected cash receipts and cash disbursement. Hollis begins July with a cash balance of $20,000, $15,000 of short-term debt, and no short-term investments. Hollis uses the following cash manageme
> Carolyn Furniture Galleries sells traditional furniture from two stores in St. Louis. Carolyn’s credit terms allow customers to pay for purchases over 3 months with no finance charges. Carolyn’s accountant has been responsible for approving customers for
> Campus Supply Store purchases merchandise on credit from a large number of suppliers. During the past 5 years, Campus’s annual sales have grown from $100,000 to $1,500,000. A recent article in the local newspaper disclosed that an employee of another fir
> Rose Corporation sells upscale lamps to boutiques across the country. The average net trade accounts receivable for Rose is $540,000. In addition, the company has average net sales of $6,950,000. Required: Calculate Rose’s accounts receivable turnover.
> There are two retail stores in Millersburgh. One is a full-service store that typically sells on credit to its customers; the other is a smaller discount store that usually sells for cash. Full-service stores typically charge higher prices than discount
> You have just been hired as a part-time clerk in a large department store. Each week you work three evenings and all day Saturday. Without the income provided by this job, you would be unable to stay in college. Charles Riley, the manager in the clothing
> Effective cash management is very important to the operating performance of a business. Required: Explain the principles of cash management. Why might it be advantageous to delay paying suppliers?
> Flint Inc. operates a cable television system. At December 31, 2019, the following unadjusted account balances were available: The following data are available for adjusting entries: a. At year end, $1,500 of office supplies remain unused. b. Annual dep
> Morgan Dance Inc. provides ballet, tap, and jazz dancing instruction to promising young dancers. Morgan began operations in January 2020 and is preparing its monthly financial statements. The following items describe Morgan’s transactions in January 2020
> Aunt Bea’s Catering Service provides catering service for special occasions. During 2019, Aunt Bea performed $228,500 of catering services and collected $218,200 of cash from customers. Salaries earned by Aunt Bea’s employees during 2019 were $49,900. Au
> Martin Sharp operates a lawn mower repair business. He maintains an inventory of repair parts that are purchased from a wholesale supplier. Martin’s records show the following information for the first 3 months of 2019. Required: 1. Ig
> Cam and Anna are very satisfied with their first month of operations. Their major effort centered on signing various artists to live performance contracts, and they had more success than they had anticipated. In addition to Charm City, they were able to
> Refer to the 10-K reports of Under Armour, Inc., and Columbia Sportswear that are available for download from the companion website at CengageBrain.com. Required: 1. Describe each company’s revenue recognition policy. Is this policy consistent with the
> What are the five categories of control activities?
> Obtain FedEx Corporation’s 2016 annual report either through the ‘‘Investor Relations’’ portion of their website (do a web search for FedEx investor relations) or go to www.sec.gov and click ‘‘Company Filings Search’’ under ‘‘Filings.’’ Required: 1. How
> Barnes Building Systems made the following closing entries at the end of a recent year: a. Income Summary............................. 129,750 Retained Earnings ........................ 129,750 b. Retained Earnings........................... 25,000
> Don Berthrong, the manager of the local Books-A-Million, is wondering how adjusting entries will affect his financial statements. Don’s business has grown steadily for several years, and Don expects it to continue to grow for the next several years at a
> Kelsey’s Kleening provides cleaning services for Clinton Inc., a business with four buildings. Kelsey’s assigned different cleaning charges for each building based on the amount of square feet to be cleaned. The charges for the four buildings are $35,000
> Link Pictures Inc. sells (licenses) the rights to exhibit motion pictures to theaters. Under the sales contract, the theater promises to pay a license fee equal to the larger of a guaranteed minimum or a percentage of the box office receipts. In addition
> Newman Properties Inc. completed construction of a new shopping center in July 2019. During the first 6 months of 2019, Newman spent $550,000 for salaries, preparation of documents, travel, and other similar activities that was directly and incrementally
> Zac Murphy is president of Blooming Colors Inc. which provides landscaping services in Tallahassee, Florida. On November 20, 2019, Mr. Murphy signed a service contract with Eastern State University. Under the contract, Blooming Colors will provide landsc
> Karen Ragsdale owns a business that rents parking spots to students at the local university. Karen’s typical rental contract requires the student to pay the year’s rent of $450 ($50 per month) on September 1. When Karen prepares financial statements at t
> Marsteller Properties Inc. owns apartments that it rents to university students. At December 31, 2019, the following unadjusted account balances were available: The following information is available for adjusting entries: a. An analysis of apartment re
> Tarkington Freight Service provides delivery of merchandise to retail grocery stores in the Northeast. At the beginning of 2019, the following account balances were available: During 2019 the following transactions occurred: a. Tarkington performed deli
> What are business process risks?
> Round Grove Alarm Company provides security services to homes in northwestern Indiana. At year-end 2019, after adjusting entries have been made, the following list of account balances is prepared: Required: 1. Prepare closing entries for Round Grove Ala
> The following schedule shows all the accounts of Fresno Travel Agency that received year end adjusting entries: Required: 1. Calculate the missing amounts identified by the letters (a) through (e). 2. Prepare the five adjusting entries that must have bee
> Harrigan Enterprises utilizes Snoopy Systems to design and implement a cash management system. Due to Harrigan’s cash management problems, it cannot currently pay for the system out of pocket. Snoopy chooses to extend a 6% note on January 1, 2019, for th
> You have the following unadjusted trial balance for Rogers Corporation at December 31, 2019: At year end, you have the following data for adjustments: a. An analysis indicates that prepaid rent on December 31 should be $2,300. b. A physical inventory sh
> Four adjusting entries are shown below. a. Wages Expense................................ 3,410 Wages Payable ............................. 3,410 b. Accounts Receivable ........................ 8,350 Service Revenue ........................... 8,350
> Bartow Photographic Services takes wedding and graduation photographs. At December 31, the end of Bartow’s accounting period, the following information is available: a. All wedding photographs are paid for in advance, and all cash collected for them is c
> Kuepper’s Day Care is a large daycare center in South Orange, New Jersey. The daycare center serves several nearby businesses as well as a number of individual families. The businesses pay $6,180 per child per year for daycare services for their employee
> Security Specialists performs security services for local businesses. During 2019, Security Specialists performed $1,425,700 of security services and collected $1,445,000 cash from customers. Security Specialist’s employees earned salaries of $82,350 per
> George Hathaway, an electrician, entered into an agreement with a real estate management company to perform all maintenance of basic electrical systems and air-conditioning equipment in the apartment buildings under the company’s manage
> Unadjusted account balances at December 31, 2019, for Rapisarda Company are as follows: The following data are not yet recorded: a. Depreciation on the equipment is $18,350. b. Unrecorded wages owed at December 31, 2019: $4,680. c. Prepaid rent at Decem
> James and Susan Morley recently converted a large turn-of-the-century house into a hotel and incorporated the business as Saginaw Enterprises. Their accountant is inexperienced and has made the following closing entries at the end of Saginaw’s first year
> What are strategic risks?
> Grand Rapids Consulting Inc. began 2019 with a retained earnings balance of $38,100 and has the following accounts and balances at year end: Sales Revenue $162,820 Supplies Expense $ 4,348 Salaries Expense 91,660 Income Taxes Expense 13,800 Re
> Jarrod’s Meat Shop doubles as a butcher shop and a sandwich shop that sells to both individuals and a nearby hospital system. On a particular day, Jarrod’s had cash sales of $450, credit sales of $600, sales on MasterCard of $657, and sales on Visa of $9
> Refer to the unadjusted trial balance for Ox moor Corporation in Exercise 3-56. Unadjusted trial balance for Ox moor Corporation in Exercise 3-56: Required: Prepare a classified balance sheet for Ox moor at December 31, 2019. Oxmoor Corporadion Adjus
> Refer to the unadjusted trial balance for Ox moor Corporation in Exercise 3-56. Unadjusted trial balance for Ox moor Corporation from Exercise 3-56: Required: Prepare a retained earnings statement for Ox moor for the year ended December 31, 2019. Oxm
> Ox moor Corporation prepared the following adjusted trial balance. Required: Prepare a single-step income statement for Ox moor for the year ended December 31, 2019. Oxmoor Corporadion Adjusted Trial Balance December 31, 2019 Debit Ассount Credit Cas
> Van Brush Enterprises, a painting contractor, prepared the following adjusting entries at year end: a. Wages Expense................................ 2,550 Wages Payable............................. 2,550 b. Accounts Receivable .......................
> Selected balance sheet accounts for Gardner Company are presented below. Prepaid Insurance May 5 4,300 ? 1,250 Wages Payable ? 5,400 Unearned Sales Revenue ? 9,500 May 10 2,250 Interest Receivable ? 825 Required
> Reynolds Computer Service offers data processing services to retail clothing stores. The following data have been collected to aid in the preparation of adjusting entries for Reynolds Computer Service for 2019: a. Computer equipment was purchased from IB
> Allentown Services Inc. is preparing adjusting entries for the year ending December 31, 2019. The following data are available: a. Interest is owed at December 31, 2019, on a 6-month, 8% note. Allentown borrowed $120,000 from NBD on September 1, 2019. b.
> The downtown location of Chicago Clothiers purchases large quantities of supplies, including plastic garment bags and paper bags and boxes. At December 31, 2019, the following information is available concerning these supplies: Supplies inventory, 1/1/2
> JDM Inc. made the following prepayments for expense items during 2019: a. Prepaid building rent for 1 year on April 1 by paying $6,600. Prepaid rent was debited for the amount paid. b. Prepaid 12 months’ insurance on October 1 by paying $4,200. Prepaid i
> What is meant by ‘‘tone at the top’’? Why is it so important to an effective system of internal controls?
> Ray’s beginning and ending accounts receivables balances are $147,990 and $142,720, respectively. Ray’s sold $3,745,060 of merchandise, of which 50% was on credit. Required: Determine the amount of cash collections for the period.
> Greensboro Properties Inc. owns a building in which it leases office space to small businesses and professionals. During 2019, Greensboro Properties engaged in the following transactions: a. On March 1, Greensboro Properties paid $10,500 in advance to Pa
> Faraday Electronic Service repairs stereos and DVD players. During 2019, Faraday engaged in the following activities: a. On September 1, Faraday paid Wausau Insurance $4,860 for its liability insurance for the next 12 months. The full amount of the prepa
> Sentry Transport Inc. of Atlanta provides in-town parcel delivery services in addition to a full range of passenger services. Sentry engaged in the following activities during the current year: a. Sentry received $5,000 cash in advance from Rich’s Depart
> Medina Motor Service is preparing adjusting entries for the year ended December 31, 2019. The following items describe Medina’s continuous transactions during 2019: a. Medina’s salaried employees are paid on the last day of every month. b. Medina’s hourl
> Conklin Services prepares financial statements only once per year using an annual accounting period ending on December 31. Each of the following statements describes an entry made by Conklin on December 31 of a recent year. a. On December 31, Conklin com
> Carrico Advertising Inc. performs advertising services for several Fortune 500 companies. The following information describes Carrico’s activities during 2019. a. At the beginning of 2019, customers owed Carrico $45,800 for advertising services performed
> Treadway Dental Services gives each of its patients a toothbrush with the name and phone number of the dentist office and a logo imprinted on the brush. Treadway purchased 15,000 of the toothbrushes in October 2019 for $3,130. The toothbrushes were deliv
> Omega Transportation Inc., headquartered in Atlanta, Georgia, uses accrual-basis accounting and engaged in the following transactions: . Billed customers $3,580,000 for transportation services . Collected cash from customers in the amount of $2,479,000 .
> The records of Summers Building Company reveal the following information for 2019. a. Cash receipts during 2019 (including $50,000 paid by stockholders in exchange for common stock) were $273,500. b. Cash payments during 2019 (including $8,000 of dividen
> Electronic Repair Company repaired a high-definition television for Sarah Merrifield in December 2019. Sarah paid $80 at the time of the repair and agreed to pay Electronic Repair $80 each month for 5 months beginning on January 15, 2020. Electronic Repa
> XYZ Corp sells widgets to consumers for $20 each. Its beginning accounts receivable balance was $24,975, and it sold 12,376 widgets throughout the year. The total cash collections for the year amounted to $217,750. Required: Calculate the ending account
> What are the five components of internal control?
> Each of the following situations relates to the recognition of revenue: a. A store sells a gift card in December which will be given as a Christmas present. The card is not redeemed until January. b. A furniture store sells and delivers furniture to a cu
> The following information is taken from the accrual accounting records of Kroger Sales Company: a. During January, Kroger paid $9,150 for supplies to be used in sales to customers during the next 2 months (February and March). The supplies will be used e
> Businesses must decide whether to issue credit to customers. Required: Describe how selling to customers on credit affects the operating cycle.
> Richter Industries has the following items: Currency..................................................................................................... $27,500 Customer checks that have not been deposited........................................ 850 U.
> Canary Inc. maintains a petty cash fund with a balance of $1,800. During the month of September, Canary’s employees made routine expenses using cash from the petty cash fund totaling $1,150. At the end of September, Canary replenishes the petty cash acco
> Kingery Inc. maintains a balance of $3,000 in its petty cash fund for routine purchases such as supplies. During the year, Kingery’s employees paid for various office supplies and food purchases for office birthdays. As a result, Kingery’s petty cash acc
> Milner Department Store has one cash register on which it performs daily cash counts. Recently, the cash count indicated that there was $9,218.47 in the register after deducting and removing the opening change amount of $50. However, the cash register ta
> What accounts are used to record inventory purchase transactions under the periodic inventory system? Why aren’t these accounts used in a perpetual inventory system?
> Why do sales transactions under a perpetual inventory system require two journal entries?
