ACC 305 Lecture Notes - Lecture 25: Accounts Receivable

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orangegnat648

17 Aug 2019

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Cash (cash on hand and readily available in checking and savings accounts) and cash equivalents (highly-liquid, low-risk securities maturing in 3 months or less) Short term investments including investments in marketable securities (debt and equity trading securities, available-for-sale securities, held-to-maturity securities (debt only) that will mature within a year) Receivables (accounts receivable, notes receivable with short-term maturity dates) Inventories (goods held for resale, raw materials, work in process inventories) Other current assets (prepaid items that will be consumed instead of converted into cash) If a company expects to hold the investment for more than one year or the operating cycle, whichever is longer, it is classified as a long-term investment, or noncurrent investment. Primary objective is to increase shareholder value. Appreciation of the market value of the investment. The property, plant, and equipment section of a company"s balance sheet includes the long-lived tangible assets used in its operations.

Related Questions

Kroshka Holdings Corporation has several investments in debt and equity securities of other companies:

1. 10-year BCE bonds, intended to be held for the duration of the bonds

2. 10-year GE bonds, intended to be sold if interest rates go down

3. 5-year Government of Canada bonds, intended to be sold if cash is needed

4. A 180-day treasury bill

5. Bank of Montreal preferred shares, purchased for the dividend income

6. TMX common shares, purchased to sell in the near term at a profit. These shares are part of an investment portfolio that is actively traded.

Instructions:

a) Indicate whether each of the above investments is a passive or strategic investment

b) Indicate whether each of the above investments would be classified as a short-term (current assest) of long-term investment on Kroshka Holdings' balance sheet.

c) For each investment that you classified as passive in (a), indicate whether it is a held-for-trading, available-for-sale, or held-to-maturity security.

rubymarten702

Hurricane Inc. purchased a portfolio of available-for-sale securities in 2016, its first year of operations. The cost and fair value of this portfolio on December 31, 2016, was as follows:

1	Name	Number of Shares	Total Cost	Total Fair Value
2	Tornado Inc.	830.00	$14,857.00	$16,185.00
3	Tsunami Corp.	1,230.00	31,488.00	34,809.00
4	Typhoon Corp.	2,170.00	44,268.00	43,834.00
5	Total		$90,613.00	$94,828.00

On June 12, 2017, Hurricane purchased 1,400 shares of Rogue Wave Inc. at $50 per share plus a $80 brokerage commission.

Required:

Provide the journal entries to record the following (refer to the Chart of Accounts for exact wording of account titles and be sure to enter the year as part of the date):

1.	The adjustment of the available-for-sale security portfolio to fair value on December 31, 2016.
2.	The June 12, 2017, purchase of Rogue Wave Inc. stock.

How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Chart of Accounts

CHART OF ACCOUNTS

Hurricane Inc.

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Investments-Rogue Wave Inc. Stock
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable
251	Sales Tax Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
350	Unrealized Gain (Loss) on Available-for-Sale Investments
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
611	Interest Revenue
612	Dividend Revenue
621	Income of Rogue Wave Inc.
631	Gain on Sale of Investments
641	Unrealized Gain on Trading Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
721	Loss of Rogue Wave Inc.
731	Loss on Sale of Investments
741	Unrealized Loss on Trading Investments

Journal

Shaded cells have feedback.

A. Provide the journal entries. Refer to the Chart of Accounts for exact wording of account titles. Be sure to enter the year as part of the date.

How does grading work?

PAGE 10

JOURNAL

Score: 33/51

	DATE	DESCRIPTION
1	?	?
2		?
3	?	?
4		?

Points:

6.47 / 10

Feedback

Check My Work

1. The gain or loss is the difference between the portfolio cost and its fair value. The offset account for the gain or loss entry is the valuation allowance account.

2. Increase the investment and decrease Cash for the purchase price (Shares x Per share amount) plus brokerage fee.

Final Question

Shaded cells have feedback.

B. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Unrealized gains and losses for available-for-sale securities are accumulated over time and reported as a credit (positive) or debit (negative) balance in the Stockholdersâ Equity section. As a result, the changes in fair valueare not reflected on the income statement, as is the case with trading securities. Bypassing the income statement issupported on the grounds that available-for-sale securities will be held for alonger time than trading securities; thus, fluctuations in market prices havea greater opportunity to âcancel outâ over time.

Points:

5 / 5

4)Managers place a high priority on internal control systems because the systems assistmanagers in all of the following except:

A)Protecting assets.

B)Urging adherence to company policies.

C)Promoting efficient operations.

D)Ensuring reliable accounting.

E)Assuring that no loss will occur.

5)A properly designed internal control system:

A)Insures profitable operations.

B)Eliminates the need for an audit.

C)Is not necessary if the company uses a computerized system.

D)Requires the use of non-computerized systems.

E)Lowers the company's risk of loss.

6)A company's internal control system:

A)Eliminates the need for audits.

B)Eliminates the need for managers' certification of controls.

C)Monitors company and employee performance.

D)Eliminates human error.

E)Eliminates the company's risk of loss.

7)The impact of technology on internal controls includes:

A)Elimination of fraud.

B)Elimination of the need to bond employees.

C)Reduced processing errors.

D)Elimination of separation of duties.

E)Elimination of the need for regular audits.

8)Internal control systems are:

A)Required only if a company plans to engage in interstate commerce.

B)Developed by the Internal Revenue Service for all U.S. companies.

C)Required by Sarbanes-Oxley (SOX) to be documented and certified if the

company's stock is traded on an exchange.

D)Developed by the Securities and Exchange Commission for public companies.

E)Developed by the Small Business Administration for non-public companies.

9)Cash equivalents:

A)Include 6-month certificates of deposit.

B)Are short-term, highly liquid investment assets.

C)Include money orders.

D)Include checking accounts.

E)Are recorded in petty cash.

10)Cash equivalents meet all of the following criteria except:

A)Include short-term investments purchased within 3 months of their maturity

dates.

B)Are readily convertible to a known cash amount.

C)Have a market value that is not sensitive to interest rate changes.

D)Include short-term U.S. treasury bills.

E)Are more liquid than cash.

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ACC 305 Lecture Notes - Lecture 25: Accounts Receivable

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