Create a statement of cash flows for Viezuchter Company. The statement should include Q1 and Q2-Q4 in two columns (current period data and comparative data is standard in financial reporting). Use an indirect method to determine cash flow from operating activities.
Consider each part independently. That is, do not worry about errors in checks recorded by customers in Part I when accounting for the receivables included in Part II.
Part I: Cash Equivalents
Viezuchter Company operates a checking account with Spirit of Texas Bank. At the beginning of the second quarter, after comparing its check records against bank records at the end of quarter 1, the company determine that there were $5,800 of checks outstanding and $3,700 of deposits in transit. On 12/31, Viezuchter obtained a bank record from Spirit of Texas in order to perform a reconciliation and prepared the following data for the period Q2 – Q4:
|Book information||Bank information|
Spirit of Texas notified Viezuchter that one of its deposited customer checks in the amount of $3,500 did not clear (this also resulted in a returned check fee included in service fees). In addition, the company discovered during its reconciliation of records that its bookkeeper had mis-recorded the receipt of cash from the collection of an outstanding credit customer. Instead of recording the appropriate amount of $8,900, the accountant recorded the collection as $9,800. The error is embedded in the information concerning deposits made.
Provide the following:
1)The journal entry to adjust cash per the reconciliation information as well as the adjusted cash balance on 12/31 after this entry is made.
2)The end of period outstanding checks and deposits in-transit as well as the bank balance at Spirit of Texas on 12/31.
Part II: Accounts Receivable
The following entries represented receivable sales and collections made from the original form of the problem during the period Q2 – Q4:
Cash $ 932,750
Accounts receivable 399,750
Revenues – repair $1,300,000
Revenues – restorations 32,500
Accounts receivable $350,000
Consider the following alterations to the facts of the original problem. Unless otherwise indicated, all other facts remain the same:
a.At the beginning of the second quarter, Viezuchter had outstanding balances in both its allowance for doubtful accounts and allowance for sales returns accounts amounting to $1,000 and $550 respectively. There was no refund liability account. The accounts receivable balance was $24,500 at the beginning of the period.
b.30% of both the restorations revenue and repair revenue was related to sales made on account.
c.All credit sales during these quarters were made with terms 4/15, n/60 to incent prompt payment of accounts. Viezuchter uses the gross method to accounts for cash discounts related to receivables.
d.$350,000 of cash was collected. However, 87% of the cash collected was collected within the discount window, with the remaining 13% of cash collected outside the discount window (round calculations to the nearest dollar).
e.Viezuchter wrote-off $12,000 of accounts that it determined to be uncollectible.
f.Viezuchter has a double-down guarantee “return” policy on repairs (but not restorations), whereby any repair that is need of correction within 90 days is not only corrected, but the customer receives a full refund in consideration of inconvenience. Viezuchter’s policy covers repair revenues only but both cash and credit-based sales. The company bases its estimate of the cost of this policy at 1% of its revenues. During the quarters, Viezuchter recorded $9,500 of returns under this policy (cash-based returns were 40% of this amount and credit-based returns were 60% of this amount).
g.Assume the $2,700 bad debt expense noted at the end of the period in the original problem was NOT recorded. Instead, at the end of the period, the company estimates its bad debt expense use the balance sheet method and the following aging schedule of receivables:
|Days outstanding||Amount||% default|
Provide the following:
1)Record all journal entries pertaining to the cash and receivable sales related to repair revenue and restoration revenue. This includes new versions of the original two entries above as well as new entries required by the additional information.
2)Reconcile new ledger t-accounts that indicate the updated 12/31 ending balances for accounts receivable, allowance for doubtful accounts, allowance for sales returns, refund liability account, sales return, bad debt expense. For each account, provide beginning balances starting at Q2 (or indicate $0 if there is none), label any debit/credit entries that are adjusting entries as “adj.”, any closing entries as “cl.” as well as an ending balance.
3)Provide a trio of partial trial balances (unadjusted/adjusted/post-closing) for each of the accounts in the journal entries above (exclude the cash and revenue-repair/revenue-restoration accounts from these trial balances).
4)Calculate the new adjusted value of receivables that would be disclosed on the balance sheet given the new information for both 3/31 and 12/31. Calculate the amount of net sales that would be recorded for the period and disclosed on the income statement for the period Q2-Q4 (assume all sales discounts accrued to repair revenue transactions, this keeps all the sales discounts in continuing operations). Calculate the accounts receivable turnover ratio for Viezuchter.
5)Provide the journal entries to record the revenue from sale as well as the collection of credit sales (new versions of the original two entries above) if Viezuchter uses the net method to account for cash discounts.