The balance of Accounts Receivable at December 31, 2016

1. The balance of Accounts Receivable at December 31, 2016 can be calculated by adding the credit sales during 2016 to the beginning balance of accounts receivable and subtracting the collections from credit customers during 2016 and the customer accounts written off as uncollectible during 2016.

Accounts Receivable at December 31, 2016 = Accounts receivable—January 1, 2016 + Credit sales during 2016 – Collections from credit customers during 2016 – Customer accounts written off as uncollectible during 2016

Using the provided data:
Accounts Receivable at December 31, 2016 = $236,000 + $820,000 – $590,000 – $8,000

The balance of Accounts Receivable at December 31, 2016 is $458,000 (option c).

2. To calculate the bad debt expense for 2016 using the aging approach, we need to determine the estimated uncollectible accounts based on an aging analysis.

Bad Debt Expense for 2016 = Estimated uncollectible accounts based on an aging analysis

Using the provided data:
Bad Debt Expense for 2016 = $9,600

The amount recorded as bad debt expense for 2016 is $9,600 (option d).

3. To calculate the balance in the Allowance for Doubtful Accounts after the bad debt expense adjustment using the aging approach, we need to subtract the bad debt expense for 2016 from the beginning balance of the Allowance for Doubtful Accounts.

Balance in the Allowance for Doubtful Accounts after the bad debt expense adjustment = Allowance for doubtful accounts—January 1, 2016 – Bad Debt Expense for 2016

Using the provided data:
Balance in the Allowance for Doubtful Accounts after the bad debt expense adjustment = $8,700 – $9,600

The balance in the Allowance for Doubtful Accounts after the bad debt expense adjustment is -$900 (option c).

4. The total interest that Router Inc. will receive at maturity can be calculated using the formula:

Total Interest = Principal x Interest Rate x Time

Using the provided data:
Principal = $70,000
Interest Rate = 9% or 0.09
Time = 120 days or 120/365 years (assuming a 365-day year)

Total Interest = $70,000 x 0.09 x (120/365)

The total interest that Router Inc. will receive at maturity is approximately $2,100 (option b).

5. The effect on the accounting equation to record the sales and deposits of credit card drafts totaling $12,000, considering the 2% collection fee charged by VISA, would be:

An increase in Cash for $11,760 (option a), calculated as $12,000 – ($12,000 x 2%)
An increase to Sales for $11,760 (option b), representing the total amount of the credit card drafts deposited
An increase to Accounts Receivable for $11,760 (option c), if the sales were made on credit and not immediately collected
An increase in Collection Fee Expense for $240 (option d), representing the 2% collection fee charged by VISA.

So, the correct answer would depend on whether the sales were made on credit or immediately collected. If they were immediately collected, option a would be correct. If they were made on credit, option c would be correct. If the collection fee is considered as an expense, option d would also be correct.

6. When a company discounts an interest-bearing note at a bank with recourse (meaning the company remains liable for payment if the maker of the note defaults), it means that the company has a contingent liability from the time the note is discounted until its maturity date (option c). The bank does not assume the credit risk on non-payment at the maturity date.

7. Using different depreciation methods for book purposes versus tax purposes for the same asset is a result of the differing goals of financial and tax accounting (option b). It is not contrary to GAAP or against the Internal Revenue Code. Different depreciation methods may be used for different purposes to meet specific requirements or objectives.

8. The journal entry to record depreciation expense for 2016 for Newco Publishing Company, considering a straight-line method of depreciation over an 8-year period with an estimated residual value of $20,000, would be:

Increase Depreciation Expense and increase Accumulated Depreciation for $22,500 (option d).

This is calculated as ($200,000 – $20,000) / 8 = $22,500, representing the annual depreciation expense. Accumulated Depreciation is a contra-asset account that accumulates the total depreciation expense over time.

9. The correct statement regarding Wind Chime and Fire Hut, assuming they are similar in all other respects, is:

b. Fire Hut’s book value will be greater than Wind Chime’s book value at the end of year one.

This is because the double-declining-balance method of depreciation used by Fire Hut results in higher depreciation expense in the earlier years compared to the straight-line method used by Wind Chime. As a result, Fire Hut will have a higher accumulated depreciation and lower book value at the end of year one.

10. To calculate the book value of the truck to be reported on the balance sheet at December 31, 2016, we need to determine the accumulated depreciation for the truck.

Accumulated Depreciation = (Cost – Residual Value) / Useful Life

Using the provided data:
Cost = $60,000
Residual Value = $8,000
Useful Life = 5 years

Accumulated Depreciation = ($60,000 – $8,000) / 5

The Accumulated Depreciation after 2016 is $10,400 ($52,000 / 5).

Book Value = Cost – Accumulated Depreciation

Book Value = $60,000 – $10,400

The book value of the truck to be reported on the balance sheet at December 31, 2016, is $49,600 (option b).