Problem 7-1 Bank Reconciliation 
The following information is available to assist you in preparing a bank reconciliation for Sunshine Florists on May 31, 1995:

a. The balance on the May 31, 1995, bank statement is $8,432.11.
b. Not included on the bank statement is a $1,250.00 deposit made by Sunshine late on May 31.

Problem 7-3a Non-Interest-Bearing Note Receivable
Southern Poultry sells a large stock of birds to a processor on May 31, 1995. The processor makes a $12,000 down payment and signs a $36,900 promissory note agreeing to pay the remainder on August 29, 1995, the end of its busy season. The cash selling price of the birds on May 31 was $48,000.

1. Compute the effective rate of interest earned by Southern on the note. Explain your answer.

2. Write the footnote in Southern's annual report describing the terms of the note and expected collection. Southern's accounting year ends on June 30.

Problem 7-4a Discount of a Note Receivable
Ram Company sold merchandise on credit to a customer on July 31, 1995. The customer gave Ram a down payment of $1,000 and a 10%, 45-day promissory note in the amount of $4,000. Ram's year-end is September 30. On August 15, Ram sold the note, with recourse, to Slate Savinings and Loan at a discount rate of 12%. On September 14, Slate notified Ram that the original customer had paid the amount due on the note in full.

1. What amount of cash would Ram have accepted instead of the note?

2. What is the result of the sale of merchandise and discounting of the note on Ram's asset's and liabilities as of September 30, 1995, and income for the year ended September 30, 1995? Should an investor be notified if the company's sales are usually handled with a note that is discounted at a financial institution? Write a footnote to explain this sales payment method.

Problem 7-8a Accounts and Notes Receivable
Tweedy, Inc., sold merchandise for $6,000 to P.D. Cat on July 31, 1995, with credit terms of net 30. Subsequent to this, Cat experienced cash flow problems and was unable to pay its debt. On January 15, 1995, Cat sent Tweedy a check for $1,500 and offered to sign a two-month, 8%, $4,500 promissory note to satisfy the remaining obligation. Cat paid the amount on the note due Tweedy, with interest, on March 15, 1996. Tweedy ends its accounting year on December 31 each year.

1. For each of the transactions during the period, from July 31, 1995, to March 15, 1996, determine the effet on the accounting equation.

2. Why would Cat bother to send Tweedy a check for $1,500 on January 15 and agree to sign a note for the balance, given that such a long period of time had passed since the original purchase?

Case 7-4 Notes Receivable
Larson Land Development is considering two offers for a lot. Builder A has offered to pay $12,000 down and sign a 10%, $80,000 promissory note, with interest and principal due in one year. Builder B would make a down payment of $20,000 and sign a non-interest bearing, one-year note for $80,000. The president believes that the deal with Builder A is better because it involves interest and the loan to Builder B does not. The vice president of marketing thinks that the offer from Builder B is better because it involves more money "up front." The sales manager is indifferent, reasoning that both builders would eventually pay $100,000 in total and because the lot was recently appraised at $75,000, both would be paying more than fair market value.

1. Regardless of which offer it accepts, how much revenue should Larson recognize from the sale of the lot? Explain your answer.

2. Which offer do you think Larson should accept? Or is the sales manager correct that it doesn't matter which one is accepted? Explain your answer.