Chapter 7 Cash and Receivables
AICPA: FN Measurement
144. If HP is using the balance sheet approach to determining bad debt expense, what percentage of
year-end receivables did it use in 2013 and 2012, respectively?
145. For each posted entry in the allowance account during 2013, prepare the journal entry.
146. During Burns Company’s first year of operations, credit sales totaled $140,000 and collections
on credit sales totaled $105,000. Burns estimates that bad debt losses will be 1.5% of credit
sales. By year-end, Burns had written off $300 of specific accounts as uncollectible.
Required:
1. Prepare all appropriate journal entries relative to uncollectible accounts and bad debt
expense.
2. Show the year-end balance sheet presentation for accounts receivable.
Answer:
Chapter 7 Cash and Receivables
147. During Bricker Company’s first year of operations, credit sales totaled $200,000 and
collections on credit sales totaled $145,000. Bricker estimates that $1,000 of its ending
accounts receivable balance will not be collected. By year-end, Bricker had written off $330
of specific accounts as uncollectible.
Required:
1. Prepare all appropriate journal entries relative to uncollectible accounts and bad debt
expense.
2. Show the year-end balance sheet presentation for accounts receivable.
Answer:
Chapter 7 Cash and Receivables
148. A summary of Klugman Company’s December 31, 2016, accounts receivable aging schedule
is presented below along with the estimated percent uncollectible for each age group:
Age Group
Amount
%
0–60 days
$60,000
.5
61–90 days
22,000
1.0
91–120 days
3,000
10.0
Over 120 days
1,000
50.0
The allowance for uncollectible accounts had a balance of $1,400 on January 1, 2016. During
the year, bad debts of $750 were written off.
Required:
Prepare all journal entries for 2016 with respect to bad debts and the allowance for
uncollectible accounts.
0–60 days
61–90 days
22,000
91–120 days
Over 120 days
Allowance for uncollectible accounts
Accounts receivable
To write off specific accounts
Bad debt expense
Allowance for uncollectible accounts
[$1,320 –($1,400 –750)]
accounts to $670 at year-end
Chapter 7 Cash and Receivables
149. A summary of London Fashion’s December 31, 2016, accounts receivable aging schedule is
presented below along with the estimated percent uncollectible for each age group:
Age Group
Amount
%
0–60 days
$40,000
.5
61–90 days
15,000
1.5
91–120 days
2,000
15.0
over 120 days
800
80.0
The allowance for uncollectible accounts had a balance of $1,600 at January 1, 2016. During
the year bad debts of $1,150 were written off.
Required:
Prepare all 2016 journal entries with respect to bad debts and the allowance for uncollectible
accounts.
Age
Amount
Loss Rate
Allowance
0–60 days
.005
61–90 days
.015
91–120 days
.150
Over 120 days
.800
Allowance for uncollectible accounts
Accounts receivable
To write off specific accounts
Bad debt expense
Allowance for uncollectible accounts
[$1,365 – ($1,600 –1,150)]
to $1,365 at year-end
Chapter 7 Cash and Receivables
150. On December 31, 2015, Central Freight reported an allowance for uncollectible accounts of
$15,300. During 2016, Central wrote off $17,000 in accounts receivable. Included in the
write-off was Roskoff Corp.’s account in the amount of $750. Roskoff subsequently paid this
balance. At December 31, 2016, an analysis of the accounts receivable aging schedule
indicated the need for an allowance for uncollectible accounts of $14,900.
Required:
Prepare all implied journal entries relative to bad debt expense and the allowance for
uncollectible accounts.
151. Cordova, Inc., reported the following receivables in its December 31, 2015, year-end balance
sheet:
Current assets:
Accounts receivable, net of $52,000 in allowance for
uncollectible accounts $384,000
Interest receivable 19,000
Notes receivable 400,000
Additional information:
1. The notes receivable account consists of two notes, a $100,000 note and a $300,000 note.
The $100,000 note is dated October 31, 2015, with principal and interest payable on
October 31, 2016. The $300,000 note is dated March 31, 2015, with principal and 8%
interest payable on March 31, 2016.
2. During 2016, sales revenue totaled $2,120,000, $1,980,000 cash was collected from
customers, and $41,000 in accounts receivable were written off. All sales are made on a
credit basis. Bad debt expense is recorded at year-end by adjusting the allowance account
to an amount equal to 8% of year-end accounts receivable.
Required:
1. In addition to sales revenue, what revenue and expense amounts related to receivables will
appear in Cordova’s 2016 income statement?
2. Calculate the receivables turnover ratio for 2016.
2. Accounts receivable turnover ratio:
Chapter 7 Cash and Receivables
152. AT&T’s financial statements for the 2013 and 2012 fiscal years contained the following
information:
Balance Sheets ($ in millions) 2013 2012
Current assets:
Accounts receivable, net of allowances for
doubtful accounts of $483 and $547 $12,918 $12,657
Income Statements ($ in millions) 2013 2012
Revenues $128,752 $127,434
In addition, the statement of cash flows disclosed bad debt expense of $954 million in 2013
and $1,117 million in 2012.
Required:
1. Determine the amount of actual bad debt write-offs made during 2013.
2. Determine the amount of cash collected from customers during 2013.
3. Compute the receivables turnover ratio for 2013.
153. Tokyo Imports sold merchandise to Tall-Mart, receiving a six-month, noninterest-bearing note
for $100,000. The implied discount rate on the note is 10% per annum. Tokyo uses a periodic
inventory system.
Required:
1. Prepare the journal entry to record the sale.
2. Compute the effective rate of interest.
154. Montana Minerals sold coal to Beta Electric, receiving a six-month, noninterest-bearing note
for $200,000. The implied discount rate on the note is 8% per annum. Montana uses a periodic
inventory system.
Required:
1. Prepare the journal entry to record the sale.
2. Compute the effective rate of interest.
155. On January 1, 2016, Happy Tubs sold a hot tub to Monica, receiving a two-month,
noninterest-bearing note in exchange for a hot tub that normally sells for $8,000. The note is
for an amount that achieves an effective interest rate of 10% per year.
Required:
1. Prepare the journal entry to record the sale.
2. Prepare any adjusting entry necessary on December 31, 2016.
Chapter 7 Cash and Receivables
3. Prepare any adjusting entry necessary on December 31, 2017.
Chapter 7 Cash and Receivables
156. On December 1, 2016, General Mole borrowed $400,000 at 12% interest and pledged
$500,000 in accounts receivable as collateral. Additionally, General Mole was charged a
finance fee equal to 1% of the accounts receivable assigned. At the end of December,
$300,000 of the assigned receivables were collected and remitted to the lender along with
accrued interest.
Required:
Prepare journal entries to record the borrowing, the assignment of receivables, the collection
on the receivables, and the recognition of interest expense.
157. On October 1, 2016, Watergate Hotels borrowed $400,000 at 12% interest and pledged
$500,000 in accounts receivables as collateral. Additionally, Watergate was charged a finance
fee equal to 1% of the accounts receivable assigned. At the end of December, $300,000 of the
assigned receivables were collected and remitted to the lender along with accrued interest.
Required:
Prepare journal entries to record the borrowing, the assignment of receivables, the collection
on the receivables, and the recognition of interest expense.
Chapter 7 Cash and Receivables
158. On February 1, 2016, Stealth Trucks sold a diesel rig to Kansas Transports for $250,000,
receiving a $50,000 down payment and a 12-month, 10% note for the balance. Principal and
interest are due at maturity, and the 10% interest rate reflected the market rate of interest at the
time of sale. On August 1, 2016, Kansas Transports discounted the note without recourse at
the First South Bank at 12% interest.
Required:
Prepare all required journal entries at August 1 to recognize interest revenue and the
discounting of the note.
Chapter 7 Cash and Receivables
159. On June 30, 2016, Blondie Fixtures was considering alternatives to bolster its cash position.
Option One called for transferring $400,000 in accounts receivable to Dogwood Finance
Company without recourse for a 5% fee. Option Two calls for Blondie to transfer the
$400,000 in receivables to Dogwood with recourse. Dogwood’s charges a 4% fee for
receivables factored with recourse. Option Two meets the conditions to be considered a sale,
but Blondie estimates a $3,000 recourse liability. Under either option, Dogwood will
immediately remit 90% of the factored receivables to Blondie, and retain 10%. When
Dogwood collects the remaining receivables, it remits the amount, less the fee, to Blondie.
Blondie estimates that the fair value of the final 10% of the receivables is $25,000 (ignoring
the factoring fee).
Required:
1. Prepare any necessary journal entry or entries if receivables are factored under Option
One.
2. Prepare any necessary journal entry or entries if receivables are factored under Option
Two.