Topic: Accounting for Marketable Securities
197.
Uncollectible accounts
(a.) What is an uncollectible account? Explain how a business suffers losses from
uncollectible accounts.
(b.) “A competent credit manager should set credit policies so as to avoid any and all
losses from uncollectible accounts.” Is this statement accurate? Explain your answer.
198.
Balance sheet method-journal entries
The general ledger controlling account for Accounts Receivable has a balance of $120,500
at year-end before adjustment. The company uses the balance sheet approach to
estimate uncollectible accounts. By aging the individual customers’ accounts, it was
determined that the doubtful accounts amounted to $5,020. Prepare the year-end
adjusting entry for uncollectible accounts under each of the following independent
assumptions.
(a.) Allowance for Doubtful Accounts has a
credit
balance of $2,850.
(b.) Allowance for Doubtful Accounts has a
debit
balance of $925.
199.
Balance sheet method-computations
Rainbow Company uses the balance sheet approach to estimate uncollectible accounts.
By aging the customers’ accounts, it was estimated that $7,325 of the company’s month-
end accounts receivable would prove to be uncollectible. Determine the amount that
should be debited to the Uncollectible Accounts Expense account in the month-end
adjusting entry under each of the following independent assumptions:
(a.) Before making any adjustment, the Allowance for Doubtful Accounts has a $635
credit
balance. $________________
(b.) Before making any adjustment, the Allowance for Doubtful Accounts has a
debit
balance of $720. $________________
200.
Uncollectible accounts—two methods
At the end of the year the unadjusted trial balance of Angel Provisions included the
following accounts:
(a.) If Angel uses the balance sheet approach to estimate uncollectible accounts expense,
and aging the accounts receivable indicates the estimated uncollectible portion to be
$6,075, what will the uncollectible accounts expense for the year be?
(b.) If the income statement approach to estimating uncollectible accounts expense is
followed, and uncollectible accounts expense is estimated to be 1% of net credit sales,
what is the amount of uncollectible accounts expense for the year?
201.
Write-off of uncollectible account receivable
On January 10, Winston, Inc.’s trial balance included the following accounts:
On January 11, Len Palmer, a major customer, declares bankruptcy and thus, Winston
determines that a receivable from Palmer in the amount of $3,400 is worthless.
(a) In the space provided, prepare the journal entry that Winston should record to write-off
the account receivable from Len Palmer on January 11.
(b) Compute the net realizable value of Winston’s accounts receivable at each of the
following dates:
January 10 (before write-off of Palmer’s account) $________________
January 11 (immediately after write-off of Palmers’ account) $________________
202.
Information for the Hooper Company is as follows:
(1) What is the amount of uncollectible account expense for 2015 if the company uses the
Percentage of Sales method and 2% of credit sales are deemed uncollectible?
(2) What is the amount of uncollectible account expense if the company uses the balance
sheet approach and estimates $2,200 as uncollectible in 2015?
(3) What is the net realizable value of accounts receivable if the company uses the
balance sheet approach?
(4) If the company uses the balance sheet approach and writes-off a receivable of $450
what will be the net realizable value of accounts receivable after the write off?
203.
Notes receivable—computations
Complete the following statements about promissory notes and interest by entering
amounts in the spaces provided. (Use 360 days in one year.)
7-139
204.
Note receivable—journal entries
On September 1, 2015, Dental Equipment Corporation sold equipment priced at $350,000
in exchange for a six-month note receivable with an annual interest rate of 12%, all due at
maturity.
(a.) Prepare the December 31, 2015 (fiscal year-end), adjusting entry made by Dental with
regard to this note receivable.
(b.) Prepare the entry made by Dental on March 1, 2016 (maturity date of note), to record
collection of note and interest.
205.
Accounts receivable turnover rate
During 2015, Larsen Company’s accounts receivable averaged $750,000. Larsen’s 2015
income statement reported net sales of $6,780,000, uncollectible accounts expense of
$160,000, and net income of $768,000. (Assume 365 days in a year.)
Using the information, compute the following for Larsen Company:
(a) Accounts receivable turnover: (Round to the nearest two decimals.)
(b) Average number of days to collect accounts receivable
(Round to nearest day, if necessary): (Round to the nearest %.)
206.
Evaluating the quality of receivables
(a.) The 2015 annual report of Modern Books, a publicly traded corporation, reports
accounts receivable (net of allowance for doubtful accounts), of $190,714 as of February
28, 2015. What assurance do readers of Modern Books ‘ annual report have that these
receivables really exist and are not fictitious assets recorded to make the balance sheet
“look good”?
(b.) The accounts receivable turnover rate is frequently used in evaluating the liquidity of
accounts receivable. How is the accounts receivable turnover rate computed? What type
of information does the accounts receivable turnover rate provide?