_____ 8. Committing accounts receivable as security for a loan.
_____ 9. A method of accounting for bad debts that records the loss from an uncollectible account
receivable immediately upon determining it is uncollectible.
_____ 10. The amount that the signer of a note agrees to pay back when the note matures, not
including interest.
ESSAY QUESTIONS
155)
Describe how accounts receivable arise and how they accounted for, including the use of a
subsidiary ledger and an allowance account.
156)
Define a note receivable and explain how to calculate the interest due on a short-term note
receivable.
157)
Explain the options a company may use to convert its receivables to cash before they are due.
158)
What is the accounts receivable turnover ratio? How is it calculated and how is it used to assess
financial condition?
159)
Describe the differences in how the direct write-off method and the allowance method are applied
in accounting for uncollectible accounts receivables.
160)
The allowance method of accounting for bad debts requires an estimate of bad debt expense at the
end of each accounting period. The two common methods to determine the estimate amount are
the percent of sales method and the percent of receivables method. Explain the basic differences
between the two methods.
161)
Explain how to record the receipt (acceptance) of a note receivable.
162)
Explain the difference between honoring and dishonoring a note receivable.
163)
What are some of the considerations management should make when assessing the accounts
receivable turnover ratio?
164)
A company allows its customers to use bank credit cards to charge purchases. When customers use
the credit cards, the net amount is deposited in the company’s checking account, less a 2.5% service
charge. Assume that on April 13, the company sold $20,000 worth of merchandise to customers
who used credit cards. Prepare the company’s journal entry to record the credit card sales for April
13 assuming the company deposited the receipts that same day.
165)
Gemstone Products allows customers to use bank credit cards to charge purchases. The bank used
by Gemstone Products processes all bank credit cards in exchange for a 3% processing fee and all
credit card receipts deposited are credited to the company account on the day of deposit. Assume
that on January 18, Gemstone Products sold and deposited $18,000 worth of bank credit card
receipts. Prepare the general journal entry to record this transaction.
166)
Mercks uses the perpetual inventory system, and accepts the Discovery credit card for credit card
sales. Discovery charges Mercks a 3% fee, and all credit card receipts deposited are credited to the
company account on the day of deposit. Prepare journal entries to record the following transaction.
March 11 Sold merchandise for $4,500 (that had cost $2,100) and accepted the
customer’s Discovery card.
167)
Woods Co. uses a perpetual inventory system, and accepts the World Express credit card from its
customers. World Express charges a 3.5% service fee and all credit card receipts deposited are
credited to the company account on the day of deposit. On February 28, Woods sold $24,000 worth
of merchandise to customers (that had cost $14,400) using the World Express charge card. Prepare
the journal entries to record February 28 sales.
SHORT ANSWER QUESTIONS
168)
What is the maturity date of a 120-day note receivable dated March 5?
169)
Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is the amount of interest that is
due at maturity?
170)
Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is maturity value of the note?
171)
Calculate the amount of interest that would be owed on a $18,000, 60-day, 8% note receivable at
maturity.
ESSAY QUESTIONS
172)
If a 90-day note receivable is dated July 12, what is the maturity date of the note?
SHORT ANSWER QUESTIONS
173)
If a 60-day note receivable is dated September 22, what is the maturity date of the note?
ESSAY QUESTIONS
174)
On May 31, a company had a balance in its accounts receivable of $103,200. Prepare journal
entries to record the following transactions for June. Assume the company uses a perpetual
inventory system.
June 2 Sold merchandise on account, $12,000. The cost of the merchandise was $7,200.
June 8 Sold $15,000 worth of accounts receivable to First Bank. First Bank charged a 4%
factoring fee.
June 20 Borrowed $30,000 cash from Second National Bank, pledging $31,500 worth of accounts
receivable as collateral for the loan.
175)
Orman Co. sold $80,000 of accounts receivable to First Savings and incurred a 3% factoring fee.
Prepare the journal entry for Orman Co. to record the sale.
176)
Flax had net sales of $7,875 and its average accounts receivables is $1,250. Calculate Flax’s
accounts receivable turnover:
177)
Morgan had net sales of $310,000 and average accounts receivable of $75,600. Its competitor,
Stanley, had net sales of $290,000 and average accounts receivables of $61,350. Calculate the
accounts receivable turnover for both companies. Which company is doing a better job of
managing its accounts receivables?
178)
A company reports the following results in its financial statements:
Year 3 Year 2 Year 1
Net Sales
$2,500,000
$2,100,000
$1,900,000
Accounts receivable, Ending Balance
172,000
167,000
165,000
Calculate the company accounts receivable turnover for Year 2 and Year 3. Compare these two
results and give a possible explanation for any significant change.
179)
The Links Company uses the percent of sales method of accounting for uncollectible accounts
receivable. During the current year, the following transactions occurred:
Sept 7 Links Company determined that the $8,000 account receivable of the Rainier Company
was uncollectible, and wrote it off.
Oct 15 Links Company determined that the $3,500 account receivable of the Olympic Company
was uncollectible and wrote it off.
Nov 9 Rainier Company paid $6,000 of the amount owed to the Links
Company. Links Company does not expect further collections from the Rainier Company.
Dec 31 Links Company estimates that 1% of its $1,900,000 of credit
sales would be uncollectible.
1. Prepare the general journal entries to record these transactions.
2. If the balance of the allowance for uncollectible accounts was a $4,000 credit on January 1 of the
current year, determine the balance of the allowance for uncollectible accounts at December 31 of the
current year. Assume that the transactions above are the only transactions affecting the allowance for
uncollectible accounts during the year.
180)
The Lily Company uses the percent of receivables method of accounting for uncollectible accounts
receivable., and a perpetual inventory system. As of January 1, its net accounts receivable totaled
$192,000 (Accounts Receivable $200,000 less an $8,000 Allowance for Doubtful Accounts).
During the current year, the following transactions occurred.
1) Merchandise costing $1,050,000 was sold on account for $1,400,000.
2) The company collected $1,294,000 from customers on account.
3) $6,000 of accounts receivable were deemed uncollectible and written off.
4) $1,000 of accounts receivable previously written off as uncollectible were recovered.
5) At year-end, Lily Company estimates that 4% of its accounts receivable are uncollectible.
Prepare journal entries to record these transactions.
92
181)
The Tulip Company uses the percent of receivables method of accounting for uncollectible
accounts receivable, and a perpetual inventory system. As of January 1, its net accounts receivable
totaled $485,000 (Accounts Receivable $500,000 less a $15,000 Allowance for Doubtful
Accounts). During the current year, the following transactions occurred.
1) Merchandise costing $2,400,000 was sold on account for $4,000,000.
2) The company collected $3,880,000 from customers on account.
3) $20,000 of accounts receivable were deemed uncollectible and written off.
4) $3,000 of accounts receivable previously written off as uncollectible were recovered.
5) At year-end, Lily Company estimates that 3% of its accounts receivable are uncollectible.
Prepare journal entries to record these transactions.
182)
The Branson Company uses the percent of sales method of accounting for uncollectible accounts
receivable. During the current year, the following transactions occurred:
Mar 7 Branson Company determined that the $2,000 account receivable of the Bing Company
was uncollectible, and wrote it off.
Jun 9 Bing Company paid $1,500 of the amount owed to the Branson Company. Branson
Company does not expect further collections from the Bing Company.
Dec 31 Branson Company estimates that 1.5% of its $900,000 of credit sales will be uncollectible.
Prepare the general journal entries to record these transactions.
183)
Thatcher Company had a January 1, credit balance in its Allowance for Doubtful Accounts of
$4,000 for the current year. The following transactions and events affected the Allowance for
Doubtful Accounts during the current year:
Apr 15 Bean’s account receivable of $2,700 was deemed uncollectible.
July 1 Cho paid the full amount of a previously written-off account receivable. This receivable of
$1,300 had been written off in the prior year.
Dec 31 Bad debts expense of $4,500 was recorded.
What amount should appear in the allowance for doubtful accounts in the December 31, balance
sheet for the current year?
184)
Owens Company uses the direct write-off method of accounting for uncollectible accounts
receivable. On December 6, Year 1, Owens sold $6,300 of merchandise to the Valley Company. On
August 8, Year 2, after numerous attempts to collect the account, Owens determined that the account
of the Valley Company was uncollectible.
a. Prepare the journal entry required to record the transactions on August 8.
b. Assuming that the $6,300 is material, explain how the direct write-off method violates the expense
recognition (matching) principle in this case.
185)
At December 31 of the current year, a company reported the following:
Total sales for the current year: $980,000 includes $160,000 in cash sales
Accounts receivable balance at Dec. 31, end of current year: $160,000
Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300 credit
Bad debts written off during the current year: $5,800.
Prepare the necessary adjusting entries to record bad debts expense assuming this company’s bad
debts are estimated to equal 5% of accounts receivable.
186)
At December 31 of the current year, a company reported the following:
Total sales for the current year: $980,000 includes $160,000 in cash sales
Accounts receivable balance at Dec. 31, end of current year: $160,000
Allowance for Doubtful Accounts balance at January 1, beginning of current year: $7,300
Bad debts written off during the current year: $5,800.
Prepare the necessary adjusting entries to record bad debts expense assuming this company’s bad
debts are estimated to equal 1.5% of credit sales:
187)
A company has the following unadjusted account balances at December 31, of the current year;
Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of $1,600 (credit
balance). The company uses the aging of accounts receivable to estimate its bad debts. The
following aging schedule reflects its accounts receivable at the current year-end:
Account Age
Balance
Estimated
Uncollectible
Percentage
Current (not yet due)
$96,000
1.0%
1–30 days past due
64,000
2.5%
30–60 days past due
16,000
11.0%
61–90 days past due
6,500
37.0%
Over 90 days past due
3,200
70.0%
Total
$185,700
1. Calculate the amount of the Allowance for Doubtful Accounts that should appear on the
December 31, of the current year, balance sheet.
2. Prepare the adjusting journal entry to record bad debts expense for the current year .
188)
A company has the following unadjusted account balances at December 31, of the current year;
Accounts Receivable of $183,400 and Allowance for Doubtful Accounts of $1,600 (credit
balance). The company uses the aging of accounts receivable to estimate its bad debts. The
following aging schedule reflects its accounts receivable at the current year-end:
Account Age
Balance
Estimated
Uncollectible
Percentage
Current (not yet due)
$106,000
2.0%
1–30 days past due
54,000
4.0%
30–60 days past due
12,000
10.0%
61–90 days past due
8,500
25.0%
Over 90 days past due
2,900
75.0%
Total
$183,400
Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December
31, of the current year, balance sheet.
189)
A company had the following items and amounts in its unadjusted trial balance as of December 31 of
the current year:
Debit Credit
Cash sales
$188,000
Credit sales
275,000
Accounts receivable
$76,000
Allowance for doubtful accounts
1,000
Prepare the adjusting entry to estimate bad debts assuming an aging analysis estimates that 8% of the
outstanding accounts receivable will be uncollectible.
99
190)
A company had the following items and amounts in its unadjusted trial balance as of December 31 of
the current year:
Debit Credit
Cash sales
$188,000
Credit sales
275,000
Accounts receivable
$76,000
Allowance for doubtful accounts
1,000
Prepare the adjusting entry to estimate bad debts assuming bad debts are estimated to be 2.5% of
credit sales.
191)
A company uses the aging of accounts receivable method to estimate its bad debts expense. On
December 31 of the current year an aging analysis of accounts receivable revealed the following:
Account Age
Balance
Estimated
Uncollectible
Percentage
Current (not yet due)
$620,000
0.5%
1–30 days past due
270,000
2.0%
30–60 days past due
145,000
8.0%
61–90 days past due
55,000
20.0%
90–120 days past due
32,000
50.0%
Over 120 days past due
18,000
70.0%
Total
$1,140,000
Required:
a. Calculate the amount of the Allowance for Doubtful Accounts that should be reported on the
current year-end balance sheet.
b. Calculate the amount of the Bad Debts Expense that should be reported on the current year’s
income statement, assuming that the balance of the Allowance for Doubtful Accounts on January 1
of the current year was $41,000 and that accounts receivable written off during the current year
totaled $43,200.