100
c. Prepare the adjusting entry to record bad debts expense on December 31 of the current year.
d. Show how Accounts Receivable will appear on the current year-end balance sheet as of
December 31.
192)
On December 31, of the current year, Spectrum Company’s unadjusted trial balance revealed the
following: Accounts receivable of $185,600; Sales Revenue of $1,280,000; (75% were on credit),
and Allowance for Doubtful Accounts of $1,600 (credit balance).
Prepare the adjusting journal entry to record Spectrum’s estimate for bad debts assuming:
1. 6.0% of the accounts receivable balance is assumed to be uncollectible.
2. Bad debts expense is estimated to be 1.5% of credit sales.
3. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the
balance sheet after adjustment assuming the percentage of sales method is used.
4. Prepare the entry to write off a $1,500 account receivable on January 1 of the next year.
5. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the
balance sheet immediately after writing off the account in part 4 assuming the percentage of sales
method is used.
193)
Each December 31, Kimura Company ages its accounts receivable to determine the amount of its
adjustment for bad debts. At the end of the current year, management estimated that $16,900 of the
accounts receivable balances would be uncollectible. The Allowance for Doubtful Accounts
account had a debit balance of $1,200 before any year-end adjustment for bad debts. Prepare the
adjusting journal entry that Kimura Company should make on December 31, of the current year, to
estimate bad debts expense.
103
194)
A company that uses the percent of sales to account for its bad debts had credit sales of $740,000
in Year 1, including a $720 sale to Marshall Fresh. On December 31, Year 1, the company
estimated its bad debts at 1.5% of its credit sales. On June 1, Year 2, the company wrote off, as
uncollectible, the $720 account of Marshall Fresh. On December 21, Year 2, Marshall Fresh
unexpectedly paid his account in full. Prepare the necessary journal entries:
(a) On December 31, Year 1, to reflect the estimate of bad debts expense.
(b) On June 1, Year 2, to write off the bad debt.
(c) On December 21, Year 2, to record the unexpected collection.
195)
The following series of transactions occurred during Year 1 and Year 2, when Foxworth
Co. sold merchandise to Kevin Lewis. Foxworth’s annual accounting period ends on December 31.
10/01/Yr 1 Sold $12,000 of merchandise to K. Lewis, terms 2/10, n/30.
11/15/Yr 1 Lewis reports that he cannot pay the account until early next year. He agrees to
exchange the account for a 120-day, 12% note receivable.
12/31/Yr 1 Prepared the adjusting journal entry to record accrued interest on the note.
03/15/Yr 2 Foxworth receives a check from Lewis for the maturity value (with interest) of the note.
03/22/Yr 2 Foxworth receives notification that Lewis’ check is being returned for nonsufficient
funds (NSF).
12/31/Yr 2 Foxworth writes off Lewis’ account as uncollectible.
Prepare Foxworth Co.’s journal entries to record the above transactions. The company uses the
104
allowance method to account for its bad debt expense.
196)
Prepare general journal entries for the following transactions of Norman Company, assuming they
use the allowance method to account for uncollectible accounts.
Apr 01 Sold $3,500 of merchandise to Lance Co., receiving an 8%, 90-day, $3,500 note.
15 Wrote off $1,500 owed by Guy Co. from a previous period sale.
30 Received a $5,000, 6%, 30-day note receivable from James Co. as settlement for
its $5,000 account receivable.
May 30 The note received from James on April 30 was collected in full.
Jun 30 Lance Co. was unable to pay the note on the due date.
Jul 15 Guy Co. paid $1,000 of the amount written off on April 15.
197)
Jordan Co. uses the allowance method of accounting for uncollectible accounts. Jordan Co. accepted
a $5,000, 12%, 90-day note dated May 16, from Beckam Co. in exchange for its past-due account
receivable. Make the necessary general journal entries for Jordan Co. on May 16 and the August 14
maturity date, assuming that the:
a. Note is held until maturity and collected in full at that time.
b. Note is dishonored; the amount of the note and its interest are written off as uncollectible.
198)
Prepare general journal entries for the following transactions for the current year:
Apr. 25 Sold $4,500 of merchandise to Dunn Corp., receiving a 10%, 60-day. $4,500 note
receivable.
June 24 The note of Dunn Corp., received on April 25 was dishonored.
199)
The following data are taken from the comparative balance sheets of Grayling Company. Compute
and interpret its accounts receivable turnover for Year 2. Competitors average a turnover of 7.5. How
is the company doing in relation to its competitors?
Year 2
Year 1
Accounts receivable, net
180,230
220,450
Net sales
1,500,750
1,495,600
108
200)
On July 31, Orwell Co. has $448,800 of accounts receivable.
Required:
1. Prepare journal entries to record the following selected August transactions. The company uses the
perpetual inventory system.
2. Also prepare any footnotes to the August 31 financial statements that result from these
transactions.
3. Calculate the balance in the Accounts Receivable account as of August 10.
Aug 3 Sold $250,000 of merchandise (that cost $122,000) to customers on credit.
Aug 5 Sold $300,000 of accounts receivable to Cash Solutions. Cash Solutions charges a 7%
factoring fee.
Aug 8 Received $165,200 from customers in payment on their accounts.
Aug 9 Borrowed $50,000 cash from State Bank, pledging $65,000 of accounts receivable as
security for the loan. The note is a 90-day, 9% note.
201)
On September 30, Waldon Co. has $540,250 of accounts receivable. Waldon uses the allowance
method of accounting for bad debts and has an existing credit balance in the allowance for doubtful
accounts of $13,750.
1. Prepare journal entries to record the following selected October transactions. The company uses
the perpetual inventory system. 2. Show how Accounts Receivable and the Allowance for Doubtful
Accounts appear on its October 31 balance sheet.
109
a. Sold $305,000 of merchandise (that cost $178,500) to customers on credit.
b. Received $395,100 cash in payment of accounts receivable.
c. Wrote off $15,700 of uncollectible accounts receivable.
d. In adjusting the accounts on October 31, its fiscal year-end, the company estimated that 4.0% of
accounts receivable will be uncollectible.
202)
Bonita Company estimates uncollectible accounts using the allowance method at December 31. It
prepared the following aging of receivables analysis.
Days
Past
Due
Total
Current
1 to 30
31 to 60
61 to 90
Over 90
Accounts receivable
$110,000
68,000
17,000
10,000
8,000
7,000
Percent uncollectible
1%
2%
5%
8%
13%
a. Estimate the balance of the Allowance for Doubtful Accounts using the aging of accounts
receivable method.
110
b. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume
the unadjusted balance in the Allowance for Doubtful Accounts is a $550 credit.
c. Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume
the unadjusted balance in the Allowance for Doubtful Accounts is a $300 debit.
203)
On May 31, Cray has $375,800 of accounts receivable. Cray uses the allowance method of
accounting for bad debts and has an existing credit balance in the allowance for doubtful accounts of
$14,250.
1. Prepare journal entries to record the following selected May transactions. The company uses the
perpetual inventory system.
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its May 31
balance sheet.
a. Sold $415,200 of merchandise (that cost $249,000) to customers on credit.
b. Received $465,800 cash in payment of accounts receivable.
c. Wrote off $15,800 of uncollectible accounts receivable.
d. In adjusting the accounts on May 31, its fiscal year-end, the company estimated that 4.0% of
accounts receivable will be uncollectible.
111
204)
At December 31, Yarrow Company reports the following results for its calendar year from the
adjusted trial balance.
Credit sales
$2,300,000
Cash sales
1,050,000
Accounts Receivable
295,000
Allowance for doubtful accounts (credit balance)
750
a. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to
be 1.1% of credit sales.
b. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to
be .8% of total sales.
c. Prepare the adjusting entry to record Bad Debts Expense assuming uncollectibles are estimated to
be 7.0% of year-end accounts receivable.
Allowance for doubtful accounts
Allowance for doubtful accounts
Allowance for doubtful accounts
205)
White Company allows customers to make purchases on credit. The terms of all credit sales are
2/10, n/30, and all sales are recorded at the gross price. Other customers can use a bank credit card
where the bank deducts a 4% service charge for credit card sales and credits the bank account of
White immediately when credit card receipts are deposited. White uses the perpetual inventory
method. Prepare journal entries to record the following selected transactions and events.
June 4
Sold $12,000 of merchandise (cost $7,000) on credit to Grant.
6
Sold $17,000 of merchandise (cost $9,350) to customers who used a bank
credit card, receipts were processed and deposited the same day.
8
Sold $8,500 of merchandise (cost $4,500) on credit to Emma Company.
10
Accepted a $6,700, 45-day, 6% note dated this day in granting Cory Tam a
time extension on his past-due account receivable.
12
Received Grant’s check in full payment of the purchase on June 4.
15
Wrote off the account of Z. Westmore against the Allowance for Doubtful
Accounts. The $1,580 balance stemmed from a credit sale in January.
20
Accepted a $6,240, 30-day, 10% note dates this day in granting F. Potter a
time extension on his past-due account receivable.
July 17
Received the amount previously written-off from Z. Westmore.
20
F. Potter dishonored his note when presented for payment.
25
Received payment of principal plus interest from Cory Tam.
SHORT ANSWER QUESTIONS
206)
A supplementary record created to maintain a separate account for each customer is called the
________.
207)
A ________ is a signed agreement to pay a specified amount of money either on demand or at a
definite future date.
208)
The person to whom a note is payable is known as the .
209)
________ is the charge for using borrowed money until its due date.
210)
The ________ of a note is the day the principle plus interest of a note must be repaid.
211)
Converting receivables to cash before they are due is usually done by either (1) or (2)
________.
212)
The accounts receivable turnover is calculated by dividing ________ by ________.
213)
The________ method of accounting for bad debts records the loss from an uncollectible account
receivable at the time it is determined to be uncollectible (and not before).
214)
________ are amounts owed by customers from credit sales where payment is required in periodic
amounts over an extended time period.
215)
To write off an uncollectible account receivable when the allowance method of accounting for
uncollectible accounts is used, a company should debit ________ and credit accounts receivable.
216)
The ________ method of computing uncollectible accounts uses income statement relationships to
estimate bad debts and is based on the idea that a given percent of a company’s credit sales for a
period are uncollectible.
217)
The ________ methods of computing uncollectible accounts use balance sheet relations to estimate
bad debts–mainly the relation between accounts receivable and the allowance amount.
218)
The ________ method uses both past and current receivables to estimate the allowance amount,
and assumes that the longer an amount is past due, the more likely it is to be uncollectible.
219)
Felton Corporation purchased $4,000 in merchandise from Marita Co. Felton signed a 60-day,
10%, $4,000 promissory note. Marita should record the sale with a journal entry debiting ________
for $ ________ and crediting ________ for $ ________.
220)
When the maker of a note is unable or refuses to pay at maturity, the note is said to be ________.
221)
refers to the expected proceeds from converting an asset into cash.