Problem 7-4B (35 minutes)
2014
a. Accounts Receivable……………..………………….… 685,350
Sales……….…………………………………………….. 685,350
b. Cash………………………………………….…..….….….… 482,300
Accounts Receivable……………………………... 482,300
To record cash received on account.
c. Allowance for Doubtful Accounts….…..….…..... 9,350
Accounts Receivable…………………..…….…... 9,350
To record write-off of accounts.
d. Bad Debts Expense………………….….….…..….….. 11,287
Allowance for Doubtful Accounts............... 11,287
To record estimated bad debts.*
*Beginning receivables…………..….... $ 0
Credit sales………………………………… 685,350
Collections……………………………….... (482,300)
Unadjusted balance…....…....…..…... 9 ,350 Dr.
Adjustment to the allowance……..... $ 11 ,287 Cr.
** Rounded to nearest dollar
Problem 7-4B (Concluded)
2015
e. Accounts Receivable……………..…………….….…... 870,220
f. Cash…………………………………………….….….….…... 990,800
Accounts Receivable…………………..…..….….. 990,800
To record cash received on account.
g. Allowance for Doubtful Accounts….…............... 11,090
Accounts Receivable…………………..…..….….. 11,090
To record write-off of accounts.
h. Bad Debts Expense……………..……………..………… 9,773
Allowance for Doubtful Accounts…………….. 9,773
To record estimated bad debts.*
*Beginning receivables…………....…..…... $ 193,670
Credit sales……………………………………... 870,220
Collections………………………………………. (990,800)
Write-offs…………..……....…..…..…..……... (11,090)
Problem 7-5B (75 minutes)
Part 1
2014
Nov. 1 Notes Receivable—S. Julian………..…………………… 4,800
Dec. 31 Interest Receivable…………………………..….….….…... 64
Interest Revenue…………………………………….….. 64
To record interest earned [$4,800 x .08 x
60/360].
2015
Feb. 28 Notes Receivable—King Co..………………..………….. 12,600
Accounts Receivable—King Co…..….…........... 12,600
To record note received on account.
Mar. 1 Notes Receivable—M. Shelley…………………….….… 6,200
Accounts Receivable—M. Shelley……………….. 6,200
To record note received on account.
30 Accounts Receivable—King Co…….….….….…..….. 12,684
Apr. 30 Cash……………………………………….…….….….….….….. 6,324
Interest Revenue…………………………………….….. 124
Problem 7-5B (Concluded)
June 15 Notes Receivable—R. Solon……….…..….….….….. 2,000
Accounts Receivable—R. Solon…..….….….…. 2,000
To record note received on account.
June 21 Notes Receivable—J. Felton……………….….….….. 9,500
Accounts Receivable—J. Felton…………….…. 9,500
To record note received on account.
Nov. 30 Allowance for Doubtful Accounts…………………… 12,684
Accounts Receivable—King Co………….….…. 12,684
To record write-off of accounts.
Part 2
Analysis Component: When a business pledges its receivables as security
for a loan and the loan is still outstanding at period-end, the business must
disclose this information in notes to its financial statements. This is a
SERIAL PROBLEM — SP 7
Serial Problem — SP 7, Business Solutions (50 minutes)
1. a. Bad debts expense is recorded as 1% of total revenues:
1. b. Bad debts expense is recorded as 2% of accounts receivable:
$22,867 x .02 = $457.34, which is $457 rounded to the nearest dollar.
2016
Mar. 31 Bad Debts Expense…………………………………..…... 457
Allowance for Doubtful Accounts……………... 457
To record estimated bad debts.
Instructor note: It might help to stress that the beginning balance for the Allowance for
Doubtful Accounts is zero, which is unusual and exists because this is the first period that the
company applies the allowance method.
2. Allowance Balance as of 3/31/16….…............ $457 Cr.
2016
June 30 Bad Debts Expense……………..……………….….….… 48
Allowance for Doubtful Accounts……………... 48
To record estimated bad debts.
3. Many small business owners use the direct write-off method of
recording bad debts expense. The direct method is a simple and
straightforward method of accounting for bad debts expense. It can
Reporting in Action — BTN 7-1
1. Apple’s receivables at September 28, 2013, are $13,102 million.
2. Accounts receivable turnover for 2013 ($ millions)
4. Liquid assets as a percent of current liabilities ($ millions)
Sep. 28, 2013: = 126.9%
Comments: Current liabilities are obligations that are due to be paid or
liquidated within one year or one operating cycle of the business,
whichever is longer. Typically, cash provided from the operations of the
business during the year along with the existing liquid assets are used to
5. Note 1 to Apple’s financial statements describes its accounting
6. Solution depends on the financial statement information obtained.
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authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
$170,910
$10,746 + $18,383 + $10,930 + $791
$38,542
$14,259 + $26,287 + $13,102 + $1,764
$43,658
Comparative Analysis — BTN 7-2
1. Accounts Receivable Turnover ($ millions)
Apple (Current Year):
= 14.22 times
Apple (Prior Year):
2. Average Collection Period (or “Average Days’ Sales Uncollected”)
Apple (Current Year): 365 days / 14.22 times = 25.67 days
Interpretation: The average collection period for Google is longer than
3. Both companies appear reasonably efficient in collecting accounts
receivable. Apple collects them over a shorter period of time in both
years. Both Apple and Google showed an unfavorable trend with a
shorter collection time for the prior year.
©2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not
authorized for sale or distribution in any manner. This document may not be copied, scanned,
duplicated, forwarded, distributed, or posted on a website, in whole or part.
$156,508
($7,885 + $5,427) / 2
$170,910
($13,102 + $10,930) / 2