VISUAL #9-2
PROMISSORY NOTE
(6) $2,000.00 April 15, 2011 (1)
Amount Date
For value received, I promise to pay to the order of
Plexi-Plus Supply Co. (2)
Tobay, New York
(7)
Two thousand and no/100 ——————-Dollars
on June 14, 2011 (3)
plus interest at the annual rate of 9 percent.
(4)
Scott Cooke (5)
for Tobay Surfer Inc.
Alternate Demonstration Problem
Chapter Nine
At the end of the year, the M. I. Wright Company showed the following
selected account balances:
Sales (all on credit)……………………………………….…….……….……….…$300,000
Accounts Receivable………………………………………………….……….….. 800,000
Allowance for Doubtful Accounts………………………………………….…. 38,000
Required:
1. Assume the company estimates that 1% of all credit sales will not be
collected.
a. Prepare the proper journal entry to recognize the expense
involved.
b. Present the balances in Accounts Receivable and Allowance for
Doubtful Accounts as they would appear on the balance sheet.
Also show the net realizable Accounts Receivable.
2. Assume the company estimates that 5% of its accounts receivable
will never be collected.
a. Prepare the proper journal entry to recognize the expense
involved.
b. Present the balances in Accounts Receivable and Allowance for
Doubtful Accounts as they would appear on the balance sheet.
Also show the net realizable Accounts Receivable.
3. Under assumptions 1 and 2 above, give the proper journal entries for
the following events.
June 3 John Shifty, who owes us $500, informs us that
he is broke and cannot pay. We believe him.
Nov. 9 We learned that John Shifty has won the lottery and
is willing to pay off all his old debts.
Solution: Alternate Demonstration Problem
Chapter Nine
1a. Bad Debts Expense…………………………………….. 3,000
Allowance for Doubtful Accounts……….…. 3,000
($ 300,000 X 1 %)
1b. Accounts Receivable……………….…….……….…..$800,000
Less: Allowance for Doubtful Accounts........ 41,000
Estimated Realizable A/R.…….……….……….....$759,000
Estimated Realizable A/R.…….……….………....$760,000
3. Both assumptions 1 and 2 above represent the allowance method of
accounting for uncollectibles. The only difference is in the approach
to estimating uncollectibles. Therefore the entries to write off and
show subsequent reinstatement would be the same in 1 and 2.