Chapter 09 – Accounting for Receivables
SERIAL PROBLEM — SP 9
Serial Problem — SP 9, Business Solutions (50 minutes)
1. a. Bad debts expense is recorded as 1% of total revenues:
$44,000 x .01 = $440.
2016
Mar. 31 Bad Debts Expense……………………………………….. 440
Allowance for Doubtful Accounts……....…….. 440
To record estimated bad debts.
2. Allowance Balance as of 3/31/16.……............ $457 Cr.
Less: Account written off..………..…………….. (100) Dr.
Allowance Balance as of 6/30/16.……............ $357 Cr. (before adjustment)
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
also be justified if the amounts are immaterial. However, when the
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Chapter 09 – Accounting for Receivables
Reporting in Action — BTN 9-1
1. Apple’s receivables at September 28, 2013, are $13,102 million.
4. Liquid assets as a percent of current liabilities ($ 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
as cash equivalents.”
6. Solution depends on the financial statement information obtained.
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Education.
$14,259 + $26,287 + $13,102 + $1,764
$43,658
Chapter 09 – Accounting for Receivables
Comparative Analysis — BTN 9-2
1. Accounts Receivable Turnover ($ 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
Apple (Prior Year): 365 days / 19.20 times = 19.01 days
3. Both companies appear reasonably efficient in collecting accounts
receivable. Apple collects them over a shorter period of time in both
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$170,910
($13,102 + $10,930) / 2
Chapter 09 – Accounting for Receivables
Ethics Challenge — BTN 9-3
1. If the estimate for bad debts is reduced then less Bad Debts Expense
will be recognized on the income statement resulting in a higher net
2. Accounting procedures often allow for alternate methods or require the
use of estimates. Therefore, managers have some leeway in their
3. An informed owner or an effective board of directors will be aware of
alternate accounting methods and how estimates can affect the
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Chapter 09 – Accounting for Receivables
Communicating in Practice — BTN 9-4
TO: Sid Omar
FROM: (Your Name)
DATE: _______________
SUBJECT: Difference Between Bad Debts Expense and Allowance
For Doubtful Accounts
In accounting for credit sales and bad debts, we report sales revenue in the
period the sales are made, even though some credit sales do not result in
collections until the following period. Of course, some credit sales
eventually prove to be uncollectible. The fact that some accounts will
become uncollectible is what gives rise to bad debts expense and the
estimated percent times the annual sales for the period. This year’s bad
debts expense of $59,000 is calculated as 2% of the annual sales of
$2,950,000.
Determining Allowance For Doubtful Accounts
The Allowance for Doubtful Accounts unadjusted balance at the end of the
Doubtful Accounts balance. Prior to this year’s bad debts expense
calculation, the cumulative total of writing off specific accounts was
$16,000 greater than the cumulative total of the past years’ bad debts
expenses. Therefore, you could say that Allowance for Doubtful Accounts
had an “abnormal” balance of $16,000. Then, when this year’s bad debts
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Chapter 09 – Accounting for Receivables
Taking It to the Net — BTN 9-5
1. At December 31, 2013, eBay’s ($ millions) net accounts receivable were
$899, and at December 31, 2012, its net accounts receivable were $822.
2.
$ millions
December 31,
2013
December 31,
2012
3. These percentages seem high compared to other companies, but
eBay’s operations are all online, and the risk of fraudulent transactions
Teamwork in Action — BTN 9-6
Instructor note: Computations for the aging schedule are in the Problem 9-3A solution.
The check figure for total estimated uncollectibles is $41,650.
Adjusting entry
December 31, 2015, Balance Sheet Presentation
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Chapter 09 – Accounting for Receivables
Entrepreneurial Decision — BTN 9-7
1. Computation of added annual net income or loss
a.
Added Monthly Net Income or Loss under Plan A
Increased sales………………………………………………….…… $250,000
Cost of sales………………………………………..…..……………. (135,500)
b.
Added Monthly Net Income or Loss under Plan B
Increased sales………………………………………………….…… $500,000
Cost of sales………………………………………..…..……………. (375,000)
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Chapter 09 – Accounting for Receivables
Entrepreneurial Decision — BTN 9-7 continued
2. Plan (A) provides a slightly higher income, so if the client company can
only pursue one plan now, based purely on the financial aspect, it
should choose Plan (A).
Plan (B) is a way to expand sales, possibly into more locations. This is
an expansion of a distribution method now employed.
Hitting the Road — BTN 9-8
Telephone calls to VISA and American Express are the source of
information for this solution. VISA reports that the average transaction fee
it charges merchants is 3%. American Express has a range, depending on
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Chapter 09 – Accounting for Receivables
Global Decision — BTN 9-9
1. Accounts Receivable Turnover (KRW in millions)
Samsung (Current Year): 228,692,667 ₩ = 8.38 times
27,875,934 + 26,674,596) / 2₩ ₩
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