Chapter 07 – Reporting and Analyzing Receivables
Exercise 7-8 (20 minutes)
Feb. 1
Allowance for Doubtful Accounts ……………………..….
6,800
Accounts Receivable—Oakley Co ……………….….
900
Accounts Receivable—Brookes Co …………….….
5,900
To write off specific accounts.
June 5
Accounts Receivable—Oakley …………………………..
900
Allowance for Doubtful Accounts ………………..….
900
To reinstate an account.
June 5
Cash ………………………………………………………………..….
900
Accounts Receivable—Oakley …………………….….
900
To record cash received on account.
Exercise 7-9 (25 minutes)
a. Expense is 3% of credit sales
Bad Debts Expense ………………………………………..
9,000
Allowance for Doubtful Accounts ……………..
9,000
To record estimated bad debts
[$300,000 x .03].
b. Expense is 1% of total sales
Bad Debts Expense ………………………………………..
12,000
Allowance for Doubtful Accounts ……………..
12,000
To record estimated bad debts
[($300,000 + $900,000) x .01].
c. Allowance is 6% of accounts receivable
Bad Debts Expense ………………………………………..
12,500
Allowance for Doubtful Accounts ……………..
12,500
To record estimated bad debts.*
* Unadjusted balance ………………………………………………..
$ 5,000 debit.
Estimated balance ($125,000 x 6%) ………….……………..
7,500 credit
Required adjustment ……………………………….……………..
$12,500 credit
Exercise 7-10 (20 minutes)
Accounts Receivable ……………………………………..
7,245
Sales ……………………………………………………….
7,245
To record sales on credit.
Cost of Goods Sold ………………………………………………
5,000
Merchandise Inventory ……………………………………
5,000
To record cost of sales.
Cash ……………………………………………………………..
19,200
Factoring Fee Expense* ………………………………...
800
Accounts Receivable ………………………………..
20,000
To record sale of receivable. *($20,000 x .04)
Cash ……………………………………………………………..
5,859
Accounts Receivable ………………………………..
5,859
To record cash received on account.
Cash ……………………………………………………………..
10,000
Notes Payable …………………………………………..
10,000
To record cash from a loan.
Exercise 7-11 (15 minutes)
Notes Receivable—K. White ………………………..
6,000
Accounts Receivable—K. White ……………..
6,000
To record receipt of note on account.
Interest Receivable ……………………………………..
80
Interest Revenue ……………………………………
80
To record interest earned [$6,000 x .08 x 60/360].
Cash …………………………………………………………..
6,240
Notes Receivable—K. White …………………..
6,000
Interest Revenue* …………………………………..
160
Interest Receivable ………………………………..
80
To record cash received on note plus
interest earned. *[$6,000 x .08 x 120/360]
Exercise 7-14 (15 minutes)
Cash …………………………………………………………..…
9,595
Interest Revenue* …………………………………..…
57
Interest Receivable ………………………………..…
38
Notes Receivable—M. Lee ……………………..…
9,500
To record cash received on note plus interest.
* [$9,500 x .08 x (45-18)/360 = $57]
Notes Receivable—Tomas Co. …………………….…
5,000
Accounts Receivable-Tomas Co …………….…
5,000
To record receipt of note on account.
Notes Receivable—H. Cheng ……………………….…
2,000
Accounts Receivable—H. Cheng ………………
2,000
To record receipt of note on account.
Accounts Receivable—H. Cheng ……………………
2,015
Interest Revenue ………………………………………
15
Notes Receivable—H. Cheng ………………….…
2,000
To record receivable for dishonored
note plus interest [$2,000 x .09 x 30/360].
Allowance for Doubtful Accounts ………………..…
2,015
Accounts Receivable—H. Cheng ………………
2,015
To write off account.
Cash …………………………………………………………..…
5,125
Interest Revenue ………………………………………
125
Notes Receivable—Tomas Co ………………..…
5,000
To record cash received on note with
interest [$5,000 x .10 x 90/360].
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Financial Accounting, 7th Edition
16
Problem 7-1A (30 minutes)
June 4
Accounts Receivable—N. Morris ………………………..
650
Sales …………………………………………………………...
650
To record sales on credit.
4
Cost of Goods Sold ………………………………………….……..
400
Merchandise Inventory ……………………………….……..
400
To record cost of sales.
5
Cash ………………………………………………………………....
6,693
Credit Card Expense* ………………………………………...
207
Sales …………………………………………………………...
6,900
To record credit card sales less fee. *($6,900 x .03)
5
Cost of Goods Sold ………………………………………….……..
4,200
Merchandise Inventory ……………………………….……..
4,200
To record cost of sales.
6
Accounts Receivable—Access …………………………..
5,733
Credit Card Expense* ………………………………………...
117
Sales …………………………………………………………...
5,850
To record credit card sales less fee. *($5,850 x .02)
6
Cost of Goods Sold ………………………………………….……..
3,800
Merchandise Inventory ……………………………….……..
3,800
To record cost of sales.
8
Accounts Receivable—Access …………………………..
4,263
Credit Card Expense* ………………………………………...
87
Sales …………………………………………………………...
4,350
To record credit card sales less fee. *($4,350 x .02)
8
Cost of Goods Sold ………………………………………….……..
2,900
Merchandise Inventory ……………………………….……..
2,900
To record cost of sales.
10
No journal entry required.
13
Allowance for Doubtful Accounts ……………………....
429
Accounts Receivable—A. McKee …………………..
429
To write off account due.
17
Cash ………………………………………………………………....
9,996
Accounts Receivable—Access ……………………..
9,996
To record cash received from credit card co. ($5,733+$4,263)
18
Cash ………………………………………………………………....
637
Sales Discounts* ……………………………………………....
13
Accounts Receivable—N. Morris …………………..
650
To record cash received less discount. *($650 x .02)
Problem 7-2A (Concluded)
2013
e.
Accounts Receivable …………………………………….…
1,525,634
Sales ……………………………………………………….…
1,525,634
To record sales on account.
Cost of Goods Sold ……………………………………….……..
1,250,000
Merchandise Inventory …………………………….……..
1,250,000
To record cost of sales.
f.
Allowance for Doubtful Accounts ………………….…
27,800
Accounts Receivable ……………………………….…
27,800
To record write-off of accounts.
g.
Cash …………………………………………………………….…
1,204,600
Accounts Receivable ……………………………….…
1,204,600
To record cash received on account.
h.
Bad Debts Expense ……………………………………….…
32,199
Allowance for Doubtful Accounts …………….…
32,199
To record estimated bad debts.*
*Beginning receivables ……………………....
$ 657,934
Credit sales ……………………………………....
1,525,634
Collections ………………………………………..
(1,204,600)
Write-offs ………………………………………....
(27,800)
Ending receivables …………………………..
951,168
Percent uncollectible ………………………...
x 1.5%
Required ending allowance ………………..
14,268**
Cr.
Unadjusted balance
Beginning (Cr.) ………………………………..
$ 9,869
Write-offs (Dr.) …………………………..…....
27,800
17,931
Dr.
Adjustment to the allowance ……………...
$ 32,199
Cr.
** rounded to nearest dollar
Problem 7-4A (35 minutes)
Part 1
Calculation of the estimated balance of the allowance for uncollectibles
Not due:
$830,000 x .0125 =
$10,375
1 to 30:
254,000 x .0200 =
5,080
31 to 60:
86,000 x .0650 =
5,590
61 to 90:
38,000 x .3275 =
12,445
Over 90:
12,000 x .6800 =
8,160
$41,650
credit
Part 2
Bad Debts Expense ……………………………………....
27,150
Allowance for Doubtful Accounts …………....
27,150
To record estimated bad debts.*
* Unadjusted balance ………………………
$14,500 credit
Estimated balance ………………………..
41,650 credit
Required adjustment …………………….
$27,150 credit
Part 3
Writing off the account receivable in 2014 will not directly affect year 2014
net income. The entry to write off an account involves a debit to Allowance
for Doubtful Accounts and a credit to Accounts Receivable, both of which
are balance sheet accounts. Net income is affected only by the annual
recognition of the estimated bad debts expense, which is journalized as an
adjusting entry. Net income for Year 2013 (the year of the original sale)
included an estimated expense for write-offs such as this one.