E8-24 Journalizing note receivable transactions
Learning Objective 4
Jul. 1, 2019 Cash DR $17,280
The following selected transactions occurred during 2018 and 2019 for Baltic Importers. The
company ends its accounting year on September 30.
2018
Jul. 1 Loaned $16,000 cash to Bud Shyne on a one-year, 8% note.
Sep.
6
Sold goods to Lawn Pro, receiving a 90-day, 6% note for $11,000.
Ignore Cost of Goods Sold.
30 Made a single entry to accrue interest revenue on both notes.
? Collected the maturity value of the Lawn Pro note.
2019
Jul. 1 Collected the maturity value of the Shyne note.
Journalize all required entries. Make sure to determine the missing maturity date. Round to the
nearest dollar.
SOLUTION
E8-25 Journalizing note receivable transactions
Learning Objective 4
Oct. 31 Cash DR $18,355
Professional Steam Cleaning performs services on account. When a customer account becomes
four months old, Professional converts the account to a note receivable. During 2018, the
company completed the following transactions:
Apr. 28 Performed service on account for Parkview Club, $18,000.
Sep. 1 Received an $18,000, 60-day, 12% note from Parkview Club in satisfaction
of its past-due account receivable.
Oct. 31 Collected the Parkview Club note at maturity.
Record the transactions in Professional’s journal. Round to the nearest dollar.
SOLUTION
E8-26 Evaluating ratio data
Learning Objective 5
Abanaki Carpets reported the following amounts in its 2018 financial statements. The 2017
figures are given for comparison.
2018 2017
Balance sheet—partial
Current Assets:
Cash
Short-term Investments
Accounts Receivable
Less: Allowance for Bad Debts
Merchandise Inventory
Prepaid Insurance
Total Current Assets
Total Current Liabilities
Income statement—partial
Net Sales (all on account)
$ 64,000
(7,000)
$ 5,000
25,000
57,000
194,000
2,000
283,000
105,000
742,400
$ 77,000
(6,000)
$ 11,000
14,000
71,000
190,000
2,000
288,000
107,000
730,000
Requirements
1. Calculate Abanaki’s acid-test ratio for 2018. (Round to two decimals.) Determine whether
Abanaki’s acid-test ratio improved or deteriorated from 2017 to 2018. How does Abanaki’s
acid-test ratio compare with the industry average of 0.80?
2. Calculate Abanaki’s accounts receivable turnover ratio. (Round to two decimals.) How does
Abanaki’s ratio compare to the industry average accounts receivable turnover of 10?
3. Calculate the days’ sales in receivables for 2018. (Round to the nearest day.) How do the
results compare with Abanaki’s credit terms of net 30?
SOLUTION
Requirement 1
Requirement 2
Requirement 3
E8-27 Computing the collection period for receivables
Learning Objective 5
Unique Media Sign Incorporated sells on account. Recently, Unique reported the following
figures:
2018 2017
Net Credit Sales $ 594,920 $
602,000
Net Receivables at end of
year
38,500 47,100
Requirements
1. Compute Unique’s days’ sales in receivables for 2018. (Round to the nearest day.)
2. Suppose Unique’s normal credit terms for a sale on account are 2/10, net 30. How well does
Unique’s collection period compare to the company’s credit terms? Is this good or bad for
Unique?
SOLUTION
Requirement 1
Problems (Group A)
P8-28A Accounting for uncollectible accounts using the allowance (percent-of-sales) and
direct write-off methods and reporting receivables on the balance sheet
Learning Objectives 1, 2, 3
1. Bad Debts Expense $11,000
On August 31, 2018, Bouquet Floral Supply had a $140,000 debit balance in Accounts
Receivable and a $5,600 credit balance in Allowance for Bad Debts. During September,
Bouquet made:
• Sales on account, $550,000. Ignore Cost of Goods Sold.
• Collections on account, $584,000.
• Write-offs of uncollectible receivables, $4,000.
Requirements
1. Journalize all September entries using the allowance method. Bad debts expense was
estimated at 2% of credit sales. Show all September activity in Accounts Receivable, Allowance
for Bad Debts, and Bad Debts Expense (post to these T-accounts).
2. Using the same facts, assume that Bouquet used the direct write-off method to account for
uncollectible receivables. Journalize all September entries using the direct write-off method.
Post to Accounts Receivable and Bad Debts Expense, and show their balances at September
30, 2018.
3. What amount of Bad Debts Expense would Bouquet report on its September income
statement under each of the two methods? Which amount better matches expense with
revenue? Give your reason.
4. What amount of net accounts receivable would Bouquet report on its September 30, 2018,
balance sheet under each of the two methods? Which amount is more realistic? Give your
reason.
SOLUTION
Requirement 1
P8-28A, cont.
Requirement 2
P8-29A Accounting for uncollectible accounts using the allowance method
(aging-of-receivables) and reporting receivables on the balance sheet
Learning Objectives 1, 3
2. Allowance CR Bal. $8,482 at Dec. 31, 2018
At September 30, 2018, the accounts of Green Terrace Medical Center (GTMC) include the
following:
Accounts Receivable $ 145,000
Allowance for Bad Debts (credit
balance)
3,500
During the last quarter of 2018, GTMC completed the following selected transactions:
• Sales on account, $450,000. Ignore Cost of Goods Sold.
• Collections on account, $427,100
• Wrote off accounts receivable as uncollectible: Regan, Co., $1,400; Owen Reis, $800;
and Patterson, Inc., $700
• Recorded bad debts expense based on the aging of accounts receivable, as follows:
Age of Accounts
1–30 Days 31–60 Days 61–90
Days
Over 90 Days
Accounts Receivable $ 104,000 $ 39,000 $ 14,000 $ 8,000
Estimated percent uncollectible 0.3% 3% 30% 35%
Requirements
1. Open T-accounts for Accounts Receivable and Allowance for Bad Debts. Journalize the
transactions (omit explanations) and post to the two accounts.
2. Show how Green Terrace Medical Center should report net accounts receivable on its
December 31, 2018, balance sheet.
SOLUTION
Requirement 1
