Problems (Group B)
P8-35B 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. Sep. 30 Bal. Accounts Receivable $91,000
On August 31, 2018, Forget-Me-Not Floral Supply had a $140,000 debit balance in Accounts
Receivable and a $5,600 credit balance in Allowance for Bad Debts. During September,
Forget-Me-Not made the following transactions:
• Sales on account, $530,000. Ignore Cost of Goods Sold.
• Collections on account, $573,000.
• Write-offs of uncollectible receivables, $6,000.
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 Forget-Me-Not 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 Forget-Me-Not 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 Forget-Me-Not 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
P8-35B, cont.
Requirement 2
P8-35B, cont.
Requirement 4
P8-36B Accounting for uncollectible accounts using the allowance method
(aging-of-receivables) and reporting receivables on the balance sheet
Learning Objectives 1, 3
2. Dec. 31, 2018 Allowance CR Bal. $11,401
At September 30, 2018, the accounts of Spring Mountain Medical Center (SMMC) include the
following:
Accounts Receivable $145,000
Allowance for Bad Debts (credit
balance)
3,400
During the last quarter of 2018, SMMC completed the following selected transactions:
• Sales on account, $475,000. Ignore Cost of Goods Sold.
• Collections on account, $451,800.
• Wrote off accounts receivable as uncollectible: Randall, Co., $1,800; Oliver Welch, $900; and
Rain, Inc., $500
• 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 $ 97,000 $ 37,000 $ 17,000 $ 14,000
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 Spring Mountain Medical Center should report net accounts receivable on its
December 31, 2018, balance sheet.
SOLUTION
Requirement 1
Requirement 2
P8-36B, cont.
Requirement 3
P8-37B Accounting for uncollectible accounts using the allowance method
(percent-of-sales) and reporting receivables on the balance sheet
Learning Objectives 1, 3
1. Dec. 31, 2018, Allowance CR Bal. $12,300
Dialex Watches completed the following selected transactions during 2018 and 2019:
2018
Dec.
31
Estimated that bad debts expense for the year was 3% of credit sales
of $410,000 and recorded that amount as expense. The company
uses the allowance method.
31 Made the closing entry for bad debts expense.
2019
Jan. 17 Sold merchandise inventory to Marty White, $400, on account.
Ignore Cost of Goods Sold.
Jun.
29
Wrote off Marty White’s account as uncollectible after repeated
efforts to collect from him.
Aug. 6 Received $400 from Marty White, along with a letter apologizing
for being so late. Reinstated White’s account in full and recorded
the cash receipt.
Dec.
31
Made a compound entry to write off the following accounts as
uncollectible: Barry Krisp, $1,600; Maria Bryant, $1,100; and
Richard Renik, $400.
31 Estimated that bad debts expense for the year was 3% on credit
sales of $490,000 and recorded the expense.
31 Made the closing entry for bad debts expense.
Requirements
1. Open T-accounts for Allowance for Bad Debts and Bad Debts Expense, assuming the
accounts begin with a zero balance. Record the transactions in the general journal (omit
explanations), and post to the two T-accounts.
2. Assume the December 31, 2019, balance of Accounts Receivable is $136,000. Show how net
accounts receivable would be reported on the balance sheet at that date.
SOLUTION
Requirement 1
P8-38B Accounting for uncollectible accounts (aging-of-receivables method), notes
receivable, and accrued interest revenue
Learning Objectives 1, 3, 4
Dec. 31, 2018 Bad Debts Expense $4,200
Relax Recliner Chairs completed the following selected transactions:
2018
Jul. 1 Sold merchandise inventory to Go-Mart, receiving a $43,000,
nine-month, 16% note. Ignore Cost of Goods Sold.
Oct. 31 Recorded cash sales for the period of $23,000. Ignore Cost of
Goods Sold.
Dec. 31 Made an adjusting entry to accrue interest on the Go-Mart note.
31 Made an adjusting entry to record bad debts expense based on an
aging of accounts receivable. The aging schedule shows that
$14,900 of accounts receivable will not be collected. Prior to this
adjustment, the credit balance in Allowance for Bad Debts is
$10,700.
2019
Apr. 1 Collected the maturity value of the Go-Mart note.
Jun. 23 Sold merchandise inventory to Allure, Corp., receiving a 60-day,
6% note for $7,000. Ignore Cost of Goods Sold.
Aug. 22 Allure, Corp. dishonored its note at maturity; the business
converted the maturity value of the note to an account receivable.
Nov. 16 Loaned $20,000 cash to Tench, Inc., receiving a 90-day, 8% note.
Dec. 5 Collected in full on account from Allure, Corp.
31 Accrued the interest on the Tench, Inc. note.
Record the transactions in the journal of Relax Recliner Chairs. Explanations are not required.
(Round to the nearest dollar.)
SOLUTION