8–1
CHAPTER 8
RECEIVABLES
DISCUSSION QUESTIONS
2. Dan’s Hardware should use the direct write-off method because it is a small business that has a relatively
small number and volume of accounts receivable.
4. The accounts receivable and allowance for doubtful accounts may be reported at a net amount of $661,500
($673,400 – $11,900) in the “Current assets” section of the balance sheet. In this case, the amount of the
5. (1) The percentage rate used is excessive in relationship to the accounts written off as uncollectible;
hence, the balance in the allowance is excessive.
6. An estimate based on analysis of receivables provides the most accurate estimate of the current net
realizable value.
8. The interest will amount to $5,100 ($85,000 6%) only if the note is payable one year from the date it was
9. Debit Accounts Receivable for $243,600
10.
Cash
245,427
Accounts Receivable [$240,000 + ($240,000 × 6% × 90 ÷ 360)]
243,600
Interest Revenue ($243,600 × 30 ÷ 360 × 9%)
1,827
CHAPTER 8 Receivables
8–2
BASIC EXERCISES
BE 8–1
Mar.
17
Cash
275
Bad Debt Expense
1,000
Accounts Receivable—Shawn McNeely
1,275
July
29
Accounts Receivable—Shawn McNeely
1,000
Bad Debt Expense
1,000
29
Cash
1,000
Accounts Receivable—Shawn McNeely
1,000
BE 8–2
Mar.
17
Cash
275
Allowance for Doubtful Accounts
1,000
Accounts Receivable—Shawn McNeely
1,275
July
29
Accounts Receivable—Shawn McNeely
1,000
Allowance for Doubtful Accounts
1,000
29
Cash
1,000
Accounts Receivable—Shawn McNeely
1,000
BE 8–3
BE 8–4
CHAPTER 8 Receivables
8–3
BE 8–5
a. The due date for the note is August 7, determined as follows:
April ………………………………………………….. 21 days (30 – 9)
BE 8–6
a. Accounts Receivable Turnover =
Receivable AccountsAverage
Sales
13.4
$590,000
$7,906,000
2 $580,000) ($600,000
$7,906,000
:20Y9
11.8
$570,000
$6,726,000
2 $600,000) ($540,000
$6,726,000
:20Y8
==
+
==
+
b. Number of Days’ sales in Receivables =
Sales Daily Average
Receivable AccountsAverage
days 27.2
$21,660.3
$590,000
365 $7,906,000
2 $580,000) ($600,000
:20Y9
days 30.9
$18,427.4
$570,000
365$6,726,000
2 600,000)($540,000
:20Y8
==
+
==
+
c. The increase in the accounts receivable turnover from 11.8 to 13.4 and the
decrease in the days’ sales in receivables from 30.9 days to 27.2 days indicate
favorable changes in the efficiency of collecting receivables.
CHAPTER 8 Receivables
8–4
EXERCISES
Ex. 8–1
Accounts receivable from the U.S. government are significantly different from
Ex. 8–2
a. MGM Resorts International: 15.7% ($89,789,000 ÷ $570,348,000)
Ex. 8–3
Jan.
19
Accounts Receivable—Dr. Kyle Norby
6,400
Sales
6,400
19
Cost of Goods Sold
3,000
Inventory
3,000
June
2
Cash
500
Bad Debt Expense
5,900
Accounts Receivable—Dr. Kyle Norby
6,400
Oct.
23
Accounts Receivable—Dr. Kyle Norby
5,900
Bad Debt Expense
5,900
23
Cash
5,900
Accounts Receivable—Dr. Kyle Norby
5,900
CHAPTER 8 Receivables
Ex. 8–4
May
24
Accounts Receivable—Old Town Cafe
24,450
Sales
24,450
24
Cost of Goods Sold
14,500
Inventory
14,500
Sept.
30
Cash
9,000
Allowance for Doubtful Accounts
15,450
Accounts Receivable—Old Town Cafe
24,450
Dec.
7
Accounts Receivable—Old Town Cafe
15,450
Allowance for Doubtful Accounts
15,450
7
Cash
15,450
Accounts Receivable—Old Town Cafe
15,450
Ex. 8–5
a.
Bad Debt Expense
13,780
Accounts Receivable—Wil Treadwell
13,780
b.
Allowance for Doubtful Accounts
13,780
Accounts Receivable—Wil Treadwell
13,780
Ex. 8–6
Ex. 8–7
Account
Due Date
Number of Days Past Due
Avalanche Auto
August 15
77 (16 + 30 + 31)
Bales Auto
October 4
27 (31 – 4)
Derby Auto Repair
June 26
127 (4 + 31 + 31 + 30 + 31)
Lucky’s Auto Repair
September 10
51 (20 + 31)
Pit Stop Auto
September 24
37 (6 + 31)
Reliable Auto Repair
July 2
121 (29 + 31 + 30 + 31)
Trident Auto
August 25
67 (6 + 30 + 31)
Valley Repair & Tow
May 23
161 (8 + 30 + 31 + 31 + 30 + 31)
CHAPTER 8 Receivables
8–6
Ex. 8–8
a.
Customer
Due Date
Number of Days Past Due
Boyd Industries
April 7
115 days (23 + 31 + 30 + 31)
Hodges Company
May 29
63 days (2 + 30 + 31)
Kent Creek Inc.
June 8
53 days (22 + 31)
Lockwood Company
August 10
Not past due
Van Epps Company
July 2
29 days (31 – 2)
b.
Aging of Receivables Schedule
July 31
Customer
Balance
Not Past
Due
Days Past Due
1–30
31–60
61–90
Over
90
Acme Industries Inc.
3,000
3,000
Alliance Company
4,500
4,500
Zollinger Company
5,000
5,000
Subtotals
1,050,000
600,000
220,000
115,000
85,000
30,000
Boyd Industries
36,000
36,000
Hodges Company
11,500
11,500
Kent Creek Inc.
6,600
6,600
Lockwood Company
7,400
7,400
Van Epps Company
13,000
13,000
Totals
1,124,500
607,400
233,000
121,600
96,500
66,000
Ex. 8–9
Balance
Not Past
Due
Days Past Due
1–30
31–60
61–90
Over
90
Total receivables
1,124,500
607,400
233,000
121,600
96,500
66,000
Percentage
uncollectible
1%
3%
12%
30%
75%
Allowance for doubtful
accounts
106,106
6,074
6,990
14,592
28,950
49,500
CHAPTER 8 Receivables
8–7
Ex. 8–10
July
31
Bad Debt Expense
97,866
Allowance for Doubtful Accounts
97,866
Uncollectible accounts estimate
($106,106 – $8,240).
Ex. 8–11
Age Interval
Balance
Estimated
Uncollectible Accounts
Percent
Amount
Not past due
$ 892,000
0.75%
$ 6,690
1–30 days past due
285,000
1.00%
2,850
31–60 days past due
101,000
8.00%
8,080
61–90 days past due
63,000
16.00%
10,080
91–180 days past due
43,100
50.00%
21,550
Over 180 days past due
17,700
80.00%
14,160
Total
$1,401,800
$63,410
Ex. 8–12
Dec.
31
Bad Debt Expense
68,550
Allowance for Doubtful Accounts
68,550
Uncollectible accounts estimate
($63,410 + $5,140).
CHAPTER 8 Receivables
8–8
Ex. 8–13
a.
Apr.
13
Bad Debt Expense
8,450
Accounts Receivable—Dean Sheppard
8,450
May
15
Cash
500
Bad Debt Expense
6,600
Accounts Receivable—Dan Pyle
7,100
July
27
Accounts Receivable—Dean Sheppard
8,450
Bad Debt Expense
8,450
27
Cash
8,450
Accounts Receivable—Dean Sheppard
8,450
Dec.
31
Bad Debt Expense
13,510
Accounts Receivable—Paul Chapman
2,225
Accounts Receivable—Duane DeRosa
3,550
Accounts Receivable—Teresa Galloway
4,770
Accounts Receivable—Ernie Klatt
1,275
Accounts Receivable—Marty Richey
1,690
31
No journal entry required.
CHAPTER 8 Receivables
8–9
Ex. 8–13 (Concluded)
b.
Apr.
13
Allowance for Doubtful Accounts
8,450
Accounts Receivable—Dean Sheppard
8,450
May
15
Cash
500
Allowance for Doubtful Accounts
6,600
Accounts Receivable—Dan Pyle
7,100
July
27
Accounts Receivable—Dean Sheppard
8,450
Allowance for Doubtful Accounts
8,450
27
Cash
8,450
Accounts Receivable—Dean Sheppard
8,450
Dec.
31
Allowance for Doubtful Accounts
13,510
Accounts Receivable—Paul Chapman
2,225
Accounts Receivable—Duane DeRosa
3,550
Accounts Receivable—Teresa Galloway
4,770
Accounts Receivable—Ernie Klatt
1,275
Accounts Receivable—Marty Richey
1,690
31
Bad Debt Expense
28,335
Allowance for Doubtful Accounts
28,335
Uncollectible accounts estimate
($3,778,000 0.75% = $28,335).
c. Bad debt expense under:
CHAPTER 8 Receivables
8–10
Ex. 8–14
a.
June
8
Bad Debt Expense
8,440
Accounts Receivable—Kathy Quantel
8,440
Aug.
14
Cash
3,000
Bad Debt Expense
9,500
Accounts Receivable—Rosalie Oakes
12,500
Oct.
16
Accounts Receivable—Kathy Quantel
8,440
Bad Debt Expense
8,440
16
Cash
8,440
Accounts Receivable—Kathy Quantel
8,440
Dec.
31
Bad Debt Expense
24,955
Accounts Receivable—Wade Dolan
4,600
Accounts Receivable—Greg Gagne
3,600
Accounts Receivable—Amber Kisko
7,150
Accounts Receivable—Shannon Poole
2,975
Accounts Receivable—Niki Spence
6,630
31
No journal entry required.
CHAPTER 8 Receivables
8–11
Ex. 8–14 (Continued)
b.
June
8
Allowance for Doubtful Accounts
8,440
Accounts Receivable—Kathy Quantel
8,440
Aug.
14
Cash
3,000
Allowance for Doubtful Accounts
9,500
Accounts Receivable—Rosalie Oakes
12,500
Oct.
16
Accounts Receivable—Kathy Quantel
8,440
Allowance for Doubtful Accounts
8,440
16
Cash
8,440
Accounts Receivable—Kathy Quantel
8,440
Dec.
31
Allowance for Doubtful Accounts
24,955
Accounts Receivable—Wade Dolan
4,600
Accounts Receivable—Greg Gagne
3,600
Accounts Receivable—Amber Kisko
7,150
Accounts Receivable—Shannon Poole
2,975
Accounts Receivable—Niki Spence
6,630
31
Bad Debt Expense
45,545
Allowance for Doubtful Accounts
45,545
Uncollectible accounts estimate
($47,090 – $1,545).
Computations:
Aging Class
(Number of Days
Past Due)
Receivables
Balance on
December 31
Estimated Doubtful
Accounts
Percent
Amount
0–30 days
$320,000
1%
$ 3,200
31–60 days
110,000
3%
3,300
61–90 days
24,000
10%
2,400
91–120 days
18,000
33%
5,940
More than 120 days
43,000
75%
32,250
Total receivables
$515,000
$47,090
Estimated balance of allowance account from aging schedule ………………………… $47,090
Unadjusted credit balance of allowance account ……………………………………………. (1,545)
Adjustment ………………………………………………………………………………………………….. $45,545
Unadjusted credit balance of allowance account = $36,000 – $8,440 – $9,500 + $8,440 – $24,955 = $1,545
CHAPTER 8 Receivables
8–12
Ex. 8–14 (Concluded)
c. Bad debt expense under:
Ex. 8–15
Ex. 8–16
Ex. 8–17
a.
Bad Debt Expense
30,000
Accounts Receivable—Shawn Brooke
4,650
Accounts Receivable—Eve Denton
5,180
Accounts Receivable—Art Malloy
11,050
Accounts Receivable—Cassie Yost
9,120
b.
Allowance for Doubtful Accounts
30,000
Accounts Receivable—Shawn Brooke
4,650
Accounts Receivable—Eve Denton
5,180
Accounts Receivable—Art Malloy
11,050
Accounts Receivable—Cassie Yost
9,120
Bad Debt Expense
39,375
Allowance for Doubtful Accounts
39,375
Uncollectible accounts estimate
($5,250,000 0.75% = $39,375).
c. Net income would have been $9,375 higher under the direct write-off method
CHAPTER 8 Receivables
8–13
Ex. 8–18
a.
Bad Debt Expense
103,100
Accounts Receivable—Kim Abel
24,300
Accounts Receivable—Lee Drake
31,195
Accounts Receivable—Jenny Green
29,715
Accounts Receivable—Mike Lamb
17,890
b.
Allowance for Doubtful Accounts
103,100
Accounts Receivable—Kim Abel
24,300
Accounts Receivable—Lee Drake
31,195
Accounts Receivable—Jenny Green
29,715
Accounts Receivable—Mike Lamb
17,890
Bad Debt Expense
121,300
Allowance for Doubtful Accounts
121,300
Uncollectible accounts estimate
($107,200 + $14,100).
Computations:
Aging Class
(Number of Days
Past Due)
Receivables
Balance on
December 31
Estimated Doubtful
Accounts
Percent
Amount
0–30 days
$ 735,000
1%
$ 7,350
31–60 days
290,000
2%
5,800
61–90 days
111,000
15%
16,650
91–120 days
70,000
30%
21,000
More than 120 days
94,000
60%
56,400
Total receivables
$1,300,000
$107,200
Unadjusted debit balance of Allowance for Doubtful Accounts
($103,100 – $89,000) ………………………………………………………………………………. $ 14,100
Estimated balance of Allowance for Doubtful Accounts
from aging schedule ……………………………………………………………………………… 107,200
Adjustment …………………………………………………………………………………………….. $121,300
c. Net income would have been $18,200 lower under the allowance method because
CHAPTER 8 Receivables
Ex. 8–19
Due Date Interest
Ex. 8–20
a. August 18 (10 + 31 + 30 + 31 + 18)
CHAPTER 8 Receivables
8–15
Ex. 8–22
20Y7
Dec.
7
Notes Receivable
75,000
Accounts Receivable—Unitarian Clothing &
Bags Co.
75,000
31
Interest Receivable
150
Interest Revenue
150
Accrued interest ($75,000 0.03 24 ÷ 360).
31
Interest Revenue
150
Retained Earnings
150
20Y8
Feb.
5
Cash
75,375
Notes Receivable
75,000
Interest Receivable
150
Interest Revenue ($75,000 0.03 36 ÷ 360).
225
Ex. 8–23
June
23
Notes Receivable
48,000
Accounts Receivable—Radon Express Co.
48,000
Sept.
21
Accounts Receivable—Radon Express Co.
48,960
Notes Receivable
48,000
Interest Revenue ($48,000 0.08 90 ÷ 360).
960
Oct.
21
Cash
49,368
Accounts Receivable—Radon Express Co.
48,960
Interest Revenue ($48,960 0.10 30 ÷ 360).
408
CHAPTER 8 Receivables
8–16
Ex. 8–24
Mar.
29
Notes Receivable
30,000
Accounts Receivable—Karie Platt
30,000
Apr.
30
Notes Receivable
24,000
Accounts Receivable—Jon Kelly
24,000
May
28
Accounts Receivable—Karie Platt
30,250
Notes Receivable
30,000
Interest Revenue ($30,000 5% 60 360).
250
June
29
Accounts Receivable—Jon Kelly
24,320
Notes Receivable
24,000
Interest Revenue ($24,000 8% 60 360).
320
Aug.
26
Cash
30,855
Accounts Receivable—Karie Platt
30,250
Interest Revenue ($30,250 8% 90 360).
605
Oct.
22
Allowance for Doubtful Accounts
24,320
Accounts Receivable—Jon Kelly
24,320
Ex. 8–25
1. The interest receivable should be reported separately as a current asset. It should not be
deducted from notes receivable.
2. The allowance for doubtful accounts should be deducted from accounts receivable.
A corrected partial balance sheet would be as follows:
Napa Vino Company
Balance Sheet
December 31, 20Y6
Assets
Current assets:
Cash
$ 78,500
Notes receivable
300,000
Accounts receivable
$1,200,000
Allowance for doubtful accounts
(11,500)
Accounts receivable, net
1,188,500
Interest receivable
4,500
CHAPTER 8 Receivables
8–17
PROBLEMS
Prob. 8–1A
2.
Feb.
8
Cash
7,200
Allowance for Doubtful Accounts
10,800
Accounts Receivable—DeCoy Co.
18,000
May
27
Accounts Receivable—Seth Nelsen
7,350
Allowance for Doubtful Accounts
7,350
27
Cash
7,350
Accounts Receivable—Seth Nelsen
7,350
Aug.
13
Allowance for Doubtful Accounts
6,400
Accounts Receivable—Kat Tracks Co.
6,400
Oct.
31
Accounts Receivable—Crawford Co.
3,880
Allowance for Doubtful Accounts
3,880
31
Cash
3,880
Accounts Receivable—Crawford Co.
3,880
Dec.
31
Allowance for Doubtful Accounts
23,200
Accounts Receivable—Newbauer Co.
7,190
Accounts Receivable—Bonneville Co.
5,500
Accounts Receivable—Crow Distributors
9,400
Accounts Receivable—Fiber Optics
1,110
31
Bad Debt Expense
38,870
Allowance for Doubtful Accounts
38,870
Uncollectible accounts estimate
($35,700 + $3,170).
CHAPTER 8 Receivables
Prob. 8–1A (Concluded)
1. and 2.
Allowance for Doubtful Accounts
Feb.
8
10,800
Jan.
1
Balance
26,000
Aug.
13
6,400
May
27
7,350
Dec.
31
23,200
Oct.
31
3,880
Dec.
31
Unadjusted Balance
3,170
Dec.
31
Adjusting Entry
38,870
Dec.
31
Adjusted Balance
35,700
Dec.
Adjusting Entry
CHAPTER 8 Receivables
Prob. 8–2A
1.
Customer
Due Date
Number of Days Past Due
Adams Sports & Flies
May 22, 20Y4
223 days (9 + 30 + 31 + 31 + 30 + 31 + 30 + 31)
Blue Dun Flies
Oct. 10, 20Y4
82 days (21 + 30 + 31)
Cicada Fish Co.
Sept. 29, 20Y4
93 days (1 + 31 + 30 + 31)
Deschutes Sports
Oct. 20, 20Y4
72 days (11 + 30 + 31)
Green River Sports
Nov. 7, 20Y4
54 days (23 + 31)
Smith River Co.
Nov. 28, 20Y4
33 days (2 + 31)
Western Trout Company
Dec. 7, 20Y4
24 days
Wolfe Sports
Jan. 20, 20Y5
Not past due
2. and 3.
Aging of Receivables Schedule
December 31, 20Y4
Customer
Balance
Not
Past
Due
Days Past Due
1–30
31–60
61–90
91–120
Over
120
AAA Outfitters
20,000
20,000
Brown Trout Fly Shop
7,500
7,500
Zigs Fish Adventures
Subtotals
20,000
Adams Sports & Flies
5,000
Blue Dun Flies
Cicada Fish Co.
8,400
8,400
Deschutes Sports
Green River Sports
3,500
3,500
Smith River Co.
Western Trout Company
6,800
6,800
Wolfe Sports
Totals
28,400
Percentage uncollectible
Estimate of uncollectible
accounts
5,936
12,590
11,360