Problem 7-4A (Concluded)
2016
e.
Accounts Receivable ……………………………………….
1,525,634
Sales ……………………………………………………….
1,525,634
To record sales on account.
Merchandise Inventory ……………………………………
To record cost of sales.
Allowance for Doubtful Accounts …………………….
27,800
Accounts Receivable ………………………………….
To record write-off of accounts.
g.
Accounts Receivable ………………………………….
To record cash received on account.
h.
Bad Debts Expense ………………………………………….
32,199
Allowance for Doubtful Accounts ……………….
$ 657,934
1,525,634
(27,800)
Problem 7-5A (75 minutes)
Part 1
2015
Dec. 16
Notes Receivable—D. Todd …………………………..
10,800
Interest Receivable ……………………………………….
Interest Revenue …………………………………….
2016
Feb. 14
Cash …………………………………………………………….
10,944
Interest Revenue* ……………………………………
108
Interest Receivable ………………………………….
Notes Receivable—Midnight Co ……………………
6,100
Notes Receivable—A. Privet …………………………
2,400
Apr. 16
Accounts Receivable—A. Privet ……………………
2,414
Interest Revenue …………………………………….
Accounts Receivable—Midnight Co. ……………..
6,222
Interest Revenue* ……………………………………
122
Problem 7-5A (Concluded)
July 16
Cash …………………………………………………………….
6,286
7,450
2,100
Nov. 2
Cash …………………………………………………………….
2,135
5
Cash …………………………………………………………….
7,636
Allowance for Doubtful Accounts ………………….
2,414
Part 2
Analysis Component: When a business pledges its receivables as security
for a loan and the loan is still outstanding at period-end, the business must
PROBLEM SET B
Problem 7-1B (30 minutes)
Aug. 4
Accounts Receivable—M. Carpenter ………………….
3,700
Sales……………………………………………………………
3,700
To record sales on credit.
Cost of Goods Sold …………………………………………………
2,000
Merchandise Inventory ……………………………………….
2,000
To record cost of sales.
Cash …………………………………………………………………
5,044
Credit Card Expense* ………………………………………..
Cost of Goods Sold …………………………………………………
2,800
Merchandise Inventory ……………………………………….
2,800
To record cost of sales.
Accounts Receivable—Goldman ………………………..
1,225
Credit card expense* …………………………………………
Sales……………………………………………………………
1,250
To record credit card sales less fee. *($1,250 x .02)
Cost of Goods Sold …………………………………………………
Merchandise Inventory ……………………………………….
Cash …………………………………………………………………
3,700
To record cash received.
Accounts Receivable—Goldman ………………………..
3,185
Credit Card Expense* ………………………………………..
Sales…………………………………………………………….
3,250
To record credit card sales less fee. *($3,250 x .02)
Cost of Goods Sold …………………………………………………
1,758
Merchandise Inventory ……………………………………….
1,758
To record cost of sales.
Allowance for Doubtful Accounts ………………………
To write off account due.
Cash …………………………………………………………………
4,410
4,410
To record cash rec’d from credit card co. ($1,225+$3,185)
Problem 7-2B (35 minutes)
Part 1
a. Expense is 2.5% of credit sales
Dec. 31
Bad Debts Expense ……………………………………….
33,550
Dec. 31
Bad Debts Expense ……………………………………..
35,505
Dec. 31
Bad Debts Expense ……………………………………….
27,000
Part 2
Current assets
Accounts receivable ………………………………
$575,000
Less allowance for doubtful accounts ……
Part 3
Current assets
Accounts receivable ………………………………
$575,000
Less allowance for doubtful accounts ……
$540,500
Problem 7-3B (35 minutes)
Part 1
Calculation of the estimated balance of the allowance
Not due:
$396,400 x .020 =
$ 7,928
1 to 30:
277,800 x .040 =
11,112
Part 2
Dec. 31
Bad Debts Expense …………………………………….
31,390
Part 3
Writing off the account receivable in 2017 will not directly affect Year 2017
net income. The entry to write off an account involves a debit to Allowance
Problem 7-4B (35 minutes)
2015
a.
Accounts Receivable …………………………………..
685,350
Sales ……………………………………………………..
685,350
To record sales on account.
500,000
Merchandise Inventory ……………………………………
500,000
To record cost of sales.
482,300
Accounts Receivable ……………………………..
482,300
To record cash received on account.
c.
Allowance for Doubtful Accounts …………………
Accounts Receivable ……………………………..
To record write-off of accounts.
Bad Debts Expense ……………………………………..
Allowance for Doubtful Accounts……………
Problem 7-4B (Concluded)
2016
e.
Accounts Receivable ……………………………………
870,220
Sales ………………………………………………………
870,220
To record sales on account.
650,000
Merchandise Inventory ……………………………………
650,000
To record cost of sales.
990,800
Accounts Receivable ………………………………
990,800
To record cash received on account.
g.
Allowance for Doubtful Accounts ………………….
11,090
Accounts Receivable ………………………………
To record write-off of accounts.
h.
Bad Debts Expense ………………………………………
9,773
Allowance for Doubtful Accounts…………….
Problem 7-5B (75 minutes)
Part 1
2015
Nov. 1
Notes Receivable—S. Julian …………………………..
4,800
4,800
Interest Receivable …………………………………………..
64
Interest Revenue ………………………………………..
64
2016
Jan. 30
Cash ………………………………………………………………..
4,896
Interest Revenue* ……………………………………….
32
Interest Receivable ……………………………………..
64
4,800
Feb. 28
Notes Receivable—King Co ……………………………..
12,600
12,600
Notes Receivable—M. Shelley ………………………….
6,200
6,200
Accounts Receivable—King Co ………………………..
12,684
Interest Revenue ………………………………………..
84
12,600
Cash ………………………………………………………………..
6,324
Interest Revenue ………………………………………..
6,200
Problem 7-5B (Concluded)
June 15
Notes Receivable—R. Solon …………………………..
2,000
Accounts Receivable—R. Solon …………………
2,000
June 21
Notes Receivable—J. Felton …………………………..
9,500
Accounts Receivable—J. Felton ………………..
9,500
Cash ………………………………………………………………
2,032
Interest Revenue* ……………………………………..
Notes Receivable—R. Solon ……………………..
2,000
Sept. 19
Cash ………………………………………………………………
9,690
Interest Revenue* ……………………………………..
190
Notes Receivable—J. Felton ……………………..
9,500
Accounts Receivable—King Co …………………
Part 2
Analysis Component: When a business pledges its receivables as security
for a loan and the loan is still outstanding at period-end, the business must
SERIAL PROBLEM — SP 7
Serial Problem — SP 7, Business Solutions (50 minutes)
1. a. Bad debts expense is recorded as 1% of total revenues:
1. b. Bad debts expense is recorded as 2% of accounts receivable:
2. Allowance Balance as of 3/31/17 ………………. $457 Cr.
3. Many small business owners use the direct write-off method of
recording bad debts expense. The direct method is a simple and
Reporting in Action — BTN 7-1
1. Apple’s receivables at September 27, 2014, are $17,460 million.
4. Liquid assets as a percent of current liabilities ($ millions)
Comments: Current liabilities are obligations that are due to be paid or
liquidated within one year or one operating cycle of the business,
5. Note 1 to Apple’s financial statements describes its accounting
Comparative Analysis — BTN 7-2
1. Accounts Receivable Turnover ($ millions)
Apple (Current Year):
182,795
(17,460 + 13,102) / 2 = 11.96 times
2. Average Collection Period (or “Average Days’ Sales Uncollected”)
Apple (Current Year): 365 days / 11.96 times = 30.52 days
3. Both companies appear reasonably efficient in collecting accounts
Ethics Challenge — BTN 7-3
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
Communicating in Practice — BTN 7-4
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
Taking It to the Net — BTN 7-5
2.
$ millions
December 31,
2014
December 31,
2013
Gross accounts receivable …………………..
$899
$1,005
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 7-6
Instructor note: Computations for the aging schedule are in the Problem 7-3A solution.
Adjusting entry
Dec. 31
Bad Debts Expense ……………………………………….
27,150
27,150
December 31, 2016, Balance Sheet Presentation
Entrepreneurial Decision — BTN 7-7
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)
Entrepreneurial Decision — BTN 7-7 continued
2. Plan (A) provides a slightly higher income, so if the company can only
pursue one plan now, based purely on the financial aspect, it should
choose Plan (A).
Hitting the Road — BTN 7-8
Telephone calls to VISA and American Express are the source of
information for this solution. VISA reports that the average transaction fee
Global Decision — BTN 7-9
1. Accounts Receivable Turnover (KRW in millions)
2. Average Collection Period (or “Average Days’ Sales Uncollected”)
3. Samsung’s results are between Apple and Google in terms of its