Chapter 7
Reporting and Analyzing Receivables
QUESTIONS
1. When customers use credit cards, the selling companies can avoid having to directly
2. Revenues and expenses usually are not matched under the direct write-off method because
3. The accounting constraint of materiality suggests that the requirements of accounting
4. Creditors prefer notes receivable to accounts receivable because the notes can be more
5. Writing off a bad debt against the Allowance account does not reduce the estimated
realizable value of a company’s accounts receivable because the write-off reduces the
6. The adjusted balances of Bad Debts Expense and Allowance for Doubtful Accounts are
virtually never equal because the expense amount reflects only the events of the current
10. Samsung lists its accounts receivable as “Trade and Non-trade receivables” in current
assets. There is no allowance listed on the face of the balance sheet.
QUICK STUDIES
Quick Study 7-1 (15 minutes)
1.
Cash …………………………………………………………………….
19,000
Credit Card Expense* ……………………………………………
1,000
Cost of Goods Sold ………………………………………………
15,000
2.
Accounts Receivable—Credit Card Cos. ………………..
4,800
Credit Card Expense* ……………………………………………
200
Cost of Goods Sold ………………………………………………
3,000
5 days later
Cash …………………………………………………………………….
4,800
Quick Study 7-2 (10 minutes)
Oct. 1
50,000
Quick Study 7-3 (10 minutes)
Oct. 30
Accounts Receivable—P.Moore …………………………..
50,000
Oct. 30
50,000
Quick Study 7-4 (15 minutes)
1. direct write-off method
Quick Study 7-5 (15 minutes)
1.
Allowance for Doubtful Accounts ………………………
800
800
2.
Mar. 9
Accounts Receivable—C. Green* ……………………….
300
Allowance for Doubtful Accounts …………………
300
300
300
Quick Study 7-6 (15 minutes)
1.
Dec. 31
Bad Debts Expense …………………………………………
885
Allowance for Doubtful Accounts……………….
885
Quick Study 7-7 (15 minutes)
Dec. 31
Bad Debts Expense …………………………………………
1,400
Allowance for Doubtful Accounts……………….
Quick Study 7-8 (15 minutes)
1. Maturity date is October 31, which is computed as follows:
Days in August ………………………………………………………. 31
2.
Quick Study 7-9 (10 minutes)
Oct. 31 Cash ………………………………………………………….. 6,180
Quick Study 7-10 (15 minutes)
Dec. 31 Interest Receivable …………………………………….. 50
Quick Study 7-11 (10 minutes)
May 1
Cash ……………………………………………………………..
121,875
Quick Study 7-12 (10 minutes)
Accounts receivable turnover =
Quick Study 7-13 (10 minutes)
a. Both U.S. GAAP and IFRS have similar asset criteria that apply to
recognition of receivables. Further, receivables that arise from revenue–
b. Both U.S. GAAP and IFRS require receivables to be reported net of
Net sales
Average accounts receivable
EXERCISES
Exercise 7-1 (25 minutes)
Part 1
GENERAL LEDGER
Accounts Receivable
Sales
Sales Returns and
Allowances
Nov. 5
ACCOUNTS RECEIVABLE LEDGER
Ski Shop
Welcome Enterprises
Zia Natara
Nov. 5
Part 2
Vail Company
Schedule of Accounts Receivable
November 30, 2016
Exercise 7-2 (20 minutes)
Cash ……………………………………………………………….
8,064
6,000
12
5,460
12
3,500
20
Cash ……………………………………………………………….
5,460
Exercise 7-3 (20 minutes)
March 11
Bad Debts Expense …………………………………………….
45,000
45,000
Cash …………………………………………………………………..
45,000
Exercise 7-4 (20 minutes)
Dec. 31
Bad Debts Expense ……………………………………………..
4,875
Allowance for Doubtful Accounts……………………
Allowance for Doubtful Accounts …………………………
580
580
580
Exercise 7-5 (15 minutes)
a.
Dec. 31
Bad Debts Expense ………………………………………………
685
Allowance for Doubtful Accounts* …………………..
Dec. 31
Bad Debts Expense ………………………………………………
1,391
Allowance for Doubtful Accounts** ………………….
Exercise 7-6 (30 minutes)
a. Computation of the estimated balance of the allowance for uncollectibles:
Not due:
$396,000 x 0.01 =
$ 3,960
1 to 30:
90,000 x 0.02 =
1,800
36,000 x 0.05 =
1,800
18,000 x 0.07 =
1,260
30,000 x 0.10 =
Exercise 7-6 (Concluded)
b.
Dec. 31
Bad Debts Expense ……………………………………….
8,220
Allowance for Doubtful Accounts …………….
8,220
c.
Dec. 31
Bad Debts Expense ……………………………………….
11,920
Allowance for Doubtful Accounts …………….
11,920
Exercise 7-7 (25 minutes)
a. Computation of the estimated balance of the allowance for uncollectibles:
b.
Dec. 31
Bad Debts Expense ……………………………………….
13,650
Allowance for Doubtful Accounts …………….
13,650
c.
Dec. 31
Bad Debts Expense ……………………………………….
26,650
Allowance for Doubtful Accounts …………….
26,650
Exercise 7-8 (20 minutes)
Feb. 1
Allowance for Doubtful Accounts …………………………
6,800
Accounts Receivable—Oakley Co …………………..
Accounts Receivable—Brookes Co ………………..
To write off specific accounts.
To reinstate an account.
Accounts Receivable—Oakley ………………………..
To record cash received on account.
Exercise 7-9 (25 minutes)
a. Expense is 3.0% of credit sales
Bad Debts Expense ………………………………………..
[$300,000 x .03].
b. Expense is 1.0% of total sales
Bad Debts Expense ………………………………………..
12,000
[($300,000 + $900,000) x .01].
c. Allowance is 6% of accounts receivable
Bad Debts Expense ………………………………………..
12,500
Exercise 7-10 (10 minutes)
2015
Dec. 13
Notes Receivable—M. Lee………………………
9,500
Dec. 31
Exercise 7-11 (15 minutes)
2016
Jan. 27
Cash ……………………………………………………………..
9,595
Mar. 3
Notes Receivable—Tomas Co. ……………………….
5,000
2,000
Apr. 16
Accounts Receivable—H. Cheng ……………………
2,015
May 1
Allowance for Doubtful Accounts …………………..
2,015
June 1
Cash ……………………………………………………………..
5,125
Exercise 7-12 (15 minutes)
Nov. 1
Notes Receivable—K. White ………………………..
6,000
6,000
Dec. 31
Interest Receivable ……………………………………..
80
Interest Revenue ……………………………………
80
Apr. 30
Cash …………………………………………………………..
6,240
6,000
Interest Revenue* …………………………..………
Interest Receivable ………………………………..
80
Exercise 7-13 (20 minutes)
Mar. 21
Notes Receivable—T. Jackson ……………………….
9,500
9,500
Sept. 17
Accounts Receivable—T. Jackson ………………….
9,880
9,500
Dec. 31
Allowance for Doubtful Accounts …………………..
9,880
9,880
Exercise 7-14 (20 minutes)
July 4
Accounts Receivable …………………………..…………
7,245
5,000
Cash ……………………………………………………………..
19,200
17
Cash ……………………………………………………………..
5,859
27
Cash ……………………………………………………………..
10,000
Exercise 7-15 (15 minutes)
Year 2015 accounts receivable turnover:
Year 2016 accounts receivable turnover:
Exercise 7-16 (25 minutes)
(¥ in millions)
a. Expense is 0.4% of total revenues
Dec. 31
Bad Debts Expense ………………………………………..
38,465
38,465
b. Allowance is 2.0% of trade receivables, gross
Dec. 31
Bad Debts Expense ………………………………………..
45,959
45,959
PROBLEM SET A
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
5
Cash ………………………………………………………………….
Credit card expense* ………………………………………….
207
Sales ……………………………………………………………
5
Cost of Goods Sold …………………………………………………
Merchandise Inventory ………………………………………
To record cost of sales.
6
Accounts Receivable—Barclay …………………………..
Credit card expense* ………………………………………….
117
Sales ……………………………………………………………
6
Cost of Goods Sold …………………………………………………
Merchandise Inventory ………………………………………
8
Accounts Receivable—Barclay …………………………..
Credit card expense* ………………………………………….
Sales ……………………………………………………………
To record credit card sales less fee. *($4,350 x .02)
8
Cost of Goods Sold …………………………………………………
Merchandise Inventory ………………………………………
Allowance for Doubtful Accounts ……………………….
429
429
Cash ………………………………………………………………….
Cash ………………………………………………………………….
650
To record cash received on account.
Problem 7-2A (35 minutes)
Part 1
a. Expense is 1.5% of credit sales
Dec. 31
Bad Debts Expense ………………………………………..
85,230
Allowance for Doubtful Accounts ……………..
85,230
Dec. 31
Bad Debts Expense ………………………………………..
75,870
Allowance for Doubtful Accounts ……………..
75,870
c. Allowance is 5% of accounts receivable
Dec. 31
80,085
Allowance for Doubtful Accounts ……………..
80,085
To record estimated bad debts
Part 2
Current assets
Accounts receivable …………………………………….
$1,270,100
Less allowance for doubtful accounts ………….
Part 3
Current assets
Accounts receivable …………………………………….
$1,270,100
Less allowance for doubtful accts. ……………….
Problem 7-3A (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
5,590
Part 2
Bad Debts Expense ……………………………………….
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 7-4A (35 minutes)
2015
a.
Accounts Receivable …………………………………..
1,345,434
Sales ……………………………………………………..
1,345,434
To record sales on account.
Merchandise Inventory …………………………..
To record cost of sales.
Allowance for Doubtful Accounts …………………
Accounts Receivable ……………………………..
To write off accounts.
c.
Accounts Receivable ……………………………..
To record cash received on account.
Bad Debts Expense ……………………………………..
Allowance for Doubtful Accounts …………..