Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
513
Exercise 7-20 (15 minutes)
Nov. 1
Notes Receivable—K. White ………………………..
6,000
Accounts Receivable—K. White ……………..
6,000
Record receipt of note on account.
Interest Receivable ……………………………………..
Interest Revenue ……………………………………
[$6,000 x 0.08 x 60/360].
6,240
Interest Revenue* …………………………………..
Interest Receivable ………………………………..
interest earned. *[$6,000 x 0.08 x 120/360]
Exercise 7-21 (20 minutes)
Mar. 21
Notes Receivable—T. Jackson ……………………….
9,500
Accounts Receivable—T. Jackson …………….
9,500
Record receipt of note on account.
Sept. 17
Accounts Receivable—T. Jackson ………………….
9,880
Interest Revenue ………………………………………
9,500
earned [$9,500 x 0.08 x 180/360 = $380].
9,880
Write off an account.
Exercise 7-22 (20 minutes)
1.
Dec. 4
Accounts Receivable ……………………………………..
7,245
Sales ……………………………………………………….
7,245
Record sales on credit.
5,000
Merchandise Inventory ……………………………………
5,000
Record cost of sales.
Accounts Receivable ………………………………..
Record sale of receivable. *($20,000 x 0.04)
5,859
Accounts Receivable ………………………………..
5,859
Record cash received on account.
Notes Payable …………………………………………..
Record cash from a loan.
2. The December 27 transaction. An example of this disclosure follows.
Note to Financial Statements
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
Exercise 7-23 (15 minutes)
1.
Year 2 accounts receivable turnover:
2. Worse.
Analysis: Raheem Company turned over its accounts receivable 0.6 (9.4 – 8.8)
times more in Year 3 than in Year 2. This improvement may indicate that the
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
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PROBLEM SET A
Problem 7-1A (30 minutes)
June 4
Accounts Receivable—N. Morris ………………………..
650
Sales ……………………………………………………………
650
Record sales on credit.
4
Cost of Goods Sold …………………………………………………
400
Merchandise Inventory ………………………………………
400
Record cost of sales.
5
Cash ………………………………………………………………….
6,693
Credit card expense* ………………………………………….
207
Sales ……………………………………………………………
6,900
Record credit card sales less fee. *($6,900 x 0.03)
5
Cost of Goods Sold …………………………………………………
4,200
Merchandise Inventory ………………………………………
4,200
Record cost of sales.
6
Cash ………………………………………………………………….
5,733
Credit card expense* ………………………………………….
117
Sales ……………………………………………………………
5,850
Record credit card sales less fee. *($5,850 x 0.02)
6
Cost of Goods Sold …………………………………………………
3,800
Merchandise Inventory ………………………………………
3,800
Record cost of sales.
8
Cash ………………………………………………………………….
4,263
Credit card expense* ………………………………………….
Sales ……………………………………………………………
4,350
Record credit card sales less fee. *($4,350 x 0.02)
8
Cost of Goods Sold …………………………………………………
2,900
Merchandise Inventory ………………………………………
2,900
Record cost of sales.
Allowance for Doubtful Accounts ……………………….
429
Accounts Receivable—A. McKee …………………..
429
Cash ………………………………………………………………….
Accounts Receivable—N. Morris …………………..
650
Record cash received in payment of account.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
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Problem 7-2A (35 minutes)
Part 1
a. Expense is 1.5% of credit sales
Dec. 31
Bad Debts Expense ………………………………………..
85,230
b. Expense is 1% of total sales
Dec. 31
Bad Debts Expense ………………………………………..
75,870
c. Allowance is 5% of accounts receivable
Dec. 31
Bad Debts Expense ………………………………………..
80,085
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. ……………….
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
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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
12,445
Part 2
Dec. 31
Bad Debts Expense ……………………………………….
27,150
27,150
Part 3
Writing off the account receivable does not directly affect net income.
Explanation: The entry to write off an account involves a debit to Allowance
519
Problem 7-4A (35 minutes)
Year 1
a.
Accounts Receivable …………………………………..
1,345,434
Sales …………………………..…………………………
1,345,434
Record sales on account.
975,000
Merchandise Inventory …………………………..
975,000
Record cost of sales.
Allowance for Doubtful Accounts …………………
Accounts Receivable ……………………………..
Write off accounts.
c.
Cash …………………………..……………………………….
669,200
Accounts Receivable ……………………………..
669,200
Record cash received on account.
Bad Debts Expense ……………………………………..
Allowance for Doubtful Accounts …………..
*Beginning receivables ………………….
$ 0
Credit sales …………………………………
1,345,434
Collections ………………………………….
(669,200)
Write-offs …………………………………….
(18,300)
Ending receivables ………………………
Percent uncollectible ……………………
x 1.5%
Required ending allowance …………..
Cr.
Unadjusted balance ……………………..
18,300
Dr.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
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Problem 7-4A (Concluded)
Year 2
e.
Accounts Receivable ……………………………………….
1,525,634
Sales ……………………………………………………….
Record sales on account.
Merchandise Inventory ……………………………………
Record cost of sales.
f.
Allowance for Doubtful Accounts …………………….
27,800
Accounts Receivable ………………………………….
27,800
Record write-off of accounts.
Accounts Receivable ………………………………….
Record cash received on account.
Bad Debts Expense ………………………………………….
32,199
Allowance for Doubtful Accounts ……………….
32,199
*Beginning receivables ……………………….
$ 657,934
Credit sales ……………………………………….
1,525,634
Collections ………………………………………..
(1,204,600)
Write-offs ………………………………………….
(27,800)
Ending receivables …………………………..
Percent uncollectible …………………………
Required ending allowance ………………..
Cr.
Unadjusted balance
Dr.
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
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Problem 7-5A (75 minutes)
Part 1
Year 1
Dec. 16
Notes Receivable—D. Todd …………………………..
10,800
Accounts Receivable—D. Todd ……………….
10,800
Record note received on account.
31
Interest Receivable ……………………………………….
Interest Revenue …………………………………….
36
[$10,800 x .08 x 15/360 = $36].
Year 2
Feb. 14
Cash …………………………..………………………………..
10,944
Interest Revenue* …………………………..……….
108
Interest Receivable ………………………………….
36
Notes Receivable—D. Todd……………………..
10,800
*[$10,800 x 0.08 x 45/360 = $108]
6,100
Accounts Receivable—Midnight Co. ………..
6,100
Record note received on account.
17
Notes Receivable—A. Privet …………………………
2,400
Accounts Receivable—A. Privet ………………
2,400
Record note received on account.
Apr. 16
Accounts Receivable—A. Privet ……………………
2,414
Interest Revenue …………………………………….
14
Notes Receivable—A. Privet ……………………
2,400
Accounts Receivable—Midnight Co. ……………..
6,222
Interest Revenue* …………………………..……….
122
Notes Receivable—Midnight Co ………………
6,100
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
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Problem 7-5A (Concluded)
Aug. 7
Notes Receivable—Mulan ……………………………..
7,440
Accounts Receivable—Mulan ………………….
7,440
Record note received on account.
Notes Receivable—N. Carson ……………………….
2,100
Accounts Receivable—N. Carson…………….
2,100
Cash …………………………..………………………………..
2,135
Interest Revenue* …………………………..……….
Notes Receivable—N. Carson ………………….
2,100
5
Cash …………………………..………………………………..
7,626
Interest Revenue* …………………………..……….
186
Notes Receivable—Mulan………………………..
7,440
Record cash received on note plus
interest. *($7,440 x 0.10 x 90/360 = $186)
Allowance for Doubtful Accounts ………………….
2,414
Accounts Receivable—A. Privet ………………
2,414
Record write-off of account.
Part 2
Financial statement footnotes
Explanation: When a business pledges its receivables as security for a
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
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PROBLEM SET B
Problem 7-1B (30 minutes)
Aug. 4
Accounts Receivable—M. Carpenter ………………….
3,700
Sales……………………………………………………………
3,700
Record sales on credit.
Cost of Goods Sold …………………………………………………
2,000
Merchandise Inventory ……………………………………….
2,000
Record cost of sales.
10
Cash …………………………………………………………………
5,044
Credit Card Expense* ………………………………………..
156
Sales……………………………………………………………
5,200
Cost of Goods Sold …………………………………………………
2,800
Merchandise Inventory ……………………………………….
2,800
Record cost of sales.
11
Cash …………………………………………………………………
1,225
Credit card expense* …………………………………………
25
Sales……………………………………………………………
1,250
Cost of Goods Sold …………………………………………………
900
Merchandise Inventory ……………………………………….
900
Record cost of sales.
14
Cash …………………………………………………………………
3,700
Accounts Receivable—M. Carpenter …………….
3,700
Record cash received in payment of account.
15
Cash …………………………………………………………………
3,185
Credit Card Expense* ………………………………………..
65
Sales…………………………………………………………….
3,250
Cost of Goods Sold …………………………………………………
1,758
Merchandise Inventory ……………………………………….
1,758
Record cost of sales.
22
Allowance for Doubtful Accounts ………………………
498
Accounts Receivable—Craw Co. …………………..
498
Write off account due.
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Problem 7-2B (35 minutes)
Part 1
a. Expense is 2.5% of credit sales
Dec. 31
Bad Debts Expense ……………………………………….
33,550
Allowance for Doubtful Accounts …………….
33,550
Dec. 31
Bad Debts Expense ……………………………………..
35,505
Allowance for Doubtful Accts. ………………..
35,505
c. Allowance is 6% of accounts receivable
Dec. 31
Bad Debts Expense ……………………………………….
27,000
Allowance for Doubtful Accounts …………….
27,000
Part 2
Current assets
Accounts receivable ………………………………
$575,000
Less allowance for doubtful accounts ……
(41,050)*
$533,950
uncollectible accounts) ……………………….
$533,950
Part 3
Current assets
Accounts receivable ………………………………
$575,000
Less allowance for doubtful accounts ……
(34,500)**
$540,500
525
Problem 7-3B (35 minutes)
Part 1
Calculation of the estimated balance of the allowance
Part 2
Dec. 31
Bad Debts Expense …………………………………….
31,390
Part 3
Writing off the account receivable does not directly affect net income.
Explanation: The entry to write off an account involves a debit to Allowance
Wild and Shaw Financial and Managerial Accounting 9e Solutions Manual: Chapter 7
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Problem 7-4B (35 minutes)
Year 1
a.
Accounts Receivable …………………………………..
685,350
Sales …………………………..…………………………
685,350
Record sales on account.
500,000
Merchandise Inventory ……………………………………
500,000
Record cost of sales.
b.
482,300
Accounts Receivable ……………………………..
482,300
Record cash received on account.
c.
Allowance for Doubtful Accounts …………………
9,350
Accounts Receivable ……………………………..
9,350
Record write-off of accounts.
d.
Bad Debts Expense ……………………………………..
11,287
Allowance for Doubtful Accounts……………
11,287
Record estimated bad debts.*
*Beginning receivables …………………
$ 0
x 1.0%
9,350
Dr.