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.
13
Allowance for Doubtful Accounts ……………………….
429
Accounts Receivable—A. McKee …………………..
429
Write off account due.
18
Cash ………………………………………………………………….
650
Accounts Receivable—N. Morris …………………..
650
Record cash received in payment of 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 ……………..
Record estimated bad debts
[$5,682,000 x .015].
Dec. 31
Bad Debts Expense ………………………………………..
75,870
Allowance for Doubtful Accounts ……………..
75,870
c. Allowance is 5% of accounts receivable
Dec. 31
Bad Debts Expense ………………………………………..
80,085
Allowance for Doubtful Accounts ……………..
Record estimated bad debts.*
* Unadjusted balance ………………………………………………..
$16,580 debit
Estimated balance ($1,270,100 x 5%) ………………………
63,505 credit
Required adjustment ………………………………………………
$80,085 credit
Accounts receivable …………………………………….
$1,270,100
Less allowance for doubtful accounts ………….
(68,650)*
Or:
uncollectible accounts) …………………………..
$1,201,450
Part 3
Current assets
Accounts receivable …………………………………….
$1,270,100
Less allowance for doubtful accts. ……………….
(63,505)**
$1,206,595
Or:
Accounts receivable (net of $63,505**
uncollectible accounts) …………………………..
$1,206,595
** See computations in Part 1c.
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
12,445
Part 2
Dec. 31
Bad Debts Expense ……………………………………….
27,150
Allowance for Doubtful Accounts …………….
27,150
Record estimated bad debts.*
* Unadjusted balance ………………………
$14,500 credit
Estimated balance ………………………..
41,650 credit
Required adjustment …………………….
$27,150 credit
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
Problem 7-4A (35 minutes)
Year 1
a.
Accounts Receivable …………………………………..
1,345,434
Sales ……………………………………………………..
1,345,434
Record sales on account.
Cost of Goods Sold ………………………………………………
975,000
Merchandise Inventory …………………………..
Record cost of sales.
b.
Allowance for Doubtful Accounts …………………
18,300
Accounts Receivable ……………………………..
18,300
Write off accounts.
c.
669,200
Accounts Receivable ……………………………..
Record cash received on account.
d.
Bad Debts Expense ……………………………………..
28,169
Allowance for Doubtful Accounts …………..
28,169
Record estimated bad debts.*
*Beginning receivables ………………….
$ 0
Credit sales …………………………………
1,345,434
Collections ………………………………….
(669,200)
Write-offs …………………………………….
(18,300)
Ending receivables ………………………
657,934
Percent uncollectible ……………………
x 1.5%
Required ending allowance …………..
9,869**
Cr.
Unadjusted balance ……………………..
18,300
Dr.
Adjustment to the allowance ………..
$ 28,169
Cr.
** rounded to nearest dollar
Problem 7-4A (Concluded)
Year 2
e.
Accounts Receivable ……………………………………….
1,525,634
Sales ……………………………………………………….
1,525,634
Record sales on account.
Cost of Goods Sold ………………………………………………
1,250,000
Merchandise Inventory ……………………………………
1,250,000
Record cost of sales.
Allowance for Doubtful Accounts …………………….
Accounts Receivable ………………………………….
Record write-off of accounts.
1,204,600
Accounts Receivable ………………………………….
1,204,600
Record cash received on account.
Bad Debts Expense ………………………………………….
Allowance for Doubtful Accounts ……………….
*Beginning receivables ……………………….
$ 657,934
Credit sales ……………………………………….
1,525,634
Collections ………………………………………..
(1,204,600)
Write-offs ………………………………………….
(27,800)
Ending receivables …………………………..
951,168
Percent uncollectible …………………………
x 1.5%
Required ending allowance ………………..
14,268**
Cr.
Unadjusted balance
Dr.
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.
Interest Receivable ……………………………………….
Interest Revenue …………………………………….
36
Record interest earned.
[$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
Record cash received on note with interest.
*[$10,800 x 0.08 x 45/360 = $108]
Mar. 2
Notes Receivable—Midnight Co ……………………
6,100
Accounts Receivable—Midnight Co. ………..
6,100
Record note received on account.
Notes Receivable—A. Privet …………………………
2,400
Accounts Receivable—A. Privet ………………
2,400
Record note received on account.
Accounts Receivable—A. Privet ……………………
2,414
Interest Revenue …………………………………….
14
Notes Receivable—A. Privet ……………………
2,400
Record receivable for dishonored note plus
May 31
Accounts Receivable—Midnight Co. ……………..
6,222
Interest Revenue* ……………………………………
122
Notes Receivable—Midnight Co ………………
6,100
Record receivable for dishonored note plus
interest *[$6,100 x 0.08 x 90/360 = $122]
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
2,135
Interest Revenue* ……………………………………
Notes Receivable—N. Carson ………………….
2,100
7,626
Interest Revenue* ……………………………………
Notes Receivable—Mulan………………………..
7,440
Record cash received on note plus
interest. *($7,440 x 0.10 x 90/360 = $186)
Dec. 1
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
loan and the loan is still outstanding at period-end, the business must
disclose this information in notes to its financial statements. This is a
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
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
Record credit card sales less fee. *($1,250 x 0.02)
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
Record credit card sales less fee. *($3,250 x 0.02)
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.
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
Record estimated bad debts
[$1,342,000 x .025].
b. Expense is 1.5% of total sales
Dec. 31
Bad Debts Expense ……………………………………..
35,505
Allowance for Doubtful Accts. ………………..
35,505
Record estimated bad debts
[($1,025,000 + $1,342,000) x .015].
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
Or:
Accounts receivable (net of $41,050*
uncollectible accounts) ……………………….
$533,950
* Adjustment to the allowance ………………..
$33,550
credit
Unadjusted allowance balance ……………..
7,500
credit
Adjusted balance …………………………………
$41,050
credit
Accounts receivable ………………………………
$575,000
Less allowance for doubtful accounts ……
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
Allowance for Doubtful Accounts ………….
31,390
Record estimated bad debts.*
* Unadjusted balance ………………………
$ 3,400 debit
Estimated balance …………………………
27,990 credit
Required adjustment …………………….
$31,390 credit
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
Problem 7-4B (35 minutes)
Year 1
a.
Accounts Receivable …………………………………..
685,350
Sales ……………………………………………………..
Record sales on account.
Cost of Goods Sold ………………………………………………
500,000
Merchandise Inventory ……………………………………
Record cost of sales.
b.
Cash ……………………………………………………………
482,300
Accounts Receivable ……………………………..
Record cash received on account.
c.
Allowance for Doubtful Accounts …………………
Accounts Receivable ……………………………..
Record write-off of accounts.
d.
Bad Debts Expense ……………………………………..
Allowance for Doubtful Accounts……………
*Beginning receivables …………………
$ 0
Credit sales ………………………………..
685,350
Collections …………………………………
(482,300)
Write-offs ……………………………………
(9,350)
Ending receivables ……………………..
193,700
Percent uncollectible …………………..
x 1.0%
Required ending allowance ………….
1,937
Cr.
Unadjusted balance …………………….
9,350
Dr.
Adjustment to the allowance ………..
$ 11,287
Cr.
Problem 7-4B (Concluded)
Year 2
e.
Accounts Receivable ……………………………………
870,220
Sales ………………………………………………………
Record sales on account.
650,000
Merchandise Inventory ……………………………………
650,000
Record cost of sales.
990,800
Accounts Receivable ………………………………
990,800
Record cash received on account.
g.
Allowance for Doubtful Accounts ………………….
11,090
Accounts Receivable ………………………………
Record write-off of accounts.
h.
Bad Debts Expense ………………………………………
9,773
Allowance for Doubtful Accounts…………….
Record estimated bad debts.*
*Beginning receivables ………………………
$ 193,670
Credit sales ……………………………………..
870,220
Collections ………………………………………
(990,800)
Write-offs …………………………………………
(11,090)
Ending receivables …………………………..
62,000
Percent uncollectible ………………………..
Required ending allowance ……………….
Cr.
Unadjusted balance
Dr.