Exercise 7–31 (concluded)
Amortization Schedule – Not required
Cash Effective Increase in Outstanding
Interest Interest Balance Balance
by agreement 10% x Outstanding Balance Discount Reduction
10,826,490
1 1,000,000 .10 (10,826,490) = 1,082,649 82,649 10,909,139
7–42 Intermediate Accounting, 8/e
Exercise 7–32
ANALYSIS
Previous Value:
Accrued 2015 interest (10% x $240,000) $ 24,000
New Value:
$11,555 + 11,555 + 11,555 + 240,000 = $274,665
JOURNAL ENTRIES
January 1, 2016
Loss on troubled debt restructuring (to balance) ……… 37,003
December 31, 2016
Note receivable (to balance) ……………………… ………… 22,700
December 31, 2017
Note receivable (to balance) ……………………… ………… 24,968
Exercise 7–32 (concluded)
Amortization Schedule – Not required
Cash Effective Increase in Outstanding
Interest Interest Balance Balance
by agreement 10% x Outstanding Balance Discount Reduction
226,997
1 0 .10 (226,997) = 22,700 22,700 249,697
CPA / CMA REVIEW QUESTIONS
CPA Exam Questions
1. a. Allowance for uncollectible accounts, beginning balance $260,000
2. a. Accounts receivable, beginning balance $ 600
Add: Credit sales 3,200
3. c. The reinstatement of a previously written off account increases the
allowance account. The collection of the reinstated account does not
4. b. Accounts receivable, beginning balance $ 650,000
Add: Credit sales 2,700,000
5. c. The key phrase is “without recourse” which means that Gar Co. has
transferred the collection risk to Ross Bank. Ross does not have any
CPA Exam Questions (concluded)
6. a. The aging method is a balance sheet approach that calculates the required
ending balance in the allowance for uncollectible accounts. The
calculation is as follows:
Estimated %
Uncollectible
x
Amount
=
Required
Balance
1%
x
$120,000
=
$1,200
6%
x
$100,000
=
6,000
7. a. The estimate using the income statement approach is:
$1,750,000 x 2% = $35,000
The estimate using the balance sheet approach is:
8. b. IFRS allows overdrafts to be offset with positive cash balances if the
9. c. IAS No. 39 allows receivables to be accounted for as “available for sale”
10. d. Under IFRS, measurement of an impairment of a receivable is required if there
7–46 Intermediate Accounting, 8/e
CMA Exam Questions
1. c. The allowance method records bad debt expense systematically as a
percentage of either credit sales or the level of accounts receivable.
2. d. If a company uses the allowance method, the write-off of a receivable
has no effect on total assets. The journal entry involves a debit to the
3. c. The entry is to debit bad debt expense and credit the allowance
account. Net credit sales were $1,500,000 ($1,800,000 – $125,000 of
PROBLEMS
Problem 7–1
Requirement 1
Monthly bad debt expense accrual summary.
Bad debt expense (3% x $2,620,000) …………………………... 78,600
Requirement 2
Bad debt expense ………………………………………………….. 4,300
Year-end required allowance for uncollectible accounts:
Summary
Percent
Estimated
Age Group
Uncollectible
Allowance
0–60 days
4%
$17,200
61–90 days
15%
14,700
91–120 days
25%
15,000
40%
22,000
7–48 Intermediate Accounting, 8/e
Problem 7–1 (concluded)
Allowance for uncollectible accounts:
Beginning balance $54,000
Add: Monthly bad debt accruals 78,600
Requirement 3
Bad debt expense for 2016:
Monthly accruals $78,600
Balance sheet:
Current assets:
Problem 7–2
Requirement 1
(a)
Accounts receivable analysis ($ in thousands):
Balance, beginning of year ($580,640 + 6,590) $ 587,230
(b)
Allowance for uncollectible accounts analysis ($ in thousands):
Beginning balance $6,590
(c)
Requirement 2
(a) ($ in thousands)
Current year Previous year
Current assets:
(b) ($ in thousands)
Bad debt expense would be equal to actual receivables written off
of $5,934.
7–50 Intermediate Accounting, 8/e
Problem 7–3
Requirement 1
2013 2012
($ in millions)
Accounts receivable, net $3,117 $3,132
Requirement 2
Allowance for Uncollectible Accounts
_______________________________________
($ in millions)
91 Beg. Bal.
Write-offs 19
Requirement 3
Gross Accounts Receivable
_______________________________________
($ in millions)
Beg. Bal. 3,223
Sales 25,313
Problem 7–3 (concluded)
Requirement 4
Net Accounts Receivable
________________________________________
($ in millions)
Beg. Bal. 3,132
7–52 Intermediate Accounting, 8/e
Problem 7–4
Requirement 1
To record accounts receivable written off during the year 2016:
Allowance for uncollectible accounts ……………………….. 35,000
To record collection of account receivable previously written off:
Requirement 2
(a)
December 31, 2016
Bad debt expense (3% x $1,750,000) ……………………………. 52,500
(b)
December 31, 2016
Bad debt expense …………………………………………………… 36,700
Problem 7–4 (continued)
Accounts receivable analysis:
Beginning balance $ 462,000
Add: Credit sales 1,750,000
Less: Write-offs (35,000)
Allowance for uncollectible accounts analysis:
Beginning balance $30,000
Add: Collection of receivable previously written off 3,000
(c)
Required allowance:
Age Group
Amount
Percent
Uncollectible
Estimated
Allowance
0–60 days
$225,550
4%
$ 9,022
61–90 days
69,400
15%
10,410
91–120 days
34,700
25%
8,675
$347,000
7–54 Intermediate Accounting, 8/e
Problem 7–4 (concluded)
Allowance for uncollectible accounts analysis:
Beginning balance $30,000
Add: Collection of receivable previously written off 3,000
Less: Write-offs (35,000)
Requirement 3
Accounts receivable – Year-end allowance
Problem 7–5
Requirement 1
($ in thousands)
2009 2008
Accounts receivable, net $837,010 $758,200
Requirement 2
($ in thousands)
Analysis of allowance for doubtful accounts
Balance, beginning of year $8,915
Requirement 3
($ in thousands)
Analysis of allowance for sales returns
Balance, end of year $12,128
Requirement 4
($ in thousands)
Accounts receivable analysis:
Balance, beginning of year $ 781,514
Problem 7–6
Requirement 1
Total face value of notes = $300,000 + 150,000 + 200,000 = $650,000
Balance sheet carrying value = 645,000
Requirement 2
Total accrued interest receivable $16,000
Less: Interest accrued on note 1:
Requirement 3
Note 1 $10,000
Problem 7–7
Requirement 1
Alternative a:
To record the borrowing of $500,000 and signing of a note payable:
July 1, 2016
Alternative b:
To record the transfer of receivables:
July 1, 2016
Requirement 2
Alternative a:
July, 2016
7–58 Intermediate Accounting, 8/e
Problem 7–7 (concluded)
Alternative b:
$550 of accounts receivable are now held by the bank, and presumably the bank
has collected .8 x $550 = $440 during July. Lonergan still holds accounts receivable
of ($780 – 550 = $230), so should have collected .8 x $230 = $184 during July.
July 31, 2016
Requirement 3
Alternative a. – Note disclosure is required for the assignment of accounts
Problem 7–8
Cash (90% x $800,000) ………………………………………………. 720,000
Problem 7–9
WALKEN COMPANY
Balance Sheet
December 31, 2016
Current Assets
Casha €35,000
aWalken would net the €40,000 and (€5000) cash balances, yielding a balance of
€35,000.
bNet accounts receivable would be affected as follows:
Beginning balance: € 25,000
Credit sales 85,000
Problem 7–10
Requirement 1
February 28, 2016
Note receivable………………………………………………………. 10,000
Sales revenue ……………………………………………………… 10,000
March 31, 2016
Note receivable (face amount) …………………………………….. 8,000
April 3, 2016
April 11, 2016
April 17, 2016