Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
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Problem 7-5B (75 minutes)
Part 1
Year 1
Nov. 1
Notes Receivable—S. Julian …………………………..
4,800
Accounts Receivable—S. Julian ………………….
4,800
Record note received on account.
Interest Receivable …………………………………………..
64
Interest Revenue ………………………………………..
64
Record interest earned [$4,800 x 0.08 x 60/360].
Year 2
Jan. 30
Cash ………………………………………………………………..
4,896
Interest Revenue* ……………………………………….
32
Interest Receivable ……………………………………..
64
Notes Receivable—S. Julian ……………………….
4,800
Record cash received on note with interest.
*[$4,800 x 0.08 x 30/360]
Notes Receivable—King Co ……………………………..
Accounts Receivable—King Co. ………………….
Notes Receivable—M. Shelley ………………………….
6,200
Accounts Receivable—M. Shelley ……………….
6,200
Record note received on account.
30
Accounts Receivable—King Co ………………………..
12,684
Interest Revenue ………………………………………..
84
Notes Receivable—King Co ………………………..
12,600
Record receivable for dishonored note
plus interest [$12,600 x 0.08 x 30/360].
Cash ………………………………………………………………..
6,324
Interest Revenue ………………………………………..
Notes Receivable—M. Shelley …………………….
6,200
Record cash received on note plus interest
($6,200 x 0.12 x 60/360 = $124).
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
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Problem 7-5B (Concluded)
June 15
Notes Receivable—R. Solon …………………………..
2,000
Accounts Receivable—R. Solon …………………
2,000
Record note received on account.
June 21
9,500
Accounts Receivable—J. Felton ………………..
9,500
Record note received on account.
Cash ………………………………………………………………
2,032
Notes Receivable—R. Solon ……………………..
2,000
Record cash received on note plus interest.
*[$2,000 x 0.08 x 72/360]
Sept. 19
Cash ………………………………………………………………
9,690
Interest Revenue* ……………………………………..
190
Notes Receivable—J. Felton ……………………..
9,500
Record cash received on note plus interest.
*[$9,500 x 0.08 x 90/360]
Accounts Receivable—King Co …………………
Record write-off of accounts.
Part 2
Financial statement footnotes
Explanation: When a business pledges its receivables as security for a
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
SERIAL PROBLEM — SP 7
Serial Problem — SP 7, Business Solutions (50 minutes)
1. a. Bad debts expense is recorded as 1% of total revenues:
$44,000 x .01 = $440.
1. b. Bad debts expense is recorded as 2% of accounts receivable:
$22,867 x .02 = $457.34, which is $457 rounded to the nearest dollar.
2020
2. Allowance Balance as of 3/31/20 ………………. $457 Cr.
Less: Account written off ………………………… (100) Dr.
Allowance Balance as of 6/30/20 ………………. $357 Cr. (before adjustment)
3. Many small business owners use the direct write-off method of
recording bad debts expense. The direct method is a simple and
straightforward method of accounting for bad debts expense. It can
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
Company Analysis — AA 7-1 (25 minutes)
1. Apple’s accounts receivables are $17,874 million.
4. Liquid assets as a percent of current liabilities ($ millions)
5. Worsened
Explanation: Looking solely at Apple’s ability to satisfy current
obligations using liquid assets (cash, short-term investments, accounts
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
Comparative Analysis — AA 7-2 (35 minutes)
1. Accounts Receivable Turnover ($ millions)
a.
Apple (Current Year):
b.
Google (Current Year):
2. Average Collection Period (or “Average Days’ Sales Uncollected”)
a. Apple (Current Year): 365 days / 13.6 times = 26.8 days
3. Apple
Explanation: Apple collects accounts receivable over a shorter period
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
Global Analysis — AA 7-3 (15 minutes)
1. Accounts Receivable Turnover (KRW in millions)
2. Average Collection Period (or “Average Days’ Sales Uncollected”)
3. Outperform
Explanation: Samsung’s results are better than the industry average.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
473
Ethics Challenge — BTN 7-1
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
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Communicating in Practice — BTN 7-2
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
become uncollectible is what gives rise to bad debts expense and the
allowance for doubtful accounts.
Determining Allowance For Doubtful Accounts
The Allowance for Doubtful Accounts unadjusted balance at the end of the
year is the cumulative result of recording bad debts expense and writing
off specific accounts receivable in all past years. The recognition of bad
debts expense at the end of each year has the effect of increasing the
Allowance for Doubtful Accounts balance. However, when specific
please call me.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
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Taking It to the Net — BTN 7-3
1. At December 31, 2016, eBay’s ($ millions) net accounts receivable were
2.
$ millions
December 31,
2016
December 31,
2015
Allowances for doubtful accounts
(and authorized credits)* ………………
$ 81
$ 84
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 7-4
Instructor note: Computations for the aging schedule are in the Problem 7-3A solution.
The check figure for total estimated uncollectibles is $41,650.
Adjusting entry
Dec. 31
Bad Debts Expense ……………………………………….
27,150
27,150
December 31 Balance Sheet Presentation
Accounts Receivable …………………………………….. $1,220,000*
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
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Entrepreneurial Decision — BTN 7-5
1. Computation of added annual net income or loss
a.
Added Monthly Net Income or Loss under Plan A
Increased sales ……………………………………………………… $250,000
b.
Added Monthly Net Income or Loss under Plan B
Increased sales ……………………………………………………… $500,000
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Entrepreneurial Decision — BTN 7-5 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).
Plan (A) expands its offerings into new markets, and could increase
sales over time. However, this is a new model for the company, and it
might lack the expertise to execute it. It will need to further assess
Hitting the Road — BTN 7-6
Telephone calls to VISA and American Express are the source of
information for this solution. VISA reports that the average transaction fee
it charges merchants is 3%. American Express has a range, depending on
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