Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
455
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* ………………………………………….
87
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 & Managerial Accounting, 8e Solutions Manual: Chapter 7
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 ……………..
Dec. 31
Bad Debts Expense ………………………………………..
75,870
Allowance for Doubtful Accounts ……………..
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
Part 2
Current assets
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
457
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
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
458
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 …………………………..
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 …………………………………….
Ending receivables ………………………
Percent uncollectible ……………………
Required ending allowance …………..
Cr.
Unadjusted balance ……………………..
18,300
Dr.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
459
Problem 7-4A (Concluded)
Year 2
e.
Accounts Receivable ……………………………………….
1,525,634
Sales ……………………………………………………….
1,525,634
Record sales on account.
1,250,000
Merchandise Inventory ……………………………………
1,250,000
Record cost of sales.
Allowance for Doubtful Accounts …………………….
Accounts Receivable ………………………………….
Record write-off of accounts.
g.
Cash ……………………………………………………………….
1,204,600
Accounts Receivable ………………………………….
1,204,600
Record cash received on account.
h.
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 …………………………..
Percent uncollectible …………………………
Required ending allowance ………………..
Cr.
Unadjusted balance
Dr.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
460
Problem 7-5A (75 minutes)
Part 1
Year 1
Dec. 16
Notes Receivable—D. Todd …………………………..
10,800
Accounts Receivable—D. Todd ……………….
10,800
Interest Receivable ……………………………………….
Interest Revenue …………………………………….
36
Record interest earned.
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.
6,100
Accounts Receivable—Midnight Co. ………..
6,100
Notes Receivable—A. Privet …………………………
2,400
Accounts Receivable—A. Privet ………………
2,400
Apr. 16
Accounts Receivable—A. Privet ……………………
2,414
Interest Revenue …………………………………….
14
Notes Receivable—A. Privet ……………………
2,400
Record receivable for dishonored note plus
interest [$2,400 x .07 x 30/360= $14].
Accounts Receivable—Midnight Co. ……………..
6,222
Interest Revenue* ……………………………………
122
Notes Receivable—Midnight Co ………………
6,100
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
461
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
loan and the loan is still outstanding at period-end, the business must
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
462
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
Record credit card sales less fee. *($1,250 x 0.02)
Cost of Goods Sold …………………………………………………
900
Merchandise Inventory ……………………………………….
900
Record cost of sales.
Cash …………………………………………………………………
Accounts Receivable—M. Carpenter …………….
3,700
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.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
463
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
Record estimated bad debts.*
* Estimated balance ($575,000 x 6%) …….
$ 34,500 credit
Unadjusted balance …………………………..
7,500 credit
Required adjustment …………………………
$ 27,000 credit
Part 2
Accounts receivable ………………………………
$575,000
Less allowance for doubtful accounts ……
uncollectible accounts) ……………………….
credit
credit
credit
Part 3
Current assets
Accounts receivable ………………………………
$575,000
Less allowance for doubtful accounts ……
(34,500)**
$540,500
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
464
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 & Managerial Accounting, 8e Solutions Manual: Chapter 7
465
Problem 7-4B (35 minutes)
Year 1
a.
Accounts Receivable …………………………………..
685,350
Sales ……………………………………………………..
Record sales on account.
500,000
Merchandise Inventory ……………………………………
Record cost of sales.
482,300
Accounts Receivable ……………………………..
Record cash received on account.
c.
Allowance for Doubtful Accounts …………………
9,350
Accounts Receivable ……………………………..
Record write-off of accounts.
Bad Debts Expense ……………………………………..
Allowance for Doubtful Accounts……………
*Beginning receivables …………………
$ 0
Credit sales ………………………………..
685,350
Collections …………………………………
(482,300)
Write-offs ……………………………………
Ending receivables ……………………..
Percent uncollectible …………………..
x 1.0%
Required ending allowance ………….
Cr.
Unadjusted balance …………………….
9,350
Dr.
Wild and Shaw, Financial & Managerial Accounting, 8e Solutions Manual: Chapter 7
466
Problem 7-4B (Concluded)
Year 2
e.
Accounts Receivable ……………………………………
870,220
Sales ………………………………………………………
Record sales on account.
650,000
Merchandise Inventory ……………………………………
Record cost of sales.
990,800
Accounts Receivable ………………………………
Record cash received on account.
g.
Allowance for Doubtful Accounts ………………….
11,090
Accounts Receivable ………………………………
Record write-off of accounts.
h.
Bad Debts Expense ………………………………………
Allowance for Doubtful Accounts…………….
*Beginning receivables ………………………
$ 193,670
Credit sales ……………………………………..
870,220
Collections ………………………………………
(990,800)
Write-offs …………………………………………
Ending receivables …………………………..
Percent uncollectible ………………………..
Required ending allowance ……………….
Cr.
Unadjusted balance
Dr.