CHAPTER 8
SOLUTIONS TO PROBLEMS—SET B
PROBLEM 8-1B
(a) Total estimated bad debts
Number of Days Outstanding
Total
0–30
31–60
61–90
91–120
receivable
% uncollectible
bad debts
(b) Bad Debt Expense ……………………………………….. 18,190
(c) Allowance for Doubtful Accounts …………………. 2,600
(d) Accounts Receivable ……………………………………. 1,200
Allowance for Doubtful Accounts …………… 1,200
Cash ……………………………………………………………. 1,200
PROBLEM 8-2B
(a) 1. Accounts Receivable …………………………... 3,600,000
3. Cash …………………………………………………….. 3,100,000
Accounts Receivable …………………….. 3,100,000
5. Accounts Receivable ……………………………. 28,000
Allowance for Doubtful Accounts …… 28,000
Cash …………………………………………………….. 28,000
Accounts Receivable …………………….. 28,000
(b) Accounts Receivable Allowance for Doubtful Accounts
Bal. 960,000 (2) 150,000 (4) 92,000 Bal. 78,000
(5) 28,000 (4) 92,000 Bal. 14,000
(c) Balance needed ……………………………………………. $140,000
Balance before adjustment [see (b)] ………………. (14,000)
PROBLEM 8-2B (Continued)
(d)
$3,600,000 –$150,000
($882,000* + $1,078,000**) ÷2=$3,450,000
$980,000 = 3.5 times
PROBLEM 8-3B
(a) Dec. 31 Bad Debt Expense ……………………………. 24,480
(a) & (b)
Bad Debt Expense Allowance for Doubtful Accounts
12/31 24,480 2013 12/31 Bal. 9,000
(b) 2014
(1) Feb. 1 Allowance for Doubtful Accounts …… 900
Accounts Receivable ………………. 900
(c) 2014
Dec. 31 Bad Debt Expense ………………………………. 33,400
PROBLEM 8-4B
(a) $15,000.
(b) $16,300 [($500,000 X 4%) – $3,700].
PROBLEM 8-5B
(a) Dec. 31 Bad Debt Expense ($7,600 – $2,800) …….. 4,800
Allowance for Doubtful
Accounts ……………………………….. 4,800
(c) Allowance for Doubtful Accounts ………………………. 750
Accounts Receivable …………………………………… 750
(e) The advantages of the allowance method over the direct write–off
method are:
PROBLEM 8-6B
Jan. 5 Accounts Receivable—Flynn Company …….. 10,000
Sales Revenue ……………………………………. 10,000
Apr. 20 Cash ($10,000 + $150) ……………………………….. 10,150
Notes Receivable ……………………………….. 10,000
Interest Revenue
($10,000 X 6% X 3/12) ……………………….. 150
Aug. 18 Cash ($4,000 + $160) …………………………………. 4,160
Notes Receivable ……………………………….. 4,000
Interest Revenue
($4,000 X 8% X 6/12) …………………………. 160
PROBLEM 8-7B
Transaction
Current
Ratio
(2:1)
Accounts
Receivable
Turnover
(10X)
Average Col-
lection Period
(36.5 days)
2.
Recorded bad debts
3.
Wrote off an account
4.
Collected an account
PROBLEM 8-8B
(a) Oct. 7 Accounts Receivable ………………………. 4,600
Sales Revenue …………………………... 4,600
12 Cash ($600 – $18) ……………………………. 582
Service Charge Expense
($600 X 3%) ………………………………….. 18
Sales Revenue …………………………... 600
(b)
Notes Receivable Interest Receivable
10/1 Bal. 22,800 10/15 10,000 10/31 49
10/25 3,000
PROBLEM 8-8B (Continued)
DURHAN COMPANY
Balance Sheet (Partial)
October 31, 2014
(c) Current assets
Notes receivable …………………………………………….. $ 9,800
PROBLEM 8-9B
Redbird Sportswear Carwright Company
Accounts receivable turnover
ab
$1,200
($286.6 + $299.8 )/2
$1,350
($204.0c+$188.1d)/2
Average collection period
365
4.1 = 89.0 days
365
6.9 = 52.9 days