EXERCISE 8-17 (Continued)
(b) The quality of earnings ratio is net cash provided by operating activities
divided by net income. If accrual sales exceed cash collections, then net
SOLUTIONS TO PROBLEMS
PROBLEM 8-1A
(a) Total estimated bad debts
Number of Days Outstanding
Total
0–30
31–60
91–120
Over 120
% uncollectible
(b) Bad Debt Expense …………………………………… 14,120
Allowance for Doubtful Accounts
(c) Allowance for Doubtful Accounts …………….. 5,000
(d) Accounts Receivable ……………………………….. 5,000
Allowance for Doubtful Accounts ………. 5,000
(e) If Rianna.com used 3% of total accounts receivable rather than aging the
individual accounts, the bad debt expense adjustment would be
$15,310 [($377,000 X 3%) + $4,000].
PROBLEM 8-2A
(a) 1. Accounts Receivable ……………………………….. 2,500,000
Sales Revenue …………………………………… 2,500,000
3. Cash ……………………………………………………….. 2,200,000
Accounts Receivable …………………………. 2,200,000
5. Accounts Receivable ……………………………….. 15,000
Allowance for Doubtful Accounts ……….. 15,000
(b) Accounts Receivable Allowance for Doubtful Accounts
Bal. 600,000 (2) 50,000 (4) 41,000 Bal. 37,000
(1) 2,500,000 (3) 2,200,000 (5) 15,000
(c) Balance needed ………………………………………………. $46,000
Balance before adjustment [See (b)] ………………… (11,000)
Adjustment required ……………………………………….. $35,000
PROBLEM 8-2A (Continued)
(d)
$2,500,000 – $50,000 $2,450,000
= = 3.7 times
($563,000* + $763,000**) ÷ 2 $663,000
*$600,000 – $37,000
PROBLEM 8-3A
(a) Dec. 31 Bad Debt Expense ……………………………….. 34,400
Allowance for Doubtful Accounts
(a) & (b)
Bad Debt Expense Allowance for Doubtful Accounts
12/31 34,400 2016 12/31 Bal. 8,000
(b) 2017
(1) Mar. 1 Allowance for Doubtful Accounts …….. 600
Accounts Receivable ……………….. 600
(2) May 1 Accounts Receivable ………………………. 600
Allowance for Doubtful
Accounts ………………………………. 600
PROBLEM 8-4A
(a) $37,000.
(b) $30,600 [($840,000 X 4%) – $3,000].
(Bad Debt Expense takes into account any existing balance in the
allowance account.)
PROBLEM 8-5A
(a) Dec. 31 Bad Debt Expense ($10,200 – $1,500) ….. 8,700
Allowance for Doubtful Accounts …… 8,700
(Bad Debt Expense takes into account any existing balance in the
allowance account.)
(e) The advantages of the allowance method over the direct write-off
method are:
1. It attempts to match bad debts expense related to uncollectible
accounts receivable with sales revenues on the income statement.
PROBLEM 8-6A
Jan. 5 Accounts Receivable—Rian Company ……….. 4,000
Sales Revenue ……………………………………. 4,000
Feb. 2 Notes Receivable ………………………………………. 4,000
Accounts Receivable—Rian Company …. 4,000
12 Notes Receivable ………………………………………. 12,000
Sales Revenue ……………………………………. 12,000
PROBLEM 8-7A
Transaction
Current
Ratio
(2:1)
Accounts
Receivable
Turnover
(10X)
Average
Collection
Period
(36.5 days)
1.
Recorded cash sale.
I
NE
NE
method
Use allowance method
4.
Recorded sales on account.
I
PROBLEM 8-8A
(a) July 5 Accounts Receivable ………………………….. 4,500
Sales Revenue ………………………………. 4,500
24 Cash ………………………………………………….. 7,930
Notes Receivable …………………………... 7,800
Interest Revenue
(b)
Notes Receivable Interest Receivable
7/1 Bal. 23,800 7/20 6,000 7/31 50
PROBLEM 8-8A (Continued)
MILTON COMPANY
Balance Sheet (Partial)
July 31, 201X
(c) Current assets
PROBLEM 8-9A
Nike adidas
Accounts receivable
turnover
ab
$19,176.1
($2,795.3 + $2,883.9 )/2
cd
$10,381
($1,624 + $1,429 )/2
ACCOUNTING CYCLE REVIEW
(a)
Jan. 1
Notes Receivable …………………………………….
Accounts Receivable—
Betheny Company ………………………….
1,200
1,200
3
Accounts Receivable ………………………..
8
Inventory …………………………………………………
Accounts Payable ……………………………..
17,200
17,200
Cost of Goods Sold ………………………………….
Inventory ………………………………………….
17,500
17,500
Allowance for Doubtful Accounts ……………..
730
15
Cash ……………………………………………………….
Service Charge Expense ………………………….
Sales Revenue ………………………………….
Cost of Goods Sold ………………………………….
Inventory ………………………………………….
970
30
700
1,000
700
17
Cash ……………………………………………………….
Accounts Receivable ………………………..
22,900
22,900
21
Accounts Payable ……………………………………
16,300
Cash …………………………………………………
Cash ……………………………………………………….
Accounts Receivable ………………………..
280
27
Supplies ………………………………………………….
Cash …………………………………………………
Cash …………………………………………………
Adjusting Entries
Jan. 31
Interest Receivable ………………………………….
Interest Revenue ($1,200 X 8% X 1/12) …….
8
8
31
Bad Debt Expense [($19,950 X 6%) –
(b) HUDSON CORPORATION
Adjusted Trial Balance
January 31, 2017
Debit
Credit
Cash …………………………………………………….
$16,332
Notes Receivable ………………………………….
1,200
Accounts Receivable …………………………...
19,950
Allowance for Doubtful Accounts ………….
$ 1,197
Interest Receivable ……………………………….
8
Inventory ……………………………………………..
8,400
Supplies ………………………………………………
560
Accounts Payable ………………………………..
9,650
Income Taxes Payable ………………………….
Common Stock …………………………………….
20,000
Retained Earnings ………………………………..
12,730
Sales Revenue ……………………………………..
26,000
Cost of Goods Sold ………………………………
18,200
Supplies Expense …………………………………
840
Bad Debt Expense ………………………………..
847
Service Charge Expense ………………………
Other Operating Expenses ……………………
3,218
Interest Revenue ………………………………….
ACR SOLUTION (Continued)
(b) Optional T accounts for accounts with multiple transactions
Cash
1/17 22,900
1/24 280
1/31 3,218
1/31 Bal. 16,332
1/31 Bal. 560
1/21 16,300
1/1 Bal. 8,750
1/1 Bal. 13,100
1/21 16,300
Accounts Receivable
1/1 Bal. 19,780
1/11 25,000
1/24 280
1/1 1,200
1/3 730
1/17 22,900
1/24 280
1/31 Bal. 19,950
1/31 847
1/15 1,000
1/31 Bal. 26,000
1/31 Bal. 1,197
Inventory
1/1 Bal. 9,400
1/8 17,200
1/11 17,500
1/15 700
Supplies
1/27 1,400
1/31 840
1/8 17,200
1/31 Bal. 9,650
Sales Revenue
1/11 25,000
1/31 Bal. 18,200
1/31 Bal. 8,400
ACR SOLUTION (Continued)
(c) HUDSON CORPORATION
Income Statement
For the Month Ending January 31, 2017
Sales revenue …………………………………………..
$26,000
Cost of goods sold ……………………………………
18,200
Gross profit ………………………………………………
7,800
Operating expenses ………………………………….
Other operating expenses …………………..
$3,218
Bad debt expense ………………………………
847
Supplies expense ……………………………….
840
Service charge expense ……………………..
30
Total operating expenses ………………………….
4,935
Income from operations…………………………….
2,865
Other revenues and gains …………………………
Interest revenue …………………………………
8
Income before taxes ………………………………….
2,873
Income tax expense ($2,873 X 30%) …….
Net income ……………………………………………….
$ 2,011