CHAPTER 7
PROBLEM 7-1B
(a)
December 31
Accounts Receivable ($52,750 + $650) ……………….
53,400
Sales ……………………………………………………….
32,900
Cash ……………………………………………………….
85,650
Sales Discounts ………………………………………..
December 31
Cash ……………………………………………………….
42,500
Purchase Discounts ………………………………………….
Accounts Payable …………………………..
42,900
(b)
Per Balance
Sheet
After
Adjustment
Current assets
Cash ($86,000 – $85,650 + $42,500) ……………………..
$ 86,000
$ 42,850
Receivables ($165,000 + $53,400) ………………………..
165,000
218,400
Inventory ……………………………………………………….
Total ………………………………………… (1)
Current liabilities
Accounts payable
Other current liabilities …………………..
Total ………………………………………… (2)
PROBLEM 7-2B
1.
Net sales ……………………………………………………………………..
$3,350,000
Percentage …………………………………………………………………..
1.5%
Bad debt expense ………………………………………………………..
$ 50,250
2.
Accounts receivable …………………………………………………….
$ 680,000
Amounts estimated to be uncollectible ………………………….
Net realizable value ………………………………………………………
$ 626,000
3.
Allowance for doubtful accounts 1/1/2014 ……………………..
$ 61,000
Establishment of accounts written off in prior years ………
11,000
Customer accounts written off in 2014 …………………………..
Bad debt expense for 2014 ($4,150,000 X 4%) ………………..
166,000
Allowance for doubtful accounts 12/31/2014 ………………….
$ 209,000
4.
Bad debt expense for 2014 ……………………………………………
$ 108,000
Customer accounts written off as uncollectible
during 2014 ………………………………………………………………
(65,000)
Allowance for doubtful accounts balance 12/31/2014 ……..
$ 43,000
Accounts receivable, net of allowance
for doubtful Accounts ……………………………………………….
$1,690,000
Allowance for doubtful accounts balance 12/31/2014 ……..
43,000
5.
Accounts receivable …………………………………………………….
$ 419,000
Percentage …………………………………………………………………..
5%
Bad debt expense, before adjustment …………………………...
Allowance for doubtful accounts (debit balance) ……………
Bad debt expense, as adjusted ……………………………………..
PROBLEM 7-3B
(a) The Allowance for Doubtful Accounts should have a balance of $78,300
at year-end. The supporting calculations are shown below:
Days Account
Outstanding
Amount
Expected
Percentage
Uncollectible
Estimated
Uncollectible
0–15 days
$425,000
0.02
$ 8,500
175,000
Balance for Allowance for Doubtful Accounts
$78,300
The accounts which have been outstanding over 75 days ($25,000)
and have zero probability of collection would be written off immediately
(b)
Accounts receivable ($850,000 – $25,000) ……………………
$825,000
Less: Allowance for doubtful accounts ………………………
78,300
Accounts receivable (net) …………………………………………..
$746,700
(c) The year-end bad debt adjustment would decrease before-tax income
$20,000 as computed below:
PROBLEM 7-4B
(a) PEECAN CORPORATION
Analysis of Changes in the
Allowance for Doubtful Accounts
For the Year Ended December 31, 2014
Balance at January 1, 2014 ………………………………………..
$ 86,000
Provision for doubtful accounts ($6,200,000 X 1%) ……..
62,000
Schedule 1
Computation of Allowance for Doubtful Accounts
at December 31, 2014
Aging
Category
Balance
%
Doubtful
Accounts
Nov–Dec 2014
$ 760,000
1
$ 7,600
201,000
50,000(a)
(b) The journal entry to record this transaction is as follows:
$21,380
PROBLEM 7-5B
Bad Debt Expense ……………………………………………
4,600
Accounts Receivable ………………………………..
4,600
(To correct bad debt expense and
write off accounts receivable)
Accounts Receivable ………………………………………..
Unearned Revenue …………………………………..
Allowance for Doubtful Accounts ………………………
Accounts Receivable ………………………………..
(Note to instructor: Many students will not make this entry at this point.
Because $10,600 is totally uncollectible, a write-off immediately seems
most appropriate. The remainder of the solution therefore assumes that the
student made this entry.)
Allowance for Doubtful Accounts ………………………
Bad Debt Expense ……………………………………
Balance ($11,605 + $18,670 – $4,600 – $10,600) ….
Corrected balance (see below) ………………………….
Age
Balance
Aging
Schedule
Under 60 days
$268,060
2%
$ 5,361
4%
87,260 ($91,860 – $4,600)
8%
Over 120 days
32,383 ($42,983 – $10,600)
PROBLEM 7-5B (Continued)
If the student did not make the entry to record the $10,600 write–off earlier, the
following would change in the problem. After the adjusting entry for $14,394,
an entry would have to be made to write off the $10,600.
Age
Balance
Aging
Schedule
Under 60 days
$268,060
2%
$ 5,361
87,260
8%
PROBLEM 7-6B
–1–
Cash ………………………………………………………………..
199,100*
Sales Discounts ………………………………………………..
900
Accounts Receivable ………………………………..
–2–
Accounts Receivable ………………………………………..
Allowance for Doubtful Accounts ………………
Cash ………………………………………………………………..
Accounts Receivable ………………………………..
–3–
Allowance for Doubtful Accounts ………………………
21,680
Accounts Receivable ………………………………..
21,680
–4–
Bad Debt Expense …………………………………………….
18,070
PROBLEM 7-7B
October 1, 2014
Cash ……………………………………………………………………….
162,800
Interest Expense (1% X $220,000) ……………………………..
2,200
Notes Payable (75% X $220,000) ……………………….
165,000
Notes Payable ………………………………………………………….
Accounts Receivable ……………………………………….
120,000
Interest Expense ………………………………………………………
Interest Payable (1% X [$220,000 – $120,000]) …….
November 30, 2014
Notes Payable ………………………………………………………….
45,000
Cash* …………………………..………………………………………….
Interest Expense (1% X [$220,000 –
$120,000 – $60,000]) ………………………………………………
Interest Payable ……………………………………………………….
Accounts Receivable ……………………………………….
*Total cash collection ……………………………………………….
$60,000
Less: Finance charge payable (from previous entry) …
Finance charge (current month) [(.005 X
Note payable (balance) ($165,000 – $120,000) …..
PROBLEM 7-8B
7/1/2014
Notes Receivable ……………………………………………………
150,000
Sales ……………………………………………………….
150,000
12/31/2014
Interest Receivable …………………………..
Interest Revenue …………………………..
9,000
*$150,000 X 0.12 X 6/12 = $2,400
7/1/2015
Cash ……………………………………………………….
Interest Receivable …………………………..
9,000
Interest Revenue …………………………..
*$150,000 X 0.12 = $18,000
**$150,000 X 0.12 X 6/12 = $9,000
12/31/2015
Interest Receivable …………………………..
9,000
Interest Revenue ………………………….
9,000
7/1/2016
Cash ……………………………………………………….
Interest Revenue …………………………
Cash ……………………………………………………….
150,000
Notes Receivable …………………………..
PROBLEM 7-9B
(a)
December 31, 2014
Cash……………………………………………………………….
50,000
Notes Receivable …………………………………………….
90,000
Discount on Notes Receivable …………………
17,945
Service Revenue ……………………………………..
Down payment ……………………………..
(b)
December 31, 2015
Cash………………………………………………………………….
30,000
Notes Receivable ……………………………………….
30,000
Discount on Notes Receivable …………………………...
8,647
Interest Revenue ………………………………………..
Schedule of Note Discount Amortization
Date
Cash
Received
Interest
Revenue
Carrying
Amount of Note
12/31/2014
—
—
$72,055
PROBLEM 7-9B (Continued)
(c)
December 31, 2016
Cash …………………………………………………………………
30,000
Notes Receivable ……………………………………….
30,000
Discount on Notes Receivable …………………………...
Interest Revenue ……………………………………….
(d)
December 31, 2017
Cash …………………………………………………………………
Notes Receivable ……………………………………….
Discount on Notes Receivable …………………………...
Interest Revenue ……………………………………….