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BRIEF EXERCISES
Be. 210
Presented below are various receivable transactions entered into by Renner Tool Company. Indicate whether the receivables are reported as accounts receivable, notes receivable, or other receivables on the balance sheet.
a. Advanced $1,000 to a trusted employee. b. Accepted a $2,000 promissory note from a customer as payment on account. c. Determined that a $10,000 income tax refund is due from the IRS. d. Sold goods to a customer on account for $5,000. e. Recorded $500 accrued interest on a note receivable due next year. f. Loaned a company officer $4,000.
Solution 210 (5 min.)
a. Other Receivables b. Notes Receivable c. Other Receivables d. Accounts Receivable e. Other Receivables f. Other Receivables
Be. 211
Finney had the following transactions during March 2010.
- Finney sold and delivered $12,000 of merchandise to LJ Enterprises, terms 2/10, n30.
- LJ Enterprises also ordered an additional $5,000 worth of goods on the last day of the month.
- Finney lent $1,000 to its company president who promised to repay the loan on the 15
th day of the next month.
- Finney sold old storage sheds to Alt Traders on 3/31. Alt Traders gave a $2,500 promissory note to Finney agreeing to pay for the sheds in 3 months.
- Other current assets totaled $50,000.
Finney received no cash arising from the above transactions during March. Compute the percentage Accounts Receivable is of the total current assets as of month end.
Solution 211 (5 min.)
Current Assets: Accounts Receivable $12, Notes Receivable 2, Employee Receivable 1, Other 50, Total Current Assets $65,
$12,000/$65,500 = 18%
Note: LJ Enterprises order of $5,000 does not generate a current asset.
Be. 212
The following are sales of The Holiday Store during February. The Store sells seasonal holiday items.
2/3 Sold 50 heart balloons for $5 cash each. 2/8 Sold 100 boxes of chocolates at $10 each, terms 2/10, n/30. Collected within the discount period. 2/10 Sold 50 heart necklaces for $25 each with no discount. Have not collected as of month end. 2/14 Sold 100 bouquets of roses at $30 per bouquet. Half the sales were on account. By month end, 75% were paid off. 2/27 Sold 25 leftover heart necklaces to a discount store for $15 each on credit. 2/28 Sold a display cabinet at a swap meet for $100 on account.
Determine the balance in Accounts Receivable at 2/28.
Solution 212 (5 min.)
2/10 50 necklaces × $25 $1,
2/14 50 bouquets (½ × 100 bouquets) × $30 × 25% 375
2/27 25 necklaces × $15 375
Total Accounts Receivable $2,
Note: The receivable from the sale of the display cabinet should be included as an other receivable.
Be. 215
The ledger of the Ramirez Company at the end of the current year shows Accounts Receivable of $150,000.
Instructions
(a) If Allowance for Doubtful Accounts has a credit balance of $3,000 in the trial balance and bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for end of the period. (Show all calculations.) (b) If Allowance for Doubtful Accounts has a debit balance of $3,000 in the trial balance and bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for end of the period. (Show all calculations.)
Solution 215 (5 – 8 min.)
(a) Bad Debts Expense ..................................................................... 9, Allowance for Doubtful Accounts ($12,000 – $3,000).......... 9, (To adjust the allowance account to total estimated uncollectible,
$150,000 × .08 = $12,000)
(b) Bad Debts Expense ..................................................................... 15, Allowance for Doubtful Accounts ($12,000 + $3,000) ......... 15, (To adjust the allowance account to total estimated uncollectible)
Be. 216
Benson Products uses the receivable approach in estimating uncollectible accounts. On December 31, 2012, the balance in Accounts Receivable was $650,000. An aging analysis of the accounts receivable indicated that $25,500 in accounts are expected to be uncollectible.
Prepare the adjusting entry to record estimated bad debts expense using the percentage of receivables basis under each of the following independent assumptions:
(a) Allowance for Doubtful Accounts has a credit balance of $3,000 before adjustment. (b) Allowance for Doubtful Accounts has a debit balance of $830 before adjustment.
Solution 216 (5 min.)
(a) Bad Debts Expense ($25,500 – $3,000) ...................................... 22, Allowance for Doubtful Accounts .......................................... 22, (b) Bad Debts Expense ($25,500 + $830) ......................................... 26, Allowance for Doubtful Accounts .......................................... 26,
Be. 217
Strickman Company uses the allowance method for estimating uncollectible accounts. Prepare journal entries to record the following transactions:
January 5 Sold merchandise to Sue Land for $1,600, terms n/15.
April 15 Received $400 from Sue Land on account.
August 21 Wrote off as uncollectible the balance of the Sue Land account when she declared bankruptcy.
October 5 Unexpectedly received a check for $650 from Sue Land.
Solution 217 (5 – 8 min.)
January 5 Accounts Receivable – S. Land ...................................... 1, Sales ...................................................................... 1,
April 15 Cash ............................................................................... 400 Accounts Receivable—S. Land .............................. 400
August 21 Allowance for Doubtful Accounts .................................... 1, Accounts Receivable—S. Land .............................. 1,
October 5 Accounts Receivable—S. Land ....................................... 650 Allowance for Doubtful Accounts ............................ 650
Cash ............................................................................... 650 Accounts Receivable—S. Land .............................. 650
Be. 218
Compute the maturity value as indicated for each of the following notes receivable.
- A $7,000, 6%, 3-month note dated July 20.
Maturity value $____________.
- A $16,000, 9%, 150-day note dated August 5.
Maturity value $____________.
Solution 218 (5 – 8 min.)
- Maturity value: $5,
$7,000 × 6% × 3 ÷ 12 = $105 + $7,000 = $7,
- Maturity value: $11,
$16,000 × 9% × 150 ÷ 360 = $600 + $16,000 = $16,
Solution 220 (10 min.)
Dec 1 Notes Receivable – E. Kinder ............................................ 16, Cash ........................................................................ 16, (To record loan made to E. Kinder)
Dec 16 Notes Receivable – J. Jones .............................................. 2, Sales ......................................................................... 2, (To record sale to J. Jones)
Dec. 31 Interest Receivable ............................................................ 87 Interest Revenue* ..................................................... 87 (To record accrued interest)
*Calculation of interest revenue
Kinder note: $16,000 × 6% × 30/360 = $
Jones note: 2,400 × 7% × 15/360 = 7
Total accrued interest $
Be. 221
Merry Co. sells Christmas angels. Merry determines that at the end of December, they have the following aging schedule of Accounts Receivable:
Customer Total Number of Days Past Due Not yet due 1–30 31–60 61–90 Over 90
K. Brant $500 $300 $ D. Eaton 300 100 200 S Klein 150 50 100 C. Sheen 200 200 ? 300 300 250 200 100 % uncollectible 1% 5% 10% 20% 50% Total Estimated Uncollectible Amounts??????
Compute the net receivables based on the above information at the end of December (There was no beginning balance in the Allowance for Doubtful Accounts).
Solution 221 (10 min.)
Customer Total Not yet due
Number of Days Past Due
1–30 31–60 61–90 Over 90
K. Brant $500 $300 $ D. Eaton 300 100 200 S Klein 150 50 100 C. Sheen 200 200 1,150 300 300 250 200 100 % uncollectible 1% 5% 10% 2 0% 50% Total Estimated Uncollectible Amounts
Be. 222
The following data exists for Mather Company.
Accounts Receivable $ 80,000 $ 70, Net Sales 465,000 410,
Calculate the receivable turnover ratio and the average collection period for accounts receivable in days for 2012.
Solution 222 (5 min.)
Receivable turnover ratio =
= 6.2 times ($80,000 + $70,000)/
Average collection period = 365 days = 58.9 days
EXERCISES
Ex. 224
On January 10 Donna Stark uses her Baver Co. credit card to purchase merchandise from Baver Co. for $2,100. On February 10, she is billed for the amount due of $2,100. On February 12 Stark pays $1,600 on the balance due. On March 10 Stark is billed for the amount due, including interest at 1% per month on the unpaid balance as of February 12.
Instructions
Prepare the entries on Baver Co.'s books related to the transactions that occurred on January 10, February 12, and March 10.
Solution 224 (5 min.)
Jan. 10 Accounts Receivable—Stark .......................... 2, Sales ........................................................ 2, Feb. 12 Cash .............................................................. 1, Accounts Receivable—Stark .................... 1, Mar. 10 Accounts Receivable—Stark .......................... 5 Interest Revenue [1% × ($2,100 – $1,600)] ....................... 5
Ex. 225
At the beginning of the current period, Emler Corp. had balances in Accounts Receivable of $200,000 and in Allowance for Doubtful Accounts of $9,000 (credit). During the period, it had net credit sales of $650,000 and collections of $570,000. It wrote off as uncollectible accounts receivable of $5,000. However, a $3,000 account previously written off as uncollectible was recovered before the end of the current period. Uncollectible accounts are estimated to total $22,000 at the end of the period.
Instructions
(a) Prepare the entries to record sales and collections during the period. (b) Prepare the entry to record the write-off of uncollectible accounts during the period. (c) Prepare the entries to record the recovery of the uncollectible account during the period. (d) Prepare the entry to record bad debts expense for the period. (e) Determine the ending balances in Accounts Receivable and Allowance for Doubtful Accounts. (f) Calculate the net realizable value of the receivables at the end of the period.
Solution 225 (8 min.)
(a) Accounts Receivable ...................................................... 650, Sales ........................................................................ 650, Cash ............................................................................... 570, Accounts Receivable ................................................ 570, (b) Allowance for Doubtful Accounts .................................... 5, Accounts Receivable ................................................ 5, (c) Accounts Receivable ...................................................... 3, Allowance for Doubtful Accounts .............................. 3, Cash ............................................................................... 3, Accounts Receivable ................................................ 3, (d) Bad Debts Expense ........................................................ 15, Allowance for Doubtful Accounts .............................. 15,
(e) Accounts Receivable Allowance for Doubtful Accounts Beg. Bal. 200,000 Collections 570,000 Beg. Bal. 9, Sales 650,000 Write-off 5,000 Write-off 5,000 Recovery 3, Recovery 3,000 Collections 3,000 Bad Debts 15, End Bal 275,000 End Bal 22,
(f) Net realizable value of receivables is $253,000 ($275,000 – $22,000)
Ex. 226
The December 31, 2011, balance sheet of the Kramer Company had Accounts Receivable of $650,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2012, the following transactions occurred: sales on account $1,450,000; sales returns and allowances, $100,000; collections from customers, $1,250,000; accounts written off, $35,000; previously written off accounts of $8,000 were collected.
Instructions
(a) Journalize the 2012 transactions.
(b) If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 6% of accounts receivable, what is the adjusting entry at December 31, 2012?
Ex. 227
An inexperienced accountant made the following entries. In each case, the explanation to the entry is correct.
Dec. 17 Cash ................................................................................... 2, Sales Discounts .................................................................... 60 Accounts Receivable .................................................... 3, (To record collection of 12/4 sales, terms 2/10, n/30)
27 Cash ................................................................................... 1, Bad Debts Expense ..................................................... 1, (Collection of account previously written off as uncollectible under allowance method)
31 Bad Debts Expense .............................................................. 1, Allowance for Doubtful Accounts .................................. 1, (To recognize estimated bad debts based on 2% of accounts receivable of $600,000)
Instructions
Prepare the correcting entries.
Solution 227 (12 min.)
Dec. 17 Accounts Receivable ......................................................... 60 Sales Discounts ........................................................ 60 (To correct accounts for granting sales discount when discount period had lapsed)
27 Accounts Receivable .......................................................... 1, Allowance for Doubtful Accounts ............................... 1, (To reverse write off of collected account)
27 Bad Debts Expense ........................................................... 1, Accounts Receivable ................................................. 1, (To correct erroneous collection entry)
31 Bad Debts Expense ........................................................... 10, Allowance for Doubtful Accounts ............................... 10, [To adjust balance in Bad Debts Expense to
$12,000 or (2% × $600,000)]
Ex. 228
Prepare journal entries to record the following transactions entered into by the Merando Company:
2011
June 1 Received a $9,000, 6%, 1-year note from Dan Gore as full payment on his account.
Nov. 1 Sold merchandise on account to Barlow, Inc., for $12,000, terms 2/10, n/30.
Nov. 5 Barlow, Inc., returned merchandise worth $1,000.
Nov. 9 Received payment in full from Barlow, Inc.
Dec. 31 Accrued interest on Gore's note.
June 1 Dan Gore honored his promissory note by sending the face amount plus interest.
Solution 228 (15 min.)
June 1 Notes Receivable ............................................................... 9, Accounts Receivable—D. Gore ................................. 9,
Nov. 1 Accounts Receivable—Barlow, Inc. .................................... 12, Sales ......................................................................... 12,
Nov. 5 Sales Returns and Allowances ........................................... 1, Accounts Receivable—Barlow, Inc. ........................... 1,
Nov. 9 Cash ................................................................................ 10,
Sales Discounts ($11,000 × .02) ........................................ 220
Accounts Receivable—Barlow, Inc. ........................... 11,
Dec. 31 Interest Receivable ............................................................ 315 Interest Revenue ....................................................... 315
($9,000 × 6% × 7 ÷ 12 = $315)
Solution 229 (20 min.)
(a) Aug. 10 Allowance for Doubtful Accounts ............................... 700 Accounts Receivable—Kurt West ..................... 700 (To write off Jack Dune account)
Sept. 12 Allowance for Doubtful Accounts ............................... 3, Accounts Receivable—Jill Lynch ...................... 3, (To write off Jill Lynch account)
Oct. 10 Accounts Receivable—Kurt West .............................. 300 Allowance for Doubtful Accounts ...................... 300 (To reinstate Kurt West account previously written off)
Cash .......................................................................... 300 Accounts Receivable—Kurt West ..................... 300 (To record collection on account)
(b) Dec. 31 Bad Debts Expense [($100,000 × 5%) – $600*] ........ 4,
Allowance for Doubtful Accounts ...................... 4, (To record estimate of uncollectible accounts) *($4,000 – $700 – $3,000 + $300 = $600).
(c) Balance of Allowance for Doubtful Accounts at December 31, 2012, is $5,000 or $100,000 × 5%)
Ex. 230
Erickson Company had a $400 credit balance in Allowance for Doubtful Accounts at December 31, 2012, before the current year's provision for uncollectible accounts. An aging of the accounts receivable revealed the following: Estimated Percentage Uncollectible Current Accounts $170,000 1% 1–30 days past due 15,000 3% 31–60 days past due 12,000 6% 61–90 days past due 5,000 12% Over 90 days past due 9,000 30% Total Accounts Receivable $211,
Instructions
(a) Prepare the adjusting entry on December 31, 2012, to recognize bad debts expense. (b) Assume the same facts as above except that the Allowance for Doubtful Accounts account had a $400 debit balance before the current year's provision for uncollectible accounts. Prepare the adjusting entry for the current year's provision for uncollectible accounts.
Solution 230 (15 min.)
Estimated Percentage Estimated Uncollectible Uncollectible Current Accounts $170,000 1% $1, 1–30 days past due 15,000 3% 450 31–60 days past due 12,000 6% 720 61–90 days past due 5,000 12% 600 Over 90 days past due 9,000 30% 2, Total Accounts Receivable $211,000 $6,
(a) Bad Debts Expense ..................................................................... 5, Allowance for Doubtful Accounts ($6,170 – $400) .............. 5, (To adjust the allowance account to total estimated uncollectible)
(b) Bad Debts Expense ..................................................................... 6, Allowance for Doubtful Accounts ($6,170 + $400) .............. 6, (To adjust the allowance account to total estimated uncollectible)
Ex. 231
On December 31, 2011, when its Allowance for Doubtful Accounts had a credit balance of $1,500, Leeds Company estimates that 7% of its accounts receivable balance of $95,000 will become uncollectible. On March 3, 2012, Leeds Company determined that Megan Jost’s account of $950 was uncollectible. On May 15, 2012, Jost paid the amount previously written off.
Instructions
Prepare the journal entries for December 31, 2011, March 3, 2012 and May 15, 2012.
Solution 231 (10 min.)
Dec. 31, 2011 Bad Debts Expense [($95,000 × .07) – $1,500] ..... 5,
Allowance for Doubtful Accounts ................... 5, (To record the bad debts expense)
Mar. 3, 2012 Allowance for Doubtful Accounts ............................ 950 Accounts Receivable—M. Jost ....................... 950 (To write off M. Jost account deemed uncollectible)
May 15 Accounts Receivable—M. Jost ................................ 950 Allowance for Doubtful Accounts ................... 950 (To reinstate an account previously written off)
May 15 Cash .................................................................... 950 Accounts Receivable—M. Jost ....................... 950 (To record payment on account in full)
Ex. 233
Hess Computer Store has credit sales of $450,000 in 2011 and a debit balance of $600 in the Allowance for Doubtful Accounts at year end. As of December 31, 2011, $130,000 of accounts receivable remain uncollected. The credit manager of Hess prepared an aging schedule of accounts receivable and estimates that $6,500 will prove to be uncollectible.
On March 4, 2012 the credit manager authorizes a write-off of the $1,000 balance owed by A. Myers.
Instructions
(a) Prepare the adjusting entry to record the estimated uncollectible accounts expense in 2011. (b) Show the balance sheet presentation of accounts receivable on December 31, 2011. (c) On March 4, before the write-off, assume the balance of Accounts Receivable account is $145,000 and the balance of Allowance for Doubtful Accounts is a credit of $4,000. Make the appropriate entry to record the write off of the Myers account. Also show the balance sheet presentation of accounts receivable before and after the write-off.
Solution 233 (15 min.)
(a) Bad Debts Expense ($6,500 + $600) ........................................... 7, Allowance for Doubtful Accounts ....................................... 7,
(b) Accounts Receivable $130, Less: Allowance for Doubtful Accounts 6,500 $123,
(c) Allowance for Doubtful Accounts ................................................. 1, Accounts Receivable—A. Myers ........................................ 1,
Before Write-off After Write-off Accounts Receivable $145,000 $144, Less: Allowance for Doubtful Accounts 4,000 3, Cash Realizable Value $141,000 $141,
Ex. 234
Hachey Company has accounts receivable of $85,100 at March 31, 2012. An analysis of the accounts shows these amounts.
Balance, March 31 Month of Sale 2012 2011 March $65,000 $75, February 12,600 8, December and January 10,100 2, November and October 7,400 1, $95,100 $86,
Credit terms are 2/10, n/30. At March 31, 2012, there is a $2,500 credit balance in Allowance for Doubtful Accounts prior to adjustment. The company uses the percentage of receivables basis for estimating uncollectible accounts. The company's estimates of bad debts are as shown below Estimated Percentage Age of Accounts Uncollectible Current 2% 1–30 days past due 7 31–90 days past due 30 Over 90 days past due 50
Instructions
(a) Determine the total estimated uncollectibles. (b) Prepare the adjusting entry at March 31, 2012, to record bad debts expense.
Solution 234 (5 min.)
(a) Accounts Receivable Amount % Estimated Uncollectible Current $65,000 2 $1, 1–30 days past due 12,600 7 882 31–90 days past due 10,100 30 3, Over 90 days past due 7,400 50 3, $8,
(b) Mar. 31 Bad Debts Expense ..................................... 6, Allowance for Doubtful Accounts ($8,912 – $2,500) ....................... 6,
