Chapter Review
9-9gProblems: Series A
Entries Related to Uncollectible Accounts
OBJ. 4
The following transactions were completed by Emmanuel Company during the current fiscal year ended December 31:
Jan. | 29. | Received 40% of the $17,000 balance owed by Jankovich Co., a bankrupt business, and wrote off the remainder as uncollectible. |
Apr. | 18. | Reinstated the account of Vince Karm, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,560 cash in full payment of Karm’s account. |
Aug. | 9. | Wrote off the $22,380 balance owed by Golden Stallion Co., which has no assets. |
Nov. | 7. | Reinstated the account of Wiley Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $13,220 cash in full payment of the account. |
Dec. | 31. | Wrote off the following accounts as uncollectible (one entry): Claire Moon Inc., $22,860; Jet Set Co., $15,320; Randall Distributors, $41,460; Harmonic Audio, $18,890. |
31. | Based on an analysis of the $2,740,000 of accounts receivable, it was estimated that $113,330 will be uncollectible. Journalized the adjusting entry. |
Instructions
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Record the January 1 credit balance of $102,380 in a T account for Allowance for Doubtful Accounts.
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Journalize the transactions. Post each entry that affects the following selected T accounts and determine the new balances:
Allowance for Doubtful Accounts Bad Debt Expense -
Determine the expected net realizable value of the accounts receivable as of December 31.
AnswerCheck Figure: $2,626,670
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Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables the adjusting entry on December 31 had been based on an estimated expense of ½ of 1% of the sales of $24,900,000 for the year, determine the following:
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Bad debt expense for the year.
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Balance in the allowance account after the adjustment of December 31.
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Expected net realizable value of the accounts receivable as of December 31.
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Aging of Receivables; Estimating Allowance for Doubtful Accounts
OBJ. 4
Trophy Fish Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Trophy Fish prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 20Y6:
The following accounts were unintentionally omitted from the aging schedule:
Customer | Due Date | Balance |
Adams Sports & Flies | May 22, 20Y6 | $5,000 |
Blue Dun Flies | Oct. 10, 20Y6 | 4,900 |
Cicada Fish Co. | Sept. 29, 20Y6 | 8,400 |
Deschutes Sports | Oct. 20, 20Y6 | 7,000 |
Green River Sports | Nov. 7, 20Y6 | 3,500 |
Smith River Co. | Nov. 28, 20Y6 | 2,400 |
Western Trout Company | Dec. 7, 20Y6 | 6,800 |
Wolfe Sports | Jan. 20, 20Y7 | 4,400 |
Trophy Fish has a past history of uncollectible accounts by age category, as follows:
Age Class | Percent Uncollectible |
Not past due | 1% |
1–30 days past due | 2 |
31–60 days past due | 10 |
61–90 days past due | 30 |
91–120 days past due | 40 |
Over 120 days past due | 80 |
Instructions
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Determine the number of days past due for each of the preceding accounts.
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Complete the aging of receivables schedule by adding the omitted accounts to the bottom of the schedule and updating the totals.
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Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.
AnswerCheck Figure: $121,000
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Assume that the allowance for doubtful accounts for Trophy Fish Company has a debit balance of $3,600 before adjustment on December 31, 20Y6. Journalize the adjusting entry for uncollectible accounts.
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Assuming that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?
Compare Two Methods of Accounting for Uncollectible Receivables
OBJ. 3, 4, 5
Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of 1% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:
Year of Origin of Accounts Receivable Written Off as Uncollectible | |||||||
Year | Sales | Uncollectible Accounts Written Off | 1st | 2nd | 3rd | 4th | |
1st | $ 900,000 | $4,500 | $4,500 | ||||
2nd | 1,250,000 | 9,600 | 3,000 | $6,600 | |||
3rd | 1,500,000 | 12,800 | 1,000 | 3,700 | $8,100 | ||
4th | 2,200,000 | 16,550 | 1,500 | 4,300 | $10,750 |
Instructions
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Assemble the desired data, using the following column headings:
Bad Debt Expense Year Expense Actually Reported Expense Based on Estimate Increase (Decrease) in Amount of Expense Balance of Allowance Account, End of Year AnswerCheck Figure: Year 4: Balance of allowance account, end of year, $15,050
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Experience during the first four years of operations indicated that the receivables either were collected within two years or had to be written off as uncollectible. Does the estimate of 1% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.
Details of Notes Receivable and Related Entries
OBJ. 6
Flush Mate Co. wholesales bathroom fixtures. During the current fiscal year, Flush Mate Co. received the following notes:
Date | Face Amount | Interest Rate | Term | |
1. | Mar. 6 | $80,000 | 5% | 45 days |
2. | Apr. 23 | 24,000 | 9 | 60 days |
3. | July 20 | 42,000 | 6 | 120 days |
4. | Sept. 6 | 54,000 | 7 | 90 days |
5. | Nov. 29 | 27,000 | 6 | 60 days |
6. | Dec. 30 | 72,000 | 5 | 30 days |
Instructions
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Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.
AnswerCheck Figure: Note 2: Due date, June 22; Interest due at maturity, $360
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Journalize the entry to record the dishonor of Note (3) on its due date.
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Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.
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Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January.
Notes Receivable Entries
OBJ. 6
The following data relate to notes receivable and interest for CGH Cable Co., a cable manufacturer and supplier. (All notes are dated as of the day they are received.)
Apr. | 10. | Received a $144,000, 5%, 60-day note on account. |
May | 15. | Received a $270,000, 7%, 120-day note on account. |
June | 9. | Received $145,200 on note of April 10. |
Aug. | 22. | Received a $150,000, 4%, 45-day note on account. |
Sept. | 12. | Received $276,300 on note of May 15. |
30. | Received a $210,000, 8%, 60-day note on account. | |
Oct. | 6. | Received $150,750 on note of August 22. |
18. | Received a $120,000, 5%, 60-day note on account. | |
Nov. | 29. | Received $212,800 on note of September 30. |
Dec. | 17. | Received $121,000 on note of October 18. |
Instructions
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Journalize the entries to record the transactions.
Sales and Notes Receivable Transactions
OBJ. 6
The following were selected from among the transactions completed by Caldemeyer Co. during the current year. Caldemeyer Co. sells and installs home and business security systems.
Jan. | 3. | Loaned $18,000 cash to Trina Gelhaus, receiving a 90-day, 8% note. |
Feb. | 10. | Sold merchandise on account to Bradford & Co., $24,000. The cost of the merchandise sold was $14,400. |
13. | Sold merchandise on account to Dry Creek Co., $60,000. The cost of merchandise sold was $54,000. | |
Mar. | 12. | Accepted a 60-day, 7% note for $24,000 from Bradford & Co. on account. |
14. | Accepted a 60-day, 9% note for $60,000 from Dry Creek Co. on account. | |
Apr. | 3. | Received the interest due from Trina Gelhaus and a new 120-day, 9% note as a renewal of the loan of January 3. (Record both the debit and the credit to the notes receivable account.) |
May | 11. | Received from Bradford & Co. the amount due on the note of March 12. |
13. | Dry Creek Co. dishonored its note dated March 14. | |
July | 12. | Received from Dry Creek Co. the amount owed on the dishonored note, plus interest for 60 days at 12% computed on the maturity value of the note. |
Aug. | 1. | Received from Trina Gelhaus the amount due on her note of April 3. |
Oct. | 5. | Sold merchandise on account to Halloran Co., $13,500. The cost of the merchandise sold was $8,100. |
15. | Received from Halloran Co. the amount of the invoice of October 5. |
Instructions
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Journalize the entries to record the transactions.