Chapter Review
9-9hProblems: Series B
Entries Related to Uncollectible Accounts
OBJ. 4
The following transactions were completed by The Wild Trout Gallery during the current fiscal year ended December 31:
Jan. | 19. | Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalized the receipt of $2,660 cash in full payment of Arlene’s account. |
Apr. | 3. | Wrote off the $12,750 balance owed by Premier GS Co., which is bankrupt. |
July | 16. | Received 25% of the $22,000 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible. |
Nov. | 23. | Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $4,000 cash in full payment. |
Dec. | 31. | Wrote off the following accounts as uncollectible (one entry): Cavey Co., $3,300; Fogle Co., $8,100; Lake Furniture, $11,400; Melinda Shryer, $1,200. |
31. | Based on an analysis of the $2,350,000 of accounts receivable, it was estimated that $60,000 will be uncollectible. Journalized the adjusting entry. |
Instructions
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Record the January 1 credit balance of $50,000 in a T account for Allowance for Doubtful Accounts.
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Journalize the transactions. Post each entry that affects the following 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: $2,290,000
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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 $15,800,000 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
Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Wig Creations prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 20Y1:
The following accounts were unintentionally omitted from the aging schedule:
Customer | Due Date | Balance |
Arcade Beauty | Aug. 17, 20Y1 | $10,000 |
Creative Images | Oct. 30, 20Y1 | 8,500 |
Excel Hair Products | July 3, 20Y1 | 7,500 |
First Class Hair Care | Sept. 8, 20Y1 | 6,600 |
Golden Images | Nov. 23, 20Y1 | 3,600 |
Oh That Hair | Nov. 29, 20Y1 | 1,400 |
One Stop Hair Designs | Dec. 7, 20Y1 | 4,000 |
Visions Hair & Nail | Jan. 11, 20Y2 | 9,000 |
Wig Creations 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 | 4 |
31–60 days past due | 16 |
61–90 days past due | 25 |
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: $123,235
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Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $7,375 before adjustment on December 31, 20Y1. Journalize the adjustment 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
Digital Depot Company, which operates a chain of 40 electronics supply stores, 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 firm is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ¼% 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 | $12,500,000 | $18,000 | $18,000 | ||||
2nd | 14,800,000 | 30,200 | 9,000 | $21,200 | |||
3rd | 18,000,000 | 39,900 | 3,600 | 9,300 | $27,000 | ||
4th | 24,000,000 | 52,600 | 5,100 | 12,500 | $35,000 |
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, $32,550
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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 ¼% 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
Gen-X Ads Co. produces advertising videos. During the current fiscal year, Gen-X Ads Co. received the following notes:
Date | Face Amount | Interest Rate | Term | |
1. | Jan. 14 | $33,000 | 4% | 30 days |
2. | Mar. 9 | 60,000 | 7 | 45 days |
3. | July 12 | 48,000 | 5 | 90 days |
4. | Aug. 23 | 16,000 | 6 | 75 days |
5. | Nov. 15 | 36,000 | 8 | 60 days |
6. | Dec. 10 | 24,000 | 6 | 60 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 1: Due date, Feb. 13; Interest due at maturity, $110
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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 and February.
Notes Receivable Entries
OBJ. 6
The following data relate to notes receivable and interest for Owens Co., a financial services company. (All notes are dated as of the day they are received.)
Mar. | 8. | Received a $33,000, 5%, 60-day note on account. |
31. | Received an $80,000, 7%, 90-day note on account. | |
May | 7. | Received $33,275 on note of March 8. |
16. | Received a $72,000, 7%, 90-day note on account. | |
June | 11. | Received a $36,000, 6%, 45-day note on account. |
29. | Received $81,400 on note of March 31. | |
July | 26. | Received $36,270 on note of June 11. |
Aug. | 4. | Received a $48,000, 9%, 120-day note on account. |
14. | Received $73,260 on note of May 16. | |
Dec. | 2. | Received $49,440 on note of August 4. |
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 during the current year by Danix Co., an appliance wholesale company:
Jan. | 21. | Sold merchandise on account to Black Tie Co., $28,000. The cost of merchandise sold was $16,800. |
Mar. | 18. | Accepted a 60-day, 6% note for $28,000 from Black Tie Co. on account. |
May | 17. | Received from Black Tie Co. the amount due on the note of March 18. |
June | 15. | Sold merchandise on account to Pioneer Co. for $17,700. The cost of merchandise sold was $10,600. |
21. | Loaned $18,000 cash to JR Stutts, receiving a 30-day, 8% note. | |
25. | Received from Pioneer Co. the amount due on the invoice of June 15. | |
July | 21. | Received the interest due from JR Stutts and a new 60-day, 9% note as a renewal of the loan of June 21. (Record both the debit and the credit to the notes receivable account.) |
Sept. | 19. | Received from JR Stutts the amount due on her note of July 21. |
22. | Sold merchandise on account to Wycoff Co., $20,000. The cost of merchandise sold was $12,000. | |
Oct. | 14. | Accepted a 30-day, 6% note for $20,000 from Wycoff Co. on account. |
Nov. | 13. | Wycoff Co. dishonored the note dated October 14. |
Dec. | 28. | Received from Wycoff Co. the amount owed on the dishonored note, plus interest for 45 days at 8% computed on the maturity value of the note. |
Instructions
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Journalize the entries to record the transactions.