Problems: Set C
33
Problems: Set C
P8-1C The following represents selected information taken from a company’s aging
schedule to estimate uncollectible accounts receivable at year-end.
Journalize transactions
related to bad debts.
(LO 2, 3), AP
Number of Days Outstanding
Accounts receivable
Total
0–30
31–60
61–90
91–120
Over 120
$285,000
$107,000
$60,000
$50,000
$38,000
$30,000
2%
5%
7.5%
10%
14%
% uncollectible
Estimated bad debts
Instructions
(a) Calculate the total estimated bad debts based on the above information.
(b) Prepare the year-end adjusting journal entry to record the bad debts using the allowance method and the aged uncollectible accounts receivable determined in (a).
Assume the unadjusted balance in the Allowance for Doubtful Accounts account is
a $7,000 credit.
(c) Of the above accounts, $2,600 is determined to be specifically uncollectible. Prepare
the journal entry to write off the uncollectible accounts.
(d) The company subsequently collects $1,200 on a specific account that had previously
been determined to be uncollectible in (c). Prepare the journal entry(ies) necessary
to restore the account and record the cash collection.
(e) Explain how establishing an allowance account satisfies the expense recognition
principle.
P8-2C At December 31, 2013, Littman Company reported this information on its balance sheet.
Accounts receivable
Less: Allowance for doubtful accounts
$960,000
78,000
(a) Tot. est.
bad debts $16,890
Prepare journal entries
related to bad debt expense,
and compute ratios.
(LO 2, 3, 8), AP
During 2014, the company had the following transactions related to receivables.
1. Sales on account
2. Sales returns and allowances
3. Collections of accounts receivable
$3,600,000
50,000
3,100,000
4. Write-offs of accounts receivable deemed uncollectible
92,000
5. Recovery of bad debts previously written off as uncollectible
28,000
Instructions
(a) Prepare the journal entries to record each of these five transactions. Assume that no
cash discounts were taken on the collections of accounts receivable. (Omit cost of
goods sold entries.)
(b) Enter the January 1, 2014, balances in Accounts Receivable and Allowance for Doubtful Accounts, post the entries to the two accounts (use T-accounts), and determine
the balances.
(c) Prepare the journal entry to record bad debt expense for 2014, assuming that aging
the accounts receivable indicates that expected bad debts are $109,000.
(d) Compute the accounts receivable turnover and average collection period.
(b) A/R bal. $1,318,000
34
chapter 8 Reporting and Analyzing Receivables
Journalize transactions
related to bad debts.
Presented here is an aging schedule for Zander Company.
P8-3C
(LO 2, 3), AP
Customer
Total
Amy
Bergin
Curt
David
Others
$ 22,000
40,000
65,000
28,000
126,000
$281,000
Not Yet
Due
$ 37,910
1–30
31–60
$12,000
$10,000
61–90
Over 90
$ 40,000
14,000
6,000
96,000
16,000
14,000
$150,000
$34,000
$24,000
$45,000
$28,000
4%
9%
15%
25%
50%
$ 3,060
$ 3,600
$11,250
$14,000
$45,000
$28,000
Estimated percentage
uncollectible
Total estimated
bad debts
Number of Days Past Due
$
6,000
At December 31, 2013, the unadjusted balance in Allowance for Doubtful Accounts is a
credit of $11,700.
Instructions
(a) Journalize and post the adjusting entry for bad debts at December 31, 2013. (Use
T-accounts.)
(b) Journalize and post to the allowance account these 2014 events and transactions:
1. March 31, a $500 customer balance originating in 2013 is judged uncollectible.
2. May 31, a check for $500 is received from the customer whose account was written off as uncollectible on March 31.
(c) Journalize the adjusting entry for bad debts on December 31, 2014, assuming that
the unadjusted balance in Allowance for Doubtful Accounts is a debit of $800 and
the aging schedule indicates that total estimated bad debts will be $35,300.
Compute bad debt amounts.
(LO 3), AP
P8-4C
Here is information related to Vansen Company for 2014.
Total credit sales
Accounts receivable at December 31
Bad debts written off
$2,000,000
400,000
15,000
Instructions
(a) What amount of bad debt expense will Vansen Company report if it uses the direct
write-off method of accounting for bad debts?
(b) Assume that Vansen Company decides to estimate its bad debt expense based on 4%
of accounts receivable. What amount of bad debt expense will the company record
if it has an Allowance for Doubtful Accounts credit balance of $3,700?
(c) Assume the same facts as in part (b), except that there is a $2,000 debit balance in
Allowance for Doubtful Accounts. What amount of bad debt expense will Vansen
record?
(d) What is the weakness of the direct write-off method of reporting bad debt expense?
Journalize entries to record
transactions related to bad
debts.
P8-5C At December 31, 2014, the trial balance of Seidl Company contained the following amounts before adjustment.
(LO 2, 3), AP
Debits
Accounts Receivable
Allowance for Doubtful Accounts
Sales Revenue
Credits
$500,000
$
4,800
2,400,000
Instructions
(a) Based on the information given, which method of accounting for bad debts is Seidl
Company using—the direct write-off method or the allowance method? How can you
tell?
Problems: Set C
(b) Prepare the adjusting entry at December 31, 2014, for bad debt expense assuming
that the aging schedule indicates that $26,000 of accounts receivable will be uncollectible.
(c) Repeat part (b), assuming that instead of a credit balance there is a $4,800 debit balance in the Allowance for Doubtful Accounts.
(d) During the next month, January 2015, a $5,000 account receivable is written off as
uncollectible. Prepare the journal entry to record the write-off.
(e) Repeat part (d), assuming that Seidl uses the direct write-off method instead of the
allowance method in accounting for uncollectible accounts receivable.
(f )
What type of account is the allowance for doubtful accounts? How does it
affect how accounts receivable is reported on the balance sheet at the end of the
accounting period?
P8-6C On January 1, 2014, Moline Company had Accounts Receivable $154,000; Notes
Receivable of $12,000; and Allowance for Doubtful Accounts of $13,200. The note
receivable is from Hartwig Company. It is a 4-month, 9% note dated December 31, 2013.
Moline Company prepares financial statements annually. During the year, the following
selected transactions occurred.
Jan.
5
20
Feb. 18
Apr. 20
30
May 25
Aug. 18
Sept. 1
Journalize various
receivables transactions.
(LO 1, 2, 4, 5), AP
Sold $10,000 of merchandise to Flint Company, terms n/15.
Accepted Flint Company’s $10,000, 3-month, 9% note for balance
due.
Sold $4,000 of merchandise to Zinck Company and accepted Zinck’s
$4,000, 6-month, 8% note for the amount due.
Collected Flint Company note in full.
Received payment in full from Hartwig Company on the amount due.
Accepted Aberd Inc.’s $9,000, 6-month, 8% note in settlement of a
past-due balance on account.
Received payment in full from Zinck Company on note due.
Sold $5,000 of merchandise to Cosier Company and accepted a $5,000,
6-month, 9% note for the amount due.
Instructions
Journalize the transactions. (Omit cost of goods sold entries.)
P8-7C The president of Felder Enterprises Ltd., Emma Felder, is considering the
impact that certain transactions have on the company’s accounts receivable turnover and
average collection period. Prior to the transactions below, Felder’s accounts receivable
turnover was 6 times, and its average collection period was 61 days.
Explain the impact of
transactions on ratios:
discuss acceleration of
receipt of cash from
receivables.
(LO 8, 9), C
Transaction
Accounts
Receivable
Turnover
(6ⴛ)
Average
Collection
Period
(61 days)
1. Recorded sales on account $100,000.
2. Collected $25,000 owed by customers.
3. Wrote off a $2,500 account from a customer as
uncollectible. (Uses allowance method.)
4. Recorded sales returns of $1,800 and credited the
customers’ accounts.
5. Recorded bad debt expense for the year $7,900,
using the allowance method.
Instructions
(a) Complete the table, indicating whether each transaction will increase (I), decrease
(D), or have no effect (NE) on the ratios.
(b) Emma was reading through the financial statements for some publicly traded companies and noticed that they had recorded an expense related to the sale of receivables. She would like you to explain why companies sell their receivables.
35
36
chapter 8 Reporting and Analyzing Receivables
Prepare entries for various
credit card and notes
receivable transactions.
(LO 2, 4, 5, 6, 9), AP
P8-8C Brockman Company closes its books on October 31. On September 30, the Notes
Receivable account balance is $18,800. Notes Receivable include the following.
Date
Maker
Face Value
Term
Maturity Date
Interest Rate
Aug. 16
Aug. 25
Sept. 30
Stuhmer Inc.
Moberg Co.
Earnest Corp.
$6,000
3,000
9,800
60 days
2 months
6 months
Oct. 15
Oct. 25
Mar. 30
9%
7%
6%
Interest is computed using a 360-day year. During October, the following transactions
were completed.
Oct.
7
12
15
25
(b) A/R bal. $ 4,600
(c) Tot. receivables $14,449
Calculate and interpret
various ratios.
(LO 7, 8), AN
Made sales of $4,600 on Brockman credit cards.
Made sales of $600 on Visa credit cards. The credit card service charge
is 3%.
Received payment in full from Stuhmer Inc. on the amount due.
Received payment in full from Moberg Co. on amount due.
Instructions
(a) Journalize the October transactions and the October 31 adjusting entry for accrued interest receivable. (Interest is computed using 360 days; omit cost of goods sold entries.)
(b) Enter the balances at October 1 in the receivable accounts and post the entries to all
of the receivable accounts. (Use T-accounts.)
(c) Show the balance sheet presentation of the receivable accounts at October 31.
P8-9C Suppose the amounts presented here are basic financial information from the
2014 annual reports of Intel and Advanced Micro Devices (AMD), the two primary manufacturers of silicon chips for personal computers.
(in millions)
Intel
AMD
Sales revenue
Allowance for doubtful accounts, Jan. 1
Allowance for doubtful accounts, Dec. 31
Accounts receivable balance (gross), Jan. 1
Accounts receivable balance (gross), Dec. 31
$35,127
17
19
1,729
2,292
$5,403
8
7
328
752
Instructions
Calculate the accounts receivable turnover and average collection period for both companies. Comment on the difference in their collection experiences.