1.
| Dexter Company applies the direct write-off method in accounting for uncollectible accounts. |
| March | 11 |
Dexter determines that it cannot collect $45,000 of its accounts receivable from its customer Lester Company.
|
| 29 |
Lester Company unexpectedly pays its account in full to Dexter Company. Dexter records its recovery of this bad debt.
|
Prepare journal entries to record the above selected transactions of Dexter.
| Date | General Journal | Debit | Credit |
| March 11 | Bad debts expense | 45,000 | |
| Accounts receivable—Lester Co. | | 45,000 |
| | | |
| March 29 | Accounts receivable—Lester Co. | 45,000 | |
| Bad debts expense | | 45,000 |
| | | |
| March 29 | Cash | 45,000 | |
| Accounts receivable—Lester Co. | | 45,000 |
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2.
Daley Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.
|
|
| | Days Past Due | |
| |
| |
| Total | | 0 | 1 to 30 | 31 to 60 | 61 to 90 | Over 90 | |
| Accounts receivable | $ | 570,000 | | $ | 396,000 | | $ | 90,000 | | $ | 36,000 | | $ | 18,000 | | $ | 30,000 | | |
| Percent uncollectible | | | | | 1 | % | | 2 | % | | 5 | % | | 7 | % | | 10 | % | |
|
| a. |
Complete the below table to calculate the estimated balance of Allowance for Doubtful Accounts using the aging of accounts receivable method.
|
|
|
| Accounts receivable | | Percent uncollectible (%) | | | |
| Not due: | $396,000 | x | 1 | % | = | $3,960 | |
| 1 to 30: | 90,000 | x | 2 | % | = | 1,800 | |
| 31 to 60: | 36,000 | x | 5 | % | = | 1,800 | |
| 61 to 90: | 18,000 | x | 7 | % | = | 1,260 | |
| Over 90: | 30,000 | x | 10 | % | = | 3,000 | |
| Estimated balance of allowance for uncollectibles | | | $11,820 | credit |
|
| b. |
Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $3,600 credit and $100 debit.
|
| Date | General Journal | Debit | Credit |
| Dec 31 | Bad debts expense | 8,220 | |
| Allowance for doubtful accounts | | 8,220 |
| | | |
| Dec 31 | Bad debts expense | 11,920 | |
| Allowance for doubtful accounts | | 11,920 |
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3.
Daley Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.
|
|
| | Days Past Due | |
| |
| |
| Total | | 0 | 1 to 30 | 31 to 60 | 61 to 90 | Over 90 | |
| Accounts receivable | $ | 570,000 | | $ | 396,000 | | $ | 90,000 | | $ | 36,000 | | $ | 18,000 | | $ | 30,000 | | |
| Percent uncollectible | | | | | 1 | % | | 2 | % | | 5 | % | | 7 | % | | 10 | % | |
|
| a. |
Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 4.5% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method.
|
|
|
|
| Estimated balance of allowance for uncollectibles | $25,650 | credit |
|
| b. |
Prepare the adjusting entry to record Bad Debts Expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $12,000 credit and $1,000 debit.
|
| Date | General Journal | Debit | Credit |
| Dec 31 | Bad debts expense | 13,650 | |
| Allowance for doubtful accounts | | 13,650 |
| | | |
| Dec 31 | Bad debts expense | 26,650 | |
| Allowance for doubtful accounts | | 26,650 |
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4.
Daley Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis.
|
|
| | Days Past Due | |
| |
| |
| Total | | 0 | 1 to 30 | 31 to 60 | 61 to 90 | Over 90 | |
| Accounts receivable | $ | 570,000 | | $ | 396,000 | | $ | 90,000 | | $ | 36,000 | | $ | 18,000 | | $ | 30,000 | | |
| Percent uncollectible | | | | | 1 | % | | 2 | % | | 5 | % | | 7 | % | | 10 | % | |
|
On February 1 of the next period, the company determined that $6,800 in customer accounts is uncollectible; specifically, $900 for Oakley Co. and $5,900 for Brookes Co. Prepare the journal entry to write off those accounts. On June 5 of that next period, the company unexpectedly received a $900 payment on a customer account, Oakley Company, that had previously been written off in part a. Prepare the entries necessary to reinstate the account and to record the cash received.
| Date | General Journal | Debit | Credit |
| Feb 01 | Allowance for doubtful accounts | 6,800 | |
| Accounts receivable—Oakley Co. | | 900 |
| Accounts receivable—Brookes Co. | | 5,900 |
| | | |
| Jun 05 | Accounts receivable—Oakley Co. | 900 | |
| Allowance for doubtful accounts | | 900 |
| | | |
| Jun 05 | Cash | 900 | |
| Accounts receivable—Oakley Co. | | 900 |
|
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5.
| The following information is from the annual financial statements of Raheem Company. |
|
| | 2015 | 2014 | 2013 |
| Net sales | | $ | 405,140 | | $ | 335,280 | | $ | 388,000 | |
| Accounts receivable, net (year-end) | | | 44,800 | | | 41,400 | | | 34,800 | |
|
Compute its accounts receivable turnover for 2014 and 2015.
|
|
|
| Accounts Receivable Turnover |
| Choose Numerator: | / | Choose Denominator: | = | Accounts Receivable Turnover |
| Net sales | / | Average accounts receivable, net | = | Accounts receivable turnover |
| 2014: | $335,280 | / | $38,100 | = | 8.8 | times |
| 2015: | $405,140 | / | $43,100 | = | 9.4 | times |
|
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6.
Mayfair Co. allows select customers to make purchases on credit. Its other customers can use either of two credit cards: Zisa or Access. Zisa deducts a 3% service charge for sales on its credit card and credits the bank account of Mayfair immediately when credit card receipts are deposited. Mayfair deposits the Zisa credit card receipts each business day. When customers use Access credit cards, Mayfair accumulates the receipts for several days before submitting them to Access for payment. Access deducts a 2% service charge and usually pays within one week of being billed. Mayfair completes the following transactions in June. (The terms of all credit sales are 2/15, n/30, and all sales are recorded at the gross price.)
|
| June | 4 | Sold $650 of merchandise (that had cost $400) on credit to Natara Morris. |
| 5 | Sold $6,900 of merchandise (that had cost $4,200) to customers who used their Zisa cards. |
| 6 | Sold $5,850 of merchandise (that had cost $3,800) to customers who used their Access cards. |
| 8 | Sold $4,350 of merchandise (that had cost $2,900) to customers who used their Access cards. |
| 10 |
Submitted Access card receipts accumulated since June 6 to the credit card company for payment.
|
| 13 |
Wrote off the account of Abigail McKee against the Allowance for Doubtful Accounts. The $429 balance in McKee’s account stemmed from a credit sale in October of last year.
|
| 17 | Received the amount due from Access. |
| 18 | Received Morris’s check in full payment for the purchase of June 4. |
| Required: |
Prepare journal entries to record the preceding transactions and events. (The company uses the perpetual inventory system.) (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
|
| Date | General Journal | Debit | Credit |
| June 04 | Accounts receivable—N. Morris | 650 | |
| Sales | | 650 |
| | | |
| June 04 | Cost of goods sold | 400 | |
| Merchandise inventory | | 400 |
| | | |
| June 05 | Cash | 6,693 | |
| Credit card expense | 207 | |
| Sales | | 6,900 |
| | | |
| June 05 | Cost of goods sold | 4,200 | |
| Merchandise inventory | | 4,200 |
| | | |
| June 06 | Accounts receivable—Access | 5,733 | |
| Credit card expense | 117 | |
| Sales | | 5,850 |
| | | |
| June 06 | Cost of goods sold | 3,800 | |
| Merchandise inventory | | 3,800 |
| | | |
| June 08 | Accounts receivable—Access | 4,263 | |
| Credit card expense | 87 | |
| Sales | | 4,350 |
| | | |
| June 08 | Cost of goods sold | 2,900 | |
| Merchandise inventory | | 2,900 |
| | | |
| June 10 | No journal entry required | | |
| | | |
| June 13 | Allowance for doubtful accounts | 429 | |
| Accounts receivable—A. McKee | | 429 |
| | | |
| June 17 | Cash | 9,996 | |
| Accounts receivable—Access | | 9,996 |
| | | |
| June 18 | Cash | 637 | |
| Sales discounts | 13 | |
| Accounts receivable—N. Morris | | 650 |
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Questions 7-9
[The following information applies to the questions displayed below.]
| At December 31, 2015, Hawke Company reports the following results for its calendar year. |
| | | |
| Cash sales | $ | 1,905,000 | |
| Credit sales | | 5,682,000 | |
|
| In addition, its unadjusted trial balance includes the following items. |
| | | |
| Accounts receivable | $ | 1,270,100 | debit |
| Allowance for doubtful accounts | | 16,580 | debit |
|
7.
| Required: |
| 1. |
Prepare the adjusting entry for this company to recognize bad debts under each of the following independent assumptions.
|
| a. | Bad debts are estimated to be 1.5% of credit sales. |
| b. | Bad debts are estimated to be 1% of total sales. |
| c. | An aging analysis estimates that 5% of year-end accounts receivable are uncollectible. |
| Adjusting entries (all dated December 31, 2015). |
| Transaction | General Journal | Debit | Credit |
| a. | Bad debts expense | 85,230 | |
| Allowance for doubtful accounts | | 85,230 |
| | | |
| b. | Bad debts expense | 75,870 | |
| Allowance for doubtful accounts | | 75,870 |
| | | |
| c. | Bad debts expense | 80,085 | |
| Allowance for doubtful accounts | | 80,085 |
8.
| 2. |
Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015, balance sheet given the facts in part 1a.
|
|
|
| | |
| Current assets: | | |
| Accounts receivable | $1,270,100 | |
| Less: Allowance for doubtful accounts | (68,650) | $1,201,450 |
|
9.
| 3. |
Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2015, balance sheet given the facts in part 1c.
|
|
|
| | |
| Current assets: | | |
| Accounts receivable | $1,270,100 | |
| Less: Allowance for doubtful accounts | (63,505) | $1,206,595 |
|
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10.
Jarden Company has credit sales of $3.6 million for year 2015. On December 31, 2015, the company’s Allowance for Doubtful Accounts has an unadjusted credit balance of $14,500. Jarden prepares a schedule of its December 31, 2015, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.
|
December 31, 2015
Accounts Receivable | Age of
Accounts Receivable | Expected Percent Uncollectible |
| $ | 830,000 | Not yet due | 1.25 | % |
| 254,000 | 1 to 30 days past due | 2.00 | |
| 86,000 | 31 to 60 days past due | 6.50 | |
| 38,000 | 61 to 90 days past due | 32.75 | |
| 12,000 | Over 90 days past due | 68.00 | |
|
| 1. |
Prepare the adjusting entry to record bad debts expense at December 31, 2015.
| Date | General Journal | Debit | Credit |
| Dec 31 | Bad debts expense | 27,150 | |
| Allowance for doubtful accounts | | 27,150 |
|
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11.
| The following selected transactions are from Ohlm Company. (Do not round intermediate calculations and round your final answers to nearest whole number. Use 360 days a year.) |
| |
| 2014 |
| Dec. | 16 |
Accepted a $10,800, 60-day, 8% note dated this day in granting Danny Todd a time extension on his past-due account receivable.
|
| 31 | Made an adjusting entry to record the accrued interest on the Todd note. |
| Feb. | 14 | Received Todd’s payment of principal and interest on the note dated December 16. |
| Mar. | 2 |
Accepted a $6,100, 8%, 90-day note dated this day in granting a time extension on the past-due account receivable from Midnight Co.
|
| 17 |
Accepted a $2,400, 30-day, 7% note dated this day in granting Ava Privet a time extension on her past-due account receivable.
|
| Apr. | 16 | Privet dishonored her note when presented for payment. |
| May | 31 |
Midnight Co. refuses to pay the note that was due to Ohlm Co. on May 31. Prepare the journal entry to charge the dishonored note plus accrued interest to Midnight Co.’s accounts receivable.
|
| July | 16 |
Received payment from Midnight Co. for the maturity value of its dishonored note plus interest for 46 days beyond maturity at 8%.
|
| Aug. | 7 |
Accepted a $7,450, 90-day, 10% note dated this day in granting a time extension on the past-due account receivable of Mulan Co.
|
| Sept. | 3 |
Accepted a $2,100, 60-day, 10% note dated this day in granting Noah Carson a time extension on his past-due account receivable.
|
| Nov. | 2 | Received payment of principal plus interest from Carson for the September 3 note. |
| Nov. | 5 | Received payment of principal plus interest from Mulan for the August 7 note. |
| Dec. | 1 | Wrote off the Privet account against Allowance for Doubtful Accounts. |
|
|
|
| Required: |
| 1-a. |
First, complete the table below to calculate the interest amount at December 31.
|
|
|
D.Todd Note - December 16, 2014
|
| Total through maturity | Interest recognized December 31 |
| Principal | $10,800 | | $10,800 | |
| Rate (%) | 8 | % | 8 | % |
| Time | 60/360 | | 15/360 | |
| Total interest | $144 | | $36 |
|
| 1-b. |
Use the calculated value to prepare your journal entries for 2014 transactions.
|
| Date | General Journal | Debit | Credit |
| Dec 16 | Notes receivable—D. Todd | 10,800 | |
| Accounts receivable—D. Todd | | 10,800 |
| | | |
| Dec 31 | Interest receivable | 36 | |
| Interest revenue | | 36 |
| 1-c. |
First, complete the table below to calculate the interest amounts.
|
|
|
| Total through maturity |
| Midnight Co. Note - March 2, 2015 | A. Privet Note - March 17, 2015 | Mulan Note - August 7, 2015 | Midnight Co. Note - May 31, 2015 | N. Carson Note - September 3, 2015 |
| Principal | $6,100 | | 2400 | | 7450 | | 6222 | | 2100 | |
| Rate (%) | 8 | % | 7 | % | 10 | % | 8 | % | 10 | % |
| Time | 90/360 | | 30/360 | | 90/360 | | 46/360 | | 60/360 | |
| Total interest | $122 | | 14 | | 186 | | 64 | | 35 |
|
| 1-d. |
Use those calculated values to prepare your journal entries for 2015 transactions.
|
| Date | General Journal | Debit | Credit |
| Feb 14 | Cash | 10,944 | |
| Interest revenue | | 108 |
| Interest receivable | | 36 |
| Notes receivable—D. Todd | | 10,800 |
| | | |
| Mar 02 | Notes receivable—Midnight Co | 6,100 | |
| Accounts receivable—Midnight Co | | 6,100 |
| | | |
| Mar 17 | Notes receivable—A. Privet | 2,400 | |
| Accounts receivable—A. Privet | | 2,400 |
| | | |
| Apr 16 | Accounts receivable—A. Privet | 2,414 | |
| Interest revenue | | 14 |
| Notes receivable—A. Privet | | 2,400 |
| | | |
| May 31 | Accounts receivable—Midnight Co | 6,222 | |
| Interest revenue | | 122 |
| Notes receivable—Midnight Co | | 6,100 |
| | | |
| Jul 16 | Cash | 6,286 | |
| Interest revenue | | 64 |
| Accounts receivable—Midnight Co | | 6,222 |
| | | |
| Aug 07 | Notes receivable—Mulan | 7,450 | |
| Accounts receivable—Mulan | | 7,450 |
| | | |
| Sep 03 | Notes receivable—N. Carson | 2,100 | |
| Accounts receivable—N. Carson | | 2,100 |
| | | |
| Nov 02 | Cash | 2,135 | |
| Interest revenue | | 35 |
| Notes receivable—N. Carson | | 2,100 |
| | | |
| Nov 05 | Cash | 7,636 | |
| Interest revenue | | 186 |
| Notes receivable—Mulan | | 7,450 |
| | | |
| Dec 01 | Allowance for doubtful accounts | 2,414 | |
| Accounts receivable—A. Privet | | 2,414 |
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12.
At year-end (December 31), Chan Company estimates its bad debts as 0.5% of its annual credit sales of $975,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $580 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off.
|
Prepare the journal entries for these transactions.
|
| Date | General Journal | Debit | Credit |
| Dec 31 | Bad debts expense | 4,875 | |
| Allowance for doubtful accounts | | 4,875 |
| | | |
| Feb 01 | Allowance for doubtful accounts | 580 | |
| Accounts receivable—P. Park | | 580 |
| | | |
| Jun 05 | Accounts receivable—P. Park | 580 | |
| Allowance for doubtful accounts | | 580 |
| | | |
| Jun 05 | Cash | 580 | |
| Accounts receivable—P. Park | | 580 |
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13.
At each calendar year-end, Mazie Supply Co. uses the percent of accounts receivable method to estimate bad debts. On December 31, 2015, it has outstanding accounts receivable of $55,000, and it estimates that 2% will be uncollectible.
|
|
Prepare the adjusting entry to record bad debts expense for year 2015 under the assumption that the Allowance for Doubtful Accounts has:
|
| (a) | a $415 credit balance before the adjustment. |
| (b) | a $291 debit balance before the adjustment. |
| Transaction | General Journal | Debit | Credit |
| (a) | Bad debts expense | 685 | |
| Allowance for doubtful accounts | | 685 |
| | | |
| (b) | Bad debts expense | 1,391 | |
| Allowance for doubtful accounts | | 1,391 |
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14.
| At December 31, Folgeys Coffee Company reports the following results for its calendar year. |
| | | |
| Cash sales | $ | 900,000 |
| Credit sales | | 300,000 |
|
| Its year-end unadjusted trial balance includes the following items. |
| | | | |
| Accounts receivable | $ | 125,000 | debit |
| Allowance for doubtful accounts | | 5,000 | debit |
|
Prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be (a) 3% of credit sales, (b) 1% of total sales and (c) 6% of year-end accounts receivable.
|
| Transaction | General Journal | Debit | Credit |
| a. | Bad debts expense | 9,000 | |
| Allowance for doubtful accounts | | 9,000 |
| | | |
| b. | Bad debts expense | 12,000 | |
| Allowance for doubtful accounts | | 12,000 |
| | | |
| c. | Bad debts expense | 12,500 | |
| Allowance for doubtful accounts | | 12,500 |
