Ch.7 Graded Practice - Financial Accounting PDF

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Ch. 7 Graded Practice 1.) Levine Company uses the perpetual inventory system and allows customers to use two credit cards in charging purchases. With the Suntrust Bank Card, a 4% service charge for credit card sales is assessed. The second credit card that Levine accepts is the Continental Card. Continental assesses a 2.5% charge on sales for using its card.

Apr.

8 Sold merchandise for $6,500 (that had cost $4,804) and accepted the customer's Suntrust Bank Card. 12 Sold merchandise for $6,400 (that had cost $4,147) and accepted the customer's Continental Card.

Prepare journal entries to record the above selected credit card transactions of Levine Company. (Round your answers to the nearest whole dollar amount.) a) Sold merchandise for $6,500 and accepted the customer’s Suntrust Bank Card. a. Cash (6,500 x .96) 6,240 Credit card expense (6,500 x .04) 260 Sales 6,500 b) Record the cost of goods sold, $4,804 a. Cost of Goods sold Merchandise Inventory

4,804 4,804

c) Sold merchandise for $6,400 and accepted the customer’s Continental Card. a. Cash (6,400 x .975) 6,240 Credit card expense (6,400 x .025) 160 Sales 6,400 d) Record the cost of goods sold, $4,147. a. Cost of Goods sold Merchandise Inventory

4,147 4,147

2.) Z-Mart uses the perpetual inventory system and allows customers to use the Z-Mart store credit card in charging purchases. Z-Mart assesses a per-month interest fee for any unpaid balance on its store credit card at each month-end. Apr. 30 Z-Mart sold merchandise for $1,500 (that had cost $900) and accepted the customer’s Z-Mart store credit card.

May 31 Z-Mart recorded $3 of interest earned from its store credit card as of this month-end.

Prepare journal entries to record the above selected credit card transactions of Z-Mart. a) Z-Mart sold merchandise for $1,500 and accepted the customer’s Z-Mart store credit card. a. Accounts Receivable 1,500 Sales

b) Record the cost of goods sold $900. a. Cost of Goods Sold

1,500

900

Merchandise Inventory

900

c) Z-Mart recorded $3 of interest earned from its store credit card as of this month-end. a. Accounts Receivable 3 Interest Revenue

3

3.) Solstice Company determines on October 1 that it cannot collect $65,000 of its accounts receivable from its customer P. Moore. Apply the direct write-off method to record this loss as of October 1. a) Record the write off an account a. Bad debts expense 65,000 Accounts Receivable – P. Moore

65,000

4.) At year-end (December 31), Chan Company estimates its bad debts as 0.50% of its annual credit sales of $714,000. Chan records its Bad Debts Expense for that estimate. On the following February 1, Chan decides that the $357 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. a. Record the estimated bad debts expense. a. Bad Debts Expense (714,000 x .50%) 3,570 Allowance for Doubtful accounts 3,750

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b. Wrote off P. Park's account as uncollectible. a. Allowance for Doubtful Accounts Accounts Receivable – P. Parks

357 357

c. Reinstated Park's previously written off account. a. Accounts Receivable – P. Parks 357 Allowance for Doubtful Accounts d. Record the cash received on account. a. Cash Accounts Receivable – P. Parks

357

357 357

5.) At each calendar year-end, Mazie Supply Co. uses the percent of accounts receivable method to estimate bad debts. On December 31, 2017, it has outstanding accounts receivable of $148,000, and it estimates that 2% will be uncollectible. Prepare the adjusting entry to record bad debts expense for year 2017 under the assumption that the Allowance for Doubtful Accounts has: 1. (a) a $2,516 credit balance before the adjustment. 2. (b) a $740 debit balance before the adjustment. a. Prepare the adjusting entry to record bad debts expense for year 2017 under the assumption that the Allowance for Doubtful Accounts has a $2,516 credit balance before the adjustment. 1. Bad Debts Expense 444 Allowance for Doubtful Accounts (148,000 x .02) – 2,516 444 b. Prepare the adjusting entry to record bad debts expense for year 2017 under the assumption that the Allowance for Doubtful Accounts has a $740 debit balance before the adjustment. 1. Bad Debts Expense 3,700 Allowance of doubtful accounts (148,000 x .02) + 740 3,700 6.) Daw Company’s December 31 year-end unadjusted trial balance shows a $46,000 balance in Notes Receivable. This balance is from one 9% note dated December 1, with a period of 45 days. Assume Daw Company does not prepare reversing entries. Prepare journal entries for December 31 and for the note’s maturity date assuming it is honored. (Use 360 days a year.) a. Record the year-end adjustment related to this note, if any. a. Notes Receivable 46,000

3

Cash or Accounts Receivable 46,000 b. Record the journal entry on the note’s maturity date assuming it is honored. Assume Daw Company does not prepare reversing entries. a. Dec 31 Interest Receivable 345 Interest Revenue (46,000 x .09 x 30/360) 345 Jan 15 Cash 46,207.50 Notes Receivable 46,000 Interest Receivable 345 Interest Revenue 172.50

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