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CHAPTER 8 BRIEF EXERCISES Be. 211 Finney had the following transactions during March 2020. 1. Finney sold and delivered $12,000 of merchandise to LJ Enterprises, terms 2/10, n30. 2. LJ Enterprises also ordered an additional $5,000 worth of goods on the last day of the month. th 3. Finney lent $1,000 to its company president who promised to repay the loan on the 15 day of the next month. 4. Finney sold old storage sheds to Alt Traders on 3/31. Alt Traders gave a $2,500 promissory note to Finney agreeing to pay for the sheds in 3 months. 5. Other current assets totaled $50,000. Finney received no cash arising from the above transactions during March. Compute the percentage Accounts Receivable is of the total current assets as of month end.

Be. 213 Prepare journal entries to record the following transactions entered into by the Castagno Company: 2020 Nov. 1

Sold merchandise on account to Mercer, Inc., for $15,000, terms 2/10, n/30.

Nov.

5

Mercer, Inc., returned merchandise worth $1,000.

Nov.

9

Received payment in full from Mercer, Inc.

Be. 214 Assuming that the allowance method is being used, prepare general journal entries without explanations to record the following transactions. January 1

Sold merchandise to Mary Baden for $500 on account.

February 1

Received $200 from Baden.

July 1

Wrote off Baden’s account as uncollectible.

September 1 Unexpectedly received payment in full from Baden.

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CHAPTER 8 Be. 215 The ledger of the Ramirez Company at the end of the current year shows Accounts Receivable of $150,000. Instructions (a) If Allowance for Doubtful Accounts has a credit balance of $3,000 in the trial balance and bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for end of the period. (Show all calculations.) (b) If Allowance for Doubtful Accounts has a debit balance of $3,000 in the trial balance and bad debts are expected to be 8% of accounts receivable, journalize the adjusting entry for end of the period. (Show all calculations.)

Be. 216 Benson Products uses the receivable approach in estimating uncollectible accounts. On December 31, 2020, the balance in Accounts Receivable was $650,000. An aging analysis of the accounts receivable indicated that $25,500 in accounts are expected to be uncollectible. Prepare the adjusting entry to record estimated bad debts expense using the percentage of receivables basis under each of the following independent assumptions: (a) Allowance for Doubtful Accounts has a credit balance of $3,000 before adjustment. (b) Allowance for Doubtful Accounts has a debit balance of $830 before adjustment.

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CHAPTER 8 Be. 217 Strickman Company uses the allowance method for estimating uncollectible accounts. Prepare journal entries to record the following transactions: January

5

Sold merchandise to Sue Land for $1,600, terms n/15.

April

15

Received $400 from Sue Land on account.

August

21

Wrote off as uncollectible the balance of the Sue Land account when she declared bankruptcy.

October

5

Unexpectedly received a check for $650 from Sue Land.

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Be. 220 Trent Distributors has the following transactions related to notes receivable during the last two months of the year. Dec.

1

Loaned $16,000 cash to E. Kinder on a 1-year, 6% note.

16

Sold goods to J. Jones, receiving a $2,400, 60-day, 7% note.

31

Accrued interest revenue on all notes receivable.

Instructions Journalize the transactions for Trent Distributors.

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CHAPTER 8 Be. 223 Donaldson Company has the following accounts in its general ledger at July 31: Accounts Receivable $40,000 and Allowance for Doubtful Accounts $2,500. During August, the following transactions occurred. Oct. 15 25

Sold $25,000 of accounts receivable to Fast Factors, Inc. who assesses a 3% finance charge. Made sales of $900 on Visa credit cards. The credit card service charge is 2%.

Instructions Journalize the transactions.

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CHAPTER 8 EXERCISES Ex. 225 At the beginning of the current period, Emler Corp. had balances in Accounts Receivable of $200,000 and in Allowance for Doubtful Accounts of $9,000 (credit). During the period, it had net credit sales of $650,000 and collections of $570,000. It wrote off as uncollectible accounts receivable of $5,000. However, a $3,000 account previously written off as uncollectible was recovered before the end of the current period. Uncollectible accounts are estimated to total $22,000 at the end of the period. Instructions (a) (b) (c) (d) (e) (f)

Prepare the entries to record sales and collections during the period. Prepare the entry to record the write-off of uncollectible accounts during the period. Prepare the entries to record the recovery of the uncollectible account during the period. Prepare the entry to record bad debts expense for the period. Determine the ending balances in Accounts Receivable and Allowance for Doubtful Accounts. Calculate the net realizable value of the receivables at the end of the period.

Ex. 226 The December 31, 2019, balance sheet of the Kramer Company had Accounts Receivable of $650,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2020, the following transactions occurred: sales on account $1,450,000; sales returns and allowances, $100,000; collections from customers, $1,250,000; accounts written off, $35,000; previously written off accounts of $8,000 were collected. Instructions (a) Journalize the 2020 transactions. (b) If the company uses the percentage of receivables basis to estimate bad debt expense and determines that uncollectible accounts are expected to be 6% of accounts receivable, what is the adjusting entry at December 31, 2020?

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CHAPTER 8 Ex. 227 An inexperienced accountant made the following entries. In each case, the explanation to the entry is correct. Dec. 17

27

31

Cash .................................................................................... Sales Discounts ..................................................................... Accounts Receivable .................................................... (To record collection of 12/4 sales, terms 2/10, n/30)

2,940 60

Cash

.................................................................................... Bad Debts Expense ...................................................... (Collection of account previously written off as uncollectible under allowance method)

1,200

Bad Debts Expense ............................................................... Allowance for Doubtful Accounts .................................. (To recognize estimated bad debts based on 2% of accounts receivable of $600,000)

1,200

3,000

1,200

1,200

Instructions Prepare the correcting entries.

Ex. 228 Prepare journal entries to record the following transactions entered into by the Merando Company: 2020 June 1

Received a $9,000, 6%, 1-year note from Dan Gore as full payment on his account.

Nov.

1

Sold merchandise on account to Barlow, Inc., for $12,000, terms 2/10, n/30.

Nov.

5

Barlow, Inc., returned merchandise worth $1,000.

Nov.

9

Received payment in full from Barlow, Inc.

Dec. 31

Accrued interest on Gore's note.

2021 June 1

Dan Gore honored his promissory note by sending the face amount plus interest.

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CHAPTER 8

Ex. 230 Erickson Company had a $400 credit balance in Allowance for Doubtful Accounts at December 31, 2020, before the current year's provision for uncollectible accounts. An aging of the accounts receivable revealed the following: Estimated Percentage Uncollectible Current Accounts $170,000 1% 1–30 days past due 15,000 3% 31–60 days past due 12,000 6% 61–90 days past due 5,000 12% Over 90 days past due 9,000 30% Total Accounts Receivable $211,000 Instructions (a) Prepare the adjusting entry on December 31, 2020, to recognize bad debts expense. (b) Assume the same facts as above except that the Allowance for Doubtful Accounts account had a $400 debit balance before the current year's provision for uncollectible accounts. Prepare the adjusting entry for the current year's provision for uncollectible accounts.

Ex. 232 The percentage of receivables approach to estimating bad debts expense is used by Hayes Company. On February 28, the firm had accounts receivable in the amount of $555,000 and Allowance for Doubtful Accounts had a credit balance of $370 before adjustment. Net credit sales for February amounted to $3,000,000. The credit manager estimated that uncollectible accounts would amount to 5% of accounts receivable. On March 10, an accounts receivable from Mark Dole for $2,100 was determined to be uncollectible and written off. However, on March 31, Dole received an inheritance and immediately paid her past due account in full. (a) Prepare the journal entries made by Hayes Company on the following dates: 1. February 28 2. March 10 3. March 31 (b) Assume no other transactions occurred that affected the allowance account during March. Determine the balance of Allowance for Doubtful Accounts at March 31.

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CHAPTER 8 Ex. 234 Hachey Company has accounts receivable of $95,100 at March 31, 2020. An analysis of the accounts shows these amounts. Month of Sale March February December and January November and October

Balance, March 31 2021 2020 $65,000 $75,000 12,600 8,000 10,100 2,400 7,400 1,100 $95,100 $86,500

Credit terms are 2/10, n/30. At March 31, 2020, there is a $2,500 credit balance in Allowance for Doubtful Accounts prior to adjustment. The company uses the percentage of receivables basis for estimating uncollectible accounts. The company's estimates of bad debts are as shown below Estimated Percentage Age of Accounts Uncollectible Current 2% 1–30 days past due 7 31–90 days past due 30 Over 90 days past due 50 Instructions (a)

Determine the total estimated uncollectibles.

(b)

Prepare the adjusting entry at March 31, 2020, to record bad debts expense.

Ex. 237 Grey Boat Company often requires customers to sign promissory notes for major credit purchases. Journalize the following transactions for Grey Boat Company. Feb. 12

Accepted a $40,000, 6%, 60-day note from Bill Bazil for a 19-foot motorboat built to his specifications.

April 14

Received notification from Bill Bazil that he was unable to honor his promissory note but that he expects to pay the amount owed in May.

May 26

Received a check from Bill Bazil for the total amount owed.

June 10

Received notification by the bank that Bill Bazil’s check was being returned “NSF” and that Mr. Bazil had declared personal bankruptcy.

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CHAPTER 8 Ex. 239 Great Plains Supply Co. has the following transactions related to notes receivable during the last 2 months of the year. Nov. Dec.

1 11 16 31

Loaned $90,000 cash to B. Benson on a 1-year, 8% note. Sold goods to Roswell, Inc., receiving a $9,000, 90-day, 7% note. Received a $20,000, 6-month, 9% note to settle an open account from M. Ling. Accrued interest revenue on all notes receivable.

Instructions Journalize the transactions for Great Plains Supply Co.

Ex. 240 These transaction took place for Sanders Co. 2020 May Dec. 2021 May

1 Received a $12,000, 1-year, 9% note in exchange for an outstanding account receivable from T. Foley. 31 Accrued interest revenue on the T. Foley note. 1 Received principal plus interest on the T. Foley note. (No interest has been accrued since December 31, 2020.)

Instructions Record the transactions in general journal.

Ex. 241 Presented here is basic financial information (in millions) from the annual reports of Nike and Adidas. Sales Allowance for doubtful accounts, Jan. 1 Allowance for doubtful accounts, Dec. 31 Accounts receivable balance (gross), Jan 1 Accounts receivable balance (gross), Dec. 31

Nike $18,627 71.5 78.4 2,566.2 2,873.7

Adidas $10,299 112 111 1,527 1,570

Instructions Calculate the receivables turnover ratio and average collection period for both companies. Comment on the difference in their collection experiences.

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CHAPTER 8 Ex. 242 The following information is available from the annual reports of Nite and Day Companies. (In millions) Nite Day Sales $75,000 $32,000 Beginning receivables, net 19,000 3,500 Ending receivables, net 18,500 4,400 Instructions (a) Based on the preceding information, compute the following for each company: 1. Receivables turnover ratio. (Assume all sales were credit sales.) 2. Average collection period. (b) What conclusion concerning the management of accounts receivable can be drawn from these data?

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CHAPTER 8 COMPREHENSIVE PROBLEM FROM CHAPTER 8

Porter Corporation’s balance sheet at December 31, 2019, is presented below.

During January 2020, the following transactions occurred. Porter uses the perpetual inventory method. Jan 1

Porter accepted a 4-month, 8% note from Anderko Company in payment of Anderko’s $1,200 account.

3

Porter wrote off as uncollectible the accounts of Elrich Corporation ($450) and Rios Company ($280).

8

Porter purchased $17,200 of inventory on account.

11

Porter sold for $25,000 on account inventory that cost $17,500.

15

Porter sold inventory that cost $700 to Fred Berman for $1,000. Berman charged this amount on his Visa First Bank card. The service fee charged Porter by First Bank is 3%.

17

Porter collected $22,900 from customers on account.

21

Porter paid $16,300 on accounts payable.

24

Porter received payment in full ($280) from Rios Company on the account written off on January 3.

27

Porter purchased advertising supplies for $1,400 cash.

31

Porter paid other operating expenses, $3,218.

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CHAPTER 8 Adjustment data:

1. Interest is recorded for the month on the note from January 1. 2. Bad debts are expected to be 6% of the January 31, 2020, accounts receivable. 3. A count of advertising supplies on January 31, 2020, reveals that $560 remains unused. 4. The income tax rate is 30%. (Hint: Prepare the income statement up to “Income before taxes” and multiply by 30% to compute the amount; round to whole dollars.)

Instructions (You may want to set up T accounts to determine ending balances.)

(a) Prepare journal entries for the transactions listed above and adjusting entries. (Include entries for cost of goods sold using the perpetual system.)

(b) Prepare an adjusted trial balance at January 31, 2020.

(c) Prepare an income statement and a retained earnings statement for the month ending January 31, 2020, and a classified balance sheet as of January 31, 2020.

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