HW Chapter 9 part 1 PDF

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Homework chapter 9 - Accounting for Receivables
Fundamental Accounting Principles 24th Ed....

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QS 9 - 3 Solstice Company determines on October 1 that it cannot collect $50,000 of its accounts receivable from its customer, P. Moore. It uses the direct this write-off method to record this loss as of october 1. On october 30, P. Moore unexpectedly pays his account in full to Solstice Company. Record Solstice's entries for recovery of this bad debit. Date Oct. 1

Account Titles Bad Debt Expenses Account Receivable-P. Moore To write off an uncollectible account

Date Account Titles Oct. 30 Account Receivable-P. Moore Bad Debts Expense To reinstate accounts previously written off Account Titles Date Oct. 30 Cash Account Receivable-P. Moore To record full payment of account

Debit $ 50,000

Credit $

$

Debit 50,000

Credit $

$

50,000

Debit 50,000

50,000 Credit

$

50,000

QS 9 - 4 Indicate whether each statement best describes the allowance (A) method or the direct write-off (DW) method. DW

1

Does not predict bad debits expense

A

2

Accounts receivable on the balance sheet is reported at net realizable value.

A

3

The write-off of a specif account does not affect net income.

DW

4

When an account is written off, the debit is to Bad Debts Expense.

DW

5

Usually does not best match sales and expenses because bad debts expense is not recorded

A

6

Estimates bad debts expense related to the sales recorded in the period.

QS 9 - 5 Gomez Corp. uses the allowance method to account for uncollectibles. On January 31, it wrote off an $800 account of a customer, C. Green. On March 9, it receives a $300 payment from Green.

1.

Prepare the journal entry for January 31.

2.

Prepare the journal entries for March 9; assume no additional money is expected from Green. Account Titles Date Jan. 31 Allowance for Doubtful Accounts Accounts Receivable-C. Green To write off an account Account Titles Date March. 9 Accounts Receivable-C. Green Allowance for Doubtful Accounts To reinstate an account previously written off. Account Titles Date March. 9 Cash Accounts Receivable-C. Green To record the payment of account

$

Debit 800

Credit $

$

Debit 300

Credit $

$

800

Debit 300

300

Credit $

300

QS 9 - 6 On December 31 of Swift Co. 's first year, $50,000 of account receivable is not yet collected. Swift estimates that $2,000 of its accounts receivable is uncollectible and recorded the year-end adjusting entry.

1.

Compute the realizable value of accounts receivable reported on Swift's year-end balance sheet

2.

On january 1 of swift's second year, it writes off a customer's account for $300. Compute the realizable value of accounts receivable on January 1 after the write-off.

Before Write-Off Realizable Value of accounts receivable (50,000 - 2,000)

Account Titles Date Dec. 31 Bad Debts Expense Allowance for Doubtful Accounts To record estimates bad debts

Date Jan. 1

Account Titles Allowance for Doubtful Accounts Account Receivable

$

48,000

After Write-Off $

Debit $ 2,000

48,000

Credit $

Debit $ 300

2,000

Credit $

300

To write off an uncollectible account Date Jan. 1

Account Titles Account Receivable Allowance for Doubtful Accounts To reinstate an account previously written off.

$

Debit 300 $

Before Write-Off Realizable Value of accounts receivable (50,000 - 2,000) Realizable Value of accounts receivable (50,000 - 300) (2,000 - 300)

Credit

$

300

After Write-Off

48,000 $

48,000

EXERCISE 9 - 2 Levine Company uses the perpetual inventory system. Prepare journal entries to record the following credit card transactions of Levine Company. Sold merchandise for $8,400 (that had cost $6,000) and accepted the customer's Suntrust Bank Card. Suntrust charges a 4% fee. Sold merchandise for $5,600 (that had cost $3,500) and accepted the customer's Continental Apr. 12 Card. Continental charges a 2.5% fee. Apr. 8

Date Apr. 8

Apr. 8

Account Titles Cash Credit card Expense sales To record credit card sales less 4% fee (8,400 x 0.04) Cost of Goods Sold Merchandise Inventory To record cost of sales

Apr. 12 Cash Credit card Expense sales To record credit card sales less 2.5% fee (5,600 x 0.025) Apr. 12 Cost of Goods Sold Merchandise Inventory To record cost of sales

$ $

$

$ $

$

Debit 8,064 336

Credit

$

8,400

$

6,000

$

5,600

$

3,500

6,000

5,460 140

3,500

EXERCISE 9 - 3 Z-Mart uses the perpetual inventory system and has its own credit card. Z-Mart charges per-month interest fee for any unpaid balance on its store credit card at each month-end.

Apr.30

Z-Mart sold merchandise for $1,000 (that had cost $650) and accepted the customer's Z-Mart store credit card.

May.31 Z-Mart recorded $4 of interest earned from its store credit card as of this month-end.

Account Titles Date Apr. 30 Accounts Receivable Sales To record credit card sales Apr. 30 Cost of Goods Sold Merchandise Inventory To record cost of sales

Debit $ 1,000

May. 31 Accounts Receivable Interes Revenue To record interes earned from store credit card past due.

$

$

Credit $

1,000

$

650

$

4

650

4

EXERCISE 9 - 6 At year-end (December 31), Chan Company estimates its bad debts as 1% of its annual credit sales of $487,500. Chan records its bad debts expense for the estimate. On the following February 1, Chan decides that the $580 account of P. Park is uncollective and writes it off as a bad debt. On june 5, Park unexpectedly pays the amount previously writen off. Prepare Chan's jourrnal entries to record the transactions of December 31, February 1, an June 5. Date Dec. 31

Feb. 01

Jun. 05

Jun. 05

Account Titles Bad Debts Expense Allowance for Doubtful Accounts To record estiamtes bad debts 1% fee annual credit sales (487,000 x 0.01) Allowance for Doubtful Accounts Accounts Receivabale-P. Park To write off an account Accounts Receivabale-P. Park Allowance for Doubtful Accounts To reinstate an account previously written off. Cash Accounts Receivabale-P. Park To record payment of account

$

$

$

$

Debit 4,875

Credit $

4,875

$

580

$

580

$

580

580

580

580

EXERCISE 9 - 7 Mazie Supply Co. uses the percent of accounts receivable method. On December 31, it has outstanding accounts receivable of $55,000, and it estimates that 2% will be uncollectible.

Prepare the year-end adjusting entry to record bad debts expense under the assumption that the Allowance for Doubtful Accounts has (a) a $415 credit balance before the ajustment and (b) a $291 debit balance before the adjusment. a)

A $415 credit balance before the ajustment: Account Titles Date Debit Credit Dec. 31 Bad Debts Expense $ 685 Allowance for Doubtful Accounts $ 685 To recod entry for bad debts expense Explanation: (Outstanding accounts receivable × uncollectible rate) - credit balance $55,000 × 2% = $ 1,100 $1,100 - $415 = $ 685

b)

A $291 debit balance before the adjusment: Account Titles Debit Credit Bad Debts Expense $ 1,391 Allowance for Doubtful Accounts $ 1,391 To recod entry for bad debts expense Explanation: (Outstanding accounts receivable × uncollectible rate) + dedit balance $55,000 × 2% = $ 1,100 $1,100 + $291 = $ 1,391 Date

EXERCISE 9 - 8 Daley Company Prepared the following aging of receivables analysis at December 31.

Total Account receivable Percent Uncollectible

0

1 to 30

$570,000 $ 396,000 $

Days Past Due 31 to 60

90,000

1%

2%

$

36,000

61 to 90 $

5%

Over 90

18,000 $

30,000

7%

10%

a. Estimate the balance of the Allowence for Doubtful Accounts using aging of accounts receivable.

Period for Which receivables have been due

Not Due 1 to 30 31 to 60 61 to 90

Accounts

% Percent

Receivable

Uncollectible

$

396,000 x

1%

= $

3,960

$ $

90,000 x 36,000 x

2% 5%

= $ = $

1,800 1,800

$ 18,000 x 7% $ 30,000 x 10% over 90 Estimated balance of allowance for uncollectibles b.

Amount of Bad Debts Expense

= $ = $ = $

1,260 3,000 11,820 Credit

Prepare the adjusting entry to record bad debts expense using the estimate from part a. Assume the unajusted balance in the Allowence for Doubtful Accounts is a $3,600 credit. Estimated Balance - Unadjusmente balance credit $ 11,820 - $ 3,600 = $ 8,220 Date Account Titles Dec. 31 Bad Debts Expense Allowance for Doubtful Accounts To record Bad Debt Expense

c.

Debit $ 8,220

Credit $

8,220

Prepare the adjusting entry to record bad debts expense using the estimate from part a. Assume the unajusted balance in the Allowence for Doubtful Accounts is a $100 debit . Estimated Balance + Unadjusmente balance debit $ 11,820 + $ 100 = $ 11,920 Account Titles Date Dec. 31 Bad Debts Expense Allowance for Doubtful Accounts To record Bad Debt Expense

Debit $ 11,920

Credit $

11,920

ending balance

EXERCISE 9 - 9 Refer to the information in Exercise 9 - 8 to complete the following requirements.

a.

Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 4.5% of total accounts receivavle to estimate uncollectibles, instead of the aging of receivable method. Total amount of accounts receivable x 4.5% = allowance for doubtful accounts $ 570,000 x 0.045 = $ 25,650

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. Estimated Balance - Unadjusmente balance credit $ 25,650 - $ 12,000 = $ 13,650 Account Titles Date Dec. 31 Bad Debts Expenses Allowance for Doubtful Accounts To record bad bebts expenses

c.

$

Debit 13,650

Credit $

13,650

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 $1,000 debit. Estimated Balance + Unadjusmente balance debit $ 25,650 + $ 1,000 = $ 26,650 Account Titles Date Dec. 31 Bad Debts Expenses Allowance for Doubtful Accounts To record bad bebts expenses

$

Debit 26,650

Credit $

26,650...