RECEIVABLES PRACTICE QUIZ PDF

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PRACTICE QUIZ...

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Practice Exercises PE 7-1 LO 2 Revenue Recognition Which one of the following steps is not a necessary step for revenue recognition? a. Identify the contract with the customer b. c.

Make sure that the seller should receive cash upon the transfer of goods to the buyer. Identify separate performance obligation in the contract.

d. e.

Determine the transaction price Determine when the performance obligation is satisfied so that a revenue can be recognized.

PE 7-2 LO 2 Revenue Recognition Make the journal entry necessary to record the sale of 175 books at $29 per book. Ninety-five of the books were sold for cash, and 80 were sold on credit. Assume that the performance obligation had been satisfied, and that the cost of the goods sold was $3,500 ($20 each). Cash (95  $29)............................................... Accounts Receivable (80  $29)....................... Sales Revenue.............................................

2,755 2,320

Cost of Goods Sold..........................................

3,500

5,075

Inventory....................................................

3,500

PE 7-3 LO 2 Cash Collection Refer to the data in PE 7-2. Make the journal entry necessary when the company receives payment for the 80 books sold on credit. Cash............................................................... Accounts Receivable....................................

2,320 2,320

PE 7-4 LO 2 Sales Refer to the data in PE 7-2. Assume that all of the 80 books sold on credit were sold to a single customer and that the terms of the credit sale were 2/10, n/30. Make the journal entry necessary to record the © 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

receipt of the cash payment assuming that (1) the customer paid the balance on the account five days after the purchase and (2) the customer paid the balance on the account 20 days after the purchase. (1). Cash ($2,320  0.98)...................................................... Sales Discounts ($2,320  0.02)................................... Accounts Receivable............................................... (2). Cash................................................................................. Accounts Receivable...............................................

2,273.60 46.40 2,320.00 2,320 2,320

E 7-5 LO 2 Sales Returns and Allowances Refer to the data in PE 7-2. Assume a customer found that 15 of the books were misprinted and returned the 15 books for a refund. Prepare the journal entry necessary in the records of the selling company to record the receipt of the returned books assuming that (1) the books were returned by a cash customer and (2) the books were returned by a credit customer. (1). Sales Returns and Allowances.....................................

435

Cash....................................................... Inventory..................................................

435 300

Cost of Goods Sold..................................

300

(2). Sales Returns and Allowances..................................... Accounts Receivable...............................................

435

Inventory.................................................. Cost of Goods Sold..................................

300

435

300

PE 7-6 LO 2 Computing Net Sales Using the following data, compute net sales. Sales discounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100,000 Accounts receivable, ending. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 125,000 © 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Gross sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,750,000 Inventory, ending . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,000 Sales returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

150,000

Gross sales................................................................................................... Less: Sales discounts.........................................................................

$3,750,000 (100,000)

Less: Sales returns and allowances.................................................. Net sales...............................................................................................

(150,000) $3,500,000

PE 7-7 LO 3 The Allowance Method Joplin Company used the allowance method and had the beginning balance of $50,000 for Allowance for Bad Debts. Joplin estimated that the ending balance of Allowance for Bad Debts was $100,000. In addition, a year-end review of accounts identified that as of the end of the year, $43,000 were worthless because the business customers associated with those accounts had gone bankrupt. Using the allowance method of accounting for bad debt expense, make the journal entries necessary to record (1) bad debt expense for the year and (2) the write-off of uncollectible accounts at the end of the year. 1.

2.

Bad Debt Expense.......................................................... Allowance for Bad Debts.........................................

50,000

Allowance for Bad Debts............................................... Accounts Receivable...............................................

43,000

50,000

43,000

PE 7-8 LO 3 Computing Net Accounts Receivable Refer to the data in PE 7-7. Taking into account the allowance for bad debts established at the end of the year, and assuming that the ending balance of accounts receivable is $200,000, compute the net realizable value of accounts receivable (1) before the write-off of uncollectible accounts and (2) after the write-off of uncollectible accounts. (1).

Before Write-Off

Accounts receivable Less: Allowance for bad debts

$200,000 50,000

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Net realizable value

$150,000

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(2). Accounts

After Write-Off receivable

$157,000

($200,000 – $43,000) Less: Allowance for bad debts ($50,000 – $43,000)

7,000

Net realizable value

$150,000

PE 7-9 LO 3 Collecting an Account Previously Written Off Refer to the data in PE 7-7. Assume that one customer, whose account had previously been written off, returned from exile in the Bahamas and paid his account of $7,000. Make the journal entry or entries necessary to record the receipt of this payment. Accounts Receivable........................................ Allowance for Bad Debts..............................

7,000

Cash ..............................................................

7,000

7,000

Accounts Receivable....................................

7,000

PE 7-10 LO 3 Estimating Uncollectible Accounts Receivable As a Percentage of Total Receivables Cathelin Company had an Accounts Receivable balance of $102,000 and an Allowance for Bad Debts balance of $2,700 (credit) at the end of the year (before any adjusting entry). The accountant determined that 9% of the ending accounts receivable will ultimately be uncollectible. Make the journal entry necessary to record bad debt expense for the year. Bad Debt Expense........................................... Allowance for Bad Debts..............................

6,480 6,480*

To adjust the allowance account to the desired balance: *$102,000  0.09 = $9,180; $9,180 – $2,700 = $6,480

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PE 7-11 LO 3 Estimating Uncollectible Accounts Receivable Using Aging Accounts Receivable Harrison Company reports the following aging accounts receivable data: Customer T. Gardner J. Gammon M. Orser K. Saxton K. Welch

Balance Current $ 3,750 $ 2,250 4,000 1,000 2,000 1,000 4,000

1–30 $1,500

R. Beckstrom B. Roberts L. Wilcox J. Gagon

10,900 8,000 3,900 $ 5,850 $ 5,200 1,500

2,900

A. Wycherly Totals

1,750 $38,650 $16,450

$1,750 $8,150

31–60

Days Past Due 61–90 91–120 Over 120

$2,500

$ 500

2,000 750

$250 $4,000

3,900 $650 $1,500 $7,150

$900

$2,000

$4,000

In addition, the company provides the following estimates for accounts that will ultimately be uncollectible: Percentage Estimated to Age Be Uncollectible Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.75% 1–30 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31–60 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6 15

61–90 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91–120 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

35 65

Over 120 days past due . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

90

Using this information, make the journal entry necessary to record bad debt expense. Assume that: (1) the balance in the allowance for bad debts account (before adjustment) is $2,000 (credit) and (2) the balance in the allowance for bad debts account (before adjustment) is $3,600 (debit). Estimate of Losses from Uncollectible Accounts Age Current

Balances $16,450

Percentage Estimated to Be Uncollectible 1.75%

Amount $ 288

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1–30 days past due 31–60 days past due 61–90 days past due 91–120 day past due Over 120 days past due Totals

1.

8,150 7,150 900 2,000 4,000 $38,650

6 15 35 65 90

489 1,073 315 1,300 3,600 $7,065

The $7,065 represents the receivables that are likely to be uncollectible. We need to adjust the allowance account to this balance with the following entry: Bad Debt Expense..........................................................

5,065

Allowance for Bad Debts.........................................

5,065

To adjust the allowance account to the desired ending balance: $7,065 – $2,000 = $5,065 2.

Bad Debt Expense.......................................................... Allowance for Bad Debts.........................................

10,665 10,665

To adjust the allowance account to the desired ending balance: $7,065 + $3,600 = $10,665

PE 7-15 LO 5 Recording Notes Receivable Johnnie International Company sold 200 boxes of Whiskey bottles, amounting to €8,500, to Party King Pub by accepting a 60-day, 10% note dated May 1, 2017. Make the entry necessary on May 1 for Johnnie Co. May 1 Notes Receivable............................................. Sales Revenue.............................................

8,500 8,500

PE 7-16 LO 5 Recording Notes Receivable Referring to PE 7-15, make the entry necessary for Johnnie Co. if Party King Pub paid cash and interests © 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

after 60 days on June 30. Assume that there are 360 days in a year.

June 30 Cash ..............................................................

8,642

Notes Receivable......................................... Interest Revenue (€8,500  10%  60/360)....

8,500 142

PE 7-17 LO 5 Recording Notes Receivable Suppose Wal-Mart accepts from Apple Stores a $15,000, 3-month, 9% note dated September 30 in settlement of Apple’s overdue account. (1) What is the maturity date of the note? (2) Assuming at the maturity date, Apple pays the note and interest in full, what is the entry made by WalMart? 1. The maturity date is December 31. 2. Dec. 31 Cash .............................................................. Notes Receivable......................................... Interest Revenue ($15,000  9%  3/12).......

7,837.5 7,500 337.5

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© 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Exercises E 7-1 LO 2 Recording Sales Transactions Bear Company sold merchandise on account to Mary Company for $9,000 on June 3, 2017, with terms 2/10, n/30. On June 7, 2017, Bear Company received $850 of returned merchandise from Mary Company and issued a credit memorandum for the appropriate amount. Bear Company received payment for the balance of the bill on June 21, 2017. Record the necessary journal entries for Bear Company on June 3, June 7, and June 21. June

3 Accounts Receivable Sales Revenue

9,000 9,000

Sold merchandise to Mary Company, terms 2/10, n/30. 7 Sales Returns and Allowances

850

Accounts Receivable 850 Accepted return of merchandise from Mary Company. 21Cash

8,150

Accounts Receivable 8,150 Received payment in full from Mary Company.

E 7-2 LO 2 Recording Sales Transactions On June 24, 2017, Sunflower Company sold merchandise to Brooke Bowman for $140,000 with terms 2/10, n/30. On June 30, Bowman paid $78,400 on her account and was allowed a discount for the timely payment. On July 20, Bowman paid $42,000 on her account and returned $18,000 of merchandise, claiming that it did not meet contract terms. Record the necessary journal entries for Sunflower Company on June 24, June 30, and July 20. June 24 Accounts Receivable 140,000 Sales Revenue 140,000 Sold merchandise to Brooke Bowman, terms 2/10, n/30. 30Cash

78,400

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Sales Discounts

1,600

Accounts Receivable 80,000 Received partial payment from Brooke Bowman. July

20 Cash 42,000 Sales Returns and Allowances

18,000

Accounts Receivable 60,000 Received remaining payment from Brooke Bowman and accepted her return of merchandise that originally sold for $18,000. E 7-3 LO 3 Estimating Bad Debts The trial balance of Sparkling Jewelry Company at the end of its 2017 fiscal year included the following account balances: Account Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Allowance for bad debts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

$66,400 1,300 (debit balance)

The company has not yet recorded any bad debt expense for 2017. Determine the amount of bad debt expense to be recognized by Sparkling Jewelry Company for 2017, assuming the following independent situations: 1. An aging accounts receivable analysis indicates that probable uncollectible accounts receivable at 2.

year-end amount to $3,900. Company policy is to maintain a provision for uncollectible accounts receivable equal to 4% of outstanding accounts receivable.

1.

Bad debt expense = $3,900 + $1,300 = $5,200

2.

Bad debt expense = ($66,400  4% = $2,656); $2,656 + $1,300 = $3,956

E 7-4 LO 3 Accounting for Bad Debts The following data were associated with the accounts receivable and uncollectible accounts of Julia Jay, © 2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use.

Inc., during 2017: a. b.

The opening credit balance in Allowance for Bad Debts was $600,000 at January 1, 2017. During 2017, the company realized that specific accounts receivable totaling $630,000 had gone bad

c.

and had been written off. An account receivable of $35,000 was collected during 2017. This account had previously been written

d.

off as a bad debt in 2016. The company decided that Allowance for Bad Debts would be $650,000 at the end of 2017.

1.

Prepare journal entries to show how these events would be recognized in the accounting system using the allowance method.

1.

The allowance method: Allowance for Bad Debts.................................................... 630,000 Accounts Receivable.....................................................

630,000

To write off uncollectible accounts. Accounts Receivable.......................................................... Allowance for Bad Debts...............................................

35,000 35,000

To reinstate the balance previously written off as uncollectible. Cash...................................................................................... Accounts Receivable.....................................................

35,000 35,000
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