Question Details

CHAPTER 9 ACCOUNTING FOR RECEIVABLES BRIEF EXERCISES PART 10


BRIEF EXERCISES
BE 159
Record the following transactions for Verbatim Company.
1. On August 4, Verbatim sold merchandise on account to Reedy Company for $450, terms
2/10, n/30.
2. On August 7, Verbatim granted Reedy a sales allowance and reduced the cost of the
merchandise by $50 because some of the goods were slightly damaged.
3. On August 12, Reedy paid the account in full.


BE 160
At December 31, 2008, Attwood Company reported Accounts Receivable of $34,000 and
Allowance for Doubtful Accounts of $3,500. On January 7, 2009, Brady Enterprises declares
bankruptcy and it is determined that the receivable of $1,200 from Brady is not collectible.
1. What is the cash realizable value of Accounts Receivable at December 31, 2008?
2. What entry would Attwood make to write off the Brady account?
3. What is the cash realizable value of Accounts Receivable after the Brady account is written
off?


9 - 26 Test Bank for Accounting Principles, Eighth Edition
BE 161
Portillo Company- ledger 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 10% of accounts receivable, journalize the adjusting entry for
the end of the period.
b. If Allowance for Doubtful Accounts has a debit balance of $3,000 in the trial balance and bad
debts are expected to be 10% of accounts receivable, journalize the adjusting entry for the
end of the period.


BE 162
Noell Co. sells Christmas angels. Noell determines that at the end of December, it has the
following aging schedule of Accounts Receivable:
Customer
Total
Not Yet Due
Number of Days
Past Due
1-30 31-60 61-90 Over 90
DV Farmer $500 $300 $200
JJ Joysen 300 100 200
NJ Bell 150 50 100
JC Net 200 200
? 300 300 250 200 100
% uncollectible 1% 5% 10% 20% 50%
Total Estimated
Uncollectible Amounts
? ? ? ? ? ?
Compute the net receivables based on the above information at the end of December. (There
was no beginning balance in the Allowance for Doubtful Accounts).
Accounting for Receivables
9 - 27


BE 163
Mickey 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 Sold $20,000 of accounts receivable to Good Factors, Inc. who assesses a 3%
finance charge.
25 Made sales of $900 on VISA credit cards. The credit card service charge is 2%.
Instructions
Journalize the transactions.


9 - 28 Test Bank for Accounting Principles, Eighth Edition
BE 164
Determine the interest on the following notes:
(a) $2,000 at 6% for 90 days.
(b) $900 at 9% for 5 months.
(c) $3,000 at 8% for 60 days
(d) $1,600 at 7% for 6 months


BE 165
Brama Distributors has the following transactions related to notes receivable during the last two
months of the year.
Dec. 1 Loaned $12,000 cash to E. Hoffer on a 1-year, 6% note.
16 Sold goods to J. Smith, receiving a $2,400, 60-day, 7% note.
31 Accrued interest revenue on all notes receivable.
Instructions
Journalize the transactions for Brama Distributors.


9 - 29
BE 166
Compute the maturity value for each of the following notes receivable.
1. A $5,000, 6%, 3-month note dated July 20.
Maturity value $____________.
2. A $12,000, 9%, 150-day note dated August 5.
Maturity value $____________.


BE 167
On February 7, Able Company sold goods on account to Charlene Enterprises for $3,200, terms
2/10, n/30. On March 9, Charlene gave Able a 60-day, 12% promissory note in settlement of the
account. Record the sale and the acceptance of the promissory note on the books of Able
Company.


BE 168
On March 9, Charlene gave Able Company a 60-day, 12% promissory note for $3,200. Charlene
honors the note on May 9. Record the collection of the note and interest by Able assuming that
no interest has been accrued.


9 - 30 Test Bank for Accounting Principles, Eighth Edition
BE 169
On March 9, Charlene gave Able Company a 60-day, 12% promissory note for $3,200. Charlene
dishonors the note on May 9. Record the entry that Able would make when the note is
dishonored, assuming that no interest has been accrued.


BE 170
The following data exists for Curran Company.
2008 2007
Accounts Receivable $ 80,000 $ 70,000
Net Sales 500,000 410,000
Calculate the receivables turnover ratio and the average collection period for accounts receivable
in days for 2008.


EXERCISES
Ex. 171
Presented below are various receivable transactions entered into by Brewer Tool Company.
Indicate whether the receivables are reported as accounts receivable, notes receivable, or other
receivables on the balance sheet.
a. Loaned a company officer $4,000.
b. Accepted a $2,000 promissory note from a customer as payment on account.
c. Determined that a $10,000 income tax refund is due from the IRS.
d. Sold goods to a customer on account for $5,000.
e. Recorded $500 accrued interest on a note receivable due next year.
f. Made an American Express credit card sale for $3,000.
g. Advanced $1,000 to a trusted employee.
Accounting for Receivables
9 - 31


Ex. 172
Prepare journal entries to record the following transactions entered into by Elway Company:
2008
June 1 Received a $20,000, 12%, 1-year note from Sue Gold as full payment on her account.
Nov. 1 Sold merchandise on account to Peyson, Inc. for $10,000, terms 2/10, n/30.
Nov. 5 Peyson, Inc. returned merchandise worth $500.
Nov. 9 Received payment in full from Peyson, Inc.
Dec. 31 Accrued interest on Gold's note.
2009
June 1 Sue Gold honored her promissory note by sending the face amount plus interest. No
interest has been accrued in 2009.


Ex. 173
Record the following transactions for Wheeler Company.
1. On April 12, sold $12,000 of merchandise to Finney Inc., terms 2/10, n/30.
2. On April 15, Finney returned $2,000 of merchandise.
3. On April 22, Finney paid for the merchandise.


Ex. 174
The Dent Sign Company uses the allowance method in accounting for uncollectible accounts.
Past experience indicates that 1% of net credit sales will eventually be uncollectible. Selected
account balances at December 31, 2007, and December 31, 2008, appear below:
12/31/07 12/31/08
Net Credit Sales $400,000 $500,000
Accounts Receivable 75,000 100,000
Allowance for Doubtful Accounts 5,000 ?
Instructions
(a) Record the following events in 2008.
Aug. 10 Determined that the account of Ann Koch for $1,000 is uncollectible.
Sept. 12 Determined that the account of Joe Yates for $4,000 is uncollectible.
Oct. 10 Received a check for $550 as payment on account from Ann Koch, whose
account had previously been written off as uncollectible. She indicated the
remainder of her account would be paid in November.
Nov. 15 Received a check for $450 from Ann Koch as payment on her account.
(b) Prepare the adjusting journal entry to record the bad debt provision for the year ended
December 31, 2008.
(c) What is the balance of Allowance for Doubtful Accounts at December 31, 2008?
Accounting for Receivables
9 - 33


Ex. 175
Kiley Company had a $700 credit balance in Allowance for Doubtful Accounts at December 31,
2008, before the current year's provision for uncollectible accounts. An aging of the accounts
receivable revealed the following:
Estimated Percentage
Uncollectible
Current Accounts $120,000 1%
1-30 days past due 12,000 3%
31-60 days past due 10,000 6%
61-90 days past due 5,000 12%
Over 90 days past due 8,000 30%
Total Accounts Receivable $155,000
Instructions
(a) Prepare the adjusting entry on December 31, 2008, to recognize bad debts expense.
(b) Assume the same facts as above except that the Allowance for Doubtful Accounts account
had a $500 debit balance before the current year's provision for uncollectible accounts.
Prepare the adjusting entry for the current year's provision for uncollectible accounts.
(c) Assume that the company has a policy of providing for bad debts at the rate of 1% of sales,
that sales for 2008 were $550,000, and that Allowance for Doubtful Accounts had a $650
credit balance before adjustment. Prepare the adjusting entry for the current year's provision
for bad debts.
9 - 34 Test Bank for Accounting Principles, Eighth Edition


Ex. 176
Compute bad debts expense based on the following information:
(a) Taylor Company estimates that 1% of net credit sales will become uncollectible. Sales are
$600,000, sales returns and allowances are $30,000, and the allowance for doubtful
accounts has a $6,000 credit balance.
(b) Taylor Company estimates that 3% of accounts receivable will become uncollectible.
Accounts receivable are $100,000 at the end of the year, and the allowance for doubtful
accounts has a $500 debit balance.


Ex. 177
The December 31, 2007 balance sheet of Quayle Company had Accounts Receivable of
$500,000 and a credit balance in Allowance for Doubtful Accounts of $33,000. During 2008, the
following transactions occurred: sales on account $1,400,000; sales returns and allowances,
$50,000; collections from customers, $1,150,000; accounts written off $35,000; previously written
off accounts of $5,000 were collected.
Instructions
(a) Journalize the 2008 transactions.
(b) If the company uses the percentage of sales basis to estimate bad debts expense and
anticipates 2% of net sales to be uncollectible, what is the adjusting entry at December 31,
2008?
(c) If the company uses the percentage of receivables basis to estimate bad debts expense and
determines that uncollectible accounts are expected to be 4% of accounts receivable, what is
the adjusting entry at December 31, 2008?
(d) Which basis would produce a higher net income for 2008 and by how much?
Accounting for Receivables
9 - 35


Ex. 178
Lloyd Products is undecided about which base to use in estimating uncollectible accounts. On
December 31, 2008, the balance in Accounts Receivable was $680,000 and net credit sales
amounted to $3,500,000 during 2008. An aging analysis of the accounts receivable indicated that
$36,000 in accounts are expected to be uncollectible. Past experience has shown that about 1%
of net credit sales eventually are uncollectible.
Instructions
Prepare the adjusting entries to record estimated bad debts expense using the (1) percentage of
sales basis and (2) the percentage of receivables basis under each of the following independent
assumptions:
(a) Allowance for Doubtful Accounts has a credit balance of $3,200 before adjustment.
(b) Allowance for Doubtful Accounts has a debit balance of $730 before adjustment.



Ex. 179
The income statement approach to estimating uncollectible accounts expense is used by Dodson
Company. On February 28, the firm had accounts receivable in the amount of $437,000 and
Allowance for Doubtful Accounts had a credit balance of $2,140 before adjustment. Net credit
sales for February amounted to $3,000,000. The credit manager estimated that uncollectible
accounts expense would amount to 1% of net credit sales made during February. On March 10,
an accounts receivable from Marie Green for $6,100 was determined to be uncollectible and
written off. However, on March 31, Green received an inheritance and immediately paid her past
due account in full.
Accounting for Receivables
9 - 37
Ex. 179 (cont.)
Instructions
(a) Prepare the journal entries made by Dodson 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.


Ex. 180
Elder Company uses the allowance method for estimating uncollectible accounts. Prepare journal
entries to record the following transactions:
January 5 Sold merchandise to Mary Cerner for $1,000, terms n/15.
April 15 Received $200 from Mary Cerner on account.
August 21 Wrote off as uncollectible the balance of the Mary Cerner account when she
declared bankruptcy.
October 5 Unexpectedly received a check for $250 from Mary Cerner.


9 - 38 Test Bank for Accounting Principles, Eighth Edition