The following were selected from among the transactions completed during the current year by Danix Co., an appliance wholesale company

The following were selected from among the transactions completed during the current year by Danix Co., an appliance wholesale company:

Jan. 21. Sold merchandise on account to Black Tie Co., $28,000. The cost of merchandise sold was $16,800.

Mar. 18. Accepted a 60-day, 6% note for $28,000 from Black Tie Co. on account.

May 17. Received from Black Tie Co. the amount due on the note of March 18.

June
15. Sold merchandise on account to Pioneer Co. for $17,700. The cost of merchandise sold was $10,600.
21. Loaned $18,000 cash to JR Stutts, receiving a 30-day, 8% note.
25. Received from Pioneer Co. the amount due on the invoice of June 15, less 1% discount.

July 21. Received the interest due from JR Stutts and a new 60-day, 9% note as a renewal of the loan of June 21. (Record both the debit and the credit to the notes receivable account.)

Sept.
19. Received from JR Stutts the amount due on her note of July 21.
22. Sold merchandise on account to Wycoff Co., $20,000. The cost of merchandise sold was $12,000.

Oct. 14. Accepted a 30-day, 6% note for $20,000 from Wycoff Co. on account.

Nov. 13. Wycoff Co. dishonored the note dated October 14.

Dec. 28. Received from Wycoff Co. the amount owed on the dishonored note, plus interest for 45 days at 8% computed on the maturity value of the note.

Instructions

Journalize the entries to record the transactions.


Answer:

20—
Jan. 21 Accounts Receivable—Black Tie Co. 28,000
Sales 28,000
21 Cost of Merchandise Sold 16,800
Merchandise Inventory 16,800
Mar. 18 Notes Receivable 28,000
Accounts Receivable—Black Tie Co. 28,000
May 17 Cash 28,280
Notes Receivable 28,000
Interest Revenue 280
($28,000 × 6% × 60/360).
June 15 Accounts Receivable—Pioneer Co. 17,700
Sales 17,700
15 Cost of Merchandise Sold 10,600
Merchandise Inventory 10,600
21 Notes Receivable 18,000
Cash 18,000
25 Cash 17,523
Sales Discounts 177
Accounts Receivable—Pioneer Co. 17,700
July 21 Notes Receivable 18,000
Cash 120
Notes Receivable 18,000
Interest Revenue 120
($18,000 × 8% × 30/360).
Sept. 19 Cash 18,270
Notes Receivable 18,000
Interest Revenue 270
($18,000 × 9% × 60/360).
22 Accounts Receivable—Wycoff Co. 20,000
Sales 20,000


Sept. 22 Cost of Merchandise Sold 12,000
Merchandise Inventory 12,000
Oct. 14 Notes Receivable 20,000
Accounts Receivable—Wycoff Co. 20,000
Nov. 13 Accounts Receivable—Wycoff Co. 20,100
Notes Receivable 20,000
Interest Revenue 100
($20,000 × 6% × 30/360).
Dec. 28 Cash 20,301
Accounts Receivable—Wycoff Co. 20,100
Interest Revenue 201
($20,100 × 8% × 45/360).

The following data relate to notes receivable and interest for Owens Co., a financial services company

The following data relate to notes receivable and interest for Owens Co., a financial services company. (All notes are dated as of the day they are received.)

Mar.
8. Received a $33,000, 5%, 60-day note on account.
31. Received an $80,000, 7%, 90-day note on account.

May
7. Received $33,275 on note of March 8.
16. Received a $72,000, 7%, 90-day note on account.

June
11. Received a $36,000, 6%, 45-day note on account.
29. Received $81,400 on note of March 31.

July 26. Received $36,270 on note of June 11.

Aug.
4. Received a $48,000, 9%, 120-day note on account.
14. Received $73,260 on note of May 16.

Dec. 2. Received $49,440 on note of August 4.

Instructions

Journalize the entries to record the transactions.


Answer:

Mar. 8 Notes Receivable 33,000
Accounts Receivable 33,000
31 Notes Receivable 80,000
Accounts Receivable 80,000
May 7 Cash 33,275
Notes Receivable 33,000
Interest Revenue 275
16 Notes Receivable 72,000
Accounts Receivable 72,000
June 11 Notes Receivable 36,000
Accounts Receivable 36,000
29 Cash 81,400
Notes Receivable 80,000
Interest Revenue 1,400
July 26 Cash 36,270
Notes Receivable 36,000
Interest Revenue 270
Aug. 4 Notes Receivable 48,000
Accounts Receivable 48,000
14 Cash 73,260
Notes Receivable 72,000
Interest Revenue 1,260
Dec. 2 Cash 49,440
Notes Receivable 48,000
Interest Revenue 1,440

Gen-X Ads Co. produces advertising videos. During the current fiscal year, Gen-X Ads Co. received the following notes:

Gen-X Ads Co. produces advertising videos. During the current fiscal year, Gen-X Ads Co. received the following notes:


Date Face Amount Term Interest Rate
1. Jan. 14 $33,000 30 days 4%
2. Mar. 9 60,000 45 days 7
3. July 12 48,000 90 days 5
4. Aug. 23 16,000 75 days 6
5. Nov. 15 36,000 60 days 8
6. Dec. 10 24,000 60 days 6




Instructions
1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.

2. Journalize the entry to record the dishonor of Note (3) on its due date.
3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.
4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January and February


Answer:


1.
Note
1.
2.
3.
4.
5.
(a)
Due Date
Feb. 13
Apr. 23
Oct. 10
Nov. 6
Jan. 14
$110
525
600
200
480
(b)
Interest Due at Maturity
($33,000 × 30/360 × 4%)
($60,000 × 45/360 × 7%)
($48,000 × 90/360 × 5%)
($16,000 × 75/360 × 6%)
($36,000 × 60/360 × 8%)
6. Feb. 8 240 ($24,000 × 60/360 × 6%)
2
Oct. 10 Accounts Receivable 48,600
Notes Receivable 48,000
Interest Revenue 600
Dec. 31 Interest Receivable 452
Interest Revenue 452
Accrued interest.
$36,000 × 8% × 46/360 = $368
$24,000 × 6% × 21/360 84
Total $452
Jan. 14 Cash 36,480
Notes Receivable 36,000
Interest Receivable 368
Interest Revenue 112
($36,000 × 8% × 14/360).
Feb. 8 Cash 24,240
Notes Receivable 24,000
Interest Receivable 84
Interest Revenue 156
($24,000 × 6% × 39/360).

Digital Depot Company, which operates a chain of 40 electronics supply stores, has just completed its fourth year of operations

Digital Depot Company, which operates a chain of 40 electronics supply stores, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the firm is considering changing to the allowance method. Information is requested as to the effect that an annual provision of ¼% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:


Year of Origin of
Accounts Receivable Written
Off as Uncollectible
Year Sales
Uncollectible Accounts
Written Off 1st 2nd 3rd 4th
1st $12,500,000 $18,000 $18,000
2nd 14,800,000 30,200 9,000 $21,200
3rd 18,000,000 39,900 3,600 9,300 $27,000
4th 24,000,000 52,600 5,100 12,500 $35,000

Instructions

1. Assemble the desired data, using the following column headings:

****Screenshot***
Bad Debt Expense
Year
Expense
Actually
Reported
Expense
Based on
Estimate
Increase
(Decrease)
in Amount
of Expense
Balance of
Allowance Account,
End of Year

2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of ¼% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.


Answer:

1. Bad Debt Expense
Year
Expense
Actually
Reported
Expense
Based on
Estimate
Increase
(Decrease)
in Amount
of Expense
Balance of
Allowance
Account,
End of Year
1st $18,000 $31,250 $13,250 $13,250
2nd 30,200 37,000 6,800 20,050
3rd 39,900 45,000 5,100 25,150
4th 52,600 60,000 7,400 32,550



2. Yes. The actual write-offs of accounts originating in the first two years are reasonably close to the expense that would have been charged to those years on the basis of 1/4% of sales. The total write-off of receivables originating in the first year amounted to $30,600 ($18,000 + $9,000 + $3,600), as compared with bad debt expense based on the percentage of sales, of $31,250 ($12,500,000 × 0.0025). For the second year, the comparable amounts were $35,600 ($21,200 + $9,300 + $5,100) and $37,000 ($14,800,000 × 0.0025).

Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest

Wig Creations Company supplies wigs and hair care products to beauty salons throughout Texas and the Southwest. The accounts receivable clerk for Wig Creations prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2013:


ABC Beauty
Angel Wigs
Zodiac Beauty
Subtotals
 15,000
8,000
3,000
875,000 18,000
8,000
112,000
15,000
415,000
3,000
210,000 55,000
1–30 31–60 61–90
Not
Due
Past
Customer Balance 91–120
Days Past Due
A B C D E F G H
65,000
The following accounts were unintentionally omitted from the aging schedule:
Customer Due Date Balance
Arcade Beauty Aug. 17, 2013 $10,000
Creative Images Oct. 30, 2013 8,500
Excel Hair Products July 3, 2013 7,500
First Class Hair Care Sept. 8, 2013 6,600
Golden Images Nov. 23, 2013 3,600
Oh That Hair Nov. 29, 2013 1,400
One Stop Hair Designs Dec. 7, 2013 4,000
Visions Hair & Nail Jan. 11, 2014 9,000
Wig Creations has a past history of uncollectible accounts by age category, as follows:
Age Class
Percent
Uncollectible
Not past due 1%
1–30 days past due 4
31–60 days past due 16
61–90 days past due 25
91–120 days past due 40
Over 120 days past due 80


Instructions

1. Determine the number of days past due for each of the preceding accounts.

2. Complete the aging of receivables schedule by adding the omitted accounts to the
bottom of the schedule and updating the totals.

3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.

4. Assume that the allowance for doubtful accounts for Wig Creations has a credit balance of $7,375 before adjustment on December 31, 2013. Journalize the adjustment for uncollectible accounts.

5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?


Answer:

1.
Customer Due Date Number of Days Past Due
Arcade Beauty Aug. 17, 2013 136 days (14 + 30 + 31 + 30 + 31)
Creative Images Oct. 30, 2013 62 days (1 + 30 + 31)
Excel Hair Products July 3, 2013 181 days (28 + 31 + 30 + 31 + 30 + 31)
First Class Hair Care Sept. 8, 2013 114 days (22 + 31 + 30 + 31)
Golden Images Nov. 23, 2013 38 days (7 + 31)
Oh That Hair Nov. 29, 2013 32 days (1 + 31)
One Stop Hair Designs Dec. 7, 2013 24 days
Visions Hair & Nail Jan. 11, 2014 Not past due
2. and 3.
Aging of Receivables Schedule
December 31, 2013
Customer Balance
Not
Past
Due
Days Past Due
1–30 31–60 61–90 91–120
Over
120
ABC Beauty 15,000 15,000
Angel Wigs 8,000 8,000
Zodiac Beauty 3,000 3,000
Subtotals 875,000 415,000 210,000 112,000 55,000 18,000 65,000
Arcade Beauty 10,000 10,000
Creative Images 8,500 8,500
Excel Hair Products 7,500 7,500
First Class Hair Care 6,600 6,600
Golden Images 3,600 3,600
Oh That Hair 1,400 1,400
One Stop Hair Designs 4,000 4,000
Visions Hair & Nail 9,000 9,000
Totals 925,600 424,000 214,000 117,000 63,500 24,600 82,500
Percentage uncollectible 1% 4% 16% 25% 40% 80%
Estimate of uncollectible
accounts 123,235 4,240 8,560 18,720 15,875 9,840 66,000




4. Bad Debt Expense 115,860
Allowance for Doubtful Accounts 115,860
Uncollectible accounts estimate
($123,235 – $7,375).



5. On the balance sheet, assets would be overstated by $115,860, since the allowance for doubtful accounts would be understated by $115,860. In addition, the owner’s capital account would be overstated by $115,860, since bad debt expense would be understated and net income overstated by $115,860 on the income statement.

The following transactions were completed by The Wild Trout Gallery during the current fiscal year ended December 31

The following transactions were completed by The Wild Trout Gallery during the current fiscal year ended December 31:

Jan. 19. Reinstated the account of Arlene Gurley, which had been written off in the
preceding year as uncollectible. Journalized the receipt of $2,660 cash in full
payment of Arlene’s account.

Apr. 3. Wrote off the $12,750 balance owed by Premier GS Co., which is bankrupt.

July 16. Received 25% of the $22,000 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible.

Nov. 23. Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $4,000 cash in full payment.

Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $3,300; Fogle Co., $8,100; Lake Furniture, $11,400; Melinda Shryer, $1,200. 31. Based on an analysis of the $2,350,000 of accounts receivable, it was estimated that $60,000 will be uncollectible. Journalized the adjusting entry.

Instructions

1. Record the January 1 credit balance of $50,000 in a T account for Allowance for
Doubtful Accounts.

2. Journalize the transactions. Post each entry that affects the following T accounts and determine the new balances:
          Allowance for Doubtful Accounts
          Bad Debt Expense

3. Determine the expected net realizable value of the accounts receivable as of December 31.

4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ½ of 1% of the net sales of $15,800,000 for the year, determine the following:

a. Bad debt expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.


Answer:

2. 20—
Jan. 19 Accounts Receivable—Arlene Gurley 2,660
Allowance for Doubtful Accounts 2,660
19 Cash 2,660
Accounts Receivable—Arlene Gurley 2,660
Apr. 3 Allowance for Doubtful Accounts 12,750
Accounts Receivable—Premier GS Co. 12,750
July 16 Cash 5,500
Allowance for Doubtful Accounts 16,500
Accounts Receivable—Hayden Co. 22,000
Nov. 23 Accounts Receivable—Harry Carr 4,000
Allowance for Doubtful Accounts 4,000
23 Cash 4,000
Accounts Receivable—Harry Carr 4,000
Dec. 31 Allowance for Doubtful Accounts 24,000
Accounts Receivable—Cavey Co. 3,300
Accounts Receivable—Fogle Co. 8,100
Accounts Receivable—Lake Furniture 11,400
Accounts Receivable—Melinda Shryer 1,200
31 Bad Debt Expense 56,590
Allowance for Doubtful Accounts 56,590
Uncollectible accounts estimate
($60,000 – $3,410).


1. and 2.
Allowance for Doubtful Accounts
Apr. 3 12,750 Jan. 1 Balance 50,000
July 16 16,500 Jan. 19 2,660
Dec. 31 24,000 Nov. 23 4,000
Dec. 31 Unadjusted Balance 3,410
Dec. 31 Adjusting Entry 56,590
Dec. 31 Adjusted Balance 60,000
Bad Debt Expense
Dec. 31 Adjusting Entry 56,590








3. $2,290,000 ($2,350,000 – $60,000)

4.
a. $79,000 ($15,800,000 × 0.005)
b. $82,410 ($79,000 + $3,410)
c. $2,267,590 ($2,350,000 – $82,410)

The following were selected from among the transactions completed by Caldemeyer Co. during the current year

The following were selected from among the transactions completed by Caldemeyer Co. during the current year. Caldemeyer Co. sells and installs home and business security systems.

Jan. 3. Loaned $18,000 cash to Trina Gelhaus, receiving a 90-day, 8% note.

Feb.
10. Sold merchandise on account to Bradford & Co., $24,000. The cost of the merchandise sold was $14,400.
13. Sold merchandise on account to Dry Creek Co., $60,000. The cost of merchandise sold was $54,000.

Mar.
12. Accepted a 60-day, 7% note for $24,000 from Bradford & Co. on account.
14. Accepted a 60-day, 9% note for $60,000 from Dry Creek Co. on account.

Apr.
3. Received the interest due from Trina Gelhaus and a new 120-day, 9% note as a renewal of the loan of January 3. (Record both the debit and the credit to the notes receivable account.)

May
11. Received from Bradford & Co. the amount due on the note of March 12.
13. Dry Creek Co. dishonored its note dated March 14.

July 12. Received from Dry Creek Co. the amount owed on the dishonored note, plus interest for 60 days at 12% computed on the maturity value of the note.

Aug. 1. Received from Trina Gelhaus the amount due on her note of April 3.

Oct.
5. Sold merchandise on account to Halloran Co., $13,500. The cost of the merchandise sold was $8,100.
15. Received from Halloran Co. the amount of the invoice of October 5, less 2% discount.

Instructions

Journalize the entries to record the transactions.


Answer:

Jan. 3 Notes Receivable 18,000
Cash 18,000
Feb. 10 Accounts Receivable—Bradford & Co. 24,000
Sales 24,000
10 Cost of Merchandise Sold 14,400
Merchandise Inventory 14,400
13 Accounts Receivable—Dry Creek Co. 60,000
Sales 60,000
13 Cost of Merchandise Sold 54,000
Merchandise Inventory 54,000
Mar. 12 Notes Receivable 24,000
Accounts Receivable—Bradford & Co. 24,000
14 Notes Receivable 60,000
Accounts Receivable—Dry Creek Co. 60,000
Apr. 3 Notes Receivable 18,000
Cash 360
Notes Receivable 18,000
Interest Revenue 360
($18,000 × 8% × 90/360).
May 11 Cash 24,280
Notes Receivable 24,000
Interest Revenue 280
($24,000 × 7% × 60/360).
13 Accounts Receivable—Dry Creek Co. 60,900
Notes Receivable 60,000
Interest Revenue 900
($60,000 × 9% × 60/360).
July 12 Cash 62,118
Accounts Receivable—Dry Creek Co. 60,900
Interest Revenue 1,218
($60,900 × 12% × 60/360).



Aug. 1 Cash 18,540
Notes Receivable 18,000
Interest Revenue 540
($18,000 × 9% × 120/360).
Oct. 5 Accounts Receivable—Halloran Co. 13,500
Sales 13,500
5 Cost of Merchandise Sold 8,100
Merchandise Inventory 8,100
15 Cash 13,230
Sales Discounts 270
Accounts Receivable—Halloran Co. 13,500

The following data relate to notes receivable and interest for CGH Cable Co., a cable manufacturer and supplier

The following data relate to notes receivable and interest for CGH Cable Co., a cable manufacturer and supplier. (All notes are dated as of the day they are received.)

Apr. 10. Received a $144,000, 5%, 60-day note on account.

May 15. Received a $270,000, 7%, 120-day note on account.

June 9. Received $145,200 on note of April 10.

Aug. 22. Received a $150,000, 4%, 45-day note on account.

Sept.
12. Received $276,300 on note of May 15.
30. Received a $210,000, 8%, 60-day note on account.

Oct.
6. Received $150,750 on note of August 22.
18. Received a 120,000, 5%, 60-day note on account.

Nov. 29. Received $212,800 on note of September 30.

Dec. 17. Received $121,000 on note of October 18.

Instructions

Journalize the entries to record the transactions.


Answer:

Apr. 10 Notes Receivable 144,000
Accounts Receivable 144,000
May 15 Notes Receivable 270,000
Accounts Receivable 270,000
June 9 Cash 145,200
Notes Receivable 144,000
Interest Revenue 1,200
Aug. 22 Notes Receivable 150,000
Accounts Receivable 150,000
Sept. 12 Cash 276,300
Notes Receivable 270,000
Interest Revenue 6,300
30 Notes Receivable 210,000
Accounts Receivable 210,000
Oct. 6 Cash 150,750
Notes Receivable 150,000
Interest Revenue 750
18 Notes Receivable 120,000
Accounts Receivable 120,000
Nov. 29 Cash 212,800
Notes Receivable 210,000
Interest Revenue 2,800
Dec. 17 Cash 121,000
Notes Receivable 120,000
Interest Revenue 1,000

Flush Mate Co. wholesales bathroom fixtures. During the current fiscal year, Flush Mate Co. received the following notes

Flush Mate Co. wholesales bathroom fixtures. During the current fiscal year, Flush Mate Co. received the following notes:


Date Face Amount Term Interest Rate
1. Mar. 6 $80,000 45 days 5%
2. Apr. 23 24,000 60 days 9
3. July 20 42,000 120 days 6
4. Sept. 6 54,000 90 days 7
5. Nov. 29 27,000 60 days 6
6. Dec. 30 72,000 30 days 5






Instructions
1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.

2. Journalize the entry to record the dishonor of Note (3) on its due date.

3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.

4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6) in January


Answer:

1.
Note
1.
2.
3.
4.
5.
(a)
Due Date
Apr. 20
June 22
Nov. 17
Dec. 5
Jan. 28
$500
360
840
945
270
(b)
Interest Due at Maturity
($80,000 × 45/360 × 5%)
($24,000 × 60/360 × 9%)
($42,000 × 120/360 × 6%)
($54,000 × 90/360 × 7%)
($27,000 × 60/360 × 6%)
6. Jan. 29 300 ($72,000 × 30/360 × 5%)
Nov. 17 Accounts Receivable 42,840
Notes Receivable 42,000
Interest Revenue 840
Dec. 31 Interest Receivable 154
Interest Revenue 154
Accrued interest.
$27,000 × 6% × 32/360 = $144
$72,000 × 5% × 1/360 10
Total $154
Jan. 28 Cash 27,270
Notes Receivable 27,000
Interest Receivable 144
Interest Revenue 126
($27,000 × 6% × 28/360).
29 Cash 72,300
Notes Receivable 72,000
Interest Receivable 10
Interest Revenue 290
($72,000 × 5% × 29/360).

Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations

Call Systems Company, a telephone service and supply company, has just completed its fourth year of operations. The direct write-off method of recording bad debt expense has been used during the entire period. Because of substantial increases in sales volume and the amount of uncollectible accounts, the company is considering changing to the allowance method. Information is requested as to the effect that an annual provision of 1% of sales would have had on the amount of bad debt expense reported for each of the past four years. It is also considered desirable to know what the balance of Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:



Year of Origin of
Accounts Receivable Written
Off as Uncollectible
Year Sales
Uncollectible Accounts
Written Off 1st 2nd 3rd 4th
1st $ 900,000 $ 4,500 $4,500
2nd 1,250,000 9,600 3,000 $6,600
3rd 1,500,000 12,800 1,000 3,700 $8,100
4th 2,200,000 16,550 1,500 4,300 $10,750


Instructions

1. Assemble the desired data, using the following column headings:


Bad Debt Expense
Year
Expense
Actually
Reported
Expense
Based on
Estimate
Increase
(Decrease)
in Amount
of Expense
Balance of
Allowance Account,
End of Year
2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of 1% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years? Explain.


Answer:

1. Bad Debt Expense
Year
Expense
Actually
Reported
Expense
Based on
Estimate
Increase
(Decrease)
in Amount
of Expense
Balance of
Allowance
Account,
End of Year
1st $ 4,500 $ 9,000 $4,500 $ 4,500
2nd 9,600 12,500 2,900 7,400
3rd 12,800 15,000 2,200 9,600
4th 16,550 22,000 5,450 15,050


2. Yes. The actual write-offs of accounts originating in the first two years are reasonably close to the expense that would have been charged to those years on the basis of 1% of sales. The total write-off of receivables originating in the first year amounted to $8,500 ($4,500 + $3,000 + $1,000), as compared with bad debt expense, based on the percentage of sales, of $9,000 ($900,000 × 1%). For the second year, the comparable amounts were $11,800 ($6,600 + $3,700 + $1,500) and $12,500 ($1,250,000 × 1%).

Trophy Fish Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States

Trophy Fish Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Trophy Fish prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2013:


1
2
3
4
5
30
31
 20,000
7,500
4,000
1,300,000 20,000
7,500
120,000
20,000
750,000
4,000
290,000 40,000
1–30 31–60 61–90
Not
Due
Past
Customer Balance 91–120
Days Past Due
A B C D E
A B C D E F G H
80,000
Over 120
AAA Outfitters
Brown Trout Fly Shop
Zigs Fish Adventures


The following accounts were unintentionally omitted from the aging schedule:
Customer Due Date Balance
Adams Sports & Flies May 22, 2013 $5,000
Blue Dun Flies Oct. 10, 2013 4,900
Cicada Fish Co. Sept. 29, 2013 8,400
Deschutes Sports Oct. 20, 2013 7,000
Green River Sports Nov. 7, 2013 3,500
Smith River Co. Nov. 28, 2013 2,400
Western Trout Company Dec. 7, 2013 6,800
Wolfe Sports Jan. 20, 2014 4,400
Trophy Fish has a past history of uncollectible accounts by age category, as follows:
Age Class Percent Uncollectible
Not past due 1%
1–30 days past due 2
31–60 days past due 10
61–90 days past due 30
91–120 days past due 40
Over 120 days past due 80




Instructions

1. Determine the number of days past due for each of the preceding accounts.

2. Complete the aging of receivables schedule by adding the omitted accounts to the
bottom of the schedule and updating the totals.

3. Estimate the allowance for doubtful accounts, based on the aging of receivables schedule.

4. Assume that the allowance for doubtful accounts for Trophy Fish Company has a debit balance of $3,600 before adjustment on December 31, 2013. Journalize the adjusting entry for uncollectible accounts.

5. Assume that the adjusting entry in (4) was inadvertently omitted, how would the omission affect the balance sheet and income statement?


Answer:

1.
Customer Due Date Number of Days Past Due
Adams Sports & Flies May 22, 2013 223 days (9 + 30 + 31 + 31 + 30 + 31 + 30 + 31)
Blue Dun Flies Oct. 10, 2013 82 days (21 + 30 + 31)
Cicada Fish Co. Sept. 29, 2013 93 days (1 + 31 + 30 + 31)
Deschutes Sports Oct. 20, 2013 72 days (11 + 30 + 31)
Green River Sports Nov. 7, 2013 54 days (23 + 31)
Smith River Co. Nov. 28, 2013 33 days (2 + 31)
Western Trout Company Dec. 7, 2013 24 days
Wolfe Sports Jan. 20, 2014 Not past due
2. and 3.
Aging of Receivables Schedule
December 31, 2013
Customer Balance
Not
Past
Due
Days Past Due
1–30 31–60 61–90 91–120
Over
120
AAA Outfitters 20,000 20,000
Brown Trout Fly Shop 7,500 7,500
Zigs Fish Adventures 4,000 4,000
Subtotals 1,300,000 750,000 290,000 120,000 40,000 20,000 80,000
Adams Sports & Flies 5,000 5,000
Blue Dun Flies 4,900 4,900
Cicada Fish Co. 8,400 8,400
Deschutes Sports 7,000 7,000
Green River Sports 3,500 3,500
Smith River Co. 2,400 2,400
Western Trout Company 6,800 6,800
Wolfe Sports 4,400 4,400
Totals 1,342,400 754,400 296,800 125,900 51,900 28,400 85,000
Percentage uncollectible 1% 2% 10% 30% 40% 80%
Estimate of uncollectible
accounts 121,000 7,544 5,936 12,590 15,570 11,360 68,000


4. Bad Debt Expense 124,600
Allowance for Doubtful Accounts 124,600
Uncollectible accounts estimate
($121,000 + $3,600).
5. On the balance sheet, assets would be overstated by $124,600, since the allowance for doubtful accounts would be understated by $124,600. In addition, the owner’s capital account would be overstated by $124,600, since bad debt expense would be understated and net income overstated by $124,600 on the income statement.

The following transactions were completed by The Irvine Company during the current fiscal year ended December 31

The following transactions were completed by The Irvine Company during the current
fiscal year ended December 31:

Feb. 8. Received 40% of the $18,000 balance owed by DeCoy Co., a bankrupt business, and wrote off the remainder as uncollectible.

May 27. Reinstated the account of Seth Nelsen, which had been written off in the preceding year as uncollectible. Journalized the receipt of $7,350 cash in full payment of Seth’s account.

Aug. 13. Wrote off the $6,400 balance owed by Kat Tracks Co., which has no assets.

Oct. 31. Reinstated the account of Crawford Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $3,880 cash in full payment of the account.

Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Newbauer Co., $7,190; Bonneville Co., $5,500; Crow Distributors, $9,400; Fiber Optics, $1,110.

31. Based on an analysis of the $1,785,000 of accounts receivable, it was estimated that $35,700 will be uncollectible. Journalized the adjusting entry.

Instructions

1. Record the January 1 credit balance of $26,000 in a T account for Allowance for
Doubtful Accounts.

2. Journalize the transactions. Post each entry that affects the following selected T accounts and determine the new balances: Allowance for Doubtful Accounts Bad Debt Expense

3. Determine the expected net realizable value of the accounts receivable as of December 31.

4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ¼ of 1% of the net sales of $18,200,000 for the year, determine the following:

a. Bad debt expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.


Answer:

2. 20—
Feb. 8 Cash 7,200
Allowance for Doubtful Accounts 10,800
Accounts Receivable—DeCoy Co. 18,000
May 27 Accounts Receivable—Seth Nelsen 7,350
Allowance for Doubtful Accounts 7,350
27 Cash 7,350
Accounts Receivable—Seth Nelsen 7,350
Aug. 13 Allowance for Doubtful Accounts 6,400
Accounts Receivable—Kat Tracks Co. 6,400
Oct. 31 Accounts Receivable—Crawford Co. 3,880
Allowance for Doubtful Accounts 3,880
31 Cash 3,880
Accounts Receivable—Crawford Co. 3,880
Dec. 31 Allowance for Doubtful Accounts 23,200
Accounts Receivable—Newbauer Co. 7,190
Accounts Receivable—Bonneville Co. 5,500
Accounts Receivable—Crow Distributors 9,400
Accounts Receivable—Fiber Optics 1,110
31 Bad Debt Expense 38,870
Allowance for Doubtful Accounts 38,870
Uncollectible accounts estimate
($35,700 + $3,170).



1. and 2.
Allowance for Doubtful Accounts
Feb. 8 10,800 Jan. 1 Balance 26,000
Aug. 13 6,400 May 27 7,350
Dec. 31 23,200 Oct. 31 3,880
Dec. 31 Unadjusted Balance 3,170
Dec. 31 Adjusting Entry 38,870
Dec. 31 Adj. Balance 35,700
Bad Debt Expense
Dec. 31 Adjusting Entry 38,870






 3. $1,749,300 ($1,785,000 – $35,700)

4.
a. $45,500 ($18,200,000 × 0.0025)
b. $42,330 ($45,500 – $3,170)
c. $1,742,670 ($1,785,000 – $42,330)