E9-1 Presented below are selected transactions of Santos Company. Santos sells in large
quantities to other companies and also sells its product in a small retail outlet.
March 1
3
9
Sold merchandise on account to Jaclyn Company for $3,000, terms 2/10, n/30
Jaclyn Company returned merchandise worth $500 to Santos.
Santos collected the amount due from Jaclyn Company from the March 1
sale.
15 Santos sold merchandise for $400 in its retail outlet. The customer used his
Santos credit card.
31 Santos added 1.5% monthly interest to the customer’s credit card balance.
Instructions
Prepare journal entries for the transactions above.
E9-2 Presented below are two independent situations.
a. On January 6, Mendenhall Co. sells merchandise on account to Miles Inc. for $9,000,
terms 2/10, n/30. On January 16, Miles Inc. pays the amount due. Determine
Mendenhall’s cash collection from this receivable.
b.
On January 10, Markus Klinko uses his Indrani Co. credit card to purchase merchandise
from Indrani Co. for $9,000. On February 10, Klinko is billed for the amount due of
$9,000. On February 12, Klinko pays $5,000 on the balance due. On March 10, Klinko is
billed for the amount due, including interest at 2% per month on the unpaid balance as of
February 12. Prepare the entries on Indrani Co.’s books related to the transactions that
occurred on January 10, February 12, and March 10.
E9-3 The ledger of G.K. Reid Company at the end of the current year shows Accounts
Receivable $120,000, Sales Revenue $840,000, and Sales Returns and Allowances
$30,000.
Instructions
a. If G.K. Reid uses the direct write-off method to account for uncollectible accounts,
determine the balance of Accounts Receivable at December 31, assuming G.K. Reid
determines that L. Gaga’s $1,400 balance is uncollectible.
b. If Allowance for Doubtful Accounts has a credit balance of $2,100 in the trial balance, ,
assuming bad debts are expected to be (1) 1% of net sales, and (2) 10% of accounts
receivable, determine Bad Debts Expense for the period ending December 31 and
Allowance for Doubtful Accounts as of December 31.
c. If Allowance for Doubtful Accounts has a debit balance of $200 in the trial balance,
assuming bad debts are expected to be (1) 0.75% of net sales and (2) 6% of accounts
receivable, determine Doubtful Accounts Expense for the period ending December 31
and Allowance for Bad Debts as of December 31..
E9-4 Lohan Company has accounts receivable of $93,100 at March 31. An analysis of the
accounts shows the following information.
Month of Sale
March
February
January
Prior to January
Balance, March 31
$60,000
17,600
8,500
7,000
$93,100
Credit terms are 2/10, n/30. At March 31, Allowance for Doubtful Accounts has a credit
balance of $1,200 prior to adjustment. The company uses the percentage-of-receivables
basis for estimating uncollectible accounts. The company’s estimate of bad debts is shown
on the next page.
Age of Accounts
Uncollectible
1–30 days
31–60 days
61–90 days
Over 90 days
Estimated
Percentage
2.0%
5.0%
30.0%
50.0%
Instructions
a. Bad debts expense
b. Net realizable value of Accounts Receivable
E9-5 At December 31, 2011, Kardashian Company had a balance of $15,000 in Allowance
for Doubtful Accounts. During 2012, Kardashian wrote off accounts totaling $13,000. One of
those accounts ($1,800) was later collected. At December 31, 2012, an aging schedule
indicated that the balance in Allowance for Doubtful Accounts should be $19,000.
Instructions
a. Determine the balance of Accounts Receivable as of December 31, 2012.
b. Determine the net realizable value of Accounts Receivable as of December 31, 2012.
E9-6 On December 31, 2012, Dita Co. estimated that 2% of its net sales of $400,000 will
become uncollectible. On May 11, 2013, Dita Co. determined that the Alex Lundquist
account was uncollectible and wrote off $1,100. On June 12, 2013, Lundquist paid the
amount previously written off.
Instructions
Determine the balance of Allowance for Bad Debts as of June 12, 2013.
E9-7 Presented below are two independent situations.
a. On March 3, Van Teese Appliances sells $680,000 of its receivables to Naomi Factors
Inc. Naomi Factors assesses a finance charge of 3% of the amount of receivables sold.
Prepare the entry on Van Teese Appliances’ books to record the sale of the receivables.
b. On May 10, Campbell Company sold merchandise for $3,500 and accepted the
customer’s America Bank MasterCard. America Bank charges a 4% service charge for
credit card sales. Prepare the entry on Campbell Company’s books to record the sale of
merchandise.
E9-8 Presented below are two independent situations.
a. On April 2, Brooklyn Decker uses her J. C. Penney Company credit card to purchase
merchandise from a J. C. Penney store for $1,500. On May 1, Decker is billed for the
$1,500 amount due. Decker pays $700 on the balance due on May 3. On June 1, Decker
receives a bill for the amount due, including interest at 1.0% per month on the unpaid
balance as of May 3. Determine the balance of Brooklyn’s June 1credit card statement.
b. On July 4, Vanderloo’s Restaurant accepts a Visa card for a $200 dinner bill. Visa
charges a 3% service fee. Determine the amount of cash Vanderloo received from Visa.
E9-9 Bowie Stores accepts both its own and national credit cards. During the year, the
following selected summary transactions occurred.
Jan.
15
20
Feb.
10
15
Made Bowie credit card sales totaling $18,000. (There were no balances prior to
January 15.)
Made Visa credit card sales (service charge fee 2%) totaling $4,300.
Collected $10,000 on Bowie credit card sales
Added finance charges of 1% to Bowie credit card balance.
Instructions
Determine the financing charges and the credit card service charge expense for Bowie
Stores.
E9-10 Stroup Supply Co. has the following transactions related to notes receivable during
the last 2 months of 2012.
Nov. 1
Dec.
11
16
31
Loaned $15,000 cash to Jorge Perez on a 1-year, 10% note.
Sold goods to Armle Hammer, Inc., receiving a $6,750, 90-day, 8% note.
Received a $4,000, 6-month, 9% note in exchange for Max Weinberg’s outstanding
accounts receivable.
Accrued interest revenue on all notes receivable
Instructions
a. Determine the balance of Notes Receivable to be presented in the December 31 balance
sheet.
b. Determine the balance of Interest Receivable to be presented in the December 31
balance sheet.
c. Determine interest income to be reported in the income statement.
E9-11
2012
May 1 Received a $7,500, 1-year, 10% note in exchange for Andy Richter’s outstanding
accounts receivable.
Dec. 31
Accrued interest on the Richter note.
Dec. 31
Closed the interest revenue account.
2013
May 1 Received principal plus interest on the Richter note. (No interest has been accrued in
2013.)
Determine Interest Income from the Richter note for the period ended December 31, 2013.
E9-12 La Bamba Company had the following select transactions.
Apr. 1, 2012
Accepted Shatner Company’s 1-year, 12% note in settlement of a $20,000
account receivable.
July 1, 2012
Loaned $25,000 cash to Richie Rosenberg on a 9-month, 10% note.
Dec. 31, 2012 Accrued interest on all notes receivable.
Apr. 1, 2013
Received principal plus interest on the Shatner note.
Apr. 1, 2013
Richie Rosenberg dishonored its note; La Bamba expects it will eventually
collect.
Instructions
a. Determine the balance of Interest Receivable to be presented in the December 31, 2012
balance sheet.
b. Determine the amount of Interest Income to be be reported for the period ended
December 31, 2013.
c. Determine the amount of Accounts Receivable generated from the dishonoured
Rosenberg note.
E9-13 On May 2, George Company lends $7,600 to Takei, Inc., issuing a 6-month, 9% note.
At the maturity date, November 2, Takei indicates that it cannot pay.
Instructions
a. Prepare the entry to record the issuance of the note.
b. Prepare the entry to record the dishonor of the note, assuming that George Company
expects collection will occur.
c. Prepare the entry to record the dishonor of the note, assuming that George Company
does not expect collection in the future.
E9-14 Nachito Company had accounts receivable of $100,000 on January 1, 2012. The only
transactions that affected accounts receivable during 2012 were net credit sales of
$1,000,000, cash collections of $900,000, and accounts written off of $30,000.
Instructions
a. Compute the ending balance of accounts receivable.
b. Compute the accounts receivable turnover ratio for 2012.
c. Compute the average collection period in days.