Assignment 3
Exercise (1):
Tubbs 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, 2015, and December 31, 2016, appear below:
12/31/15
12/31/16
Net Credit Sales
$300,000
$400,000
Accounts Receivable
60,000
80,000
Allowance for Doubtful Accounts
4,800
?
Instructions
(a) Record the following events in 2016.
Aug. 10
Determined that the account of L. Young for $600 is uncollectible.
Sept. 12
Determined that the account of J. E. Ford for $3,400 is uncollectible.
Oct. 10
Received a check for $400 as payment on account from L. Young, 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 $200 from L. Young as payment on her account.
(b) Prepare the adjusting journal entry to record the bad debt provision for the year ended
December 31, 2016.
(c) What is the balance of Allowance for Doubtful Accounts at December 31, 2016?
Exercise (2):
At December 31, 2011, Artie Imports reported the following information on its balance sheet.
Accounts receivable
$250,000
Less Allowance for doubtful accounts 15,000
During 2012, the company had the following transactions related to receivables.
1. Sales on account $2,400,000
2. Sales returns and allowances 45,000
3. Collections of accounts receivable 2,250,000
4. Write-offs of accounts receivable deemed uncollectible 12,000
5. Recovery of bad debts previously written off as uncollectible 3,000
Instructions
(a) Prepare the journal entries to record each of these five transactions. Assume that no cash
discounts were taken on the collections of accounts receivable.
(b) Enter the January 1, 2012, balances in Accounts Receivable and Allowance for Doubtful
Accounts. Post the entries to the two accounts (use T accounts), and determine the balances.
(c) Prepare the journal entry to record bad debts expense for 2012, assuming that an aging of
accounts receivable indicates that estimated bad debts are $22,000.
Exercise (3):
The December 31, 2015 balance sheet of Barone Company had Accounts Receivable of $600,000
and a credit balance in Allowance for Doubtful Accounts of $56,000. During 2016, the following
transactions occurred: sales on account $1,500,000; sales returns and allowances, $50,000;
collections from customers, $1,250,000; accounts written off $36,000; previously written off
accounts of $6,000 were collected.
Instructions
(a) Journalize the 2016 transactions.
(b) If the company uses the percentage-of-sales basis to estimate bad debt expense and anticipates
5% of net sales to be uncollectible, what is the adjusting entry at December 31, 2016?
(c) If the company uses the percentage of receivables basis to estimate bad debt expense and
determines that uncollectible accounts are expected to be 12% of accounts receivable, what is
the adjusting entry at December 31, 2016?
Exercise (4):
Stine Co. sells Christmas angels. Stine determines that at the end of December, it has the following
aging schedule of Accounts Receivable:
Customer
DV Gannon
JJ Joysen
NJ Bell
JC Werly
% uncollectible
Total Estimated
Uncollectible Amounts
Not Yet Due
$500
300
150
200
?
?
100
Number of Days Past Due
1–30
31–60 61–90 Over 90
$300
$200
200
50
100
200
300
1%
?
300
5%
?
250
10%
?
200
20%
?
100
50%
?
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).
Exercise (5):
The Hartley Clinic purchased a new surgical laser for $90,000. The estimated salvage value is
$5,000. The laser has a useful life of five years and the clinic expects to use it 10,000 hours. It was
used 1,600 hours in year 1; 2,200 hours in year 2; 2,400 hours in year 3; 1,800 hours in year 4; 2,000
hours in year 5.
Instructions
(a) Using the Straight-line method:
1. Compute the annual depreciation.
2. Prepare the adjusting entry for the second year.
3. Calculate the book value for the third year.
(b) Compute the annual depreciation for each of the five years under the units-of-activity method.