CHAPTER 8
Accounting for Receivables
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
Problems
1.
Explain how companies
recognize accounts
receivable.
1, 2, 3
1, 2
1
1, 2, 3, 4
1, 6, 7
2.
Describe how companies
value accounts receivable
and record their disposition.
4, 5, 6, 7,
8, 9, 10,
11, 12
3, 4, 5,
6, 7, 11
2a, 2b
4, 5, 6, 7,
8, 9, 10,
11
1, 2, 3, 4,
5, 6, 7
3.
Explain how companies
recognize value, and
dispose of notes
receivable.
13, 14, 15,
16,17
8, 9, 10
3
12, 13, 14,
15
6, 7
4.
Describe the statement
presentation and analysis
of receivables.
18, 19, 20
3, 11, 12
4
16, 17
1, 6, 8, 9
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8-1
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number Description
8-2
Difficulty
Time
Level
Allotted (min.)
1
Prepare journal entries related to bad debt expense.
Simple
15–20
2
Compute bad debt amounts.
Moderate
20–25
3
Journalize entries to record transactions related to bad debts.
Moderate
20–30
4
Journalize transactions related to bad debts.
Moderate
20–30
5
Journalize entries to record transactions related to bad debts.
Moderate
20–30
6
Prepare entries for various credit card and notes receivable
transactions.
Moderate
40–50
7
Prepare entries for various receivable transactions.
Complex
50–60
8
Calculate and interpret various ratios.
Moderate
10–15
9
Prepare financial statements.
Moderate
25–35
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WEYGANDT FINANCIAL ACCOUNTING, IFRS Edition, 4e
CHAPTER 8
ACCOUNTING FOR RECEIVABLES
Number
LO
BT
Difficulty
Time (min.)
BE1
1
C
Simple
1–2
BE2
1
AP
Simple
5–7
BE3
2, 4
AN
Simple
4–6
BE4
2
AP
Simple
4–6
BE5
2
AP
Simple
4–6
BE6
2
AP
Simple
2–4
BE7
2
AN
Simple
4–6
BE8
3
AP
Simple
6–8
BE9
3
AP
Simple
8–10
BE10
3
AP
Moderate
8–10
BE11
2, 4
AP
Simple
2–4
BE12
4
AP
Simple
4–6
DI1
1
AP
Simple
5–7
DI2a
2
AP
Simple
2–4
DI2b
2
AP
Simple
2–4
DI3
3
AP
Simple
4–6
DI4
4
AN
Simple
4–6
EX1
1
AP
Simple
8–10
EX2
1
AP
Simple
8–10
EX3
1
AN
Simple
8–10
EX4
1,2
AN
Simple
6–8
EX5
2
AP
Simple
6–8
EX6
2
AP
Simple
6–8
EX7
2
AP
Simple
4–6
EX8
2
AP
Simple
6–8
EX9
2
AP
Simple
6–8
EX10
2
AN
Simple
8–10
EX11
2
AN
Simple
6–8
EX12
3
AP
Moderate
10–12
EX13
3
AP
Simple
8–10
EX14
3
AP
Simple
8–10
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8-3
ACCOUNTING FOR RECEIVABLES (Continued)
Number
LO
BT
Difficulty
Time (min.)
EX15
3
AP
Simple
8–10
EX16
4
AP
Simple
4–6
EX17
4
AP
Simple
8–10
P1
1, 2, 4
AN
Simple
15–20
P2
2
AN
Moderate
20–25
P3
2
AN
Moderate
20–30
P4
2
AN
Moderate
20–30
P5
2
AN
Moderate
20–30
P6
1, 2, 3, 4
AN
Moderate
40–50
P7
1, 2, 3
AP
Complex
50–60
P8
4
AN
Moderate
10–15
P9
4
AP
Moderate
25–35
CT1
2
E
Moderate
20–25
CT2
4
AN, E
Simple
10–15
CT3
2
C
Simple
10–15
CT4
2
AN
Moderate
20–30
CT5
2
E
Simple
10–15
CT6
2
E
Simple
10–15
8-4
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Learning Objective
Knowledge
Comprehension
Application
Analysis
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
1.
Explain how companies recognize
accounts receivable.
Q8-2
Q8-1
BE8-1
Q8-3
BE8-2
DI8-1
E8-1
E8-2
P8-7
E8-3
E8-4
P8-1
P8-6
2.
Describe how companies
value accounts receivable and
record their disposition.
Q8-8
Q8-9
Q8-4
Q8-5
Q8-6
Q8-10
Q8-12
Q8-11
BE8-4
BE8-5
BE8-6
BE8-11
DI8-2a
E8-5
DI8-2b
E8-7
E8-6
E8-8
E8-9
P8-7
P8-6
Q8-7
BE8-3
BE8-7
E8-3
E8-4
E8-10
E8-11
3.
Explain how companies recognize,
value, and dispose of notes
receivable.
Q8-13
Q8-16
Q8-17
BE8-8
BE8-11
Q8-14
Q8-15
BE8-9
BE8-10
DI8-3
E8-13 P8-6
E8-14
E8-15
P8-7
E8-12
4.
Describe the statement presentation
and analysis of receivables.
Q8-18
Q8-20
Q8-19
BE8-11
BE8-12
E8-12
E8-13
E8-14 BE8-3
P8-7 DI8-4
P8-1
P8-6
P8-8
(For Instructor Use Only)
Expand Your Critical Thinking
Real-World
Focus
Synthesis
Evaluation
P8-1
P8-2
P8-3
P8-4
P8-5
Decision-Making Across
the Organization
Comparative Analysis
Financial Reporting
Comparative
Analysis
Ethics Case
Communication
BLOOM’S TAXONOMY TABLE
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Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
8-5
ANSWERS TO QUESTIONS
1.
Accounts receivable are amounts owed by customers on account. They result from the sale of goods
and services. Notes receivable represent claims that are evidenced by formal instruments of credit.
2.
Other receivables include nontrade receivables such as interest receivable, loans to company officers,
advances to employees, and income taxes refundable.
3.
Accounts Receivable .............................................................................................
Interest Revenue............................................................................................
40
40
4.
The essential features of the allowance method of accounting for bad debts are:
(1) Uncollectible accounts receivable are estimated and matched against revenue in the same
accounting period in which the revenue occurred.
(2) Estimated uncollectibles are debited to Bad Debt Expense and credited to Allowance for Doubtful
Accounts through an adjusting entry at the end of each period.
(3) Actual uncollectibles are debited to Allowance for Doubtful Accounts and credited to Accounts
Receivable at the time the specific account is written off.
5.
Roger Holloway should realize that the decrease in cash realizable value occurs when estimated
uncollectibles are recognized in an adjusting entry. The write-off of an uncollectible account reduces both
accounts receivable and the allowance for doubtful accounts by the same amount. Thus, cash
realizable value does not change.
6.
TSMC reports Receivables from related parties and other receivables from related parties
under Current Assets. It uses the allowance method to account for uncollectibles.
7.
The adjusting entry is:
Bad Debt Expense ...............................................................................
Allowance for Doubtful Accounts (NT$580,000 – NT$300,000) ....
280,000
280,000
8.
Under the direct write-off method, bad debt losses are not estimated and no allowance account is used.
When an account is determined to be uncollectible, the loss is debited to Bad Debt Expense. The
direct write-off method makes no attempt to match bad debts expense to sales revenues or to show the
cash realizable value of the receivables in the statement of financial position.
9.
Offering credit usually results in an increase in sales because customers prefer to “buy now and
pay later”. If a company decides to extend credit to customers, it should also establish credit
standards to determine if a particular customer is credit worthy. Standards that are easily met can
result in additional sales being made to customers that may not be able to meet the “tighter” credit
policies of competitors. If such customers fail to pay, the additional sales revenue will be offset by
higher collection costs and bad debt expense.
10.
From its own credit cards, the Freida ASA may realize financing revenue from customers who do not pay
the balance due within a specified grace period. Other credit cards offer the following advantages:
(1) The credit card issuer makes the credit investigation of the customer.
(2) The issuer maintains individual customer accounts.
8-6
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Questions Chapter 8 (Continued)
(3) The issuer undertakes the collection process and absorbs any losses from uncollectible accounts.
(4) The retailer receives cash more quickly from the credit card issuer than it would from individual
customers.
11.
The reasons companies are selling their receivables are:
(1) Receivables may be sold because they may be the only reasonable source of cash.
(2) Billing and collection are often time-consuming and costly. It is often easier for a retailer to sell the
receivables to another party with expertise in billing and collection matters.
12.
Cash .......................................................................................................
Service Charge Expense (3% X HK$8,000,000) .....................................
Accounts Receivable ......................................................................
7,760,000
240,000
8,000,000
13.
A promissory note gives the holder a stronger legal claim than one on an accounts receivable. As a
result, it is easier to sell to another party. Promissory notes are negotiable instruments, which
means they can be transferred to another party by endorsement. The holder of a promissory note also
can earn interest.
14.
The maturity date of a promissory note may be stated in one of three ways: (1) on demand, (2) on
a stated date, and (3) at the end of a stated period of time.
15.
The maturity dates are: (a) March 13 of the next year, (b) August 4, (c) July 20, and (d) August 30.
16.
The missing amounts are: (a) €15,000, (b) €9,000, (c) 6%, and (d) four months.
17.
When Jana Company has dishonored a note, the lender can set up a receivable equal to the face
amount of the note plus the interest due. It will then try to collect the balance due, or as much as
possible. If there is no hope of collection it will write-off the receivable.
18.
Each of the major types of receivables should be identified in the statement of financial position or in
the notes to the financial statements. Both the gross amount of receivables and the allowance for doubtful
accounts should be reported. If collectible within a year or the operating cycle, whichever is longer,
these receivables are reported as current assets immediately above short-term investments.
19.
Net credit sales for the period are 8.14 X
20.
TSMC’s 2016 allowance for doubtful accounts of $480,118 represents less than 1% of its gross
receivables of $128,815,389.
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400,000 =
3,256,000.
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8-7
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 8.1
(a) Accounts receivable.
(b) Notes receivable.
(c) Other receivables.
BRIEF EXERCISE 8.2
(a) Accounts Receivable ...........................................
Sales Revenue ..............................................
17,200
(b) Sales Returns and Allowances ...........................
Accounts Receivable ...................................
3,800
(c) Cash ($13,400 – $268) ..........................................
Sales Discounts ($13,400 X 2%)..........................
Accounts Receivable ($17,200 – $3,800) .......
13,132
268
17,200
3,800
13,400
BRIEF EXERCISE 8.3
(a) Bad Debt Expense ...............................................
Allowance for Doubtful Accounts ...............
31,000
(b) Current assets
Prepaid insurance ........................................
Inventory .......................................................
Accounts receivable .................................... €600,000
Less: Allowance for doubtful
Accounts ...........................................
31,000
Cash ..............................................................
Total current assets .................................
8-8
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31,000
€ 7,500
130,000
569,000
90,000
€796,500
(For Instructor Use Only)
BRIEF EXERCISE 8.4
(a) Allowance for Doubtful Accounts ............................
Accounts Receivable—Gray .............................
(b)
(1) Before Write-Off
Accounts receivable
Allowance for doubtful
accounts
Cash realizable value
6,200
6,200
(2) After Write-Off
¥700,000
¥693,800
54,000
¥646,000
47,800
¥646,000
BRIEF EXERCISE 8.5
Accounts Receivable—Gray.............................................
Allowance for Doubtful Accounts ............................
6,200
Cash ...................................................................................
Accounts Receivable—Gray .....................................
6,200
6,200
6,200
BRIEF EXERCISE 8.6
(a) Bad Debt Expense [(£420,000 X 1%) – £1,500]............
Allowance for Doubtful Accounts .....................
2,700
2,700
(b) Bad Debt Expense [(£420,000 X 1%) + £800] = £5,000
BRIEF EXERCISE 8.7
(a) Cash (€175 – €7).........................................................
Service Charge Expense (€175 X 4%) ......................
Sales Revenue ....................................................
168
7
(b) Cash (€60,000 – €1,800) .............................................
Service Charge Expense (€60,000 X 3%) .................
Accounts Receivable .........................................
58,200
1,800
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60,000
8-9
BRIEF EXERCISE 8.8
Interest
Maturity Date
(a) NT$800
(b) NT$1,120
(c) NT$200
August 9
October 12
July 11
BRIEF EXERCISE 8.9
Maturity Date
Annual Interest Rate
(a) May 31
(b) August 1
(c) September 7
6%
8%
10%
Total Interest
6,000
600
6,000
BRIEF EXERCISE 8.10
Jan. 10
Feb. 9
Accounts Receivable ......................................
Sales Revenue .........................................
84,600
Notes Receivable.............................................
Accounts Receivable ...............................
84,600
84,600
84,600
BRIEF EXERCISE 8.11
(a) Bad Debt Expense ................................................
Allowance for Doubtful Accounts ................
18,000
18,000
(b) Current assets
Supplies .........................................................
R$ 13,000
Inventory ........................................................
180,000
Accounts receivable ..................................... R$400,000
Less: Allowance for doubtful accounts ......
18,000
382,000
Cash ...............................................................
90,000
R$665,000
8-10
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BRIEF EXERCISE 8.11 (Continued)
(c) Accounts receivable turnover =
R$3,000,000
= 10 times
R$300,000
365 days
= 36.5 days
10
The accounts receivable turnover is a liquidity measure. The average
collection period indicates the effectiveness of a company’s credit and
collection policies. To evaluate Fertig’s liquidity and credit policies,
these measures should be compared to the same measures for
competitors.
Average collection period =
BRIEF EXERCISE 8.12
Accounts Receivable Turnover:
$20B
$20B
=
= 7.3 times
($2.7B + $2.8B) ÷ 2 $2.75B
Average Collection Period for Accounts Receivable:
365 days
= 50 days
7.3 times
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8-11
SOLUTIONS FOR DO IT! EXERCISES
DO IT! 8.1
March 1
Accounts Receivable ....................................
Sales Revenue ......................................
28,000
Sales Returns and Allowances ....................
Accounts Receivable ...........................
1,000
March 11 Cash (€27,000 – €270) ...................................
Sales Discounts (€27,000  1%) ...................
Accounts Receivable ............................
26,730
270
March 6
28,000
1,000
27,000
DO IT! 8.2a
The following entry should be prepared to increase the balance in the
Allowance for Doubtful Accounts from R$6,100 credit to R$15,500 credit (5%
X R$310,000):
Bad Debt Expense ....................................................
Allowance for Doubtful Accounts ..................
(To record estimate of uncollectible
accounts)
9,400
9,400
DO IT! 8.2b
To speed up the collection of cash, Neumann could sell its accounts receivable
to a factor. Assuming the factor charges Neumann a 3% service charge, it
would make the following entry:
Cash ........................................................................... 166,600
Service Charge Expense ..........................................
3,400
Accounts Receivable .......................................
(To record sale of receivables to factor)
8-12
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DO IT! 8.3
(a)
The maturity date is September 30. When the life of a note is expressed in
terms of months, you find the date it matures by counting the months from
the date of issue. When a note is drawn on the last day of a month, it
matures on the last day of a subsequent month.
(b) The interest to be received at maturity is ₤186:
Face X Rate X Time = Interest
₤6,200 X 9% X 4/12 = ₤186
The entry recorded by Gentry Wholesalers at the maturity date is:
Cash .....................................................................
6,386
Notes Receivable ..........................................
6,200
Interest Revenue ...........................................
186
(To record collection of Benton note)
DO IT! 8.4
(a)
÷
Average net
accounts
receivable
=
Accounts receivable
turnover
NT$1,300,000
÷
NT$101,000 +
NT$107,000
2
=
12.5 times
Days in year
÷
365
÷
Net credit sales
(b)
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Accounts receivable
=
turnover
12.5 times
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
=
Average collection
period in days
29 days
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8-13
SOLUTIONS TO EXERCISES
EXERCISE 8.1
Jan. 6
16
Accounts Receivable ......................................
Sales Revenue ..........................................
9,200
Cash (£9,200 – £92) .........................................
Sales Discounts (1% X £9,200) .......................
Accounts Receivable ................................
9,108
92
9,200
9,200
EXERCISE 8.2
March 1
3
9
15
Accounts Receivable—Lynda Company.....
Sales Revenue .......................................
5,000
Sales Returns and Allowances ....................
Accounts Receivable—Lynda
Company..............................................
500
Cash (CHF4,500  CHF90) ............................
Sales Discounts (2%  CHF4,500) ...............
Accounts Receivable—Lynda
Company..............................................
4,410
90
Accounts Receivable ....................................
Sales Revenue .......................................
400
5,000
500
4,500
400
Accounts Receivable (CHF400  1.5%  1/2)
Interest Revenue ...................................
31
3
3
EXERCISE 8.3
(a) Jan. 6
16
8-14
Accounts Receivable—Pryor .......................
Sales Revenue .......................................
7,000
Cash (€7,000 – €140).....................................
Sales Discounts (2% X €7,000) ....................
Accounts Receivable—Pryor ...............
6,860
140
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EXERCISE 8.3 (Continued)
(b) Jan. 10
Feb. 12
Mar. 10
Accounts Receivable—Farley......................
Sales Revenue ......................................
9,000
Cash ..............................................................
Accounts Receivable—Farley ..............
5,000
Accounts Receivable—Farley......................
Interest Revenue
[1% X (€9,000 – €5,000)] ....................
40
9,000
5,000
40
EXERCISE 8.4
(a)
(b)
(c)
(d)
Accounts Receivable ...........................................
Sales Revenue .................................................
800,000
Cash ......................................................................
Accounts Receivable ......................................
763,000
Allowance for Doubtful Accounts .......................
Accounts Receivable ......................................
7,300
Accounts Receivable ...........................................
Allowance for Doubtful Accounts ..................
3,100
Cash ......................................................................
Accounts Receivable ......................................
3,100
Bad Debt Expense ................................................
Allowance for Doubtful Accounts ..............
20,200
800,000
763,000
7,300
3,100
3,100
20,200
Allowance for Doubtful Accounts
Beg. Bal.
9,000
Write-off 7,300 Recovery 3,100
Bad Debts 20,200 [£25,000 – (£9,000 + £3,100 – £7,300)]
End Bal. 25,000
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8-15
EXERCISE 8.4 (Continued)
(e)
(f)
Accounts Receivable
Beg. Bal. 200,000 Collections 763,000
Sales
800,000 Write-off
7,300
Recovery 3,100 Collections 3,100
End Bal. 229,700
Allowance for Doubtful Accounts
Beg. Bal.
9,000
Write-off 7,300 Recovery
3,100
Bad Debts 20,200
End Bal.
25,000
Net realizable value of receivables is £204,700 (£229,700 – £25,000)
EXERCISE 8.5
(a)
Dec. 31
Bad Debt Expense ..............................
Accounts Receivable—L. Dole .......
1,400
Bad Debt Expense ..............................
Allowance for Doubtful Accounts
[($110,000 X 10%) – $2,100] .....
8,900
Bad Debt Expense ..............................
Allowance for Doubtful Accounts
[($110,000 X 6%) + $200] .........
6,800
1,400
(b)
Dec. 31
8,900
(c)
Dec. 31
8-16
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6,800
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EXERCISE 8.6
(a)
Accounts Receivable
Current
1–30 days past due
31–90 days past due
Over 90 days past due
(b) Mar. 31
Amount
₩65,000
12,900
10,100
7,400
%
2
5
30
50
Estimated Uncollectible
₩1,300
645
3,030
3,700
₩8,675
Bad Debt Expense ...........................................
Allowance for Doubtful Accounts
(₩8,675 – ₩2,100) ...................................
6,575
6,575
(c) The total balance of receivables increased from 2019 to 2020. However, of
concern is the fact that each of the three categories of older accounts
increased substantially during 2020. That is, customers are taking longer
to pay and bad debts are likely to increase. Management needs to investigate the causes of this change.
EXERCISE 8.7
Allowance for Doubtful Accounts ...................................
Accounts Receivable ................................................
11,000
Accounts Receivable .......................................................
Allowance for Doubtful Accounts ...........................
1,800
Cash ..................................................................................
Accounts Receivable ................................................
1,800
Bad Debt Expense ............................................................
Allowance for Doubtful Accounts
[€19,000 – (€15,000 – €11,000 + €1,800)] ..............
13,200
11,000
1,800
1,800
13,200
EXERCISE 8.8
December 31, 2020
Bad Debt Expense (2% X ¥450,000) ................................
Allowance for Doubtful Accounts ...........................
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9,000
8-17
EXERCISE 8.8 (Continued)
May 11, 2021
Allowance for Doubtful Accounts ...................................
Accounts Receivable—Shoemaker .........................
1,100
June 12, 2021
Accounts Receivable—Shoemaker .................................
Allowance for Doubtful Accounts ............................
1,100
Cash ..................................................................................
Accounts Receivable—Shoemaker .........................
1,100
1,100
1,100
1,100
EXERCISE 8.9
(a) Mar. 3
(b) May 10
Cash ($650,000 – $19,500) .......................
Service Charge Expense
(3% X $650,000) ....................................
Accounts Receivable .......................
630,500
Cash ($3,000 – $120)................................
Service Charge Expense
(4% X $3,000) ........................................
Sales Revenue ..................................
2,880
19,500
650,000
120
3,000
EXERCISE 8.10
(a) Apr. 2
May 3
June 1
(b) July 4
8-18
Accounts Receivable—J. Elston ............
Sales Revenue ..................................
1,500
Cash..........................................................
Accounts Receivable—
J. Elston ........................................
500
Accounts Receivable—J. Elston ............
Interest Revenue
[(€1,500 – €500) X 1%] ..................
10
Cash..........................................................
Service Charge Expense
(2% X €200)...........................................
Sales Revenue ..................................
196
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1,500
500
10
4
200
(For Instructor Use Only)
EXERCISE 8.11
Jan. 15
20
Feb. 10
15
Accounts Receivable ...............................
Sales Revenue ..................................
18,000
Cash (NT$4,500 – NT$90) .........................
Service Charge Expense
(NT$4,500 X 2%) ....................................
Sales Revenue ..................................
4,410
Cash ..........................................................
Accounts Receivable ........................
10,000
Accounts Receivable (NT$8,000 X 1.5%)
Interest Revenue ...............................
120
18,000
90
4,500
10,000
120
EXERCISE 8.12
(a)
Nov. 1
Dec. 11
16
31
2020
Notes Receivable ............................................
Cash .........................................................
300,000
300,000
Notes Receivable ............................................
Sales Revenue .........................................
67,500
Notes Receivable ............................................
Accounts Receivable—Fernetti ..............
400,000
Interest Receivable .........................................
Interest Revenue* ....................................
6,800
67,500
400,000
6,800
*Calculation of interest revenue:
Shin’s note: HK$300,000 X 10% X 2/12 = HK$5,000
Malcolm’s note:
67,500 X 8% X 20/360 =
300
Fernetti’s note:
400,000 X 9% X 15/360 =
1,500
Total accrued interest
HK$6,800
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8-19
EXERCISE 8.12 (Continued)
(b)
Nov. 1
2021
Cash .................................................................
Interest Receivable ..................................
Interest Revenue* ....................................
Notes Receivable .....................................
330,000
5,000
25,000
300,000
*(HK$300,000 X 10% X 10/12)
EXERCISE 8.13
May 1
Dec. 31
31
May 1
2020
Notes Receivable ............................................
Accounts Receivable—
Chamber ...............................................
9,000
9,000
Interest Receivable .........................................
Interest Revenue
(€9,000 X 10% X 8/12) ..........................
600
Interest Revenue .............................................
Income Summary ....................................
600
2021
Cash .................................................................
Notes Receivable .....................................
Interest Receivable ..................................
Interest Revenue
(€9,000 X 10% X 4/12) ..........................
600
600
9,900
9,000
600
300
EXERCISE 8.14
4/1/20
7/1/20
8-20
Notes Receivable ............................................
Accounts Receivable—Goodwin ............
30,000
Notes Receivable ............................................
Cash .........................................................
25,000
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30,000
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
25,000
(For Instructor Use Only)
EXERCISE 8.14 (Continued)
12/31/20
4/1/21
Interest Receivable ..........................................
Interest Revenue
($30,000 X 6% X 9/12) ...........................
1,350
Interest Receivable ..........................................
Interest Revenue
($25,000 X 10% X 6/12) .........................
1,250
Cash .................................................................
Notes Receivable ....................................
Interest Receivable .................................
Interest Revenue
($30,000 X 6% X 3/12 = $450) ..............
31,800
Accounts Receivable ......................................
Notes Receivable ....................................
Interest Receivable .................................
Interest Revenue
($25,000 X 10% X 3/12 = $625) ............
26,875
1,350
1,250
30,000
1,350
450
25,000
1,250
625
EXERCISE 8.15
(a)
May 2
(b) Nov. 2
(c) Nov. 2
Copyright © 2019 WILEY
Notes Receivable.......................................
Cash ....................................................
Accounts Receivable—Chen
Inc............................................................
Notes Receivable ................................
Interest Revenue
(¥9,000 X 7% X 1/2) ..........................
(To record the dishonor of
Chen, Inc. note with
expectation of collection)
Allowance for Doubtful Accounts .............
Notes Receivable ................................
(To record the dishonor of
Chen, Inc. note with no
expectation of collection)
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
9,000
9,000
9,315
9,000
315
9,000
(For Instructor Use Only)
9,000
8-21
EXERCISE 8.16
EILEEN CORP.
Statement of Financial Position (Partial)
October 31, 2020
(in thousands)
Receivables
Notes receivable ........................................................
Accounts receivable ..................................................
Other receivables.......................................................
Total receivables........................................................
Less: Allowance for doubtful accounts ........................
Net receivables ................................................................
$1,353
2,910
189
$4,452
52
$4,400
EXERCISE 8.17
(a) Beginning accounts receivable .......................................
Net credit sales .................................................................
Cash collections ...............................................................
Accounts written off .........................................................
Ending accounts receivable.............................................
€ 100,000
1,000,000
(920,000)
(30,000)
€ 150,000
(b) €1,000,000/[(€100,000 + €150,000)/2] = 8
(c) 365/8 = 45.6 days
8-22
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SOLUTIONS TO PROBLEMS
PROBLEM 8.1
(a) 1.
2.
3.
4.
5.
Accounts Receivable .................................
Sales Revenue ....................................
3,700,000
Sales Returns and Allowances .................
Accounts Receivable .........................
50,000
Cash ............................................................
Accounts Receivable .........................
2,810,000
Allowance for Doubtful Accounts .............
Accounts Receivable .........................
90,000
Accounts Receivable .................................
Allowance for Doubtful Accounts .......
29,000
Cash ............................................................
Accounts Receivable .........................
29,000
3,700,000
50,000
2,810,000
90,000
29,000
29,000
(b)
Bal.
(1)
(5)
Bal.
Accounts Receivable
960,000 (2)
50,000
3,700,000 (3)
2,810,000
29,000 (4)
90,000
(5)
29,000
1,710,000
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Allowance for Doubtful Accounts
(4)
90,000 Bal.
80,000
(5)
29,000
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
Bal.
(For Instructor Use Only)
19,000
8-23
PROBLEM 8.1 (Continued)
(c) Balance before adjustment [see (b)] ...................................
Less: Balance needed ..........................................................
Adjustment required .............................................................
R$ 19,000
115,000
R$ 96,000
The journal entry would therefore be as follows:
Bad Debt Expense ..........................................
Allowance for Doubtful Accounts .........
(d)
8-24
96,000
96,000
R$3,700,000 – R$50,000
R$3,650,000
=
= 2.95 times
(R$880,000 + R$1,595,000) ÷ 2 R$1,237 ,5 00
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(For Instructor Use Only)
PROBLEM 8.2
(a) £33,000.
(b) £49,500 [(£875,000 X 6%) – £3,000].
[($875,000 x 6%) - $3,000 = $49,500]
(c) £55,500 [(£875,000 X 6%) + £3,000].
[($875,000 x 6%) + $3,000 = $55,500]
(d) The weakness of the direct write-off method is two-fold. First, it does not
match expenses with revenues. Second, the accounts receivable are not
stated at cash realizable value at the statement of financial position date.
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8-25
PROBLEM 8.3
(a) Dec. 31
2020
Bad Debt Expense ...................................
Allowance for Doubtful Accounts
(€38,610 – €12,000).......................
26,610
26,610
(a) & (b)
Bad Debt Expense
Date
Explanation
2020
Dec. 31 Adjusting
Ref.
Mar. 31
May 31
31
(c)
Dec. 31
8-26
Ref.
Debit
(2)
Accounts Receivable ..............................
Allowance for Doubtful Accounts .....
Cash .........................................................
Accounts Receivable .......................
2021
Bad Debt Expense ...................................
Allowance for Doubtful Accounts
(€31,600 + €800) ...........................
Balance
26,610
Credit
Balance
26,610
12,000
38,610
1,000
37,610
38,610
1,000
2021
(1)
Allowance for Doubtful Accounts ..........
Accounts Receivable .......................
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Credit
26,610
Allowance for Doubtful Accounts
Date
Explanation
2020
Dec. 31 Balance
31 Adjusting
2021
Mar. 31
May 31
(b)
Debit
1,000
1,000
1,000
1,000
1,000
1,000
32,400
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
32,400
(For Instructor Use Only)
PROBLEM 8.4
(a)
Total estimated bad debts
Total
Accounts
receivable
¥200,000
% uncollectible
Estimated
Bad debts
¥ 9,400
0–30
Number of Days Outstanding
31–60
61–90 91–120 Over 120
¥77,000 ¥46,000
1%
4%
¥39,000 ¥23,000 ¥15,000
5%
8%
20%
¥
¥ 1,950 ¥ 1,840 ¥ 3,000
770 ¥ 1,840
(b) Bad Debt Expense ....................................................
Allowance for Doubtful Accounts
[¥9,400 + ¥8,000] ...............................................
17,400
(c) Allowance for Doubtful Accounts ...........................
Accounts Receivable ..........................................
5,000
(d) Accounts Receivable ................................................
Allowance for Doubtful Accounts ......................
5,000
Cash...........................................................................
Accounts Receivable ..........................................
5,000
17,400
5,000
5,000
5,000
(e) If Ho Publishers used 4% of total accounts receivable rather than aging the
individual accounts the bad debt expense adjustment would be ¥16,000
[(¥200,000 X 4%) + ¥8,000]. The rest of the entries would be the same as
they were when aging the accounts receivable.
Aging the individual accounts rather than applying a percentage to the total
accounts receivable should produce a more accurate allowance account
and bad debts expense.
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(For Instructor Use Only)
8-27
PROBLEM 8.5
(a) The allowance method. Since the balance in the allowance for doubtful
accounts is given, they must be using this method because the account
would not exist if they were using the direct write-off method.
(b)
(c)
Dec. 31
Dec. 31
Bad Debt Expense
(£11,750 – £1,000)..........................
Allowance for Doubtful
Accounts ................................
Bad Debt Expense
(£11,750 + £1,000) .........................
Allowance for Doubtful
Accounts ................................
10,750
10,750
12,750
12,750
(d) Allowance for Doubtful Accounts .............................
Accounts Receivable .........................................
3,000
(e) Bad Debt Expense .....................................................
Accounts Receivable .........................................
3,000
(f)
8-28
3,000
3,000
Allowance for Doubtful Accounts is a contra-asset account. It is subtracted
from the gross amount of accounts receivable so that accounts receivable
is reported at its cash realizable value.
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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 8.6
(a) July
5
Accounts Receivable ...............................
Sales Revenue ....................................
4,500
Cash (NT$600 – NT$18) ............................
Service Charge Expense (NT$600 X 3%)
Sales Revenue ....................................
582
18
Cash .........................................................
Notes Receivable ................................
Interest Revenue
(NT$6,000 X 8% X 90/360) ................
(The interest computation assumes a 360-day year)
6,120
14
20
24
Cash .........................................................
Notes Receivable ................................
Interest Revenue
(NT$7,800 X 10% X 60/360) ..............
(The interest computation assumes a 360-day year)
31
4,500
600
6,000
120
7,930
7,800
130
Interest Receivable ..................................
Interest Revenue
(NT10,000 X 6% X 1/12) ....................
50
50
(b)
Notes Receivable
7/1 Bal.
23,800 7/20
7/24
7/31 Bal.
10,000
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6,000
7,800
7/31
Interest Receivable
50
7/31 Bal.
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
50
(For Instructor Use Only)
8-29
PROBLEM 8.6 (Continued)
Accounts Receivable
7/5
4,500
7/31 Bal.
4,500
(c ) Current assets:
Notes Receivable
Accounts Receivable
Interest Receivable
8-30
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NT$10,000
4,500
50
NT$14,550
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 8.7
Jan.
5
20
Feb. 18
Apr. 20
30
May 25
Aug. 18
25
Sept. 1
Accounts Receivable—Sheldon .........................
Sales Revenue............................................
20,000
Notes Receivable ...............................................
Accounts Receivable—Sheldon ..................
20,000
Notes Receivable ...............................................
Sales Revenue............................................
8,000
Cash (€20,000 + €400) .......................................
Notes Receivable .......................................
Interest Revenue
(€20,000 X 8% X 3/12) .............................
20,400
Cash (€25,000 + € 750) ......................................
Notes Receivable .......................................
Interest Revenue
(€25,000 X 9% X 4/12) .............................
25,750
Notes Receivable ...............................................
Accounts Receivable—Potter ...................
6,000
Cash (€8,000 + €360) .........................................
Notes Receivable .......................................
Interest Revenue
(€8,000 X 9% X 6/12) ...............................
8,360
Accounts Receivable—Potter
(€6,000 + €105) ...............................................
Notes Receivable .......................................
Interest Revenue
(€6,000 X 7% X 3/12) ...............................
Notes Receivable ...............................................
Sales Revenue............................................
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20,000
20,000
8,000
20,000
400
25,000
750
6,000
8,000
360
6,105
6,000
105
12,000
(For Instructor Use Only)
12,000
8-31
PROBLEM 8.8
Nike
Accounts receivable
turnover
adidas
$19,176.1
a
$10,381
b
($2,795.3 + $2,883.9 )/2
$19,176.1
$2,839.6
= 6.8 times
c
d
($1,624 + $1,429 )/2
$10,381
$1,526.5
= 6.8 times
– 78.4
– 110.8
c1,743 – 119
d1,553 – 124
a2,873.7
b2,994.7
Average collection period
365
6.8
= 53.7 days
365
6.8
= 53.7 days
Both companies have the same turnover ratios and average collection
periods.
8-32
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(For Instructor Use Only)
PROBLEM 8.9
GIBSON COMPANY
Income Statement
In the Year Ended December 31, 2020
Sales revenue
Cost of goods sold
Gross profit
Operating expenses
Salaries and wages expense
Rent expense
Bad debt expense
Service charge expense
Total operating expenses
Income from operations
Other revenue and gains
Interest revenue
Net income
¥13,000
8,000
5,000
¥1,400
700
60
40
2,200
2,800
100
¥2,900
GIBSON COMPANY
Retained Earnings Statement
In the Year Ended December 31, 2020
Retained Earnings, January 1, 2020
Add: Net income
Deduct: Dividend
Retained Earnings, December 31, 2020
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11,000
2,900
13,900
1,000
¥12,900
(For Instructor Use Only)
8-33
PROBLEM 8.9 (Continued)
GIBSON COMPANY
Income Statement
In the Year Ended December 31, 2020
Assets
Property, plant and equipment
Equipment
Less: Accumulated depreciation - equipment
Current assets
Inventory
Notes receivable
Accounts receivable
Less: Allowance for doubtful accounts
Cash
Total current assets
Total assets
¥7,500
1,000
¥6,500
10,000
6,300
¥2,700
300
2,400
6,400
25,100
¥31,600
Equity and Liabilities
Equity
Share capital—ordinary
Retained earnings
Current liabilities
Notes payable
Accounts payable
Total current liabilities
Total equity and liabilities
8-34
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¥17,000
12,900 ¥29,900
¥1,100
600
1,700
¥31,600
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
(For Instructor Use Only)
ACR 8
COMPREHENSIVE ACCOUNTING CYCLE REVIEW
(a) Jan. 1
3
8
11
15
17
21
24
27
31
Notes Receivable...........................................
Accounts Receivable—
Merando Company..............................
1,200
Allowance for Doubtful Accounts ................
Accounts Receivable .............................
730
Inventory ........................................................
Accounts Payable ..................................
17,200
Accounts Receivable ....................................
Sales Revenue .......................................
28,000
Cost of Goods Sold .......................................
Inventory ................................................
19,600
Cash ...............................................................
Service Charge Expense ...............................
Sales Revenue .......................................
970
30
Cost of Goods Sold .......................................
Inventory ................................................
700
Cash ...............................................................
Accounts Receivable .............................
22,900
Accounts Payable .........................................
Cash ........................................................
14,300
Accounts Receivable ....................................
Allowance for Doubtful Accounts.........
280
Cash ...............................................................
Accounts Receivable .............................
280
Supplies .........................................................
Cash ........................................................
1,400
Other Operating Expenses ...........................
Cash ........................................................
3,718
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1,200
730
17,200
28,000
19,600
1,000
700
22,900
14,300
280
280
1,400
(For Instructor Use Only)
3,718
8-35
ACR 8 (Continued)
Adjusting Entries
Jan. 31
31
31
Interest Receivable ........................................
Interest Revenue (£1,200 X 8% X 1/12) .......
Bad Debt Expense [(£22,950 X 6%) –
(£800 – £730 + £280)] ..................................
Allowance for Doubtful Accounts..........
8
8
1,027
Supplies Expense ..........................................
Supplies (£1,400 – £560) ........................
(b)
840
840
VICTORIA LTD.
Adjusted Trial Balance
January 31, 2020
Cash ............................................................
Notes Receivable .......................................
Accounts Receivable .................................
Allowance for Doubtful Accounts .............
Interest Receivable ....................................
Inventory.....................................................
Supplies ......................................................
Accounts Payable ......................................
Share Capital—Ordinary ............................
Retained Earnings......................................
Sales Revenue ............................................
Cost of Goods Sold....................................
Supplies Expense ......................................
Bad Debt Expense......................................
Service Charge Expense ...........................
Other Operating Expenses ........................
Interest Revenue ........................................
Debit
£17,832
1,200
22,950
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Credit
£1,377
8
6,300
560
11,650
20,000
12,730
29,000
20,300
840
1,027
30
3,718
£74,765
8-36
1,027
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
8
£74,765
(For Instructor Use Only)
ACR 8 (Continued)
(b)
Optional T accounts for accounts with multiple transactions
Cash
1/1 Bal. 13,100 1/21
1/15
970 1/27
1/17
22,900 1/31
1/24
280
1/31 Bal. 17,832
14,300
1,400
3,718
1/27
1/31 Bal.
1/21
Accounts Receivable
1/1 Bal. 19,780 1/1
1,200
1/11
28,000 1/3
730
1/24
280 1/17
22,900
1/24
280
1/31 Bal. 22,950
Allowance for Doubtful Accounts
1/3
730 1/1 Bal.
800
1/24
280
1/31
1,027
1/31 Bal. 1,377
Inventory
1/1 Bal.
9,400 1/11
1/8
17,200 1/15
1/31 Bal. 6,300
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Supplies
1,400 1/31
560
840
Accounts Payable
14,300 1/1 Bal.
8,750
1/8
17,200
1/31 Bal. 11,650
Sales Revenue
1/11
28,000
1/15
1,000
1/31 Bal. 29,000
Cost of Goods Sold
1/11
19,600
1/15
700
1/31 Bal. 20,300
19,600
700
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(For Instructor Use Only)
8-37
ACR 8 (Continued)
(c)
VICTORIA LTD.
Income Statement
For the Month Ending January 31, 2020
Sales revenue .................................................
Cost of goods sold.........................................
Gross profit ....................................................
Operating expenses .......................................
Other operating expenses......................
Bad debt expense ...................................
Supplies expense ...................................
Service charge expense .........................
Total operating expenses ..............................
Income from operations ................................
Other revenues and gains .............................
Interest revenue ......................................
Net Income......................................................
8-38
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£29,000
20,300
8,700
£3,718
1,027
840
30
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
5,615
3,085
8
£ 3,093
(For Instructor Use Only)
ACR 8 (Continued)
VICTORIA LTD.
Retained Earnings Statement
For the Month Ending January 31, 2020
Retained earnings, January 1 .........................................
Add: Net income ..............................................................
Retained earnings, January 31 .......................................
£12,730
3,093
£15,823
VICTORIA LTD.
Statement of Financial Position
January 31, 2020
Assets
Current assets
Supplies ..................................................
Inventory .................................................
Interest receivable ..................................
Accounts receivable ...............................
Less: Allowance for doubtful
accounts ......................................
Notes receivable .....................................
Cash ........................................................
Total assets ....................................................
£
560
6,300
8
£22,950
1,377
21,573
1,200
17,832
£47,473
Equity and Liabilities
Equity
Share capital—ordinary .........................
Current liabilities
Accounts payable ...................................
Total equity and liabilities .............................
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£20,000
15,823
(For Instructor Use Only)
£35,823
11,650
£47,473
8-39
CT 8.1
(a)
FINANCIAL REPORTING PROBLEM
CAF AG
Accounts Receivable Aging Schedule
May 31, 2020
Not yet due
Less than 30 days past due
30 to 60 days past due
61 to 120 days past due
121 to 180 days past due
Over 180 days past due
(b)
Proportion
of
Total
Amount
in
Category
Probability
of NonCollection
Estimated
Uncollectible
Amount
.600
.220
.090
.050
.025
.015
1.000
€ 840,000
308,000
126,000
70,000
35,000
21,000
€1,400,000
.02
.04
.06
.09
.25
.70
€16,800
12,320
7,560
6,300
8,750
14,700
€66,430
CAF AG
Analysis of Allowance for Doubtful Accounts
May 31, 2020
€ 29,500
126,000
155,500
(102,000)
53,500
(66,430)
€ (12,930)
June 1, 2019 balance ....................................................
Bad debts expense accrual (€2,800,000 X .045)..........
Balance before write-offs of bad accounts .................
Write-offs of bad accounts ...........................................
Balance before year-end adjustment ..........................
Estimated uncollectible amount ..................................
Additional allowance needed .......................................
Bad Debt Expense ........................................................ 12,930
Allowance for Doubtful Accounts ........................
8-40
Copyright © 2019 WILEY
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
12,930
(For Instructor Use Only)
CT 8.1 (Continued)
(c) 1. Steps to Improve the
Accounts Receivable Situation
2. Risks and
Costs Involved
Establish more selective creditgranting policies, such as more
restrictive credit requirements or
more thorough credit investigations.
This policy could result in lost sales
and increased costs of credit
evaluation. The company may be all
but forced to adhere to the prevailing credit-granting policies of
the office equipment and supplies
industry.
Establish a more rigorous collection policy either through external
collection agencies or by its own
personnel.
This policy may offend current
customers and thus risk future
sales. Increased collection costs
could result from this policy.
Charge interest on overdue accounts.
Insist on cash on delivery (cod) or
cash on order (coo) for new customers or poor credit risks.
This policy could result in lost sales
and increased administrative costs.
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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
(For Instructor Use Only)
8-41
CT 8.2
COMPARATIVE ANALYSIS PROBLEM
(a) (1) Accounts receivable turnover
Delfi Limited
Nestlé
US$402,083
(US$56,280 + US$61,756) ÷ 2
CHF89,469
(CHF12,411 + CHF12,252) ÷ 2
US$402,083
= 6.81 times
US$59,018
CHF89,469
= 7.26 times
CHF12,331.5
(2) Average collection period
365 = 53.6 days
6.81
365
7.26
= 50.3 days
(b) Nestlé’s average collection period is about 3 days shorter than Delfi’s.
8-42
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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
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CT 8.3
REAL-WORLD FOCUS
(a) Factoring invoices enhances cash flow and allows a company to meet
business expenses and take on new opportunities. The benefits of
factoring include:






Is available to small business that have no credit
Provides you with money quickly
Improves your cash flow
Is easier to get than business loans
Allows you to offer net 30 to net 60 days to clients
Can be set up quickly
(b) Factoring rates range between 1.5% and 3.5% per month. The two major
variables considered when determining the rate are: (1) the size of the
line, and (2) the credit quality of the company’s clients.
(c) The first installment, ranges from 80% to 95% and vary depending on
your industry, your experience, and the credit profile of your clients. It
is deposited in your bank account as soon as you submit an invoice and
the invoice is verified. The second installment, the rebate, is deposited
in your account once your client pays the invoice in full on their regular
terms.
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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
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8-43
CT 8.4
DECISION-MAKING ACROSS THE ORGANIZATION
(a)
2020
Net credit sales ...............................................................
2019
2018
NT$500,000
NT$650,000
NT$400,000
NT$
NT$
NT$
Credit and collection expenses
Collection agency fees ......................................
2,450
2,500
2,300
Salary of accounts receivable
clerk .................................................................
4,100
4,100
4,100
Uncollectible accounts (1.6%) ..........................
8,000
10,400
6,400
Billing and mailing costs (0.5%) .......................
2,500
3,250
2,000
Credit investigation fees (0.15%) ......................
750
975
600
Total ..........................................................
NT$ 17,800
NT$ 21,225
NT$ 15,400
3.56%
3.27%
3.85%
NT$ 25,000
NT$ 32,500
NT$ 20,000
NT$
NT$
NT$
Total expenses as a percentage of
net credit sales ............................................................
(b) Average accounts receivable (5%) ........................................
Investment earnings
(8% X Ave. acc. rec.) ...................................................
2,000
2,600
1,600
Total credit and collection expenses
per above
NT$ 17,800
NT$ 21,225
NT$ 15,400
Add: Investment earnings* ...........................................
2,000
2,600
1,600
Net credit and collection expenses .......................................
NT$ 19,800
NT$ 23,825
NT$ 17,000
3.96%
3.67%
Net expenses as a percentage of
net credit sales ............................................................
4.25%
*The investment earnings on the cash tied up in accounts receivable is
an additional expense of continuing the existing credit policies.
(c) The analysis shows that the credit card fee of 4% of net credit sales will be
higher than the percentage cost of credit and collection expenses in
each year before considering the effect of earnings from other investment
opportunities. However, after considering investment earnings, the
credit card fee of 4% will be less than the company’s percentage cost if
annual net credit sales are less than NT$500,000.
8-44
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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
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CT 8.4 (Continued)
Finally, the decision hinges on: (1) the accuracy of the estimate of
investment earnings, (2) the expected trend in credit sales, and (3) the
effect the new policy will have on sales. Non-financial factors include the
effects on customer relationships of the alternative credit policies and
whether the Piweks want to continue with the problem of handling their
own accounts receivable.
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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
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8-45
CT 8.5
COMMUNICATION ACTIVITY
Of course, this solution will differ from student to student. Important factors to
look for would be definitions of the methods, how they are similar and how they
differ. Also, look for use of good sentence structure, correct spelling, etc.
Example:
Dear Lily,
The two methods you asked about are methods of dealing with uncollectible
accounts receivable. The percentage-of-receivables (allowance) method is
used to estimate the amount uncollectible.
Under the percentage-of-receivables basis, management establishes a percentage relationship between the amount of receivables and expected losses
from uncollectible accounts. Customer accounts are classified by the length of
time they have been unpaid. This basis emphasizes cash realizable value of
receivables and is therefore deemed a “statement of financial position”
approach.
The direct write-off method does not estimate losses and an allowance account
is not used. Instead, when an account is determined to be uncollectible, it is
written off directly to Bad Debt Expense. Unless bad debt losses are insignificant,
this method is not acceptable for financial reporting purposes.
Sincerely,
8-46
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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
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CT 8.6
ETHICS CASE
(a) The stakeholders in this situation are:
 The president of Diaz Fashions.
 The controller of Diaz Fashions.
 The shareholders.
(b) Yes. The controller is posed with an ethical dilemma—should he/she
follow the president’s “suggestion” and prepare misleading financial
statements (understated net income) or should he/she attempt to stand up
to and possibly anger the president by preparing a fair (realistic) income
statement.
(c) Diaz Fashions’ growth rate should be a product of fair and accurate
financial statements, not vice versa. That is, one should not prepare
financial statements with the objective of achieving or sustaining a
predetermined growth rate. The growth rate should be a product of
management and operating results, not of creative accounting.
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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
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8-47
GAAP FINANCIAL REPORTING PROBLEM
GAAP 8.1
(a) Accounts receivable turnover
2016
2015
$215,639 __
($15,754 + $16,849)/2
$233,715
___
($16,849 + $17,460)/2
= $215,639
$16,301.5
= $233,715
$17,154.5
= 13.2 times
= 13.6 times
Average collection period
365 = 27.7 days
13.2
(b)
8-48
365 = 26.8 days
13.6
The accounts receivable turnover measures the number of times, on
average, a company collects accounts receivable during a period. The
average collection period measures the number of days it takes to
collect a receivable. From the results shown in (a), it is apparent that
Apple’s accounts receivable collections deteriorated slightly in 2016
over 2015. Both the turnover and the related collection period were
worse in 2016 as compared to 2015. However, if Apple’s credit terms
are 30 days, both years’ collection period fall within those terms.
Copyright © 2019 WILEY
Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual
(For Instructor Use Only)