CHAPTER 9 MINIQUIZ
1. Presented below are various receivable transactions entered into by McLoed Tool Company.
Indicate whether the receivables are reported as (1) accounts receivable, (2) notes receivable,
or (3) other receivables on the balance sheet.
a.
b.
c.
d.
e.
f.
Loaned a company officer $1,000. (_____)
Accepted a $2,000 promissory note from a customer as payment on account. (_____)
Determined that a $10,000 income tax refund is due from the Canada Customs and
Revenue Agency. (_____)
Sold goods to a customer on account for $5,000. (_____)
Recorded $500 accrued interest on a note receivable due next year. (_____)
Made an American Express credit card sale for $3,000. (_____)
a.
b.
c.
d.
e.
f.
3 Other Receivables
2 Note Receivable
3 Other Receivables
1 Accounts Receivable
3 Other Receivables
3 Other Receivables
Ex. 112
José Sign Company uses the allowance method in accounting for uncollectible accounts. Past
experience indicates that 1.5% of net credit sales will eventually be uncollectible. Selected
account balances at December 31, 2001, and December 31, 2002, appear below:
Net Credit Sales
Accounts Receivable
Allowance for Doubtful Accounts
12/31/01
$400,000
75,000
5,000
12/31/02
$500,000
100,000
?
Instructions
(a) Record the following events in 2002.
Aug. 10
Determined that the account of Soo Tang for $1,000 is uncollectible.
Sept. 12
Determined that the account of Jeff Lynch for $4,000 is uncollectible.
Oct. 10
Received a cheque for $550 as payment on account from Soo Tang, 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 cheque for $450 from Soo Tang as payment on her account.
(b) Prepare the adjusting journal entry to record the bad debt provision for the year ended
December 31, 2002.
(c) What is the balance of Allowance for Doubtful Accounts at December 31, 2002?
Solution 112
(20 min.)
previously .. Dec 31/01
Bad Debts Expense ($500,000*1.5%)
Allowance for Doubtful Accounts
(a) Aug. 10
Sept. 12
Oct. 10
Nov. 15
(b) Dec. 31
5,000
5,000
Allowance for Doubtful Accounts ...............................
Accounts Receivable—name .............................
To write off account.
1,000
Allowance for Doubtful Accounts ...............................
Accounts Receivable—name2 ..........................
To write off account.
4,000
Accounts Receivable—name ....................................
Allowance for Doubtful Accounts ......................
To reinstate account previously
written off.
1,000
Cash ..........................................................................
Accounts Receivable—name ............................
To record collection on account.
550
Cash ..........................................................................
Accounts Receivable—name ............................
To record collection on account.
450
Bad Debts Expense ($500,000 × 1.5%) ....................
Allowance for Doubtful Accounts ......................
To record estimate of uncollectible accounts.
7,500
1,000
4,000
1,000
550
450
7,500
(c) Balance of Allowance for Doubtful Accounts at December 31, 2002, is $8,500 ($5,000 –
$1,000 – $4,000 + $1,000 + $7,500).
Ex. 115
Novakowski Products is undecided about which base to use in estimating uncollectible
accounts. On December 31, 2002, the balance in Accounts Receivable was $680,000 and net
credit sales amounted to $3,900,000 during 2002. An ageing analysis of the accounts
receivable indicated that $16,500 in accounts are expected to be uncollectible. Past experience
has shown that about 1/2 of 1% of net credit sales eventually are uncollectible.
Instructions
Prepare the adjusting entries to record estimated bad debts expense using the (1) percentage
of sales basis and (2) the percentage of receivable basis under each of the following
independent assumptions:
(a) Allowance for Doubtful Accounts has a credit balance of $3,200 before adjustment.
(b) Allowance for Doubtful Accounts has a debit balance of $730 before adjustment.
Solution
(1) Percentage of sales basis:
The following adjusting entry would be the same regardless of the balance in the Allowance
for Doubtful Accounts.
Bad Debts Expense ($3,900,000 × .005) .....................................
Allowance for Doubtful Accounts ........................................
19,500
19,500
(2) Percentage of receivables basis:
(a) Bad Debts Expense ($16,500 – $3,200) ...............................
Allowance for Doubtful Accounts ..................................
13,300
(b) Bad Debts Expense ($16,500 + $730) ..................................
Allowance for Doubtful Accounts ..................................
17,230
13,300
4. Calculate the missing amount for each of the following notes:
Principal
Annual Interest Rate
Time
Total Interest
————————————————————————————————————————
(a)
$30,000
10%
2.5 years
?
————————————————————————————————————————
(b)
$120,000
?
9 months
$8,100
————————————————————————————————————————
(c)
?
10%
3 months
$1,250
————————————————————————————————————————
(d)
$40,000
8%
?
$800
————————————————————————————————————————
4
(a)
$7,500
($30,000 × .10 × 2.5 years)
(b)
9%
($120,000 × ? × 9 ÷ 12 = $8,100; ? = 9%)
(c)
$50,000
(? × .10 × 3 ÷ 12 = $1,250; ? = $50,000)
(d)
3 months
($40,000 × .08 × ? = $800; ? = 3 ÷ 12)
17,230