Chapter 9 Exercises Accounting for Receivables Percent of Sales • In-Class Exercise: Exercise No. 9-4 Page 382 Percent of Sales Method Percent of Sales Method Exercise 9-4 (Percent of Sales Method) At year-end (December 31), Alvare Company estimates its bad debts as 0.5% of its annual credit sales of $875,000. Alvare records its Bad Debts Expense for that estimate. On the following February 1, Alvare decides that the $420 account of P. Coble is uncollectible and writes it off as a bad debt. On June 5, Coble unexpectedly pays the amount previously written off. Prepare the journal entries of Alvare to record these transactions and events of December 31, February1, and June 5. Percent of Sales Method Percent of Accounts Receivable • In-Class Exercise): Exercise No. 9-5 Page 382 Percent of Accounts Receivable Method Percent of Accounts Receivable Method Exercise 9-5 (Percent of Receivables Method) At each calendar year-end, Cabool Supply Co. uses the percent of accounts receivable method to estimate bad debts. On December 31, 2011, it has outstanding accounts receivable of $53,000, and it estimates that 4% will be uncollectible. Prepare the adjusting entry to record bad debts expense for year 2011 under the assumption that the Allowance for Doubtful Accounts has: (a) a $915 credit balance before the adjustment, and (b) a $1,332 debit balance before the adjustment. Percent of Accounts Receivable Method ( Aging of Accounts Receivable • In-Class Exercise: Exercise No. 9-6 Page 379 Aging of Accounts Receivable Method Aging of Accounts Receivable Method Exercise 9-6 (Aging of Receivables Method) Hecter Company estimates uncollectible accounts using the allowance method at December 31. It prepared the following aging of receivables analysis. Total Accounts receivable……190,000 Percent uncollectible….. Days Pas Due 1 to 30 31 to 60 61 to 90 Over 90 $132,000 $30,000 $6,000 $10,000 1% 2% 0 $12,000 4% 7% 12% (a) Estimate the balance of the Allowance for Doubtful Accounts using the aging of accounts receivable method. (b) Prepare the adjusting entry to record Bad Debts Expense using the estimate from Part (a). Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $600 credit. (c) Prepare the adjusting entry to record Bad Debts Expense using the estimate from Part (a). Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $400 debit. . . Aging of Accounts Receivable Method Aging of Accounts Receivable Method Notes Receivable • In-Class Exercise: Exercise No. 9- 13 Page 384 Notes Receivable Transactions Notes Receivable Exercise 9-13 Prepare journal entries for the following selected transactions of Deshawn Company for 2010. 2010 Dec. 13 Accepted a $10,000, 45-day, 8% note dated December 13 in granting Latisha Clark a time extension on her past-due accounts receivable. 31 Prepared an adjusting entry to record the accrued interest on the Clark note. Notes Receivable Notes Receivable • In-Class Exercise: Exercise No. 9- 14 Page 384 Notes Receivable Transactions Notes Receivable Interest = $10,000 x 8’% x 45/360 = $100 Maturity Value = $10,000 + $100 = $10,100 Notes Receivable Interest Accrual from December 31 Notes Receivable Interest = $100 - $40 = $60 or $10,000 x 8’% x 27/360 = $60 Notes Receivable Notes Receivable Interest = $2,000 x 9’% x 30/360 = $15 Maturity Value = $2,000 + $15 = $2,015 Notes Receivable Notes Receivable Interest = $4,000 x 10’% x 90/360 = $100 Maturity Value = $4,000 + $100 = $4,100 Notes Receivable Notes Receivable • In-Class Exercise: Exercise No. HO 9-1 Page HO Discounting a Note (Information for the exercise is reflected on the next chart) Discounting Notes Receivable Discounting Notes Receivable Discounting Notes Receivable