Chapter
Review
Exercise
9-10
McGraw-Hill/Irwin1
© The McGraw-Hill Companies, Inc., 2006
Exercise 1: Bad Debt Expense, Allowance
Method, Percent of Sales Method (Chap 9)
Alvare Company
 Dec.31, estimate 0.5% bad debt of annual credit sales of
$875,000
 Feb.1, decide that $420 account of P. Coble is uncollectible
and write it off as a Bad Debt
 June 5, Coble unexpectedly pays the amount previously
written off
McGraw-Hill/Irwin2
© The McGraw-Hill Companies, Inc., 2006
Exercise 1: Bad Debt Expense, Allowance
Method, Percent of Sales Method (Chap 9)
Alvare Company



Dec.31, estimate 0.5% bad debt of annual credit sales of $875,000
Feb.1, decide that $420 account of P. Coble is uncollectible and write it off
June 5, Coble unexpectedly pays the amount previously written off
Annual Credit Sales
Bad Debt Ratio
Bad Debt Expense
Dec.31
Bad Debt Expense
Allowance for Doudtful Accounts
875,000
0.50%
4,375
4,375
4,375
Bad Debt Adjustment at year end
Feb.1
Allowance for Doudtful Accounts
Account Receivable - P.Coble
420
420
Write off bad debt of P.Coble
June.5
Account Receivable - P.Coble
Allowance for Doubtful Accounts
420
Cash
420
Account Receivable - P.Coble
420
420
P.Coble paid the account fomerly written off
McGraw-Hill/Irwin3
© The McGraw-Hill Companies, Inc., 2006
Exercise 2: Bad Debt Expense, Allowance Method,
Percent of Account Receivable Method (Chap 9)
Cabool Supply Co.
 Dec.31, 2005, outstanding account receivable $53,000,
estimate 4% uncollectible
 (a) Allowance for Doubtful Accounts has $915 credit balance
 (b) Allowance for Doubtful Accounts has $1,332 debit
balance
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© The McGraw-Hill Companies, Inc., 2006
Cabool Supply Co.
Dec.31, 2205, outstanding account receivable $53,000, estimate 4% uncollectible
(a) Allowance for Doubtful Accounts has $915 credit balance
(b) Allowance for Doubtful Accounts has $1,332 debit balance
Year-end outstanding Account Receivable
Uncollectible ratio
Adjusted Allowance for Doubtful Accounts
53,000
4%
2,120
a)
Allowance for Doubtful Accounts
unadjuted Bal.
Bad Debt Expense
Adjuted Bal.
De.31 Bad Debt Expense
Allowance for Doubtful Accounts
915
1,205
2,120
1,205
1,205
Bad Debt Adjustement at year end
b)
unadjuted Bal.
Allowance for Doubtful Accounts
1,332
Bad Debt Expense
Adjuted Bal.
De.31 Bad Debt Expense
Allowance for Doubtful Accounts
3,452
2,120
3,452
3,452
Bad Debt Adjustement at year end
McGraw-Hill/Irwin5
© The McGraw-Hill Companies, Inc., 2006
Exercise 3: Note Receivable, Interest Revenue (Chap 9)
Deshawn Company
2004
Dec.13, accept $10,000, 60-day,8% note dated Dec.13 in granting Clark a time
extension on her past-due account receivable.
Dec.31, Prepare adjusting entry for accrued interest of Clark note.
2005
Feb.11, Receive Clark’s payment for principle and interest on note of Dec.13
Mar.3, accept $4,000, 90-day,10% note dated Mar.3 in granting Shandi Company a
time extension on her past-due account receivable.
Mar.17, accept $2,000, 30-day,9% note dated Mar.17 in granting Torres a time
extension on her past-due account receivable.
Apr.16, Torres dishonor his note when presented for payment.
May.1, Wrote off Torres account against allowance for Doubtful Accounts
June.1 Receive Shandi payment for principle and interest on note of Mar.17
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2004
Dec.13
Note Receivable - Clark
Account Receivable -Clark
10,000
10,000
Accept Note receivable for past-due Account receivable of Clark
Dec.31
Interest Receivable
Interest Revenue
40
40
Record Accrued Interest revenue
2005
Feb.11
Cash
10,133
Note receivable - Clark
Interest Receivale
Interest Revenue
10,000
40
93
Clark pay the Note Receivable and Interest
Mar.3
Note Receivable - Shandi
Account Receivable -Shandi
4,000
4,000
Accept Note receivable for past-due Account receivable of Shandi
Mar.17
Note Receivable - Torres
Account Receivable Torres
2,000
2,000
Accept Note receivable for past-due Account receivable of Torris
Apr.16
Account Receivable - Torres
Note Receivable -Torres
Interest Revenue
2,015
2,000
15
Torris dishonor Note receivable
May.1
Allowance for Doubtful Accounts
Account Receivable - Torres
2,015
2,015
Write off Torris' Account receivable
June.1
Cash
4,100
Note Receivable -Shandi
Interesr Revenue
Shandi pay the Note Receivable and Interest
McGraw-Hill/Irwin7
4,000
100
© The McGraw-Hill Companies, Inc., 2006
Exercise 4: Extraordinary Repairs, Plant Asset Depreciation
(Chap 10)
Passat Company has a building with original cost
$561,000, and Accumulate Depreciation $420,750
 The building has 20-year life and no salvage value, and
depreciate with straight-line method
 Major structural repair costing $67,200 completed
during first week of January.
 The repair will extend useful life of building for 7 years.




What’s the age of building?
Journal entry for structural repair
Book value of building immediately after repair?
Journal entry for current year’s depreciation?
McGraw-Hill/Irwin8
© The McGraw-Hill Companies, Inc., 2006
Exercise 4: Extraordinary Repairs, Plant Asset Depreciation
(Chap 10)
Passat Company has a building with
original cost $561,000, and
Accumulate Depreciation $420,750







The building has 20-year life and no
salvage value, and depreciate with
straight-line method
Major structural repair costing
$67,200 completed during first week
of January.
The repair will extend useful life of
building for 7 years.
What’s the age of building?
Journal entry for structural repair
Book value of building immediately
after repair?
Journal entry for current year’s
depreciation?
McGraw-Hill/Irwin9
Divide
Multiple
Jan.1
Building Original Cost
Salvage Value
useful life
Annual Depriciation
Service years
Accumulate Depriciation
561,000
0
20
28,050
15
420,750
Building
Cash
67,200
67,200
Record Extraordinary Repair
Less
Add
Dec.31
Building Original Cost
Accumulate Depriciation
Building Book Value
Extraordinary Repair Cost
Building Book Value after Extra. Repair
Useful life
Annual Depriciation after Extra. Repair
Depriciation Expense
Accumulated Depriciation - Building
561,000
420,750
140,250
67,200
207,450
12
17,288
17,288
17,288
Record Depreciation Expense
© The McGraw-Hill Companies, Inc., 2006
Exercise 5: Plant asset disposal, exchange similar assets
(Chap 10)
Jan.2, Atlantic Co. dispose a machine costing $42,000 with
accumulated depreciation $22,625. Prepare journal entry for,
(a) Machine is sold for $16,250
(b) Machine is traded in on a similar machine with $58,500 cash price. A
$20,000 trade-in allowance is received, and balance is paid in cash.
(c) Machine is traded in on a similar machine with $58,500 cash price. A
$15,000 trade-in allowance is received, and balance is paid in cash.
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Less
Less
Machine Cost
Accumulated Depriciation
Book Value of Machine
Disposal Value of Machine
Loss on Disposal of Machine
42,000
22,625
19,375
16,250
3,125
Cash
Loss on Disposal of Machinery
Accumulated Depriciation - Machinery
Machinery
16,250
3,125
22,625
42,000
(b)
Less
Market Value of New Machine
Old Machine Cost
Accumulated Depriciation
Book Value of Old Machine
Cash
Book Value of Assets given up
Gain on Exchange
New Machinery
Accumulated Depriciation - Old Machinery
Cash
Old Machinery
58,500
42,000
22,625
19,375
38,500
57,875
625
57,875
22,625
38,500
42,000
( c)
Less
Market Value of New Machine
Old Machine Cost
Accumulated Depriciation
Book Value of Old Machine
Cash
Book Value of Assets given up
Loss on Exchange
New Machinery
Loss on Exchange of Machinery
Accumulated Depriciation - Old Machinery
Cash
Old Machinery
McGraw-Hill/Irwin11
58,500
42,000
22,625
19,375
43,500
62,875
4,375
58,500
4,375
22,625
43,500
42,000
© The McGraw-Hill Companies, Inc., 2006