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Chapter 8: Q12RQ (page 465)
When is bad debts expense recorded when using the allowance method?
Answer
Under the allowance method, bad debt expenses are recorded at year-end while preparing the adjusting entries.
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Accounting for notes receivable and accruing interestCarley Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term
(1) Apr. 1 $ 6,000 7% 1 year
(2) Sep. 30 12,000 6% 6 months
(3) Sep. 19 18,000 8% 90 days
Requirements
1. Determine the maturity date and maturity value of each note.
2. Journalize the entries to establish each Note Receivable and to record the collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31, 2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.
Unique Media Sign Incorporated sells on account. Recently, Unique reported the following figures:
2018 | 2017 | |
Net Credit Sales | \( 594,920 | \)602,000 |
Net Receivables at end of year | 38,500 | 47,100 |
Requirements
1. Compute Unique’s days’ sales in receivables for 2018. (Round to the nearest day.)
2. Suppose Unique’s normal credit terms for a sale on account are 2/10, net 30. How well does Unique’s collection period compare to the company’s credit terms? Is this good or bad for Unique?
Suppose The Right Rig Dealership is opening a regional office in Omaha. Cary Regal, the office manager, is designing the internal control system. Regal proposes the following procedures for credit checks on new customers, sales on account, cash collections, and write-offs of uncollectible receivables:
• The credit department runs a credit check on all customers who apply for credit. When an account proves uncollectible, the credit department authorizes the write off of the accounts receivable.
• Cash receipts come into the credit department, which separates the cash received from the customer remittance slips. The credit department lists all cash receipts by customer name and amount of cash received.
• The cash goes to the treasurer for deposit in the bank. The remittance slips go to the accounting department for posting to customer accounts.
• The controller compares the daily deposit slip to the total amount posted to customer accounts. Both amounts must agree.
Recall the components of internal control. Identify the internal control weakness in this situation, and propose a way to correct it.
What are some limitations of using the direct write-off method?
When using the allowance method, how are accounts receivable shown on the balance sheet?
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