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Chapter 8: Q12SE (page 469)
Question: McKale Corporation has a three-month, $18,000, 9% note receivable from L. Peters that was signed on June 1, 2018. Peters defaults on the loan on September 1.
Journalize the entry for McKale to record the default of the loan
Answer
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Sleepy Recliner Chairs completed the following selected transactions:
2018
Jul. 1 Sold merchandise inventory to Stan-Mart, receiving a \(41,000, nine-month, 8%
note. Ignore Cost of Goods Sold.
Oct. 31 Recorded cash sales for the period of \)24,000. Ignore Cost of Goods Sold.
Dec. 31 Made an adjusting entry to accrue interest on the Stan-Mart note.
31 Made an adjusting entry to record bad debts expense based on an aging
of accounts receivable. The aging schedule shows that \(13,800 of accounts
receivable will not be collected. Prior to this adjustment, the credit balance in
Allowance for Bad Debts is \)11,800.
2019
Apr. 1 Collected the maturity value of the Stan-Mart note.
Jun. 23 Sold merchandise inventory to Appeal, Corp., receiving a 60-day, 6% note for
\(7,000. Ignore Cost of Goods Sold.
Aug. 22 Appeal, Corp. dishonoured its note at maturity; the business converted the
maturity value of the note to an account receivable.
Nov. 16 Loaned \)17,000 cash to Crosby, Inc., receiving a 90-day, 16% note.
Dec. 5 Collected in full on account from Appeal, Corp.
31 Accrued the interest on the Crosby, Inc. note.
Record the transactions in the journal of Sleepy Recliner Chairs. Explanations are not
required. (Round to the nearest dollar.)
What are some benefits to a business in accepting credit cards and debit cards?
At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:
a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.
b. Collections on account, \)135,000.
c. Write-offs of uncollectible receivables, $2,300.
Requirements
1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.
2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.
3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 10% of accounts receivable. Post the adjustment to the appropriate T-accounts.
4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet
Applying the allowance method (aging-of-receivables) to account for Uncollectibles Surf and Sun had the following balances at December 31, 2018, before the year-end adjustments:
Accounts Receivable
81,000 |
Allowance for Bad Debts
Bal. \( 2,063 |
The aging of accounts receivable yields the following data:
Age of Accounts Receivable | |||
0–60 Days | Over 60 Days | Total Receivables | |
Accounts Receivable | \) 78,000 | \( 3,000 | \) 81,000 |
Estimated percent uncollectible | *2% | * 23% |
Requirements
1. Journalize Surf and Sun’s entry to record bad debts expense for 2018 using the aging-of-receivables method.
2. Prepare a T-account to compute the ending balance of Allowance for Bad Debts.
How do the percent-of-receivables and aging-of-receivables methods compute bad debts expense?
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