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Chapter 8: Q18RQ (page 465)

What is the difference between the percent-of-receivables and aging-of-receivables methods?

Short Answer

Expert verified

Percent-of-receivables method computes bad debts expense as a percentage of Ending balance of accounts receivable. Whereas, aging-of-receivables method computes bad debts expense byapplying a different percentage for each aging category of accounts receivable

Step by step solution

01

Explanation on bad debts expense

The amount which cannot be collected from the credit customers, which is bad debts expense.

02

Difference between percent-of- receivables and aging-of- receivables

SNO

Percent-of-receivable

Ageing-of-receivable

1

Bad debts is calculated on ending balance of accounts receivablemultipliedwith estimated percentage.

Bad debts is calculated by applying different percentage for each aging category of accounts receivable.

2

Single bad debtspercentage is used to estimate bad debts expense.

Each category wise percentage has to assigned.

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Most popular questions from this chapter

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.

Question:

Journalizing note receivable transactions including a dishonored note

On September 30, 2018, Team Bank loaned $94,000 to Kendall Warner on a one-year, 6% note. Team’s fiscal year ends on December 31.

Requirements

1. Journalize all entries for Team Bank related to the note for 2018 and 2019.

2. Which party has a

a. note receivable?

b. note payable?

c. interest revenue?

d. interest expense?

3. Suppose that Kendall Warner defaulted on the note. What entry would the Team record for the dishonored note?

Question: On June 6, Lakeland Bank & Trust lent $80,000 to Stephan Stow on a 30-day, 9% note.

Requirements

1. Journalize for Lakeland the lending of the money on June 6.

2. Journalize the collection of the principal and interest at maturity. Specify the date Round to the nearest dollar

When dealing with receivables, give an example of a subsidiary account

At September 30, 2018, the accounts of Green Terrace Medical Center (GTMC)

include the following:

Accounts Receivable \( 145,000

Allowance for Bad Debts (credit balance) 3,500

During the last quarter of 2018, GTMC completed the following selected transactions:

• Sales on account, \)450,000. Ignore Cost of Goods Sold.

• Collections on account, \(427,100

• Wrote off accounts receivable as uncollectible: Regan, Co., \)1,400; Owen Reis, \(800;

and Patterson, Inc., \)700

• Recorded bad debts expense based on the aging of accounts receivable, as follows:

Age of Accounts

1–30 Days 31–60

Days

61–90

Days

Over 90

Days

Accounts Receivable \( 104,000 \) 39,000 \( 14,000 \) 8,000

Estimated percent uncollectible 0.3% 3% 30% 35%

Requirements

1. Open T-accounts for Accounts Receivable and Allowance for Bad Debts.

Journalize the transactions (omit explanations) and post to the two accounts.

2. Show how Green Terrace Medical Center should report net accounts receivable on

its December 31, 2018, balance sheet.
See all solutions

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