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Chapter 8: Q21E (page 472)

During August 2018, Lima Company recorded the following:

• Sales of \(133,300 (\)122,000 on account; \(11,300 for cash). Ignore Cost of Goods Sold.

• Collections on account, \)106,400.

• Write-offs of uncollectible receivables, \(990.

• Recovery of receivable previously written off, \)800.

Requirement:

1. Journalize Lima’s transactions during August 2018, assuming Lima uses the direct write-off method.

2. Journalize Lima’s transactions during August 2018, assuming Lima uses the allowance method

Short Answer

Expert verified

(1) Journal entries under direct write-off method are recorded in Step 1.

(2) Journal entries under allowance method are recorded in Step 2.

Step by step solution

01

Journal entries under direct write-off method

Date

Account and explanation

Debit

Credit

August 2018

Accounts receivable

$ 122,000

Sales Revenue

$ 122,000

(Sold goods on account)

August 2018

Cash

$ 11,300

Sales Revenue

$ 11,300

(Sold goods on cash)

August 2018

Cash

$ 106,400

Accounts receivable

$ 106,400

(Collected cash on account.)

August 2018

Bad Debts

$ 990

Accounts Receivable

$ 990

(Recorded bad debts expense for the period.)

August 2018

Account Receivable

$800

Bad Debts

$800

(Reinstated previously written off account)

August 2018

Cash

$800

Accounts receivable

$ 800

(Collected cash on account.)

August 2018

Bad debts

$190

Allowance for Bad debts

$190

(Recorded bad debts expense for the period.)

02

Journal entries under allowance method

Date

Account and explanation

Debit

Credit

August 2018

Accounts receivable

$ 122,000

Sales Revenue

$ 122,000

(Sold goods on account)

August 2018

Cash

$ 11,300

Sales Revenue

$ 11,300

(Sold goods on cash)

August 2018

Cash

$ 106,400

Accounts receivable

$ 106,400

(Collected cash on account.)

August 2018

Allowance for Bad Debts

$ 990

Accounts Receivable

$ 990

(Recorded bad debts expense for the period.)

August 2018

Account Receivable

$800

Allowance for Bad Debts

$800

(Reinstated previously written off account)

August 2018

Cash

$800

Accounts receivable

$ 800

(Collected cash on account.)

August 2018

Bad debts

$190

Allowance for Bad debts

$190

(Recorded bad debts expense for the period.)

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Most popular questions from this chapter

Applying the allowance method to account for uncollectibles

The Accounts Receivable balance and Allowance for Bad Debts for Signature Lamp

Company at December 31, 2017, was \(10,800 and \)2,000 (credit balance), respectively.

During 2018, Signature Lamp Company completed the following transactions:

a. Sales revenue on account, \(273,400 (ignore Cost of Goods Sold).

b. Collections on account, \)223,000.

c. Write-offs of uncollectibles, \(5,900.

d. Bad debts expense of \)5,200 was recorded

Requirements

1. Journalize Signature Lamp Company’s transactions for 2018 assuming Signature Lamp Company uses the allowance method.

2. Post the transactions to the Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense T-accounts, and determine the ending balance of each account.

3. Show how accounts receivable would be reported on the balance sheet at December 31, 2018.

How do the percent-of-receivables and aging-of-receivables methods compute bad debts expense?

What does the accounts receivable turnover ratio measure, and how is it calculated?

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.)

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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