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Chapter 8: Q3RQ (page 465)
What is a critical element of internal control in the handling of receivables by a business? Explain how this element is accomplished.
Answer
A critical element of internal control is the separation of duties related to managing cash and cash-accounting duties.
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Williams Company uses the direct write-off method to account for uncollectible receivables. On July 18, Williams wrote off a
$6,800 account receivable from customer W. Jennings. On August 24, Williams unexpectedly received full payment from Jennings
on the previously written off account.
7. Journalize Williams’s write-off on the uncollectible receivable.
8. Journalize Williams’s collection of the previously written off receivable
On August 1, Taylor Company lent $80,000 to L. King on a 90-day, 5% note.
12. Journalize for Taylor Company the lending of the money on August 1.
13. Journalize the collection of the principal and interest at maturity. Specify the date. Round interest to the nearest dollar.
Professional Steam Cleaning performs services on account. When a customer account becomes four months old, Professional converts the account to a note receivable. During 2018, the company completed the following transactions:
2018 | |
Apr.28 | Performed service on account for Parkview Club, \(18,000. |
Sep. 1 | Received an \)18,000, 60-day, 12% note from Parkview Club in satisfaction of its past-due account receivable. |
Oct. 31 | Collected the Parkview Club note at maturity |
Record the transactions in Professional’s journal. Round to the nearest dollar.
On June 1, 2018, Best Performance Cell Phones sold \(21,000 of merchandise to Anthony Trucking Company on account. Anthony fell on hard times and on July 15 paid only \)5,000 of the account receivable. After repeated attempts to collect, Best Performance finally wrote off its accounts receivable from Anthony on September 5. Six months later, on March 5, 2019, Best Performance received Anthony’s check for $16,000 with a note apologizing for the late payment.
Requirements
1. Journalize the transactions for Best Performance Cell Phones using the direct write-off method. Ignore Cost of Goods Sold.
2. What are some limitations that Best Performance will encounter when using the direct write-off method?
Accounting for uncollectible accounts using the allowance method
(aging-of-receivables) and reporting receivables on the balance sheet
At September 30, 2018, the accounts of Spring Mountain Medical Center (SMMC)
include the following:
During the last quarter of 2018, SMMC completed the following selected transactions:
• Sales on account, \(475,000. Ignore Cost of Goods Sold.
• Collections on account, \)451,800.
• Wrote off accounts receivable as uncollectible: Randall, Co., \(1,800; Oliver Welch,
\)900; and Rain, Inc., \(500
• Recorded bad debts expense based on the aging of accounts receivable, as follows:
Age of Accounts
1–30 Days 31–60
Days
61–90
Days
Over 90
Days
Accounts Receivable \) 97,000 \( 37,000 \) 17,000 $ 14,000
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 Spring Mountain Medical Center should report net accounts receivable
on its December 31, 2018, balance sheet.
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