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Chapter 8: Q5RQ (page 465)
What type of account must the sum of all subsidiary accounts be equal to?
There must be a match between each subsidiary receivable and the overall balance in the control account, Accounts Receivable.
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Consider the following transactions for CC Publishing.
2018
Dec. 6 Received a \(18,000, 90-day, 6% note in settlement of an overdue accountsreceivable from Go Go Publishing.
31 Made an adjusting entry to accrue interest on the Go Go Publishing note.
31 Made a closing entry for interest revenue.
2019
Mar. 6 Collected the maturity value of the Go Go Publishing note.
Jun. 30 Loaned \)11,000 cash to Lincoln Music, receiving a six-month, 20% note.
Oct. 2 Received a $2,400, 60-day, 20% note for a sale to Tusk Music. Ignore Cost ofGoods Sold.
Dec. 1 Tusk Music dishonored its note at maturity.
1 Wrote off the receivable associated with Tusk Music. (Use the allowance method.)
30 Collected the maturity value of the Lincoln Music note.
Journalize all transactions for CC Publishing. Round all amounts to the nearest dollar.
Johnson Company uses the allowance method to account for uncollectible receivables. On September 2, Johnson wrote off a
\(14,000 account receivable from customer J. Mraz. On December 12, Johnson unexpectedly received full payment from Mraz on
the previously written off account. Johnson records an adjusting entry for bad debts expense of \)800 on December 31.
9. Journalize Johnson’s write-off of the uncollectible receivable.
10. Journalize Johnson’s collection of the previously written off receivable.
11. Journalize Johnson’s adjustment for bad debts expense.
Weddings on Demand sells on account and manages its own receivables. My average
experience for the past three years has been as follows:
Sales \( 350,000
Cost of Goods Sold 210,000
Bad Debts Expense 4,000
Other Expenses 61,000
Unhappy with the amount of bad debts expense she has been experiencing, Aledia
Sanchez, controller, is considering a major change in the business. Her plan would be
to stop selling on account altogether but accept either cash, credit cards, or debit cards
from her customers. Her market research indicates that if she does so, her sales will
increase by 10% (i.e., from \)350,000 to \(385,000), of which \)200,000 will be credit
or debit card sales and the rest will be cash sales. With a 10% increase in sales, there
will also be a 10% increase in Cost of Goods Sold. If she adopts this plan, she will
no longer have bad debts expense, but she will have to pay a fee on debit/credit card
transactions of 2% of applicable sales. She also believes this plan will allow her to save
$5,000 per year in other operating expenses.
Should Sanchez start accepting credit cards and debit cards? Show the
computations of net income under her present arrangement and under the plan.
Accounting for notes receivable and accruing interestLogan Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term
(1) Oct. 1 $ 16,000 7% 1 year
(2) Jun. 30 18,000 18% 9 months
(3) Sep. 19 12,000 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 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.
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.
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