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Chapter 8: Q7RQ (page 465)
What occurs when a business factors its receivables?
It sells its receivables to a finance company or bank.
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P8-38B Accounting for uncollectible accounts (aging-of-receivables method),
notes receivable, and accrued interest revenue
Relax Recliner Chairs completed the following selected transactions:
2018
Jul. 1 Sold merchandise inventory to Go-Mart, receiving a \(43,000, nine-month,
16% note. Ignore Cost of Goods Sold.
Oct. 31 Recorded cash sales for the period of \)23,000. Ignore Cost of Goods Sold.
Dec. 31 Made an adjusting entry to accrue interest on the Go-Mart note.
31 Made an adjusting entry to record bad debts expense based on an aging
of accounts receivable. The aging schedule shows that \(14,900 of accounts
receivable will not be collected. Prior to this adjustment, the credit balance
in Allowance for Bad Debts is \)10,700.
2019
Apr. 1 Collected the maturity value of the Go-Mart note.
Jun. 23 Sold merchandise inventory to Allure, Corp., receiving a 60-day, 6% note for
\(7,000. Ignore Cost of Goods Sold.
Aug. 22 Allure, Corp. dishonored its note at maturity; the business converted the
maturity value of the note to an account receivable.
Nov. 16 Loaned \)20,000 cash to Tench, Inc., receiving a 90-day, 8% note.
Dec. 5 Collected in full on account from Allure, Corp.
31 Accrued the interest on the Tench, Inc. note.
Record the transactions in the journal of Relax Recliner Chairs. Explanations are not
required. (Round to the nearest dollar.)
When a receivable is written off under the allowance method, how does it affect the net realizable value shown on the balance sheet?
How does the percent-of-sales method compute bad debts expense?
What is a critical element of internal control in the handling of receivables by a business? Explain how this element is accomplished.
Question: Endurance Running Shoes reports the following:
2018 | |
May 6 | Recorded credit sales of \(102,000. Ignore Cost of Goods Sold. |
Jul. 1 | Loaned \)18,000 to Jerry Paul, an executive with the company, on a one-year, 7% note |
Dec. 31 | Accrued interest revenue on the Paul note |
2019 | |
Jul. 1 | Collected the maturity value of the Paul note |
Journalize all entries required for Endurance Running Shoes.
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