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Chapter 8: Q9RQ (page 465)
What is the expense account associated with the cost of uncollectible receivables called?
Answer
Bad debt expense is the expense account associated with the cost of uncollectible receivables.
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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.
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.)
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.
When dealing with receivables, give an example of a subsidiary account
Unique Media Sign Incorporated sells on account. Recently, Unique reported the following figures:
2018 | 2017 | |
Net Credit Sales | \( 594,920 | \)602,000 |
Net Receivables at end of year | 38,500 | 47,100 |
Requirements
1. Compute Unique’s days’ sales in receivables for 2018. (Round to the nearest day.)
2. Suppose Unique’s normal credit terms for a sale on account are 2/10, net 30. How well does Unique’s collection period compare to the company’s credit terms? Is this good or bad for Unique?
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