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Chapter 7: 11BE (page 363)
Use the information in BE7-10 for Wood. Assume that the receivables are sold with recourse. Prepare the journal entry for Wood to record the sale, assuming that the recourse liability has a fair value of $7,500.
The business entity will recognize a loss on the sale of receivables equal to$10,500.
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(Recording Bad Debts) Duncan Company reports the following financial information before adjustments.
Debit | Credit | |
Accounts receivables | \(100,000 | |
Allowance for doubtful accounts | \)2,000 | |
Sales revenue (All on credit) | 900,000 | |
Sales return and allowance | 50,000 |
Instructions
Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.
Arness Woodcrafters sells \(250,000 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5% and retains an amount equal to 4% of accounts receivable. Arness estimates the fair value of the recourse liability to be \)8,000. Prepare the journal entry for Arness to record the sale.
(Petty Cash) Carolyn Keene, Inc. decided to establish a petty cash fund to help ensure internal control over its small cash expenditures. The following information is available for the month of April.
1. On April 1, it established a petty cash fund in the amount of \(200.
2. A summary of the petty cash expenditures made by the petty cash custodian as of April 10 is as follows
Delivery charges paid on merchandise purchased | \)60 |
Supplies Purchased and used | 25 |
Postage expenses | 33 |
I.O.U from employees | 17 |
Miscellaneous expenses | 36 |
The petty cash fund was replenished on April 10. The balance in the fund was \(27.
3. The petty cash fund balance was increased \)100 to $300 on April 20.
Instructions
Prepare the journal entries to record transactions related to petty cash for the month of April
Because of calamitous earthquake losses, Bernstein Company, one of your client’s oldest and largest customers, suddenly and unexpectedly became bankrupt. Approximately 30% of your client’s total sales have been made to Bernstein Company during each of the past several years. The amount due from Bernstein Company— none of which is collectible—equals 22% of total accounts receivable, an amount that is considerably in excess of what was determined to be an adequate provision for doubtful accounts at the close of the preceding year. How would your client record the write-off of the Bernstein Company receivable if it is using the allowance method of accounting for bad debts? Justify your suggested treatment.
On September 30, 2016, Rolen Machinery Co. sold a machine and accepted the customer’s zero-interest-bearing note. Rolen normally makes sales on a cash basis. Since the machine was unique, its sales price was not determinable using Rolen’s normal pricing practices.
After receiving the first of two equal annual installments on September 30, 2017, Rolen immediately sold the note with recourse. On October 9, 2018, Rolen received notice that the note was dishonored, and it paid all amounts due. At all times prior to default, the note was reasonably expected to be paid in full.
Instructions
(c) How should Rolen account for the effects of the note being dishonored?
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