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Chapter 7: 18BE (page 364)

Assume that Toni Braxton Company has recently fallen into financial difficulties. By reviewing all available evidence on December 31, 2017, one of Toni Braxton’s creditors, the National American Bank, determined that Toni Braxton would pay back only 65% of the principal at maturity. As a result, the bank decided that the loan was impaired. If the loss is estimated to be $225,000, what entry(ies) should National American Bank make to record this loss?

Short Answer

Expert verified

Theloss will be recorded as bad debt expenses.

Step by step solution

01

Definition of Maturity

Maturity can be defined as the specified time on which the amount due as a loan and any accrued interest is to be repaid.

02

Journal Entries to Record Loss

Date

Accounts and Explanation

Debit $

Credit $

Bad debt expenses

$225,000

Allowance for doubtful accounts

$225,000

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Most popular questions from this chapter

On January 1, 2017, Lombard Co. sells property for which it had paid \(690,000 to Sargent Company, receiving in return Sargent’s zero-interest-bearing note for \)1,000,000 payable in 5 years. What entry would Lombard make to record the sale, assuming that Lombard frequently sells similar items of property for a cash sales price of $640,000?

(Bad-Debt Reporting) Presented below is information related to the Accounts Receivable accounts of Gulistan Inc. during the current year 2017.

1. An aging schedule of the accounts receivable as of December 31, 2017, is as follows.

Age

Net Debit Balance

% to be applied after correction is made

Under 60-days

\(172,342

1%

60-90 days

136,490

3%

91-120 days

39,924

6%

Over 120 days

23,644

\)3,700 definitely uncollectible; estimated remainder uncollectible is 25%

\(372,400

*The \)3,240 write-off of receivables is related to the 91-to-120 day category.

2. The Accounts Receivable control account has a debit balance of \(372,400 on December 31, 2017.

3. Two entries were made in the Bad Debt Expense account during the year: (1) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (2) a credit for \)3,240 on November 3, 2017, and a debit to Allowance for Doubtful Accounts because of a bankruptcy.

4. Allowance for Doubtful Accounts is as follows for 2017.

Allowance for Doubtful Accounts

Nov 3

Uncollectible accounts written off

3,240

Jan 1

Beginning balance

8,750

Dec 31

5% of \(372,400

18,620

5. A credit balance exists in Accounts Receivable (60–90 days) of \)4,840, which represents an advance on a sales contract.

Instructions

Assuming that the books have not been closed for 2017, make the necessary correcting entries.

(Journalize Various Accounts Receivable Transactions) The balance sheet of Starsky Company at December 31, 2016, includes the following.

Note receivable

\(36,000

Accounts receivable

182,100

Less: Allowance for doubtful accounts

17,300

\)200,800

Transactions in 2017 include the following.

1. Accounts receivable of \(138,000 were collected including accounts of \)60,000, on which 2% sales discounts were allowed.

2. \(5,300 was received in payment of an account which was written off the books as worthless in 2016.

3. Customer accounts of \)17,500 were written off during the year.

4. At year-end, Allowance for Doubtful Accounts was estimated to need a balance of $20,000. This estimate is based on an analysis of aged accounts receivable.

Instructions

Prepare all journal entries necessary to reflect the transactions above.

(Bank Reconciliation and Adjusting Entries) Presented below is information related to Haselhof Inc. Balance per books at October 31, \(41,847.85; receipts \)173,523.91; disbursements \(164,893.54. Balance per bank statement November 30, \)56,274.20.

The following checks were outstanding at November 30.

1224

\(1,635.29

1230

2,468.30

1232

2,125.15

1233

482.17

Included with the November bank statement and not recorded by the company were a bank debit memo for \)27.40 covering bank charges for the month, a debit memo for \(372.13 for a customer’s check returned and marked NSF, and a credit memo for \)1,400 representing bond interest collected by the bank in the name of Haselhof Inc. Cash on hand at November 30 recorded and awaiting deposit amounted to $1,915.40.

Instructions

(a) Prepare a bank reconciliation (to the correct balance) at November 30, for Haselhof Inc. from the information above.

(b) Prepare any journal entries required to adjust the cash account at November 30.

(Transfer of Receivables with Recourse) Beyoncé Corporation factors \(175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2017. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments.

Instructions

(a) What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?

(b) Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2017, for Beyoncé to record the sale of receivables, assuming the recourse obligation has a fair value of \)2,000.
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