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Chapter 7: Question 15 (page 362)

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?

Short Answer

Expert verified

Since Lombard is a property dealer, sales revenue is credited for$640,000

Step by step solution

01

Definition of Zero-Interest Bearing Note

The notes issued by the business entity that does not have any coupon rate are known as zero interest-bearing notes. The issuer is not required to pay any interest periodically. These notes are generally issued at a price lower than face value and redeemed at par.

02

Journal Entry

Date

Accounts and Explanation

Debit $

Credit $

1 Jan 2017

Note receivable

$1,000,000

Discount on note receivable

$360,000

Sales revenue

$640,000

Note: It is asked to assume that Lombard is a property dealer.

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Most popular questions from this chapter

Finman Company designated Jill Holland as petty cash custodian and established a petty cash fund of \(200. The fund is reimbursed when the cash in the fund is at \)15, which it is. Petty cash receipts indicate funds were disbursed for office supplies \(94 and miscellaneous expense \)87. Prepare journal entries for the establishment of the fund and the reimbursement.

(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.

(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.

(Receivables Management) As the manager of the accounts receivable department for Beavis Leather Goods, Ltd., you recently noticed that Kelly Collins, your accounts receivable clerk who is paid \(1,200 per month, has been wearing unusually tasteful and expensive clothing. (This is Beavis’s first year in business.) This morning, Collins drove up to work in a brand new Lexus.

Naturally suspicious by nature, you decide to test the accuracy of the accounts receivable balance of \)192,000 as shown in the ledger. The following information is available for your first year (precisely 9 months ended September 30, 2017) in business.

(1) Collection from Customers

$188,000

(2) Merchandise Purchased

360,000

(3) Ending merchandise inventory

90,000

(4) Goods are marked to sell ay 40% above cost.

Instructions

Assuming all sales were made on account, compute the ending accounts receivable balance that should appear in the ledger, noting any apparent shortage. Then, draft a memo dated October 3, 2017, to Mark Price, the branch manager, explaining the facts in this situation. Remember that this problem is serious, and you do not want to make hasty accusations.

The following are a series of unrelated situations. 1. Halen Company’s unadjusted trial balance at December 31, 2017, included the following accounts.

Debit \(

Credit \)

Accounts receivables

\(53,000

Allowance for doubtful accounts

4,000

Net sales

\)1,200,000

Halen Company estimates its bad debt expense to be 7% of gross accounts receivable. Determine its bad debt expense for 2017.

2. An analysis and aging of Stuart Corp. accounts receivable at December 31, 2017, disclosed the following.

Amounts estimated to be uncollectible

\(180,000

Accounts receivables

1,750,000

Allowance for doubtful accounts (per books)

125,000

What is the net realizable value of Stuart’s receivables at December 31, 2017?

3. Shore Co. provides for doubtful accounts based on 4% of gross accounts receivable, The following data are available for 2017.

Credit sales during 2017

\)4,400,000

Bad debt expenses

57,000

Allowance for doubtful accounts 1/1/17

17,000

Collection of accounts written off in prior years (Customer credit was re-established)

8,000

Customer accounts written off as uncollectible during 2017

30,000

What is the balance in Allowance for Doubtful Accounts at December 31, 2017?

4. At the end of its first year of operations, December 31, 2017, Darden Inc. reported the following information.

Accounts receivable, net of allowance for doubtful accounts

\(950,000

Customer accounts written off as uncollectible during 2017

24,000

Bad debt expense for 2017

84,000

What should be the balance in accounts receivable at December 31, 2017, before subtracting the allowance for doubtful accounts?

5. The following accounts were taken from Bullock Inc.’s trial balance at December 31, 2017.

Debit

Credit

Net credit sales

\)750,000

Allowance for doubtful accounts

$14,000

Accounts receivables

310,000

If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2017.

Instructions

Answer the questions relating to each of the five independent situations as requested.
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