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Chapter 7: Question: E7-11 (page 366)

(Bad Debts—Aging) Danica Patrick, Inc. includes the following account among its trade receivables.

Hopkins Company

1/1

Balance forward

700

1/28

Cash (#1710)

$1,100

1/20

Invoice #1710

1,100

4/2

Cash (#2116)

1,350

3/14

Invoice #2116

1,350

4/10

Cash (1/1 Balance)

155

4/12

Invoice #2412

1,710

4/30

Cash (#2412)

1,000

9/5

Invoice #3614

490

9/20

Cash (#3614 and part of #2412)

790

10/17

Invoice #4912

860

10/31

Cash (#4912)

860

11/18

Invoice #5681

2,000

12/1

Cash (#5681)

1,250

12/20

Invoice #6347

800

12/29

Cash (#6347)

800

Instructions

Age the balance and specify any items that apparently require particular attention at year-end

Short Answer

Expert verified

The total balance of receivables is$1,705.

Step by step solution

01

Definition of Aging of Receivables

The process of sorting accounting receivables on the basis of time for which they are outstanding is known as the aging of receivables.

02

Aging of Balance

Date

Amount

Aging

Balance 1/1

$700-$155

$545

Over one year

4/12 (#2412)

$1,710-1,000-300

$410

8 months and 19 days

11/18$2,000-1,250

$750

1 month and 13 days

$1,705

All the invoices are paid by the company in full. The above three items must be investigated as to why their payments have not been made. The major concerns are opening balance and 2412.

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Most popular questions from this chapter

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

What are the effects of the sale of the note receivable with recourse on Rolen’s income statement for the year ended December 31, 2017, and its balance sheet at December 31, 2017?

(Expected Cash Flows) On December 31, 2017, Conchita Martinez Company signed a \(1,000,000 note to Sauk City Bank. The market interest rate at that time was 12%. The stated interest rate on the note was 10%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Conchita Martinez’s financial situation worsened. On December 31, 2019, Sauk City Bank determined that it was probable that the company would pay back only \)600,000 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,000,000 loan.

Instructions

(a) Determine the amount of cash Conchita Martinez received from the loan on December 31, 2017.

(b) Prepare a note amortization schedule for Sauk City Bank up to December 31, 2019.

(c) Determine the loss on impairment that Sauk City Bank should recognize on December 31, 2019.

What is “imputed interest”? In what situations is it necessary to impute an interest rate for notes receivable? What are the considerations in imputing an appropriate interest rate?

(Transfer of Receivables with Recourse) Ames Quartet Inc. factors receivables with a carrying amount of \(200,000 to Joffrey Company for \)160,000 on a with recourse basis.

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

(1) How should Rolen determine the sales price of the machine?

(2) How should Rolen report the effects of the zero-interest-bearing note on its income statement for the year ended December 31, 2016? Why is this accounting presentation appropriate?

See all solutions

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