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Chapter 7: Question: E7-12 (page 367)

(Journalizing Various Receivable Transactions) Presented below is information related to James Garfield Corp., which sells merchandise with terms 2/10, net 60. Garfield records its sales and receivables net.

July 1 James Garfield Corp. sold to Warren Harding Co. merchandise having a sales price of \(8,000.

5 Accounts receivable of \)9,000 (gross) are factored with Andrew Jackson Credit Corp. without recourse at a financing charge of 9%. Cash is received for the proceeds; collections are handled by the finance company. (These accounts were all past the discount period.)

9 Specific accounts receivable of \(9,000 (gross) are pledged to Alf Landon Credit Corp. as security for a loan of \)6,000 at a finance charge of 6% of the amount of the loan. The finance company will make the collections. (All the accounts receivable are past the discount period.)

Dec. 29 Warren Harding Co. notifies Garfield that it is bankrupt and will pay only 10% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.)

Instructions

Prepare all necessary entries in general journal form for Garfield Corp

Short Answer

Expert verified

Debit and Credit side of journal totals$30,380.

Step by step solution

01

Definition of Forfeiting Discount

Under the net method of recording discounting terms, a business entity adds back the discount to the amount of receivables if the payment is not made within the discounted period. Such a process of increasing receivables is known as forfeiting discount.

02

Journal Entries

Date

Accounts and Explanation

Debit $

Credit $

July 1

Accounts receivables (net of 2% discount)

$7,840

Sales revenue

$7,840

July 5

Cash

$8,190

Loss on Sale of receivable

$810

Accounts receivables (net of 2% discount)

$8,820

Sales discount forfeited

$180

July 9

Accounts receivable

$180

Sales discount forfeited

$180

July 9

Cash

$5,640

Interest expenses (@ 6% of $6,000)

$360

Note payable

$6,000

July 11

Accounts receivable (@ 2% of 8,000)

$160

Sales discount forfeited

$160

Dec 29

Allowance for doubtful accounts

$7,200

Accounts receivables (90% of $8,000)

$7,200

$30,380

$30,380

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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.

Corrs Wholesalers Co. sells industrial equipment for a standard 3-year note receivable. Revenue is recognized at time of sale. Each note is secured by a lien on the equipment and has a face amount equal to the equipment’s list price. Each note’s stated interest rate is below the customer’s market rate at date of sale. All notes are to be collected in three equal annual installments beginning one year after sale. Some of the notes are subsequently sold to a bank with recourse, some are subsequently sold without recourse, and some are retained by Corrs. At year end, Corrs evaluates all outstanding notes receivable and provides for estimated losses arising from defaults.

Instructions

At December 31, 2017, how should Corrs measure and account for the impact of estimated losses resulting from notes receivable that it

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Instructions

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Use the information presented in BE7-5 for Wilton, Inc.

(a) Instead of an Allowance for Doubtful Accounts Balance of \(2,400 credit, the balance was \)1,900 debit. Assume that 10% of accounts receivable will prove to be uncollectible. Prepare the entry to record bad debt expenses.

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BE7-5 (L03) Wilton, Inc. had net sales in 2017 of \(1,400,000. At December 31, 2017, before adjusting entries, the balances in selected accounts were Accounts Receivable \)250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 8% of its receivables will prove to be uncollectible, prepare the December 31, 2017, journal entry to record bad debt expense.
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