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334 Chapter 8 • Receivables
Journalize the entries for the
5 direct write-off of uncollectible
receivables.
Under the direct write-off method, the
entry to write off an account debits
Uncollectible Accounts Expense and
credits Accounts Receivable. Neither
an allowance account nor an adjust-
ing entry is needed at the end of the
period.
Describe the nature and char-
6 acteristics of promissory notes.
A note is a written promise to pay
a sum of money on demand or at a
definite time. Characteristics of notes
that affect how they are recorded
and reported include the due date,
interest rate, and maturity value. The
basic formula for computing interest
on a note is: Principal X Rate X
Time = Interest. The due date is the
date a note is to be paid, and the
period of time between the issuance
date and the due date is normally
K ey Terms
accounts receivable (318)
accounts receivable turnover (331)
aging the receivables (324)
allowance method (321)
contra asset (321)
direct write-off method (321)
t llustrative Problem
Ditzler Company, a construction supply company, uses the allowance method of ac-
counting for uncollectible accounts receivable. Selected transactions completed by
Ditzler Company are as follows:
Feb.
Mar.
Apr.
May
June
stated in either days or months. The All receivables that are expected to
maturity value of a note is the sum
of the face amount and the interest.
be realized in cash within a year are
presented in the Current Assets sec-
tion of the balance sheet. It is nor-
Journalize the entries for
7 notes receivable transactions.
A note received in settlement of an
mal to list the assets in the order of
their liquidity, which is the order in
which they can be converted to cash
account receivable is recorded as a
in normal operations.
debit to Notes Receivable and a credit
to Accounts Receivable. When a note Compute and interpret the
matures, Cash is debited, Notes Re- 9 accounts receivable turnover
and the number of days' sales
ceivable is credited, and Interest Rev-
enue is credited. If the maker of a in receivables.
The accounts receivable turnover is
note fails to pay the debt on the due
date, the note is said to be dishon- net sales divided by average ac-
ored. When a note is dishonored, the counts receivable. It measures how
maturity value of the note is debited frequently accounts receivable are
to an accounts receivable account, being converted into cash. The num-
while the face value is credited to ber of days' sales in receivables is
Notes Receivable and Interest Rev- the end-of-year accounts receivable
enue is credited for the difference. divided by the average daily sales.
It measures the length of time the
Prepare the Current Assets
8 presentation of receivables on
the balance sheet.
accounts receivable have been out-
standing.
- e -
dishonored note receivable (329) receivables (318)
maturity value (328) uncollectible accounts expense
notes receivable (318) (320)
number of days' sales in
receivables (331)
promissory note (326)
1. Sold merchandise on account to Ames Co., $8,000. The cost of the mer-
chandise sold was $4,500.
15. Accepted a 60-day, 12% note for $8,000 from Ames Co. on account.
9. Wrote off a $2,500 account from Dorset Co. as uncollectible.
21. Loaned $7,500 cash to Jill Klein, receiving a 90-day, 14% note.
14. Received the interest due from Ames Co. and a new 90-day, 14% note
as a renewal of the loan. (Record both the debit and the credit to the
notes receivable account.)
13. Reinstated the account of Dorset Co., written off on April 9, and received
$2,500 in full payment.
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Chapter 8 • Receivables 335

July 20. Jill Klein dishonored her note.

Aug. 12. Received from Ames Co. the amount due on its note of May 14.
19. Received from Jill Klein the amount owed on the dishonored note, plus
interest for 30 days at 15%, computed on the maturity value of the note.
Dec. 16. Accepted a 60-day, 12% note for $12,000 from Global Company on
account.
31. It is estimated that 3% of the credit sales of $1,375,000 for the year
ended December 31 will be uncollectible.
Instructions
1. Journalize the transactions. Omit explanations.
2. Journalize the adjusting entry to record the accrued interest on December 31 on
the Global Company note.

Solution

Feb. 1 Accounts Receivable—Ames Co. 8 0 0 0 00

Sales 8 0 0 0 00

1 Cost of Merchandise Sold 4 5 0 0 00

Merchandise Inventory 4 5 0 0 00

Mar. 15 Notes Receivable—Ames Co. 8 0 0 0 00

Accounts Receivable—Ames Co. 8 0 0 0 00

Apr. 9 Allowance for Doubtful Accounts 2 5 0 0 00

e- Accounts Receivable—Dorset Co. 2 5 0 0 00

©
21 Notes Receivable—Jill Klein 7 5 0 0 00
Cash 7 5 0 0 00

May 14 Notes Receivable—Ames Co. 8 0 0 0 00

Cash 1 6 0 00
Notes Receivable—Ames Co. 8 0 0 0 00
Interest Revenue 1 6 0 00

June 13 Accounts Receivable—Dorset Co. 2 5 0 0 00

Allowance for Doubtful Accounts 2 5 0 0 00

13 Cash 2 5 0 0 00
Accounts Receivable—Dorset Co. 2 5 0 0 00

July 20 Accounts Receivable—Jill Klein 7 7 6 2 50

Notes Receivable—Jill Klein 7 5 0 0 00
Interest Revenue 2 6 2 50

Aug. 12 Cash 8 2 8 0 00
Notes Receivable—Ames Co. 8 0 0 0 00
Interest Revenue 2 8 0 00

19 Cash 7 8 5 9 53
Accounts Receivable—Jill Klein 7 7 6 2 50
Interest Revenue 9 7 03
($7,762.50 x 15% x 30/360)

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336 Chapter 8 • Receivables

Dec. 16 Notes Receivable—Global Company 12 0 0 0 00

Accounts Receivable—Global Company 12 0 0 0 00

31 Uncollectible Accounts Expense 41 2 5 0 00

Allowance for Doubtful Accounts 41 2 5 0 00

2.

Dec. 31 Interest Receivable 6 0 00

Interest Revenue 6 0 00
($12,000 X 12% X 15/360)

S e l f - E x a m i n a t i o n Questions (Answers at End of chapter)

1. At the end of the fiscal year, before the accounts A. $8,800 C. $10,300
are adjusted, Accounts Receivable has a balance of B. $10,000 D. $11,200
$200,000 and Allowance for Doubtful Accounts has
4. What is the due date of a $12,000, 90-day, 8% note
a credit balance of $2,500. If the estimate of un-
receivable dated August 5?
collectible accounts determined by aging the re-
A. October 31 C. November 3
ceivables is $8,500, the amount of uncollectible
B. November 2 D. November 4
accounts expense is:
A. $2,500 C. $8,500 5. When a note receivable is dishonored, Accounts
B. $6,000 D. $11,000 Receivable is debited for what amount?
A. The face value of the note
2. At the end of the fiscal year, Accounts Receivable
B. The maturity value of the note
has a balance of $100,000 and Allowance for Doubt-
C. The maturity value of the note less accrued in-
ful Accounts has a balance of $7,000. The expected
terest
net realizable value of the accounts receivable is:
D. The maturity value of the note plus accrued in-
A. $7,000 C. $100,000
terest
B. $93,000 D. $107,000
3. What is the maturity value of a 90-day, 12% note
for $10,000?

C lass Discussion Questions

1. What are the three classifications of receivables?
2. What types of transactions give rise to accounts receivable?
3. In what section of the balance sheet should a note receivable be listed if its
term is (a) 120 days, (b) 6 years?
4. Give two examples of other receivables.
5. The accounts receivable clerk is also responsible for handling cash receipts.
Which principle of internal control is violated in this situation?
6. Which of the two methods of accounting for uncollectible accounts provides for
the recognition of the expense in the period of sale?
7. What kind of an account (asset, liability, etc.) is Allowance for Doubtful Ac-
counts, and is its normal balance a debit or a credit?
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Chapter 8 • Receivables 337

8. After the accounts are adjusted and closed at the end of the fiscal year, Accounts
Receivable has a balance of $883,150 and Allowance for Doubtful Accounts has
a balance of $123,250. Describe how the accounts receivable and the allowance
for doubtful accounts are reported on the balance sheet.
9. A firm has consistently adjusted its allowance account at the end of the fiscal year
by adding a fixed percent of the period's net sales on account. After five years,
the balance in Allowance for Doubtful Accounts has become very large in rela-
tionship to the balance in Accounts Receivable. Give two possible explanations.
10. Which of the two methods of estimating uncollectibles provides for the most ac-
curate estimate of the current net realizable value of the receivables?
11. For a business, what are the advantages of a note receivable in comparison to
an account receivable?
12. Mobley Company issued a promissory note to Ellsworth Company. (a) Who is
the payee? (b) What is the title of the account used by Ellsworth Company in
recording the note?
13. If a note provides for payment of principal of $90,000 and interest at the rate
of 7%, will the interest amount to $6,300? Explain.
14. The maker of a $20,000, 9%, 120-day note receivable failed to pay the note on
the due date of July 30. What accounts should be debited and credited by the
payee to record the dishonored note receivable?
15. The note receivable dishonored in Question 14 is paid on August 29 by the
maker, plus interest for 30 days, 12%. What entry should be made to record the
receipt of the payment?
16. Under what caption should accounts receivable be reported on the balance sheet?

resources for your success online at http://warren.swlearning.com

© ©

Ir ^ Remember! If you need additional help, visit South-Western's Web Reeve

1
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that are available. http://warren.swlearning.com

Answer: Sears, Roebuck

Exercises
E X E R C I S E 8-1 Fridley Company sells carpeting. Over 50% of all carpet sales are on credit. The fol-
Internal control procedures lowing procedures are used by Fridley to process this large number of credit sales
Objective 2 and the subsequent collections.
a. A formal ledger is not maintained for customers who sign promissory notes. Fri-
dley simply keeps a copy of each signed note in a file cabinet. These unpaid
notes are filed by due date.
b. Fridley employs an accounts receivable clerk. The clerk is responsible for record-
ing customer credit sales (based on sales tickets), receiving cash from customers,
giving customers credit for their payments, and handling all customer billing com-
plaints.
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338 Chapter 8 • Receivables

c. The general ledger control account for Accounts Receivable is maintained by the
General Accounting Department at Fridley. This department records total credit
sales, based on credit sale information from the store's electronic cash register,
and total customer receipts, based on the bank deposit slip.
d. All credit sales to a first-time customer must be approved by the Credit Depart-
ment. Salespersons will assist the customer in filling out a credit application, but
an employee in the Credit Department is responsible for verifying employment
and checking the customer's credit history before granting credit.
e. Fridley's standard credit period is 45 days. The Credit Department may approve
an extension of this repayment period of up to one year. Whenever an exten-
sion is granted, the customer signs a promissory note. Up to 15% of the credit
sales in any one year are for repayment periods exceeding 45 days.
J - State whether each of these procedures is appropriate or inappropriate, con-
sidering the principles of internal control. If inappropriate, state which internal con-
trol procedure is violated.

EXERCISE 8-2 Hilton Hotels Corporation owns and operates casinos at several of its hotels, lo-
Nature of uncollectible cated primarily in Nevada. At the end of a fiscal year, the following accounts and
accounts notes receivable were reported (in thousands):
Objective 3
Hotel accounts and notes receivable $75,796
Less: Allowance for doubtful accounts 3,256
$72,540

Casino accounts receivable $26,334

Less: Allowance for doubtful accounts 6,654
19,680
• a. 4.3%
a. Compute the percentage of allowance for doubtful accounts to the gross hotel
accounts and notes receivable for the end of the fiscal year.
b. Compute the percentage of the allowance for doubtful accounts to the gross
casino accounts receivable for the end of the fiscal year.
c. J Discuss possible reasons for the difference in the two ratios computed in
(a) and (b).

EXERCISE 8-3 Herman's Auto Supply distributes n e w and used automobile parts to local dealers
Number of days past due throughout the Midwest. Herman's credit terms are n/30. As of the end of business
Objective 4 on July 31, the following accounts receivable were past due.
• Bear Creek Body Shop,
53 days Account Due Date Amount

Bear Creek Body Shop June 8 $3,000

First Auto July 3 2,500
Kaiser Repair March 20 500
Master's Auto Repair May 15 1,000
Richter Auto June 18 750
Sabol's April 12 1,800
Uptown Auto May 8 500
Westside Repair & Tow May 31 1,100

Determine the number of days each account is past due.

EXERCISE 8-4 The accounts receivable clerk for Intimacy Mattress Company prepared the follow-
Aging-of-receivables ing partially completed aging-of-receivables schedule as of the end of business on
schedule November 30.
Objective 4
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Chapter 8 • Receivables 339

Not Days Past Due

Past
Customer Balance Due 1-30 31-60 61-90 Over 90
Aaker Brothers Inc. 2,000 2,000
Aitken Company 1,500 1,500

Zollo Company 5,000 5,000

Subtotals 972,500 640,000 180,000 78,500 42,300 31,700

The following accounts were unintentionally omitted from the aging schedule.

Customer Balance Due Date

Janzen Industries $40,000 August 29

Kuehn Company 8,500 September 3
Mauer Inc. 18,000 October 21
Pollack Company 6,500 November 23
Simrill Company 7,500 December 3

a. Determine the number of days past due for each of the preceding accounts.
b. Complete the aging-of-receivables schedule by including the omitted amounts.

EXERCISE 8-5 Intimacy Mattress Company has a past history of uncollectible accounts, as shown be-
Estimating allowance for low. Estimate the allowance for doubtful accounts, based on the aging-of-receivables
doubtful accounts schedule you completed in Exercise 8-4.
Objective 4 - e -

Percentage
Age Class Uncollectible

Not past due 1%

1-30 days past due 4
31-60 days past due 8
• $60,495 61-90 days past due 20
Over 90 days past due 40

EXERCISE 8-6 Using the data in Exercise 8-5, assume that the allowance for doubtful accounts
Adjustment for for Intimacy Mattress Company has a credit balance of $7,180 before adjustment
uncollectible accounts on November 30. Journalize the adjusting entry for uncollectible accounts as of
Objective 4 November 30.

EXERCISE 8-7 Kubota Co. is a wholesaler of office supplies. An aging of the company's accounts
Estimating doubtful receivable on December 31, 2006, and a historical analysis of the percentage of un-
accounts collectible accounts in each age category are as follows:
Objective 4
Percent
Wi Age Interval Balance Uncollectible

Not past due $450,000 2%

1-30 days past due 110,000 4
31-60 days past due 51,000 6
61-90 days past due 12,500 20
91-180 days past due 7,500 60
Over 180 days past due 5,500 80
$636,500

Estimate what the proper balance of the allowance for doubtful accounts should be
as of December 31, 2006.

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340 Chapter 8 • Receivables

EXERCISE 8-8 Using the data in Exercise 8-7, assume that the allowance for doubtful accounts for
Entry for uncollectible Kubota Co. had a debit balance of $1,575 as of December 31, 2006.
accounts Journalize the adjusting entry for uncollectible accounts as of December 31, 2006.
Objective 4

EXERCISE 8-9 At the end of the current year, the accounts receivable account has a debit balance
Providing for doubtful of $840,000, and net sales for the year total $7,150,000. Determine the amount of
accounts the adjusting entry to provide for doubtful accounts under each of the following
Objective 4 assumptions:
• a. $17,875
a. The allowance account before adjustment has a credit balance of $1,780. Uncol-
• b. $13,600
lectible accounts expense is estimated at 1/4 of 1% of net sales.
b. The allowance account before adjustment has a credit balance of $2,750. An ag-
ing of the accounts in the customer's ledger indicates estimated doubtful accounts
of $16,350.
c. The allowance account before adjustment has a debit balance of $3,050. Uncol-
lectible accounts expense is estimated at 1/2 of 1% of net sales.
d. The allowance account before adjustment has a debit balance of $3,050. An ag-
ing of the accounts in the customer's ledger indicates estimated doubtful accounts
of $38,400.

EXERCISE 8-10 Anchor.com, a computer consulting firm, has decided to write off the $7,130 bal-
Entries to write off ance of an account owed by a customer. Journalize the entry to record the write-
accounts receivable off, (a) assuming that the allowance method is used, and (b) assuming that the direct
Objectives 4, 5 write-off method is used.

EXERCISE 8-11 Journalize the following transactions in the accounts of Linden Company, a restau-
Entries for uncollectible rant supply company that uses the allowance method of accounting for uncollectible
receivables, using allowance receivables:
method
Objective 4 Feb. 20. Sold merchandise on account to Darlene Brogan, $12,100. The cost of
the merchandise sold was $7,260.
May 30. Received $6,000 from Darlene Brogan and wrote off the remainder owed
on the sale of February 20 as uncollectible.
Aug. 3. Reinstated the account of Darlene Brogan that had been written off on
May 30 and received $6,100 cash in full payment.

EXERCISE 8-12 Journalize the following transactions in the accounts of Graybeal Co., a hospital sup-
Entries for uncollectible ply company that uses the direct write-off method of accounting for uncollectible
accounts, using direct write- receivables:
off method
Objective 5 July 6. Sold merchandise on account to Dr. Jerry Jagers, $18,500. The cost of
the merchandise sold was $11,100.
Sept. 12. Received $9,000 from Dr. Jerry Jagers and wrote off the remainder owed
on the sale of July 6 as uncollectible.
Dec. 20. Reinstated the account of Dr. Jerry Jagers that had been written off on
September 12 and received $9,500 cash in full payment.

EXERCISE 8-13 During its first year of operations, O'Hara Automotive Supply Co. had net sales of
Effect of doubtful accounts $4,050,000, wrote off $112,350 of accounts as uncollectible using the direct write-off
on net income method, and reported net income of $212,800. If the allowance method of accounting
Objectives 4, 5 for uncollectibles had been used, 2J/2% of net sales would have been estimated as
uncollectible. Determine what the net income would have been if the allowance
method had been used.

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Chapter 8 • Receivables 341

EXERCISE 8-14 Using the data in Exercise 8-13, assume that during the second year of operations
Effect of doubtful accounts O'Hara Automotive Supply Co. had net sales of $4,800,000, wrote off $114,800 of
on net income accounts as uncollectible using the direct write-off method, and reported net income
Objectives 4, 5 of $262,300.
a. Determine what net income would have been in the second year if the allowance
method (using 21/2% of net sales) had been used in both the first and second
years.
b. Determine what the balance of the allowance for doubtful accounts would have
been at the end of the second year if the allowance method had been used in
both the first and second years.

EXERCISE 8-15 Determine the due date and the amount of interest due at maturity on the follow-
Determine due date and ing notes:
interest on notes
Objective 6 Date of Note Face Amount Term of Note Interest Rate

a. June 2 $ ,000 90 days 6%

b. August 30 18,000 120 days 8%
c. October 1 12,500 60 days 12%
d. March 6 10,000 60 days 9%
e. May 20 6,000 60 days 10%
• a. August 31, $120

EXERCISE 8-16 Magpie Interior Decorators issued a 120-day, 6% note for $24,000, dated April 10,
Entries for notes receivable to Peel's Furniture Company on account.
Objectives 6, 7 a. Determine the due date of the note.
• b. $24,480 b. Determine the maturity value of the note.
c. Journalize the entries to record the following: (1) receipt of the note by the payee,
and (2) receipt by the payee of payment of the note at maturity.

EXERCISE 8-17 The series of seven transactions recorded in the following T accounts were related
Entries for notes receivable to a sale to a customer on account and the receipt of the amount owed. Briefly de-
Objective 7 scribe each transaction.

Cash Notes Receivable

(7) 21,777 | (5) 21,000 | (6) 21,000

Accounts Receivable Merchandise Inventory

(1) 24,000 (3) 3,000 (4) 1,800 (2) 15,000
(6) 21,420 (5) 21,000
(7) 21,420

Sales Sales Returns and Allowances

(1) 24,000 (3) 3,000 |

Cost of Merchandise Sold Interest Revenue

(2) 15,000 (4) 1,800 (6) 420
(7) 357

EXERCISE 8-18
Entries for notes receivable,
including year-end entries
Objective 7
The following selected transactions were completed by Cassidy Co., a supplier of
elastic bands for clothing:
2005
Dec. 13. Received from Visage Co., on account, a $25,000, 120-day, 6% note
dated December 13.

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342 Chapter 8 • Receivables

Dec. 31. Recorded an adjusting entry for accrued interest on the note of Decem-
ber 13.
31. Closed the interest revenue account. The only entry in this account origi-
nated from the December 31 adjustment.
2006
Apr. 12. Received payment of note and interest from Visage Co.
Journalize the transactions.
EXERCISE 8-19 Journalize the following transactions of Prairie Theater Productions:
Entries for receipt and
dishonor of note receivable July 8. Received a $30,000, 90-day, 8% note dated July 8 from Pennington Com-
pany on account.
Objective 7
Oct. 6. The note is dishonored by Pennington Company.
Nov. 5. Received the amount due on the dishonored note plus interest for 30
days at 10% on the total amount charged to Pennington Company on
October 6.

EXERCISE 8-20 Journalize the following transactions in the accounts of Blue Sky Co., which oper-
Entries for receipt and ates a riverboat casino:
dishonor of notes
receivable Mar. 1. Received a $15,000, 60-day, 5% note dated March 1 from Absaroka Co.
Objectives 4, 7 on account.
18. Received a $12,000, 90-day, 9% note dated March 18 from Sturgis Co. on
account.
Apr. 30. The note dated March 1 from Absaroka Co. is dishonored, and the cus-
tomer's account is charged for the note, including interest.
June 16. The note dated March 18 from Sturgis Co. is dishonored, and the cus-
tomer's account is charged for the note, including interest.
July 11. Cash is received for the amount due on the dishonored note dated
March 1 plus interest for 72 days at 8% on the total amount debited to
Absaroka Co. on April 30.
Oct. 12. Wrote off against the allowance account the amount charged to Sturgis
Co. on June 16 for the dishonored note dated March 18.

EXERCISE 8-21 List any errors you can find in the following partial balance sheet.
Receivables in the balance
sheet Pembroke Company
Objective 8 Balance Sheet
July 31, 2006

Assets
Current assets:
Cash $ 43,750
Notes receivable $300,000
Less interest receivable 18,000 282,000
Accounts receivable $576,180
Plus allowance for doubtful accounts 71,200 647,380

EXERCISE 8-22 Circuit City Stores, Inc. is a national retailer of brand-name consumer electronics
Accounts receivable including televisions, DVD players, compact disc players, personal computers, print-
turnover ers, video games, DVD movies, and music. For the fiscal years 2003 and 2002, Circuit
Objective 9 City reported the following (in thousands):

Year Ending February 28,

2003 2002

Net sales $9,953,530 $9,518,231

Accounts Receivable 216,200 159,477

Assume that the accounts receivable (in thousands) were $265,515 at March 1,
• a. 2002: 44.8
2001.

A
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Chapter 8 • Receivables 343

a. Compute the accounts receivable turnover for 2003 and 2002. Round to one dec-
imal place.
b. What conclusions can be drawn from these analyses regarding Circuit City's effi-
ciency in collecting receivables?

EXERCISE 8-23 Use the Circuit City data in Exercise 8-22 to analyze days' sales in receivables.
Days' sales in receivables
a. Compute the days' sales in receivables at the end of 2003 and 2002. Round to
Objective 9 one decimal place.
b. What conclusions can be drawn from these analyses regarding Circuit City's effi-
ciency in collecting receivables?

ya. 2002: 6.12 days

EXERCISE 8-24 The Limited Inc. sells women's and men's clothing through specialty retail stores,
Accounts receivable including Structure, Limited, Express, Lane Bryant, and Lerner New York. The
turnover and days' sales in Limited sells women's intimate apparel and personal care products through Victoria
receivables
Secret and Bath & Body Works stores. For the fiscal years 2002 and 2001, The
Objective 9 Limited reported the following (in thousands):

Year Ending February 2,

2002 2001

Net sales $9,363,000 $10,105,000

Accounts Receivable 79,000 94,000

ya. 2002: 108.2 Assume that the accounts receivable (in thousands) were $109,000 at the begin-
ning of the 2001 fiscal year.
a. Compute the accounts receivable turnover for 2002 and 2001. Round to one dec-
imal place.
b. Compute the days' sales in receivables at the end of 2002 and 2001. Round to
one decimal place.
c. What conclusions can be drawn from these analyses regarding The Limited's ef-
ficiency in collecting receivables?

APPENDIX Theisen Co., a building construction company, holds a 90-day, 6% note for $20,000,
EXERCISE 8-25 dated March 15, which was received from a customer on account. On April 14, the
Discounting notes note is discounted at the bank at the rate of 8%.
receivable
ya. $20,300 a. Determine the maturity value of the note.
b. Determine the number of days in the discount period.
c. Determine the amount of the discount. Round to the nearest dollar.
d. Determine the amount of the proceeds.
e. Journalize the entry to record the discounting of the note on April 14.

APPENDIX Journalize the following transactions in the accounts of Allied Theater Productions:
EXERCISE 8-26
Entries for receipt and June 1. Received a $60,000, 60-day, 8% note dated June 1 from Rhodes Com-
discounting of note pany on account.
receivable and dishonored July 1. Discounted the note at City Bank at 9%.
notes
31. The note is dishonored by Rhodes Company; paid the bank the amount
due on the note, plus a protest fee of $200.
Aug. 30. Received the amount due on the dishonored note plus interest for 30
days at 12% on the total amount charged to Rhodes Company on July 31.

A
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344 Chapter 8 • Receivables

P roblems Series A
PROBLEM 8-1A The following transactions, adjusting entries, and closing entries were completed by
Entries related to Elko Contractors Co. during the year ended December 31, 2006:
uncollectible accounts
Mar. 15. Received 60% of the $18,500 balance owed by Bimba Co., a bankrupt
Objective 4
business, and wrote off the remainder as uncollectible.
Apr. 16. Reinstated the account of Tom Miner, which had been written off in the
preceding year as uncollectible. Journalized the receipt of $5,782 cash in
full payment of Miner's account.
July 20. Wrote off the $5,500 balance owed by Martz Co., which has no assets.
• 3. $522,050 Oct. 31. Reinstated the account of Two Bit Saloon Co., which had been written
off in the preceding year as uncollectible. Journalized the receipt of
$6,100 cash in full payment of the account.
Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Asche
Co., $950; Dorsch Co., $4,600; Krebs Distributors, $2,500; J. J. Levi, $1,200.
31. Based on an analysis of the $535,750 of accounts receivable, it was esti-
mated that $13,700 will be uncollectible. Journalized the adjusting entry.
31. Journalized the entry to close the appropriate account to Income Summary.
Instructions
1. Post the January 1 credit balance of $12,050 to Allowance for Doubtful Accounts.
2. Journalize the transactions and the adjusting and closing entries. Post each entry
that affects the following three selected accounts and determine the new balances:

115 Allowance for Doubtful Accounts

313 Income Summary
718 Uncollectible Accounts Expense

3. Determine the expected net realizable value of the accounts receivable as of

December 31.
4. Assuming that instead of basing the provision for uncollectible accounts on an
analysis of receivables, the adjusting entry on December 31 had been based on
an estimated expense of 1/2 of 1% of the net sales of $3,100,000 for the year,
determine the following:
a. Uncollectible accounts expense for the year.
b. Balance in the allowance account after the adjustment of December 31.
c. Expected net realizable value of the accounts receivable as of December 31.

PROBLEM 8-2A Blue Ribbon Flies Company supplies flies and fishing gear to sporting goods stores
Aging of receivables; and outfitters throughout the western United States. The accounts receivable clerk for
estimating allowance for Blue Ribbon Flies prepared the partially completed aging-of-receivables schedule as
doubtful accounts
of the end of business on December 31, 2006, shown at the top of the following page.
Objective 4 The following accounts were unintentionally omitted from the aging schedule.

Customer Due Date Balance

Able Sports & Flies June 15, 2006 3,500

Red Tag Sporting Goods July 28, 2006 4,000
Highlite Flies Sept. 11, 2006 2,500
• 3. $65,212 Midge Co. Sept. 30, 2006 3,100
Snake River Outfitters Oct. 7, 2006 4,500
Pheasant Tail Sports Oct. 27, 2006 1,600
Big Sky Sports Oct. 30, 2006 2,000
Ross Sports Nov. 18, 2006 500
Sawyer's Pheasant Tail Nov. 26, 2006 2,800
Tent Caddis Outfitters Nov. 29, 2006 3,500
Wulff Company Dec. 10, 2006 1,000
Zug Bug Sports Jan. 6, 2007 6,200

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