KING ABDULAZIZ UNIVERSITY

FACULTY of ECONOMICS & ADMINISTRATION

ACCOUNTING DEPARTMENT

FIRST SEMESTER (2020)

ACCT 213

Course Exercise (1)

Instructor: Prof. Dr.Khaldoon Al-Htaybat

E-Mail: kmahmod@kau.edu.sa
Phone: 65451
Office: - 330
Office Hours: - 10-11 Every Day

Student’s Name Mohammed Abdullah Khamis

Student’s Number 1945667

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 EXERCISES (1)

Lee Co. has been in business seven years. The ledger on December 30 of the current year
2017 shows:

Accounts Receivable $35,000 Dr.

Sales Revenue $300,000 Cr.
Allowance for Doubtful Accounts $3,000 Cr.

On December 31 of 2017, The vice-president of finance of Lee Co., authorizes 1) a write-off

of the $5000 balance owed by R. A. Max., and 2) estimated a bad debts to be 10% of
receivables. Prepare the entry to adjust the ledger accounts and for Allowance for Doubtful
Accounts.

Account title Dr. Cr.

Allowance of Doubtful Account 5000

Account Receivable 5000

AR became 30,000
Allowance became 2000 debit

So, ( 30000 * 0.1 ) = 3000

Bad Debt Exp 5000

Allowance 5000

Because allowance is 2000 debit, and we want it to become

3000 credit so we must add 5000

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 EXERCISES (2)

Jeddah Co. is undecided about which base to use in estimating uncollectible accounts. On
December 31, 2016, the balance in Accounts Receivable was $308,000 and net credit sales
amounted to $2,700,000 during 2016. An aging analysis of the accounts receivable
indicated that $31,000 in accounts are expected to be uncollectible. Past experience has
shown that about 1% of net credit sales eventually are uncollectible.

Instructions

Prepare the adjusting entries to record estimated bad debt expense using the (1) percentage
of sales basis and (2) the percentage of receivables basis under each of the following
independent assumptions:

(a) Allowance for Doubtful Accounts has a credit balance of $2,300 before adjustment.

(b) Allowance for Doubtful Accounts has a debit balance of $370 before adjustment.

Account title Dr. Cr.

Bad Debt Expense 27000

Allowance 27000

Does not matter (a and b)

But if he askes about the allowance balance after doing the

entry we will have (29300 for a case) and (26630 for b case)

Bad Debt Expense (31000 – 2300)

Allowance 28700
28700
Bad Debt Expense (31000 – 370)
Allowance 31370

31370

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 EXERCISES (3)

The income statement approach to estimating uncollectible

accounts expense is used by ASA Company. On February 28, the firm had accounts
receivable in the amount of $437,000 and Allowance for Doubtful Accounts had a credit
balance of $2,140 before adjustment. Net credit sales for February amounted to $3,000,000.

On February 28, The credit manager estimated that uncollectible accounts expense would
amount to 1% of net credit sales made during February. On March 10, an accounts
receivable from TBT for $6,100 was determined to be uncollectible and written off. However,
on March 31, TBT paid her past due account in full.

Instructions

(a) Prepare the journal entries made by ASA Company on the following dates:

1. February 28 2. March 10 3. March 31

(b) Assume no other transactions occurred that affected the allowance account during
March. Determine the balance of Allowance for Doubtful Accounts at March 31.

Account title Dr. Cr.

Feb 28
30000
Bad Debt Exp ( 3000000 * 0.01 ) 30000
Allowance

Mar 10

Allowance 6100
Account Receivable 6100

Mar 31
6100
Account Receivable 6100
Allowance
(to rerecord it)

6100
Cash 6100
Account Receivable

After doing t account for allowance the balance should be 32,140

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EXERCISES (4)

Record the following transactions in general journal form for Karen Company.

July 1 Received a $20,000, 8%, 3-month note, dated July 1, from Fly Air in payment of
her open account.

Oct. 1 Received notification from Fly Air that she was unable to honor their note at this
time. It is expected that Fly Air will pay at a later date.

Nov. 15 Received full payment from Fly Air for the note receivable previously dishonored.

Account title Dr. Cr.

Note Receivable 20000

Account Receivable 20000

Account Receivable 20400

Note Receivable 20000
Interest Revenue 400

Cash 20400
Account Receivable 20400

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