Fundamental Accounting Principles 22Nd Edition Wild Solutions Manual Full Chapter PDF

Fundamental Accounting Principles
22nd Edition Wild Solutions Manual

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Chapter 09 - Accounting for Receivables
Chapter 9
Accounting for Receivables
QUESTIONS
1. When customers use credit cards, the selling companies can avoid having to directly
evaluate the credit standing of their customers. They also avoid the risk of bad debts and
often are paid cash from the credit card company more quickly than if customers were
granted credit directly. Moreover, they hope to increase sales, and net income, from the
added convenience to buyers.
2. Revenues and expenses usually are not matched under the direct write-off method because
the revenues recorded from the uncollectible accounts often appear on the income statement
of one period while the bad debts expenses of those revenues appear on the income
statement of a later period when the account(s) is known to be uncollectible.
3. The accounting constraint of materiality suggests that the requirements of accounting
standards can be ignored if their effect on the financial statements is unimportant to their
users’ business decisions.
4. Creditors prefer notes receivable to accounts receivable because the notes can be more
easily converted into cash before they are due by discounting (or selling) them to a financial
institution. Also, a note represents a clear written acknowledgment by the debtor of both the
debt and its amount and terms.
5. Writing off a bad debt against the Allowance account does not reduce the estimated
realizable value of a company’s accounts receivable because the write-off reduces the
balances of both Accounts Receivable and the Allowance for Doubtful Accounts by equal
amounts. This means the difference between them (called estimated realizable value)
remains the same.
6. The adjusted balances of Bad Debts Expense and Allowance for Doubtful Accounts are
virtually never equal because the expense amount reflects only the events of the current
period, and the allowance is the accumulated result of events over a number of prior periods.
The only way that they could be equal would be if write-offs during the prior period exactly
equaled the beginning balance of the Allowance account.
7. Apple lists its accounts receivable as “Accounts receivables, less allowances of $99 and $98,
respectively” ($ in millions) on its balance sheet. This means that Apple’s allowance is $99
million as of September 28, 2013, and $98 million as of September 29, 2012.
8. Google uses the allowance method to account for doubtful accounts as evidenced by the
receivables being reduced by an allowance of $631 million on the December 31, 2013,
balance sheet. The realizable value of accounts receivable as of December 31, 2013, is its
net amount of $8,882 million.
9-543
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Education.
9. Samsung’s lists its accounts receivable as “Trade and other receivables.” Samsung reports
accounts receivable (in KRW millions) of ₩27,875,934.
10. Samsung lists its accounts receivable as “Trade and other receivables” in current assets.
There is no allowance listed on the face of the balance sheet. Students might follow up and
see that in its Note 10 – Trade and other receivables, Samsung reports using the allowance
method and has an allowance of ₩287,721 (₩267,675 million for trade receivables and
₩20,046 for non-trade receivables) at December 31, 2013. Per Note 10, Samsung also reports
that it has noncurrent accounts receivable of ₩60,181 million (₩36,024 million for trade
receivables and ₩24,157 for non-trade receivables) at December 31, 2013, which is reported
in noncurrent assets.
QUICK STUDIES
Quick Study 9-1 (15 minutes)
1. Cash ............................................................................... 19,000
Credit Card Expense* ................................................... 1,000
Sales......................................................................... 20,000
To record credit card sales less fees.
*$20,000 x 5%
Cost of Goods Sold ...................................................... 15,000
Merchandise Inventory ........................................... 15,000
To record cost of sales.
2. Accounts Receivable—Credit Card Cos..................... 4,800

Credit Card Expense* ................................................... 200
Sales......................................................................... 5,000
To record credit card sales less fees.
*$5,000 x 4%
Cost of Goods Sold ...................................................... 3,000
Merchandise Inventory ........................................... 3,000
5 days later
Cash ............................................................................... 4,800
Accounts Receivable—Credit Card Cos............... 4,800
To record cash receipts.
9-544
Education.
Oct. 1 Bad Debts Expense .....................................................50,000

Accounts Receivable—P. Moore ......................... 50,000
To write off an account.
Oct. 30 Accounts Receivable—P.Moore ................................50,000

Bad Debts Expense ............................................... 50,000
To reinstate an account previously written off.
Oct. 30 Cash ..............................................................................50,000

Accounts Receivable— P. Moore ........................ 50,000
To record cash received on account.
1. direct write-off method

2. allowance method
3. allowance method
6. allowance method
9-545
Education.

1.
Jan. 31 Allowance for Doubtful Accounts ........................... 800
Accounts Receivable—C. Green ....................... 800
To write off account.
2.
Mar. 9 Accounts Receivable—C. Green* ............................ 300
Allowance for Doubtful Accounts ..................... 300
To reinstate a written off account.
*If there is a strong belief that the remaining $500 will be
collected soon, then the full $800 balance can be reinstated.
9 Cash ........................................................................... 300

Accounts Receivable—C. Green ....................... 300
To record payment on a receivable.
1.
Dec. 31 Bad Debts Expense ................................................ 885
Allowance for Doubtful Accounts................... 885
To record estimate of uncollectibles.
Desired balance in allowance = $99,000 x 1.5%= $1,485 cr.
Adjustment required = $1,485 - $600 cr. = $885
2. Desired balance in allowance = $1,485 (part 1)

Adjustment required = $1,485 cr. + $300 dr. = $1,785
Dec. 31 Bad Debts Expense ................................................ 1,400

Allowance for Doubtful Accounts................... 1,400
To record estimate of uncollectibles
($280,000 x 0.5%).
9-546
Education.
1. Maturity date is October 31, which is computed as follows:

Days in August ................................................................ 31
Minus the date of the note .............................................. 2
Days remaining in August .............................................. 29
Add days in September .................................................. 30
Add days in October to equal 90 days (October 31) .... 31
Period of the note in days .............................................. 90
2.
Aug. 2 Notes Receivable—R. Albany .......................... 6,000
Accounts Receivable—R. Albany .............. 6,000
To record receipt of note on account.
Oct. 31 Cash .................................................................... 6,180

Notes Receivable—R. Albany .................... 6,000
Interest Revenue ......................................... 180
To record cash received on note plus
interest ($6,000 x 12% x 90/360).
Dec. 31 Interest Receivable ............................................ 50

To record the year-end adjustment for
interest earned ($10,000 x 6% x 30/360).
Maturity date
Jan. 15 Cash .................................................................... 10,075
Interest Receivable ..................................... 50
Notes Receivable ........................................ 10,000
To record cash received on note plus interest.
9-547
Education.
May 1 Cash .......................................................................121,875

Factoring Fee Expense* ....................................... 3,125
Accounts Receivable ...................................... 125,000
To record sale of receivable.
*($125,000 x 0.025)
Net sales
Accounts receivable turnover =
Average accounts receivable
$861,105
= ($153,400 + $138,500) / 2
= 5.9 times
Interpretation: An accounts receivable turnover of 5.9 implies that the

company’s average accounts receivable balance is converted into cash
5.9 times per year. The 5.9 turnover is about 21% lower than the average
turnover of 7.5 for its competitors. The company needs to identify the
cause of this poor performance and rectify the situation to at least
compete at the average level.

a. Both U.S. GAAP and IFRS have similar asset criteria that apply to
recognition of receivables. Further, receivables that arise from revenue-
generating activities are subject to broadly similar criteria for U.S. GAAP
and IFRS. Specifically, both refer to the realization principle and an
earnings process. However, while these criteria are broadly similar,
differences do exist, and they arise mainly from industry-specific
guidance under U.S. GAAP, which is very limited under IFRS.
b. Both U.S. GAAP and IFRS require receivables to be reported net of

estimated uncollectibles. Further, both systems require that the expense
for estimated uncollectibles be recorded in the same period when
revenues from those receivables are recorded. This means that in the
case of accounts receivable, both U.S. GAAP and IFRS require the
allowance method for uncollectibles (unless immaterial).
9-548
Education.
EXERCISES
Exercise 9-1 (25 minutes)
Part 1
GENERAL LEDGER
Sales Returns and

Accounts Receivable Sales Allowances
Nov. 5 4,615 Nov. 21 209 Nov. 5 4,615 Nov. 21 209
10 1,350 10 1,350
13 832 13 832
30 2,713 30 2,713
Bal. 9,301
ACCOUNTS RECEIVABLE LEDGER
Ski Shop Welcome Enterprises Zia Natara

Nov. 5 4,615 Nov. 10 1,350 Nov. 13 832 Nov. 21 209
30 2,713
Bal. 7,328 Bal. 623
Part 2
Vail Company
Schedule of Accounts Receivable
November 30, 2015
Ski Shop ................................................................................. $7,328
Welcome Enterprises ........................................................... 1,350
Zia Natara ............................................................................... 623
Total ....................................................................................... $9,301
Comparison: The total of the Schedule of Accounts Receivable ($9,301) is

proved with the balance of the Accounts Receivable controlling T-account
from Part 1 ($9,301).
9-549
Education.

Apr. 8 Cash ......................................................................... 8,064
Credit Card Expense* ............................................. 336
Sales .................................................................. 8,400
To record credit card sales less 4% fee.
*($8,400 x .04)
8 Cost of Goods Sold ................................................ 6,000

Merchandise Inventory .................................... 6,000
12 Accounts Receivable—Continental ...................... 5,460

Credit Card Expense* ............................................. 140
Sales .................................................................. 5,600
To record credit card sales less 2.5% fee.
*($5,600 x .025)
12 Cost of Goods Sold ................................................ 3,500

Merchandise Inventory .................................... 3,500
20 Cash ......................................................................... 5,460

Accounts Receivable—Continental ................. 5,460
To record cash received on credit sales less fees.
March 11 Bad Debts Expense ....................................................

45,000
Accounts Receivable—Lester Co. ...................... 45,000
March 29 Accounts Receivable—Lester Co. ............................ 45,000

Bad Debts Expense .............................................. 45,000
To reinstate an account previously written off.
March 29 Cash .............................................................................

45,000
Accounts Receivable—Lester Co. ...................... 45,000
9-550
Education.

Dec. 31 Bad Debts Expense ..................................................... 4,875
Allowance for Doubtful Accounts ........................ 4,875
To record estimated bad debts expense
(.005 x $975,000).
Feb. 1 Allowance for Doubtful Accounts.............................. 580

Accounts Receivable—P. Park ............................ 580
June 5 Accounts Receivable—P. Park .................................. 580

Allowance for Doubtful Accounts ........................ 580
To reinstate an account.
June 5 Cash .............................................................................. 580

Accounts Receivable—P. Park ............................ 580

a.
Dec. 31 Bad Debts Expense ...................................................... 685
Allowance for Doubtful Accounts* ....................... 685
To record estimated bad debts expense.
*
Unadjusted balance = $ 415 credit
Estimated balance ($55,000 x .02) = 1,100 credit
Required adjustment = $ 685 credit
b.
Dec. 31 Bad Debts Expense ......................................................1,391
Allowance for Doubtful Accounts** ...................... 1,391
To record estimated bad debts expense.
**
Unadjusted balance = $ 291 debit
Estimated balance ($55,000 x .02) = 1,100 credit
Required adjustment = $1,391 credit

a. Computation of the estimated balance of the allowance for uncollectibles:
Not due: $396,000 x 0.01 = $ 3,960
1 to 30: 90,000 x 0.02 = 1,800
31 to 60: 36,000 x 0.05 = 1,800
61 to 90: 18,000 x 0.07 = 1,260
Over 90: 30,000 x 0.10 = 3,000
$11,820 credit
9-551
Education.
Exercise 9-6 (Concluded)

b.
Dec. 31 Bad Debts Expense.............................................. 8,220
Allowance for Doubtful Accounts ................ 8,220
To record estimated bad debts.*
*
Unadjusted balance ....................................$ 3,600 credit
Estimated balance ...................................... 11,820 credit
Required adjustment ..................................$ 8,220 credit
c.
*
Unadjusted balance ....................................$ 100 debit
Estimated balance ...................................... 11,820 credit
Required adjustment ..................................$11,920 credit
a. Computation of the estimated balance of the allowance for uncollectibles:

$570,000 x 0.045 = $25,650 credit
b.
*
Unadjusted balance ........................... $12,000 credit
Estimated balance ............................. 25,650 credit
Required adjustment ......................... $13,650 credit
c.
*
Unadjusted balance ........................... $ 1,000 debit
9-552
Education.
Feb. 1 Allowance for Doubtful Accounts.............................. 6,800

Accounts Receivable—Oakley Co ....................... 900
Accounts Receivable—Brookes Co .................... 5,900
To write off specific accounts.
June 5 Accounts Receivable—Oakley ................................... 900

Allowance for Doubtful Accounts ........................ 900
To reinstate an account.
June 5 Cash .............................................................................. 900

Accounts Receivable—Oakley ............................. 900
a. Expense is 3.0% of credit sales
Dec. 31 Bad Debts Expense ............................................... 9,000

Allowance for Doubtful Accounts ................. 9,000
To record estimated bad debts
[$300,000 x .03].
b. Expense is 1.0% of total sales

[($300,000 + $900,000) x .01].
c. Allowance is 6% of accounts receivable

*
Unadjusted balance ........................................................
$ 5,000 debit.
Estimated balance ($125,000 x 6%) .............................. 7,500 credit
Required adjustment ......................................................
$12,500 credit
9-553
Education.

2014
Dec. 13 Notes Receivable—M. Lee........................... 9,500
Accounts Receivable—M. Lee .............. 9,500
Dec. 31 Interest Receivable ...................................... 38

Interest Revenue .................................... 38
To record interest earned [$9,500 x .08 x 18/360].

2015
Jan. 27 Cash ....................................................................... 9,595
Interest Revenue* ............................................ 57
Interest Receivable ......................................... 38
Notes Receivable—M. Lee ............................. 9,500
* [$9,500 x .08 x (45-18)/360 = $57]
Mar. 3 Notes Receivable—Tomas Co. ............................ 5,000

Accounts Receivable-Tomas Co ................... 5,000
17 Notes Receivable—H. Cheng ............................... 2,000

Accounts Receivable—H. Cheng .................. 2,000
Apr. 16 Accounts Receivable—H. Cheng ........................ 2,015

Interest Revenue ............................................. 15
Notes Receivable—H. Cheng ......................... 2,000
To record receivable for dishonored
note plus interest [$2,000 x .09 x 30/360].
May 1 Allowance for Doubtful Accounts ....................... 2,015

Accounts Receivable—H. Cheng .................. 2,015
To write off account.
June 1 Cash ....................................................................... 5,125

Notes Receivable—Tomas Co ....................... 5,000
To record cash received on note with
interest [$5,000 x .10 x 90/360].
9-554
Education.
Nov. 1 Notes Receivable—K. White ............................. 6,000

Accounts Receivable—K. White ................. 6,000
Dec. 31 Interest Receivable ............................................ 80

Interest Revenue .......................................... 80
To record interest earned
[$6,000 x .08 x 60/360].
Apr. 30 Cash .................................................................... 6,240

Notes Receivable—K. White ....................... 6,000
Interest Revenue* ......................................... 160
Interest Receivable ...................................... 80
interest earned. *[$6,000 x .08 x 120/360]
Mar. 21 Notes Receivable—T. Jackson ............................ 9,500

Accounts Receivable—T. Jackson ................ 9,500
Sept. 17 Accounts Receivable—T. Jackson ...................... 9,880

Notes Receivable—T. Jackson ...................... 9,500
To record note dishonored plus interest
earned [$9,500 x .08 x 180/360 = $380].
Dec. 31 Allowance for Doubtful Accounts ....................... 9,880

Accounts Receivable—T. Jackson ................ 9,880
9-555
Education.
July 4 Accounts Receivable ............................................ 7,245

Sales ................................................................. 7,245
To record sales on credit.
4 Cost of Goods Sold ......................................................

5,000
Merchandise Inventory .......................................... 5,000
9 Cash ....................................................................... 19,200

Factoring Fee Expense* ....................................... 800
To record sale of receivable. *($20,000 x .04)
17 Cash ....................................................................... 5,859

27 Cash ....................................................................... 10,000

Notes Payable .................................................. 10,000
To record cash from a loan.
Note to Financial Statements

Accounts receivable in the amount of $12,500 are pledged
as security for a $10,000 note payable to Main Bank.
9-556
Education.
Year 2014 accounts receivable turnover:

$335,280
($41,400 + $34,800)/2 = 8.8 times
Year 2015 accounts receivable turnover:

$405,140
($44,800 + $41,400)/2 = 9.4 times
Analysis: Raheem Company turned over its accounts receivable 0.6 (9.4 – 8.8)
times more in 2015 than in 2014. This may indicate that the company has
tightened its credit policy or has improved its collection efforts. Also, relative to
competitors’ turnover of 11, Raheem is performing worse than average.

(¥ in millions)
a. Expense is 0.4% of total revenues
[9,041,071 x 0.004].
b. Allowance is 2.0% of trade receivables, gross

*
10,000 credit
Estimated balance (2,500,000 x 0.02) ...........................
50,000 credit
40,000 credit
9-557
Education.
PROBLEM SET A
Problem 9-1A (30 minutes)
June 4 Accounts Receivable—N. Morris ............................. 650
Sales ..................................................................... 650
4 Cost of Goods Sold ......................................................... 400
Merchandise Inventory ............................................. 400
5 Cash ............................................................................ 6,693
Credit card expense* ................................................. 207
Sales ..................................................................... 6,900
To record credit card sales less fee. *($6,900 x .03)
5 Cost of Goods Sold .........................................................4,200
Merchandise Inventory ............................................. 4,200
6 Accounts Receivable—Access ................................ 5,733
Sales ..................................................................... 5,850
8 Accounts Receivable—Access ................................ 4,263
Sales ..................................................................... 4,350
10 No journal entry required.
13 Allowance for Doubtful Accounts ............................ 429
Accounts Receivable—A. McKee....................... 429
To write off account due.
17 Cash ............................................................................ 9,996
Accounts Receivable—Access .......................... 9,996
To record cash received from credit card co. ($5,733+$4,263)
18 Cash ............................................................................ 637
Sales Discounts* ....................................................... 13
Accounts Receivable—N. Morris ....................... 650
To record cash received less discount. *($650 x .02)
9-558
Education.

Part 1
Dec. 31 Bad Debts Expense............................................... 85,230
[$5,682,000 x .015].
b. Expense is 1% of total sales
[($1,905,000 + $5,682,000) x .01].
*
$16,580 debit
Estimated balance ($1,270,100 x 5%) ...........................
63,505 credit
$80,085 credit
Part 2
Current assets
Accounts receivable ...........................................$1,270,100
Less allowance for doubtful accounts ............. (68,650)* $1,201,450
Or: Accounts receivable (net of $68,650*

uncollectible accounts) ................................... $1,201,450
* Adjustment to the allowance .....................................

$85,230 credit
Unadjusted allowance balance ..................................
16,580 debit
Adjusted balance .........................................................
$68,650 credit
Part 3
Current assets
Accounts receivable ...........................................$1,270,100
Less allowance for doubtful accts. ................... (63,505)** $1,206,595
Or: Accounts receivable (net of $63,505**

uncollectible accounts) ................................... $1,206,595
** See computations in Part 1c.
9-559
Education.
Part 1
Calculation of the estimated balance of the allowance for uncollectibles
Not due: $830,000 x .0125 = $10,375

1 to 30: 254,000 x .0200 = 5,080
31 to 60: 86,000 x .0650 = 5,590
61 to 90: 38,000 x .3275 = 12,445
Over 90: 12,000 x .6800 = 8,160
$41,650 credit
Part 2

*
Unadjusted balance ........................... $14,500 credit
Part 3
Writing off the account receivable in 2016 will not directly affect year 2016
net income. The entry to write off an account involves a debit to Allowance
for Doubtful Accounts and a credit to Accounts Receivable, both of which
are balance sheet accounts. Net income is affected only by the annual
recognition of the estimated bad debts expense, which is journalized as an
adjusting entry. Net income for Year 2015 (the year of the original sale)
included an estimated expense for write-offs such as this one.
9-560
Education.
2014
a. Accounts Receivable ......................................... 1,345,434
Sales .............................................................. 1,345,434
To record sales on account.
Cost of Goods Sold ......................................................

975,000
b. Allowance for Doubtful Accounts..................... 18,300

Accounts Receivable ................................... 18,300
To write off accounts.
c. Cash ..................................................................... 669,200

d. Bad Debts Expense ............................................ 28,169

Allowance for Doubtful Accounts .............. 28,169
*
Beginning receivables ...................... $ 0
Credit sales ....................................... 1,345,434
Collections ........................................ (669,200)
Write-offs ........................................... (18,300)
Ending receivables ........................... 657,934
Percent uncollectible ........................ x 1.5%
Required ending allowance.............. 9,869** Cr.
Unadjusted balance .......................... 18,300 Dr.
Adjustment to the allowance ........... $ 28,169 Cr.
** rounded to nearest dollar
9-561
Education.
Problem 9-4A (Concluded)
2015
e. Accounts Receivable .............................................. 1,525,634
Sales ................................................................... 1,525,634

1,250,000
Merchandise Inventory .......................................... 1,250,000
f. Allowance for Doubtful Accounts ......................... 27,800

Accounts Receivable ........................................ 27,800
To record write-off of accounts.
g. Cash ......................................................................... 1,204,600

Accounts Receivable ........................................ 1,204,600
h. Bad Debts Expense................................................. 32,199

Allowance for Doubtful Accounts ................... 32,199
*
Beginning receivables ............................ $ 657,934
Credit sales.............................................. 1,525,634
Collections............................................... (1,204,600)
Write-offs ................................................. (27,800)
Ending receivables ................................. 951,168
Percent uncollectible .............................. x 1.5%
Required ending allowance .................... 14,268** Cr.
Unadjusted balance
Beginning (Cr.) ...................................... $ 9,869
Write-offs (Dr.) ....................................... 27,800 17,931 Dr.
Adjustment to the allowance .................. $ 32,199 Cr.
** rounded to nearest dollar
9-562
Education.

Part 1
2014
Dec. 16 Notes Receivable—D. Todd................................ 10,800
Accounts Receivable—D. Todd ................... 10,800
To record note received on account.
31 Interest Receivable .............................................. 36

Interest Revenue ........................................... 36
To record interest earned
[$10,800 x .08 x 15/360 = $36].
2015
Feb. 14 Cash ...................................................................... 10,944
Interest Revenue* .......................................... 108
Interest Receivable........................................ 36
Notes Receivable—D. Todd.......................... 10,800
To record cash received on note with interest.
*[$10,800 x 0.08 x 45/360 = $108]
Mar. 2 Notes Receivable—Midnight Co ........................ 6,100

Accounts Receivable—Midnight Co. ........... 6,100
17 Notes Receivable—A. Privet .............................. 2,400

Accounts Receivable—A. Privet 2,400
Apr. 16 Accounts Receivable—A. Privet ........................ 2,414

Interest Revenue ........................................... 14
Notes Receivable—A. Privet ........................ 2,400
To record receivable for dishonored
note plus interest [$2,400 x .07 x 30/360= $14].
May 31 Accounts Receivable—Midnight Co. ................. 6,222

Notes Receivable—Midnight Co .................. 6,100
To record receivable for dishonored note
*[$6,100 x 0.08 x 90/360 = $122]
9-563
Education.
Problem 9-5A (Concluded)
July 16 Cash ...................................................................... 6,286

Accounts Receivable—Midnight Co. ........... 6,222
To record cash received on account
plus additional interest.
*[$6,222 x .08 x 46/360= $64 (rounded)]
Aug. 7 Notes Receivable—Mulan................................... 7,450

Accounts Receivable—Mulan ...................... 7,450
Sept. 3 Notes Receivable—N. Carson ............................ 2,100

Accounts Receivable—N. Carson................ 2,100
Nov. 2 Cash ...................................................................... 2,135

Notes Receivable—N. Carson ...................... 2,100
To record cash received on note plus interest
*($2,100 x .10 x 60/360 = $35).
5 Cash ...................................................................... 7,636

Notes Receivable—Mulan............................. 7,450
Interest. *($7,450 x .10 x 90/360 = $186)
Dec. 1 Allowance for Doubtful Accounts...................... 2,414

Accounts Receivable—A. Privet .................. 2,414
To record write-off of account.
Part 2
Analysis Component: When a business pledges its receivables as security
for a loan and the loan is still outstanding at period-end, the business must
disclose this information in notes to its financial statements. This is a
requirement because the business has committed a portion of its assets to
cover a specific portion of its liabilities, which means that if the business
dishonors its obligations under the loan, the creditor can claim the amount
of receivables identified in the pledge as collateral to cover the loan. This
arrangement must be disclosed to satisfy the full-disclosure principle.
9-564
Education.
PROBLEM SET B
Problem 9-1B (30 minutes)
Aug. 4 Accounts Receivable—M. Carpenter ...................... 3,700
Sales..................................................................... 3,700
Cost of Goods Sold .........................................................2,000
Merchandise Inventory .............................................. 2,000
10 Cash ........................................................................... 5,044
Credit Card Expense* ............................................... 156
Sales..................................................................... 5,200
11 Accounts Receivable—Aztec................................... 1,225
Credit card expense* ................................................ 25
Sales..................................................................... 1,250
Cost of Goods Sold ......................................................... 900
Merchandise Inventory .............................................. 900
14 Cash ........................................................................... 3,626
Sales Discounts* ....................................................... 74
Accounts Receivable—M. Carpenter ................ 3,700
To record cash received less discount.*($3,700 x .02)
15 Accounts Receivable—Aztec................................... 3,175
Credit Card Expense*(rounded to nearest dollar) ..... 65
Sales...................................................................... 3,240
18 No journal entry required.
22 Allowance for Doubtful Accounts ........................... 498
Accounts Receivable—Craw Co........................ 498
To write off account due.
25 Cash ........................................................................... 4,400
Accounts Receivable—Aztec............................. 4,400
To record cash rec’d from credit card co. ($1,225+$3,175)
9-565
Education.

Part 1
[$1,342,000 x .025].
b. Expense is 1.5% of total sales
Dec. 31 Bad Debts Expense............................................ 35,505
Allowance for Doubtful Accts. .................... 35,505
[($1,025,000 + $1,342,000) x .015].
*
Estimated balance ($575,000 x 6%) ....... $ 34,500 credit
Unadjusted balance ................................ 7,500 credit
Required adjustment .............................. $ 27,000 credit
Part 2
Current assets
Accounts receivable .................................... $575,000
Less allowance for doubtful accounts ...... (41,050)* $533,950
Or: Accounts receivable (net of $41,050*

uncollectible accounts) ............................ $533,950
* Adjustment to the allowance .................... $33,550 credit

Unadjusted allowance balance ................. 7,500 credit
Adjusted balance ....................................... $41,050 credit
Part 3
Current assets
Accounts receivable .................................... $575,000
Less allowance for doubtful accounts ...... (34,500)** $540,500
Or: Accounts receivable (net of $34,500**

uncollectible accounts) ............ $540,500
** See computations in Part 1c.
9-566
Education.
Part 1
Calculation of the estimated balance of the allowance
Not due: $396,400 x .020 = $ 7,928

1 to 30: 277,800 x .040 = 11,112
31 to 60: 48,000 x .085 = 4,080
61 to 90: 6,600 x .390 = 2,574
Over 90: 2,800 x .820 = 2,296
$27,990
Part 2
Dec. 31 Bad Debts Expense........................................... 31,390

Allowance for Doubtful Accounts ............. 31,390
*
Unadjusted balance ..........................
$ 3,400 debit
Estimated balance .............................
27,990 credit
Required adjustment ........................
$31,390 credit
Part 3
Writing off the account receivable in 2016 will not directly affect Year 2016
net income. The entry to write off an account involves a debit to Allowance
for Doubtful Accounts and a credit to Accounts Receivable, both of which
are balance sheet accounts. Net income is affected only by the annual
recognition of the estimated bad debts expense, which is journalized as an
adjusting entry. Net income for Year 2015 (the year of the original sale)
included an estimated expense for write-offs such as this one.
9-567
Education.
2014
a. Accounts Receivable ......................................... 685,350
Sales .............................................................. 685,350

500,000
b. Cash ..................................................................... 482,300

c. Allowance for Doubtful Accounts..................... 9,350

d. Bad Debts Expense ............................................ 11,287

Allowance for Doubtful Accounts............... 11,287
*Beginning receivables ..................... $ 0

Credit sales ...................................... 685,350
Collections ....................................... (482,300)
Write-offs .......................................... (9,350)
Ending receivables .......................... 193,700
Percent uncollectible ....................... x 1.0%
Required ending allowance ............. 1,937** Cr.
Unadjusted balance ......................... 9,350 Dr.
Adjustment to the allowance........... $ 11,287 Cr.
** Rounded to nearest dollar
9-568
Education.
Problem 9-4B (Concluded)
2015
e. Accounts Receivable .......................................... 870,220
Sales ............................................................... 870,220

650,000
f. Cash ...................................................................... 990,800

Accounts Receivable .................................... 990,800
g. Allowance for Doubtful Accounts...................... 11,090

Accounts Receivable .................................... 11,090
h. Bad Debts Expense ............................................. 9,773

Allowance for Doubtful Accounts................ 9,773
*Beginning receivables ........................... $ 193,670

Credit sales ............................................ 870,220
Collections ............................................. (990,800)
Write-offs ................................................ (11,090)
Ending receivables ................................ 62,000
Percent uncollectible ............................. x 1.0%
Required ending allowance ................... 620 Cr.
Unadjusted balance
Beginning (credit) ................................ $ 1,937
Write-offs (debit) ..................................11,090 9,153 Dr.
Adjustment to the allowance................. $ 9,773 Cr.
9-569
Education.

Part 1
2014
Nov. 1 Notes Receivable—S. Julian .................................. 4,800
Accounts Receivable—S. Julian ...................... 4,800
Dec. 31 Interest Receivable .................................................. 64

Interest Revenue ............................................... 64
To record interest earned [$4,800 x .08 x 60/360].
2015
Jan. 30 Cash .......................................................................... 4,896
Interest Revenue* .............................................. 32
Interest Receivable............................................ 64
Notes Receivable—S. Julian ............................ 4,800
To record cash received on note with interest.
*[$4,800 x .08 x 30/360]
Feb. 28 Notes Receivable—King Co ................................... 12,600

Accounts Receivable—King Co. ...................... 12,600
Mar. 1 Notes Receivable—M. Shelley ............................... 6,200

Accounts Receivable—M. Shelley ................... 6,200
30 Accounts Receivable—King Co ............................. 12,684

Notes Receivable—King Co ............................. 12,600
To record receivable for dishonored note
plus interest [$12,600 x .08 x 30/360].
Apr. 30 Cash .......................................................................... 6,324

Notes Receivable—M. Shelley ......................... 6,200
To record cash received on note plus interest
($6,200 x .12 x 60/360 = $124).
9-570
Education.
Problem 9-5B (Concluded)
June 15 Notes Receivable—R. Solon ................................ 2,000

Accounts Receivable—R. Solon ..................... 2,000
June 21 Notes Receivable—J. Felton ................................ 9,500

Accounts Receivable—J. Felton .................... 9,500
Aug. 14 Cash ........................................................................ 2,034

Notes Receivable—R. Solon .......................... 2,000
*[$2,000 x .08 x 72/360] rounded to nearest dollar
Sept. 19 Cash ........................................................................ 9,690

Notes Receivable—J. Felton .......................... 9,500
*[$9,500 x .08 x 90/360] rounded to nearest dollar
Nov. 30 Allowance for Doubtful Accounts........................ 12,684

Accounts Receivable—King Co ..................... 12,684
Part 2
Analysis Component: When a business pledges its receivables as security
for a loan and the loan is still outstanding at period-end, the business must
disclose this information in notes to its financial statements. This is a
requirement because the business has committed a portion of its assets to
cover a specific portion of its liabilities, which means that if the business
dishonors its obligations under the loan, the creditor can claim the amount
of receivables identified in the pledge as collateral to cover the loan. This
arrangement must be disclosed to satisfy the full-disclosure principle.
9-571
Education.
SERIAL PROBLEM — SP 9
Serial Problem — SP 9, Business Solutions (50 minutes)

1. a. Bad debts expense is recorded as 1% of total revenues:
$44,000 x .01 = $440.
2016
Mar. 31 Bad Debts Expense ............................................... 440
Allowance for Doubtful Accounts.................. 440
To record estimated bad debts.
1. b. Bad debts expense is recorded as 2% of accounts receivable:

$22,867 x .02 = $457.34, which is $457 rounded to the nearest dollar.
2016
Mar. 31 Bad Debts Expense ............................................... 457
Instructor note: It might help to stress that the beginning balance for the Allowance for
Doubtful Accounts is zero, which is unusual and exists because this is the first period that the
company applies the allowance method.
2. Allowance Balance as of 3/31/16 ................... $457 Cr.

Less: Account written off .............................. (100) Dr.
Allowance Balance as of 6/30/16 ................... $357 Cr. (before adjustment)
Required Balance: $20,250 x 0.02 = $405

Required Adjustment: $405 - $357 = $48
2016
June 30 Bad Debts Expense ............................................... 48
3. Many small business owners use the direct write-off method of

recording bad debts expense. The direct method is a simple and
straightforward method of accounting for bad debts expense. It can
also be justified if the amounts are immaterial. However, when the
amounts are material, the direct write-off method can result in accounts
receivable overstatements, bad debts expense understatements, and net
income overstatements. The method required per GAAP is the
allowance method, which will result in the best matching of a period’s
expenses to revenues.
9-572
Education.
Reporting in Action — BTN 9-1
1. Apple’s receivables at September 28, 2013, are $13,102 million.
2. Accounts receivable turnover for 2013 ($ millions)

$170,910
($13,102 + 10,930) / 2 = 14.22 times
3. Average collection period = 365 / Turnover = 365 / 14.22 = 25.67 days
4. Liquid assets as a percent of current liabilities ($ millions)
$14,259 + $26,287 + $13,102 + $1,764

Sep. 28, 2013: = 126.9%
$43,658
$10,746 + $18,383 + $10,930 + $791

Sep. 29, 2012: = 106.0%
$38,542
Comments: Current liabilities are obligations that are due to be paid or

liquidated within one year or one operating cycle of the business,
whichever is longer. Typically, cash provided from the operations of the
business during the year along with the existing liquid assets are used to
satisfy these obligations. Looking solely at Apple’s ability to satisfy
current obligations using cash, investments, receivables and inventory,
the company is in a slightly better position at September 28, 2013, as
compared to September 29, 2012. In both years, however, Apple should
not have difficulty satisfying its current liabilities with these liquid assets.
As a benchmark, many prefer a ratio close to 100% for liquid assets
divided by current liabilities.
5. Note 1 to Apple’s financial statements describes its accounting

policies. That note reports that: “All highly liquid investments with
maturities of three months or less at the date of purchase are classified
as cash equivalents.”
6. Solution depends on the financial statement information obtained.
9-573
Education.
Comparative Analysis — BTN 9-2
1. Accounts Receivable Turnover ($ millions)
Apple (Current Year):

$170,910
= 14.22 times
($13,102 + $10,930) / 2
Apple (Prior Year):
$156,508
= 19.20 times
($10,930 + $5,369) / 2
Google (Current Year): $59,825 = 7.14 times

($8,882 + $7,885) / 2
$50,175
Google (Prior Year): ($7,885 + $5,427) / 2 = 7.54 times
2. Average Collection Period (or “Average Days’ Sales Uncollected”)

Apple (Current Year): 365 days / 14.22 times = 25.67 days
Apple (Prior Year): 365 days / 19.20 times = 19.01 days
Google (Current Year): 365 days / 7.14 times = 51.12 days
Google (Prior Year): 365 days / 7.54 times = 48.41 days
Interpretation: The average collection period for Google is longer than

Apple; this is because Apple sells more of its products for shorter-term
credit periods to its end customers (iTunes is one example) and Google
has more ‘corporate clients’ that buy ad space and negotiate better
payment terms.
3. Both companies appear reasonably efficient in collecting accounts

receivable. Apple collects them over a shorter period of time in both
years. Both Apple and Google showed an unfavorable trend with a
shorter collection time for the prior year.
9-574
Education.
Ethics Challenge — BTN 9-3
1. If the estimate for bad debts is reduced then less Bad Debts Expense
will be recognized on the income statement resulting in a higher net
income. It also means that a lower allowance will be shown on the
balance sheet, which will result in a higher realizable value for
receivables and, therefore, a larger amount of current liquid assets.
2. Accounting procedures often allow for alternate methods or require the

use of estimates. Therefore, managers have some leeway in their
application of accounting procedures. In this case it seems reasonable
to doubt the motivation behind the manager’s recommendation for a
lower bad debts expense. There does not appear to be any economic
justification for the change in estimate aside from the self-interest of
the manager.
3. An informed owner or an effective board of directors will be aware of

alternate accounting methods and how estimates can affect the
financial statements. The owner or board should review the
reasonableness of the manager’s and accountant’s estimate for bad
debts expense. Also, if the company is audited, the auditors will review
this estimate for reasonableness.
9-575
Education.
Communicating in Practice — BTN 9-4
TO: Sid Omar

FROM: (Your Name)
DATE: _______________
SUBJECT: Difference Between Bad Debts Expense and Allowance
For Doubtful Accounts
In accounting for credit sales and bad debts, we report sales revenue in the
period the sales are made, even though some credit sales do not result in
collections until the following period. Of course, some credit sales
eventually prove to be uncollectible. The fact that some accounts will
become uncollectible is what gives rise to bad debts expense and the
allowance for doubtful accounts.
Determining Bad Debts Expense

Bad debts expense represents the estimated amount of the year's sales
that will become uncollectible. The reported amount of bad debts expense
is determined at the end of the accounting period by multiplying an
estimated percent times the annual sales for the period. This year's bad
debts expense of $59,000 is calculated as 2% of the annual sales of
$2,950,000.
Determining Allowance For Doubtful Accounts

The Allowance for Doubtful Accounts unadjusted balance at the end of the
year is the cumulative result of recording bad debts expense and writing
off specific accounts receivable in all past years. The recognition of bad
debts expense at the end of each year has the effect of increasing the
Allowance for Doubtful Accounts balance. However, when specific
accounts receivable are written off, they decrease the Allowance for
Doubtful Accounts balance. Prior to this year's bad debts expense
calculation, the cumulative total of writing off specific accounts was
$16,000 greater than the cumulative total of the past years' bad debts
expenses. Therefore, you could say that Allowance for Doubtful Accounts
had an "abnormal" balance of $16,000. Then, when this year's bad debts
expense of $59,000 is added to Allowance for Doubtful Accounts, the result
is an ending balance of $43,000.
Sid, I hope this clarifies the matter for you. If you have further questions,
please call me.
9-576
Education.
Taking It to the Net — BTN 9-5
1. At December 31, 2013, eBay’s ($ millions) net accounts receivable were

$899, and at December 31, 2012, its net accounts receivable were $822.
2.
December 31, December 31,
$ millions 2013 2012
Gross accounts receivable ....................... $1,005 $911
Allowance for doubtful accounts 106 89
(including authorized credits) ................
% of uncollectible accounts ..................... 10.5% 9.8%
3. These percentages seem high compared to other companies, but

eBay’s operations are all online, and the risk of fraudulent transactions
is likely higher than other companies. eBay’s prior experience has
apparently caused them to estimate this high amount of uncollectible
accounts.
Teamwork in Action — BTN 9-6
Instructor note: Computations for the aging schedule are in the Problem 9-3A solution.
The check figure for total estimated uncollectibles is $41,650.
Adjusting entry
*
Req. allowance balance ..................... $41,650 credit
Unadjusted balance ........................... 14,500 credit
Adj. to the allowance ......................... $27,150 credit
December 31, 2015, Balance Sheet Presentation

Accounts Receivable ............................................ $1,220,000*
Less Allowance for Doubtful Accounts .............. 41,650 1,178,350**
* Total of each age category.

** Net Realizable Accounts Receivable.
9-577
Education.
Entrepreneurial Decision — BTN 9-7
1. Computation of added annual net income or loss
a.
Added Monthly Net Income or Loss under Plan A
Increased sales ............................................................... $250,000
Cost of sales ................................................................... (135,500)
Credit card fees ($250,000 x 4.75%) .............................. (11,875)
Recordkeeping and shipping ($250,000 x 6%) ............. (15,000)
Lost gross profit on store sales ($35,000 x 25%) ........ (8,750)
Additional net income (loss).......................................... $ 78,875
b.
Added Monthly Net Income or Loss under Plan B
Increased sales ............................................................... $500,000
Cost of sales ................................................................... (375,000)
Recordkeeping and shipping ($500,000 x 4%) ............. (20,000)
Uncollectible accounts ($500,000 x 6.2%) .................... (31,000)
Additional net income (loss).......................................... $ 74,000
9-578
Education.
Entrepreneurial Decision — BTN 9-7 continued
2. Plan (A) provides a slightly higher income, so if the client company can
only pursue one plan now, based purely on the financial aspect, it
should choose Plan (A).
Plan (A) might expand its product into new markets, and could increase
sales over time. However, this is a new distribution method for the client
company, and it might lack the expertise to do it well. It will need to
further assess whether the benefit of additional expansion of online
sales over time will be more/less than the cost of lost sales through
normal channels.
Taking credit cards for these online sales reduces its risk of
uncollectible accounts. The credit card company takes the risk of the
customer not paying.
Plan (B) is a way to expand sales, possibly into more locations. This is
an expansion of a distribution method now employed.
The client company does run some unknown risk associated with
having new customers. While the client company may understand its
current customers, it will need to monitor the new customers to make
sure that the uncollectible accounts do not rise beyond acceptable
levels.
Hitting the Road — BTN 9-8
Telephone calls to VISA and American Express are the source of

information for this solution. VISA reports that the average transaction fee
it charges merchants is 3%. American Express has a range, depending on
volume of business and average price of merchandise sold, which ranges
from 2.95% to 4.5%.
Some merchants often choose not to accept certain cards because the
credit card fees are higher than others. In the case of VISA, compared to
American Express, a merchant might have to pay as much as 1.5% more on
its American Express transactions. This can be a major part of its net
profit margin, especially for businesses such as grocery and hardware
stores.
9-579
Education.
Global Decision — BTN 9-9
1. Accounts Receivable Turnover (KRW in millions)
Samsung (Current Year): ₩228,692,667 = 8.38 times

₩27,875,934 + ₩26,674,596) / 2
2. Average Collection Period (or “Average Days’ Sales Uncollected”)
Samsung (Current Year): 365 days / 8.38 times = 43.56 days
3. Samsung’s results are between Apple and Google in terms of its

turnover and collection periods. Apple collects its receivables more
rapidly than Google and Samsung. Google and Samsung are relatively
close in terms of their collection periods.
9-580
Education.
Another random document with
no related content on Scribd:
hand. A sword dance ensues, the four going round and round in a
circle. The gentleman with a sword contorts himself, prods viciously
at imaginary foes, and every now and then makes a playful attempt
to smite off one of the drummers’ legs. This performance being
terminated—accompanied the while by incessant shouting on the
part of every one in general—the actors retire, and the Emir holds up
his thin aristocratic hand.
Instantly a silence falls. The change is singularly impressive. The
Emir begins to speak in a low voice to a herald mounted on a raised
platform at his side. The herald, the perspiration pouring down his
face, shouts out each sentence as it falls from the Emir’s lips. As the
speech proceeds the Emir becomes more animated. He waves his
arm with a gesture full of dignity and command. And now the silence
is occasionally broken with sounds of approval. Finally he stops, and
it is the turn of the Resident who smilingly delivers himself of a much
shorter oration which, as in the previous case, is shouted to the
assemblage by the herald. I was able to obtain, through the courtesy
of the Resident, from the Emir’s Waziri a rendering of the speech of
which the following is a translation—
“The Emir greets you all with thanks to God. He thanks

God’s messenger (Mohammed). He gives thanks for the
blessings of his parents and his ancestors. He gives thanks to
the Europeans who are the gates of his town. He thanks all
White men. Next—you must attend to the orders which the
Emir gives you every year. I say unto you leave off double
dealing. Remove your hand from the people. Let them follow
their own courses. Separate yourselves from injustice. Why
do I say ‘Give up injustice’? You know how we were in former
days and you see how we are now. Are we not better off than
formerly? Next—I thank my headmen who assist me in my
work. I thank my servants who are fellow workers. I thank my
young chiefs who are fellow workers. I thank the men of my
town who are fellow workers. I thank my followers in the town.
I thank the village heads. I thank all the people of the land of
Zaria who are helping me in my work. Next—I wish you to pay
attention to the commands of the English. And I say unto you
that all who see them should pay them respect. He who is
careless of the orders of the White man does not show them
respect. Though nothing happens to him he cries on his own
account (i.e. his stupidity is his punishment), for it is his
ignorance that moves him. Next—every one who farms let
him pay his tax. Every one who says this man is my slave, or
this woman is my slave, or these people are my slaves, and
uses force against them, let judgment fall upon him. What I
say is this—may God reward us! May God give us peace in
our land! May God give us the abundance of the earth! Amen.
Those who feel joyful can say—‘This is our desire! this is our
desire!’”
After a vain attempt to shake hands with the Emir, our respective
mounts altogether declining to assist, we ride out of the town
escorted by a couple of hundred horsemen. A little way past the
gates we halt while they, riding forward a hundred yards or so,
wheel, and charge down upon us with a shout, reining their horses
with a sudden jerk, so near to us that the ensanguined foam from the
cruel bits bespatters us.
As we ride home to the Residency two miles out of the town,
uppermost in the mind at least of one of us is the fascination of this
strange land, with its blending of Africa and the East, its barbaric
displays, its industrial life, its wonderful agricultural development—
above all, perhaps, the tour de force of governing it with a handful of
White officials and a handful of native troops.
PART II
SOUTHERN NIGERIA
MAP OF SOUTHERN NIGERIA SHOWING THE THREE PROVINCES.

CHAPTER I
NIGERIA’S CLAIM UPON PUBLIC ATTENTION
Nigeria is a geographical expression applied to a territory in West

Africa which by successive stages, covering a period of more than
one hundred years, under circumstances widely differing in character
and incentive, and almost wholly as the result of the initial enterprise
of British explorers and merchants, has passed under the protection
of Britain. With the discovery of Nigeria are associated exploits which
for romantic interest and personal achievements hold a prominent
place in British exploring records. The angry swirl of the Bussa
rapids must ever recall the well-nigh superhuman achievements of
Mungo Park, as the marvellous creeks and channels of the Niger
Delta evoke the memory of Richard Lander[2] and John Beecroft.
You cannot visit the Court of the Emir of Kano without
remembering Clapperton’s account of the awkward religious
conundrums with which the gallant sailor, the first European to enter
that fascinating African city, was amazed and confounded by one of
the present Emir’s predecessors; nor ride over the wide and dusty
road into the heart of Hausaland without thinking that but for Joseph
Thomson’s diplomatic tact in negotiating the early treaties with its
potentates, which were to pave the way for the statesmanship of a
Taubman-Goldie and the organising genius of a Lugard, Nigeria
would to-day be the brightest jewel in the West African Empire of the
French. The spirit of MacGregor Laird, the hardy pioneer who laid
the first foundations of British commerce in this country seems to
hover over the broad bosom of the Niger. The marvellous panorama
that unfolds itself before your eyes at Lokoja (the confluence of the
Niger with its tributary the Benue) conjures up the heroism and
tragedy of the Allan-Trotter expedition; while to negotiate in a dug-
out the currents that eddy round the famous ju-ju rock—still termed
Baikie’s Seat—is a reminder that somewhere in the blue depths
below lie the remains of Dr. Baikie’s ill-fated Day-spring.
This land is, indeed, a land rich in heroic memories to men of
British blood. It is the more astonishing that so little appears to be
known by the general public either of its past or, what is much more
important, of the many complex problems connected with its
administration.
Nigeria is, at present, arbitrarily divided into two units, “Southern”

and “Northern;” the division corresponds with the historical events
which have distinguished the assumption of British control, and is to
that extent inevitable. But to-day, with internal communications and
administrative control rapidly extending, this situation presents many
drawbacks. In the absence of any considered scheme of general
constructive policy laid down at home, the existence of two separate
Governments with ideals necessarily influenced by the personal
idiosyncrasies of frequently changing heads in a territory
geographically united, through which the channels of a singularly
intensive internal trade have flowed for centuries, must of necessity
tend to promote divergencies in the treatment of public questions,
and, therefore, create numerous difficulties for the future. I propose
to deal with this subject in greater detail later on.
JU-JU ISLAND NEAR JEBBA.
(Photo by Mr. E. Firmin.)

SHIPPING PALM-OIL ON THE NIGER AT HIGH WATER.
Meantime it would seem necessary at the outset to emphasize two

facts which the public mind does not appear to have realized. The
first is that Nigeria, both in size and in population, is not only the
most considerable of our tropical dependencies in Africa, but is the
most considerable and the wealthiest of all our tropical
dependencies (India, of course, excepted). Embracing an area of
332,960 square miles, Nigeria is thus equal in size to the German
Empire, Italy and Holland, while its population, though not yet
ascertained with accuracy, can hardly amount to less than fifteen
millions, being double that of British East Africa and Uganda with
Nyassaland thrown in, and nearly three times as numerous as the
native population comprised in the South African Union. The second
is that nowhere else in tropical or sub-tropical Africa is the British
administrator faced, at least on a large scale, with a Mohammedan
population, already to be counted in millions and increasing year by
year with significant rapidity. Until a few years ago the work of Great
Britain in West Africa, apart from a few trifling exceptions, was
confined to the administration of the Pagan Negro. The position is
very different now. In the southern regions of the Protectorate, where
its progression is a modern phenomenon, Islam is, from the
administrative point of view, a purely social factor. But in the northern
regions, where Mohammedan rule has been established for
centuries, under the Hausas, and in more recent times under the
Fulani, Islam has brought its laws, its taxation, its schools and its
learning. It is there a political as well as a religious and social force,
solidly entrenched. This fact which, administratively speaking, need
not alarm us—unless the Administration is goaded into adopting a
hostile attitude towards its Mohammedan subjects—does, however,
invest Nigeria with an additional interest of its own and does supply a
further reason why the affairs of this greatest of our African
protectorates should receive more intelligent consideration and study
at the hands of the public than it has enjoyed hitherto.
CHAPTER II
THE NIGER DELTA
What is now known as Southern Nigeria comprises 77,200 square

miles, and includes the whole seaboard of the Nigerian Protectorate,
some 450 miles long, and the marvellous delta region whose
network of waterways and surpassing wealth in economic products
must be seen to be realized. Pursuing its southward course, the
Niger, after its journey of 2,550 miles across the continent from west
to east, bifurcates just below Abo into the Forcados and the Nun.
This is the apex of the delta, and here the Niger is, indeed, majestic.
From each of these main channels of discharge spring countless
others, turning and twisting in fantastic contours until the whole
country is honeycombed to such an extent as to become converted
into an interminable series of islands. The vastness of the horizon,
the maze of interlacing streams and creeks, winding away into
infinity, the sombre-coloured waters, the still more sombre
unpenetrable mangrove forests—here and there relieved by taller
growth—impress one with a sense of awe. There is something
mysterious, unfathomable, almost terrifying in the boundless
prospect, the dead uniformity of colour, the silence of it all. It is the
primeval world, and man seems to have no place therein.
Small wonder that amidst such natural phenomena, where in the
tornado season which presages the rains the sky is rent with flashes
only less terrific than the echoing peals of thunder, where the rushing
wind hurls forest giants to earth and lashes the waters into fury,
where for months on end torrential downpours fall until man has no
dry spot upon which he can place his foot; where nature in its most
savage mood wages one long relentless war with man, racking his
body with fevers and with ague, now invading his farms with furious
spreading plant life, now swamping his dwelling-place—small
wonder the inhabitants of this country have not kept pace with the
progression of more favoured sections of the human race. It is, on
the contrary, astonishing, his circumstances being what they are,
that the native of the Niger delta should have developed as keen a
commercial instinct as can be met with anywhere on the globe, and
that through his voluntary labours, inspired by the necessities and
luxuries of barter, he should be contributing so largely to supply the
oils, fats, and other tropical products which Western industrialism
requires. Trade with the outer world which the merchant—himself
working under conditions of supreme discomfort, and in constant ill-
health—has brought; improved means of communication through the
clearing and mapping of creeks and channels, thereby giving
accessibility to new markets which the Administration is yearly
creating—these are the civilizing agents of the Niger delta, the only
media whereby its inhabitants can hope to attain to a greater degree
of ease and a wider outlook.
The outer fringe of the delta is composed entirely of mangrove
swamps, whose skeleton-like roots rise up from the mud as the tide
recedes, and from whose bark the natives obtain, by burning, a
substitute for salt. For untold centuries the mangrove would appear
to have been encroaching upon the sea, the advance guard of more
substantial vegetation springing up behind it with the gradual
increase of deposits affording root-depth. Apart from the deltaic
system proper, produced by the bifurcation of the Niger and its
subsequent efforts to reach the ocean, the seaboard is pierced by
several rivers, of which the Cross, navigable for stern wheelers of
light draught in the wet season for 240 miles and in the dry for forty,
is the most important. The Benin River links up with the deltaic
system on the east, and on the west with the lagoon system of
Lagos, into which several rivers of no great volume, such as the
Ogun and Oshun, discharge themselves. So continuous and
extensive are these interior waterways that communication by
canoe, and even by light-draught launches, is possible from one end
of the seaboard to the other—i.e., from Lagos to Old Calabar.
The mangrove region is sparsely populated by fishing and trading
tribes. It is curious to come across signs of human life when you
would hardly suspect its possible presence. A gap in the whitened,
spreading roots, a tunnelled passage beyond, a canoe or two at the
opening; or, resting upon sticks and carefully roofed, a miniature hut
open on all sides, in which reposes some votive offering, such are
the only indications that somewhere in the vicinity a village lies
hidden. A visit to some such village holds much to surprise. Diligent
search has revealed to the intending settler that the particular spot
selected contains, it may be a hundred yards or so from the water, a
patch of firm land where, doubtless with much difficulty, a crop of
foodstuffs can be raised, and here he and his family will lead their
primitive existence isolated from the outer world, except when they
choose to enter it on some trading expedition. Further inland
somewhat, as for instance, near the opening of the Warri creek
(whose upper reaches, bordered with cocoanut palms, oil palms, and
ferns, are a dream of beauty), one of the many off-shoots of the
Forcados, where behind the fringe of mangroves the forest has
begun to secure a steady grip, neatly kept and prosperous villages
are more numerous. Their denizens are busy traders and there are
plentiful signs of surface civilization. An expedition in canoes to the
chief of one of these Jekri villages led us from a little landing stage
cut out of the mangroves and cleverly timbered along a beaten path
through smelling mud, alive with tiny crabs and insect life of strange
and repulsive form, into a clearing scrupulously clean, bordered with
paw-paw trees and containing some twenty well-built huts. A large
dug-out was in process of completion beneath a shed; fishing-nets
were hanging out to dry; a small ju-ju house with votive offerings
ornamented the centre of the village green, as one might say; a few
goats wandered aimlessly about, and a score of naked tubby
children gazed open-eyed or clung round their mothers’ knees in
affected panic. Beyond the ju-ju house a one-storeyed bungalow
with corrugated iron roof and verandah unexpectedly reared its ugly
proportions, and before long we were discussing the much vexed
question of the liquor traffic over a bottle of ginger ale across a table
covered by a European cloth, with an intelligent Jekri host, whose
glistening muscular body, naked to the waist, contrasted oddly with
the surroundings. These included a coloured print of the late King
Edward hanging upon the walls in company with sundry illustrated
advertisements all rejoicing in gorgeous frames. The walls of the
vestibule below were similarly adorned, and through a half-open
door one perceived a ponderous wooden bed with mattress, sheets,
pillows, and gaudy quilt (in such a climate!) complete.
The deltaic region is the real home of the oil palm with its
numerous and still unclassified varieties, although it extends some
distance beyond in proportionately lessening quantities as you push
north. No other tree in the world can compare with the oil palm in the
manifold benefits it confers upon masses of men. Occurring in tens
of millions, reproducing itself so freely that the natives often find it
necessary to thin out the youngest trees, it is a source of
inexhaustible wealth to the people, to the country, to commerce, and
to the Administration. The collection, preparation, transport, and sale
of its fruit, both oil and kernels for the export trade is the paramount
national industry of Southern Nigeria, in which men, women, and
children play their allotted parts. Beautiful to look upon, hoary with
antiquity (its sap was used in ancient Egypt for cleansing the body
before embalment), the oil palm is put to endless uses by the natives
—its leaves and branches as roofing material, for clothing, for the
manufacture of nets, mats, and baskets; its fruit and covering fibre in
various forms for food (not disdained by the resident European in the
famous palm oil chop), for light, for fuel. To the Southern Nigerian
native inhabiting the oil-palm area the tree is, indeed, domestically
indispensable, while its product represents something like 90 per
cent. of his purchasing capacity in trade. How entirely wrong would
be any attempt at restricting his free enjoyment of its bounties needs
no emphasizing. The importance of the export trade in the products
of the oil palm may be gauged by the returns for 1910, which show
that Southern Nigeria exported 172,998 tons of kernels and 76,850
tons of oil, of a total value of no less than £4,193,049; and yet the
capacities of the trade, especially in kernels, are only in their infancy.
[3] Many districts, rich in oil palms are unproductive owing to
inaccessibility of markets or lack of transport; in others which supply
oil, the kernels, for sundry reasons, among which insufficiency of
labour to spare from farming operations no doubt predominates, are
not collected, although it is commonly reckoned that three tons of
kernels should be available for every ton of oil. In considering these
figures, realizing the future potentialities of the trade, and realizing,
too, the truly enormous sum of African labour which it represents
(every nut is cracked by hand to extract the kernel), one cannot but
reflect upon the foolish generalities which ascribe “idleness” to the
West African negro, whose free labour in this trade alone gives
employment directly and indirectly to tens of thousands in England
and in Europe, from the merchant and his clerks, from the steamship
owner and his employés on land and sea, to the manufacturer of
soap and candles and their allied trades; from the coopers who turn
out the casks sent out from England in staves for the conveyance of
the oil, to the Irish peasants who collect the stems of the common
sedge shipped out to Nigeria from Liverpool for caulking these
casks.
The bulk of the oil is exported to England (£1,191,000 value in
1909), but nearly the entire kernel crop goes to Germany, where it is
treated by the big crushing mills. It is possible that this state of affairs
may undergo considerable change within the next decade, and the
reason for it is, incidentally, of considerable economic interest, as it
is of moment to Nigeria. Up to within three or four years ago palm
kernels were crushed and the oil almost entirely used by the soap
trade, but chemistry has now found a process of refining and making
palm-kernel oil edible, as it may, perhaps, do some day for palm oil
itself, as a base for margarine, for which coprah and ground-nut oil
were formerly employed. This has had as a consequence an
enormous widening of the home market, and the soap trade has now
to contend with keen competition for the supply of one of its staples.
The resultant effect is the initiative of Lever Brothers (Limited), who,
finding the need of enlarging and giving increased security to their
supplies of the raw material, are, with commendable enterprise,
erecting three large crushing mills in Southern Nigeria, the one at
Lagos being already in a fair way to completion. If the numerous
difficulties they will have to face are successfully negotiated, the
ultimate result can hardly fail to be that of transferring the
considerable palm kernel crushing industry from the banks of the
Rhine to those of the Niger, besides creating a new export trade in
oil cake from the Niger to England and the Continent.
CHAPTER III
THE FOREST BELT
Beyond the deltaic region proper lies the vast belt of primeval and
secondary forest of luxurious growth, giant trees, tangled vines and
creepers, glorious flowering bushes, gaudy butterflies, moist
atmosphere, and suffocating heat. Beyond the forest belt again lies,
with recurrent stretches of forest, the more open hilly country, the
beginning of the uplands of the North. When an authority on forestry
recently wrote that “British Columbia is the last great forest reserve
left,” he forgot West Africa. That is what West Africa has continually
suffered from—forgetfulness. The resources of the Nigerian forest
belt are as yet far from being fully determined, but sufficient is now
known of them to show that they are enormously rich. Besides the oil
palm and the wine palm (which produces the piassava of commerce)
the forest belt contains large quantities of valuable mahoganies,
together with ebony, walnut, satin, rose, and pear woods, barwood,
and other dye-woods, several species of rubber, African oak, gums
(copal), kola, and numerous trees suitable to the manufacture of
wood-pulp. Oil-bearing plants abound in great quantities, as do also
fibres, several of which have been favourably reported upon by the
Imperial Institute. The shea-butter tree, to which I shall have
occasion again to refer, is an inhabitant of the dry zone.
THE TROPICAL BUSH.
The soil of this forest region is wonderfully fertile, and forest

products apart, the possibilities of agricultural development are
considerable. The three articles under cultivation by the natives the
Administration has of late years done its best to popularize have
been cotton, cocoa, and maize. For several reasons maize is an
uncertain quantity. The land bears two crops a year, the larger crops
ripening in July, but a wet August will play havoc with harvesting and
storing arrangements, while the amount available for export must
always depend upon local food requirements and available labour.
The cultivation of cocoa, for which the humid atmosphere, rich
alluvial soil, and abundant shade of the forest region seem peculiarly
suitable, has, on the other hand, steadily, if slowly, increased since it
was started fifteen years ago. In 1900 the quantity of cocoa exported
was valued at £8,622. It had risen in 1910 to £101,151. The efforts
made within the last few years by the British Cotton Growing
Association, supplemented by those of the Administration, to revive
on a large scale the export trade in raw cotton started by the
Manchester manufacturer, Mr. Clegg, at the time of the American
Civil War, has so far been partially, but only partially, successful. The
industry has progressed, but far less rapidly than its promoters
hoped.[4] Things do not move quickly in West Africa. In all these
questions several factors have to be taken into account, for which
sufficient allowance is not made in Europe. For one thing, the really
immense amount of labour which the Nigerian population is already
required to put forth in order to feed itself and to sustain the existing
export trade is not appreciated.
The idea that the native has merely to scratch the earth or watch
the fruit ripening on the trees in order to sustain himself and his
family is, speaking generally, as grotesque an illusion as that he is a
helpless, plastic creature with no will of his own. The native is on the
whole an active, hard-working individual, the ramifications of whose
domestic and social needs involve him in constant journeyings which
absorb much time, and if his soil is prolific in the bearing of crops, it
is equally so in invading vegetation, which has constantly to be
checked. He is also a keen business man and a born trader, as any
European merchant who has dealings with him will bear witness, and
he will turn his attention to producing what pays him best. In that
respect he differs not at all from other sections of the human race
amongst whom the economic sense has been developed, and he
cannot be fairly expected to devote his attention to raising one
particular raw material which a certain home industry may desire, if
he can make larger profits in another direction. The opening up of
the country, the increasing dearness of food supplies in the
neighbourhood of all the great centres, the intensifying commercial
activity and economic pressure so visible on every side, the growth
of population, and the enlargement of the horizon of ideas must
necessarily lead to a steady development in all branches of
production. But the native must be given time, and the country is one
which cannot be rushed either economically or politically.
No sketch, however brief, of the potentialities of the Nigerian forest
belt would be complete without a reference to the labours of the
Forestry Department, which owes its initiation to the foresight and
statesmanship of the late Sir Ralph Moor. Such reference is the
more necessary since the work of the department crystallizes, so to
speak, the conception of its duties towards the native population
which guides the Administration’s policy. No other department of the
Administration reveals so clearly by its whole programme and its
daily practice what the fundamental object of British policy in Nigeria
really is, and in view of the increasing assaults upon that policy by
company promoters at home, on the one hand, and the obstacles to
which its complete realization is subjected in Africa on the other, it is
absolutely essential that public opinion in Britain should become
acquainted with the facts and be in a position to support the Colonial
Office and the Administration in combining equity with
commonsense.
Briefly stated, the Forestry Department is designed to conserve
forest resources for the benefit of the State—the State meaning, in
practice, the native communities owning the land and their
descendants, and the Administration charged with their
guardianship, and while encouraging any legitimate private
enterprise, whether European or native, to oppose the wholesale
exploitation of those resources for the benefit of individuals, white or
black. It aims at impressing the native with the economic value of his
forests as a source of present and continual revenue for himself and
his children; at inducing native communities to give the force of
native law to its regulations and by their assistance in applying them,
to prevent destruction through indiscriminate farming operations and
bush fires, to prevent the felling of immature trees, to replant and to
start communal plantations. It aims at the setting aside, with the
consent of the native owners, of Government reserves and native
reserves, and at furthering industrial development by private
enterprise under conditions which shall not interfere with the general
welfare of the country. In a word, the Forestry Department seeks to
associate the native communities with the expanding values of the
land in which they dwell, so that for them the future will mean
increasing prosperity and wealth, the essence of the policy being
that these communities are not only by law and equity entitled to
such treatment, but that any other would be unworthy of British
traditions. It is what some persons call maudlin sentiment, the sort of
“maudlin sentiment” which stands in the way of the Nigerian native
being expropriated and reduced to the position of a hired labourer on
the properties of concessionnaires under whose patriotic activities
the Nigerian forest would be exploited until it had disappeared from
the face of the earth like the forests of Wisconsin, Michigan,
Minnesota, and Eastern Canada.
Apart from the question of safeguarding the rights of the people of
the land, our wards, the necessity of forest conservation in the
interest of the public weal has been taught by bitter experience, and
experience has also shown that scientific forestry can only be
profitably undertaken by the Government or by bodies whose first
obligation is the interest and protection of the community. The
Forestry Department of Southern Nigeria, short as its existence has
been, is already a revenue-making Department, for in the last ten
years it has either planted, or induced the natives to plant, trees
(some of which, like the rubber trees in Benin, are now beginning to
bear) whose present estimated value is £287,526, and has thus
added over a quarter of a million to the value of the capital stock of
the forests without taking into account the indirect effects of the
steps taken to help their natural regeneration. The Department has
many local difficulties to contend with, especially in the Western
province, which I shall have occasion to discuss in connection with
the general administrative problem facing the administration in that
section of the Protectorate.
The character of its work necessitates that, in addition to scientific
training in forest lore, those responsible for its direction shall be
possessed of knowledge of native customs and of considerable tact
in conducting negotiations with native authorities, always suspicious
of European interference in anything which touches the question of
tenure and use of land. The Administration is fortunate in possessing
in the Conservator and Deputy-Conservator two men who combine
in a rare degree these dual qualifications. It is but the barest
statement of fact to say that Mr. H. N. Thompson, the Conservator
who went to Southern Nigeria after many years in Burma, enjoys an
international reputation. As an expert in tropical forestry he stands
second to none in the world. His colleague, Mr. R. E. Dennett, has
contributed more than any other European living to our knowledge of
Nigerian folklore, and he understands the native mind as few men of
his generation do. In view of its immense importance to the future of
the country it is very regrettable to have to state that the Forestry
Department is greatly undermanned and its labours curtailed in
many directions by the insufficiency of the funds at its disposal. No
wiser course could be taken by the administration than that of setting
aside a sum of borrowed money to be used, as in the case of the
railways, as capital expenditure on productive forestry work.
CHAPTER IV
THE CENTRAL AND EASTERN PROVINCES
In connection with the internal government of the Protectorate it

may be advisable to refer briefly to the House Rule Ordinance of
1901 which has recently given rise to some controversy. The House
Rule Ordinance is a measure designed by the late Sir Ralph Moor to
prevent social anarchy from ensuing when slavery was abolished by
the British Government. It gives force of Law to House Rule. House
Rule is, in reality, the native form of government, which has existed
in Southern Nigeria for many centuries. In recognizing the former the
Administration acknowledges the existence of the latter for which it
can provide no substitute. Native society, as already stated, is in the
patriarchal state. The foundation of it is the “Father,” whether of the
family, of the community, or of the tribe. The members of the House
are, in a measure, apprentices. Under native law there are
obligations on both sides. It is a transitional stage, and should be
regarded as such, and allowed to reform itself from within. The one
difficulty, in this respect, is lest the Ordinance should tend to prevent
a gradual internal evolution towards a higher state by sterilizing any
healthy influences making for modification. A much greater danger
would be any sudden change which would throw the whole country
into absolute confusion. In the Western Province and in the Bini
district, where native rule has developed more rapidly than in the
Eastern and Central, the Father of the House is subject to the Father
of the district, and he in turn is subject to the Paramount Chief of the
whole tribe—the Supreme Father. There is, therefore, a check upon
despotic abuses by the head of the House. In the bulk of the Central
Province and in the whole of the Eastern Province, the head of the
House is virtually the head of the community, the higher forms of
internal control not having evolved. Any hasty and violent
interference which domestic “slavery,” as it is termed, in a country
like the Central and Eastern Provinces should be strenuously
opposed. It would be an act of monstrous injustice, in the first place,
if unaccompanied by monetary compensation, and it would produce
social chaos. But there seems to be no reason why the House Rule
Ordinance should not be amended in the sense of substituting for
Paramount Chieftainship therein—which is virtually non-existent—
the District Commissioners, aided by the Native Councils, as a check
upon the now unfettered action of the heads of Houses. To destroy
the authority of the heads would be to create an army of wastrels
and ne’er-do-weels. Native society would fall to pieces, and endless
“punitive expeditions” would be the result.[5]
For purposes of administration Southern Nigeria is divided into
three Provinces, the Eastern (29,056 square miles), with
headquarters at Old Calabar; the Central (20,564 square miles) with
headquarters at Warri; and the Western (27,644 square miles), with
headquarters at Lagos, the seat of Government of the Protectorate.
To the Western Province is attached, as distinct from the
Protectorate, what is termed the “Colony of Lagos,” comprising the
capital and a small area on the mainland—Lagos itself is an island—
amounting altogether to 3,420 square miles. The supreme
government of the three Provinces is carried on from Lagos by the
Governor, assisted by an Executive Council and by a Legislative
Council composed of nine officials and six unofficial members
selected by the Governor and approved by the Secretary of State.
Each Province is in charge of a Provincial Commissioner, although in
the Western Province his duties are more nominal than real. In none
of the Provinces is there a Provincial Council. The Central and
Eastern Provinces are sub-divided into districts in charge of a District
Commissioner and Assistant Commissioner, who govern the country
through the recognized Chiefs and their councillors by the medium of
Native Councils which meet periodically and over which the District
Commissioner or his assistant presides. These Native Councils or
Courts constitute the real administrative machinery of the country.
They administer native law in civil and criminal cases between
natives. They may not, however, except by special provision, deal
with civil cases in which more than £200 is involved, or with criminal
cases of a nature which, under native law, would involve a fine
exceeding £100 or a sentence of imprisonment exceeding ten years
with or without hard labour, or a flogging exceeding fifteen strokes.

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Fundamental Accounting Principles

22nd Edition Wild Solutions Manual

2. Accounts Receivable—Credit Card Cos..................... 4,800

Quick Study 9-2 (10 minutes)

Oct. 1 Bad Debts Expense .....................................................50,000

Quick Study 9-3 (10 minutes)

Oct. 30 Accounts Receivable—P.Moore ................................50,000

Oct. 30 Cash ..............................................................................50,000

Quick Study 9-4 (15 minutes)

1. direct write-off method

Quick Study 9-5 (15 minutes)

9 Cash ........................................................................... 300

Quick Study 9-6 (15 minutes)

2. Desired balance in allowance = $1,485 (part 1)

Quick Study 9-7 (15 minutes)

Dec. 31 Bad Debts Expense ................................................ 1,400

Quick Study 9-8 (15 minutes)

1. Maturity date is October 31, which is computed as follows:

Quick Study 9-9 (10 minutes)

Oct. 31 Cash .................................................................... 6,180

Quick Study 9-10 (15 minutes)

Dec. 31 Interest Receivable ............................................ 50

Quick Study 9-11 (10 minutes)

May 1 Cash .......................................................................121,875

Quick Study 9-12 (10 minutes)

Interpretation: An accounts receivable turnover of 5.9 implies that the

Quick Study 9-13 (10 minutes)

b. Both U.S. GAAP and IFRS require receivables to be reported net of

Sales Returns and

ACCOUNTS RECEIVABLE LEDGER

Ski Shop Welcome Enterprises Zia Natara

Comparison: The total of the Schedule of Accounts Receivable ($9,301) is

Exercise 9-2 (20 minutes)

8 Cost of Goods Sold ................................................ 6,000

12 Accounts Receivable—Continental ...................... 5,460

12 Cost of Goods Sold ................................................ 3,500

20 Cash ......................................................................... 5,460

Exercise 9-3 (20 minutes)

March 11 Bad Debts Expense ....................................................

March 29 Accounts Receivable—Lester Co. ............................ 45,000

March 29 Cash .............................................................................

Exercise 9-4 (20 minutes)

Feb. 1 Allowance for Doubtful Accounts.............................. 580

June 5 Accounts Receivable—P. Park .................................. 580

June 5 Cash .............................................................................. 580

Exercise 9-5 (15 minutes)

Exercise 9-6 (30 minutes)

Exercise 9-6 (Concluded)

Exercise 9-7 (25 minutes)

a. Computation of the estimated balance of the allowance for uncollectibles:

Exercise 9-8 (20 minutes)

Feb. 1 Allowance for Doubtful Accounts.............................. 6,800

June 5 Accounts Receivable—Oakley ................................... 900

June 5 Cash .............................................................................. 900

Exercise 9-9 (25 minutes)

a. Expense is 3.0% of credit sales

Dec. 31 Bad Debts Expense ............................................... 9,000