Chapter 7: Q3DQ (page 342)
Explain the accounting constraint of materiality.
Accounting isa processrendered by each organization’s accounts/finance department, which relates tothe inflow and the outflow of a company's funds.
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Prepare journal entries to record these selected transactions for Vitalo Company (assume that no reversing entries are recorded).
Nov. 1 Accepted a $6,000, 180-day, 8% note dated November 1 from Kelly White in granting a time extension on her past-due account receivable.
Dec. 31 Adjusted the year-end accounts for the accrued interest earned on the White note.
Apr. 30 White honored her note when presented for payment; February has 28 days for the current year.
Refer to the information in Exercise 7-7 to complete the following requirements.
c. Prepare the adjusting entry to record bad debts expense using the estimate from part a. Assume the unadjusted balance in the Allowance for Doubtful Accounts is a $1,000 debit.
The following selected transactions are from Springer Company.
2016
Nov. 1 Accepted a \(4,800, 90-day, 8% note dated this day in granting Steve Julian a time extension on his past-due account receivable.
Dec. 31 Made an adjusting entry to record the accrued interest on the Julian note.
2017
Jan. 30 Received Julian’s payment for principal and interest on the note dated November 1.
Feb. 28 Accepted a \)12,600, 30-day, 8% note dated this day in granting a time extension on the pastdue account receivable from King Co.
Mar. 1 Accepted a \(6,200, 60-day, 12% note dated this day in granting Myron Shelley a time extension on his past-due account receivable.
30 The King Co. dishonored its note when presented for payment.
Apr. 30 Received payment of principal plus interest from M. Shelley for the March 1 note.
June 15 Accepted a \)2,000, 72-day, 8% note dated this day in granting a time extension on the past-due account receivable of Ryder Solon.
21 Accepted a $9,500, 90-day, 8% note dated this day in granting J. Felton a time extension on his past-due account receivable.
Aug. 26 Received payment of principal plus interest from R. Solon for the note of June 15.
Sep. 19 Received payment of principal plus interest from J. Felton for the June 21 note.
Nov. 30 Wrote off King’s account against Allowance for Doubtful Accounts. Required.
Analysis Component
At December 31, 2017, Ingleton Company reports the following results for the year:
Cash sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(1,025,000
Credit sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,342,000
In addition, its unadjusted trial balance includes the following items:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . \)575,000 debit
Allowance for doubtful accounts . . . . . . . . . . . . . 7,500 credit
Required
1. Prepare the adjusting entry for Ingleton Co. to recognize bad debts under each of the following independent assumptions.
a. Bad debts are estimated to be 2.5% of credit sales.
b. Bad debts are estimated to be 1.5% of total sales.
c. An aging analysis estimates that 6% of year-end accounts receivable are uncollectible
Z-Mart uses the perpetual inventory system and allows customers to use the Z-Mart store credit card in charging purchases. Z-Mart assesses a per-month interest fee for any unpaid balance on its store credit card at each month-end.
Apr. 30 Z-Mart sold merchandise for \(1,000 (that had cost \)650) and accepted the customer's Z-Mart store credit card.
May 31 Z-Mart recorded $4 of interest earned from its store credit card as of this month-end.
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