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Chapter 7: Q3E. (page 345)

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.

Short Answer

Expert verified

An unpaid balance on a credit card is the balance amount that reflects a non-payment by itsholder to the bank. Regular interest is applied to the unpaid balance to pay the outstanding amount earliest.

Step by step solution

01

Introduction

The journal entry for each credit card transaction will be recorded as below.

02

Journal entry

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Most popular questions from this chapter

Jarden Company has credit sales of \(3,600,000 for year 2017. On December 31, 2017, the company’s Allowance for Doubtful Accounts has an unadjusted credit balance of \)14,500. Jarden prepares a schedule of its December 31, 2017, accounts receivable by age. On the basis of past experience, it estimates the percent of receivables in each age category that will become uncollectible. This information is summarized here.

Required:

3. On June 30, 2018, Jarden Company concludes that a customer’s $4,750 receivable (created in 2017) is uncollectible and that the account should be written off. What effect will this action have on Jarden’s 2018 net income? Explain.

The following list describes aspects of either the allowance method or the direct write-off method to account for bad debts. For each item listed, indicate if the statement best describes either the allowance (A) method or the direct write-off (DW) method.

4. When an account is written off, the debit is to Bad Debts Expense.

On August 2, Jun Co. receives a \(6,000, 90-day, 12% note from customer Ryan Albany as payment on his \)6,000 account.

  1. Compute the maturity date for this note.

Archer Co. allows select customers to make purchases on credit. Its other customers can use either of two credit cards: Commerce Bank or Goldman. Commerce Bank deducts a 3% service charge for sales on its credit card. When customers use the Goldman card, a 2% service charge is deducted from sales on its card. Archer completed the following transactions in August.

Aug. 4 Sold \(3,700 of merchandise on credit (that had cost \)2,000) to McKenzie Carpenter.

10 Sold \(5,200 of merchandise (that had cost \)2,800) to customers who used their Commerce Bank credit cards.

11 Sold \(1,250 of merchandise (that had cost \)900) to customers who used their Goldman cards.

14 Received Carpenter’s check in full payment for the purchase of August 4.

15 Sold \(3,250 of merchandise (that had cost \)1,758) to customers who used their Goldman cards.

22 Wrote off the account of Craw Co. against the Allowance for Doubtful Accounts. The $498 balance in Craw Co.’s account stemmed from a credit sale in November of last year.

Required:

Prepare journal entries to record the preceding transactions and events. (The company uses the perpetual inventory system. Round amounts to the nearest dollar.)

At December 31, Folgeys Coffee Company reports the following results for its calendar year.

Cash sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \(900,000

Credit sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 300,000

Its year-end unadjusted trial balance includes the following items.

Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . \)125,000 debit

Allowance for doubtful accounts . . . . . . . . . . . . . . . . 5,000 debit

a. Prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be 3% of credit sales.
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