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Chapter 7: Q4E. (page 345)

Dexter Company applies the direct write-off method in accounting for uncollectible accounts. Prepare journal entries to record the following selected transactions of Dexter.

Mar. 11 Dexter determines that it cannot collect $45,000 of its accounts receivable from its customer Leer Company.

29 Leer Company unexpectedly pays its account in full to Dexter Company. Dexter records its recovery of this bad debt.

Short Answer

Expert verified

Accounting for uncollectible accounts deals with the amount of bad debt that a debtor cannot payand is treated under the uncollectible.

Step by step solution

01

Introduction

The journal entry of bad debt expense will be recorded against the debtor, and if the payment has been received, it will be written off, and the amount of cash received will be reported.

02

Journal entry

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Most popular questions from this chapter

Hitachi, Ltd., reports total revenues of ¥9,616,202 million for its current fiscal year, and its current fiscal year-end unadjusted trial balance reports a debit balance for trade receivables (gross) of ¥2,797,935 million

b. Prepare the adjusting entry to record bad debts expense assuming uncollectibles are estimated to be 2.0% of year-end trade receivables (gross) and its unadjusted trial balance reports a credit balance of ¥10,000 million for the Allowance for Doubtful Accounts.

BTN 7-3 Anton Blair is the manager of a medium-size company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income the company earns each year. Each December he estimates year-end financial figures in anticipation of the bonus he will receive. If the bonus is not as high as he would like, he offers several recommendations to the accountant for year-end adjustments. One of his favorite recommendations is for the controller to reduce the estimate of doubtful accounts.

Required

1. What effect does lowering the estimate for doubtful accounts have on the income statement and balance sheet?

2. Do you believe Blair’s recommendation to adjust the allowance for doubtful accounts is within his rights as manager, or do you believe this action is an ethics violation? Justify your response.

3. What type of internal control(s) might be useful for this company in overseeing the manager’s recommendations for accounting changes?

Refer to the information in Exercise 7-7 to complete the following requirements.

  1. Estimate the balance of the Allowance for Doubtful Accounts assuming the company uses 4.5% of total accounts receivable to estimate uncollectibles, instead of the aging of receivables method.

Why does the Bad Debts Expense account usually not have the same adjusted balance as the Allowance for Doubtful Accounts?

The following selected transactions are from Ohlm Company.

2016

Dec. 16 Accepted a \(10,800, 60-day, 8% note dated this day in granting Danny Todd a time extension on his past-due account receivable.

31 Made an adjusting entry to record the accrued interest on the Todd note.

2017

Feb. 14 Received Todd’s payment of principal and interest on the note dated December 16.

Mar. 2 Accepted a \)6,100, 8%, 90-day note dated this day in granting a time extension on the past-due account receivable from Midnight Co.

17 Accepted a \(2,400, 30-day, 7% note dated this day in granting Ava Privet a time extension on her past-due account receivable.

Apr. 16 Privet dishonored her note when presented for payment.

May 31 Midnight Co. refused to pay the note that was due to Ohlm Co. on May 31. Prepare the journal entry to charge the dishonored note plus accrued interest to Midnight Co.’s accounts receivable.

July 16 Received payment from Midnight Co. for the maturity value of its dishonored note plus interest for 46 days beyond maturity at 8%.

Aug. 7 Accepted a \)7,450, 90-day, 10% note dated this day in granting a time extension on the past-due account receivable of Mulan Co.

Sep. 3 Accepted a $2,100, 60-day, 10% note dated this day in granting Noah Carson a time extension on his past-due account receivable.

Nov. 2 Received payment of principal plus interest from Carson for the September 3 note.

Nov. 5 Received payment of principal plus interest from Mulan for the August 7 note.

Dec. 1 Wrote off the Privet account against the Allowance for Doubtful Accounts.

Required

2. What reporting is necessary when a business pledges receivables as security for a loan and the loan is still outstanding at the end of the period? Explain the reason for this requirement and the accounting principle being satisfied.
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