Chapter 8: Q10RQ (page 465)
When is bad debts expense recorded when using the direct write-off method?
Answer
Under the direct write-off method, bad debt expenses are recorded in respect of receivable when it is expected that it will never get collected.
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Defining common receivables terms
Match the terms with their correct definition.
Terms Definitions
1. Accounts receivable | a. The party to a credit transaction who takes on an obligation/payable. |
2. Other receivables | b. The party who receives a receivable and will collect cash in the future. |
3. Debtor | c. A written promise to pay a specified amount of money at a particular future date. |
4. Notes receivable | d. The date when the note receivable is due. |
5. Maturity date | e. A miscellaneous category that includes any other type of receivable where there is a right to receive cash in the future |
6. Creditor | f. The right to receive cash in the future from customers for goods sold or for services performed. |
Accounting for notes receivable and accruing interestLogan Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term
(1) Oct. 1 $ 16,000 7% 1 year
(2) Jun. 30 18,000 18% 9 months
(3) Sep. 19 12,000 8% 90 days
Requirements
1. Determine the maturity date and maturity value of each note.
2. Journalize the entries to establish each Note Receivable and to record collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31,2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.
Unique Media Sign Incorporated sells on account. Recently, Unique reported the following figures:
2018 | 2017 | |
Net Credit Sales | \( 594,920 | \)602,000 |
Net Receivables at end of year | 38,500 | 47,100 |
Requirements
1. Compute Unique’s days’ sales in receivables for 2018. (Round to the nearest day.)
2. Suppose Unique’s normal credit terms for a sale on account are 2/10, net 30. How well does Unique’s collection period compare to the company’s credit terms? Is this good or bad for Unique?
List some common examples of other receivables, besides accounts receivable and notes receivable.
During August 2018, Lima Company recorded the following:
• Sales of \(133,300 (\)122,000 on account; \(11,300 for cash). Ignore Cost of Goods Sold.
• Collections on account, \)106,400.
• Write-offs of uncollectible receivables, \(990.
• Recovery of receivable previously written off, \)800.
Requirement:
1. Journalize Lima’s transactions during August 2018, assuming Lima uses the direct write-off method.
2. Journalize Lima’s transactions during August 2018, assuming Lima uses the allowance method
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