Chapter 8: Q12SE (page 469)
Question: McKale Corporation has a three-month, $18,000, 9% note receivable from L. Peters that was signed on June 1, 2018. Peters defaults on the loan on September 1.
Journalize the entry for McKale to record the default of the loan
Answer
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What type of account must the sum of all subsidiary accounts be equal to?
Applying the allowance method to account for uncollectibles
The Accounts Receivable balance and Allowance for Bad Debts for Signature Lamp
Company at December 31, 2017, was \(10,800 and \)2,000 (credit balance), respectively.
During 2018, Signature Lamp Company completed the following transactions:
a. Sales revenue on account, \(273,400 (ignore Cost of Goods Sold).
b. Collections on account, \)223,000.
c. Write-offs of uncollectibles, \(5,900.
d. Bad debts expense of \)5,200 was recorded
Requirements
1. Journalize Signature Lamp Company’s transactions for 2018 assuming Signature Lamp Company uses the allowance method.
2. Post the transactions to the Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense T-accounts, and determine the ending balance of each account.
3. Show how accounts receivable would be reported on the balance sheet at December 31, 2018.
Evaluating ratio data
Silver Clothiers reported the following selected items at April 30, 2018 (last year’s—2017—amounts also given as needed):
Requirements
1. Calculate Abanaki’s acid-test ratio for 2018. (Round to two decimals.) Determine whether Abanaki’s acid-test ratio improved or deteriorated from 2017 to 2018. How does Abanaki’s acid-test ratio compare with the industry average of 0.80?
2. Calculate Abanaki’s accounts receivable turnover ratio. (Round to two decimals.) How does Abanaki’s ratio compare to the industry average accounts receivable turnover of 10?
3. Calculate the days’ sales in receivables for 2018. (Round to the nearest day.) How do the results compare with Abanaki’s credit terms of net 30?
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.
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. |
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