Chapter 8: Q20RQ (page 465)
What is the formula to compute interest on a note receivable?
Interest is computed by multiplying notes receivable value with interest rate and time period.
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Accounting for uncollectible accounts using the allowance method (aging-of-receivables) and reporting receivables on the balance sheet.
At December 31, 2018, the Accounts Receivable balance of GPS Technology is \(200,000. The Allowance for Bad Debts account has a \)24,110 debit balance. GPS Technology prepares the following aging schedule for its accounts receivable:
| Age of Accounts | ||||
1–30 Days | 31–60 Days | 61–90 Days | Over 90 Days | |
Accounts Receivable | \( 65,000 | \) 50,000 | \(40,000 | \)45,000 |
Estimated percent uncollectible | 0.4% | 3.0% | 5.0% | 48.0% |
Requirement:
1. Journalize the year-end adjusting entry for bad debts on the basis of the aging schedule. Show the T-account for the Allowance for Bad Debts at December 31, 2018.
2. Show how GPS Technology will report its net accounts receivable on its December 31, 2018, balance sheet
Why must companies record accrued interest revenue at the end of the accounting period?
This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and
continued through Chapter 7.
Crystal Clear Cleaning uses the allowance method to estimate bad debts. Consider the following April 2019 transactions for Crystal Clear Cleaning:
Apr. 1 Performed cleaning service for Debbie’s D-list for \(13,000 on account with
terms n/20.
10 Borrowed money from First Regional Bank, \)30,000, making a 180-day, 12% note.
12 After discussions with customer More Shine, Crystal Clear has determined that
\(230 of the receivable owed will not be collected. Wrote off this portion of the
receivable.
15 Sold goods to Warner for \)9,000 on account with terms n/30. Cost of Goods Sold
was \(4,500.
28 Sold goods to Lelaine, Inc. for cash of \)2,800 (cost \(840).
28 Collected from More Shine, \)230 of receivable previously written off.
29 Paid cash for utilities of \(150.
30 Created an aging schedule for Crystal Clear Cleaning for accounts receivable.
Crystal Clear determined that \)7,000 of receivables outstanding for 1–30 days
were 3% uncollectible, \(10,000 of receivables outstanding for 31–60 days were
20% uncollectible, and \)5,870 of receivables outstanding for more than 60 days
were 30% uncollectible. Crystal Clear Cleaning determined the total amount of
estimated uncollectible receivables and adjusted the Allowance for Bad Debts.
Assume the account had an unadjusted credit balance of $260. (Round to
nearest whole dollar.)
Requirements
1. Prepare all required journal entries for Crystal Clear. Omit explanations.
2. Show how net accounts receivable would be reported on the balance sheet as of
April 30, 2019.
When a receivable is written off under the allowance method, how does it affect the net realizable value shown on the balance sheet?
List some common examples of other receivables, besides accounts receivable and notes receivable.
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