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Chapter 8: Q25E (page 473)

Professional Steam Cleaning performs services on account. When a customer account becomes four months old, Professional converts the account to a note receivable. During 2018, the company completed the following transactions:

2018

Apr.28

Performed service on account for Parkview Club, \(18,000.

Sep. 1

Received an \)18,000, 60-day, 12% note from Parkview Club in satisfaction of its past-due account receivable.

Oct. 31

Collected the Parkview Club note at maturity

Record the transactions in Professional’s journal. Round to the nearest dollar.

Short Answer

Expert verified

Journal entries are recorded in step 2.

Step by step solution

01

Calculation of interest amount

Interest amount is calculated as follows:


InterestAmount=Notesreceivable×Interestrate×FractionofYear=$18,000×12%×60365=$355

02

Journal entries

Date

Account and explanation

Debit

Credit

Apr.28

Accounts Receivable - Parkview club

$ 18,000

Service Revenue

$ 18,000

(To record services revenue earned)

Sept 1

Notes Receivable - Parkview club

$ 18,000

Accounts Receivable - Parkview club

$ 18,000

(To record note issued against accounts receivable)

Oct.31

Cash

$18,355

Notes Receivable- Parkview club

$18,000

Interest Revenue

$355

(To record collection of note with interest)

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Most popular questions from this chapter

When a receivable is written off under the allowance method, how does it affect the net realizable value shown on the balance sheet?

Suppose The Right Rig Dealership is opening a regional office in Omaha. Cary Regal, the office manager, is designing the internal control system. Regal proposes the following procedures for credit checks on new customers, sales on account, cash collections, and write-offs of uncollectible receivables:

• The credit department runs a credit check on all customers who apply for credit. When an account proves uncollectible, the credit department authorizes the write off of the accounts receivable.

• Cash receipts come into the credit department, which separates the cash received from the customer remittance slips. The credit department lists all cash receipts by customer name and amount of cash received.

• The cash goes to the treasurer for deposit in the bank. The remittance slips go to the accounting department for posting to customer accounts.

• The controller compares the daily deposit slip to the total amount posted to customer accounts. Both amounts must agree.

Recall the components of internal control. Identify the internal control weakness in this situation, and propose a way to correct it.

Accounting for uncollectible accounts using the allowance method

(aging-of-receivables) and reporting receivables on the balance sheet

At September 30, 2018, the accounts of Spring Mountain Medical Center (SMMC)

include the following:

During the last quarter of 2018, SMMC completed the following selected transactions:

• Sales on account, \(475,000. Ignore Cost of Goods Sold.

• Collections on account, \)451,800.

• Wrote off accounts receivable as uncollectible: Randall, Co., \(1,800; Oliver Welch,

\)900; and Rain, Inc., \(500

• Recorded bad debts expense based on the aging of accounts receivable, as follows:

Age of Accounts

1–30 Days 31–60

Days

61–90

Days

Over 90

Days

Accounts Receivable \) 97,000 \( 37,000 \) 17,000 $ 14,000

Estimated percent uncollectible 0.3% 3% 30% 35%

Requirements

1. Open T-accounts for Accounts Receivable and Allowance for Bad Debts.

Journalize the transactions (omit explanations) and post to the two accounts.

2. Show how Spring Mountain Medical Center should report net accounts receivable

on its December 31, 2018, balance sheet.

When using the allowance method, how are accounts receivable shown on the balance sheet?

When is bad debts expense recorded when using the direct write-off method?
See all solutions

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