Chapter 8: Q6RQ (page 465)
What are some benefits to a business in accepting credit cards and debit cards?
A significant advantage of accepting credit and debit cards are attracting more customers.
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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.
At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:
a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.
b. Collections on account, \)135,000.
c. Write-offs of uncollectible receivables, $2,300.
Requirements
1. Journalize Hilltop’s transactions that occurred during 2018. The company uses the allowance method.
2. Post Hilltop’s transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.
3. Journalize Hilltop’s adjustment to record bad debts expense assuming Hilltop estimates bad debts as 3% of credit sales. Post the adjustment to the appropriate T-accounts.
4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet.
What is the difference between accounts receivable and notes receivable?
On June 1, 2018, Best Performance Cell Phones sold \(21,000 of merchandise to Anthony Trucking Company on account. Anthony fell on hard times and on July 15 paid only \)5,000 of the account receivable. After repeated attempts to collect, Best Performance finally wrote off its accounts receivable from Anthony on September 5. Six months later, on March 5, 2019, Best Performance received Anthony’s check for $16,000 with a note apologizing for the late payment.
Requirements
1. Journalize the transactions for Best Performance Cell Phones using the direct write-off method. Ignore Cost of Goods Sold.
2. What are some limitations that Best Performance will encounter when using the direct write-off method?
Accounting for uncollectible accounts using the allowance (percent of-sales) and direct write-off methods and reporting receivables on the
balance sheet
On August 31, 2018, Bouquet Floral Supply had a \(140,000 debit balance in AccountsReceivable and a \)5,600 credit balance in Allowance for Bad Debts. During September,
Bouquet made:
• Sales on account, \(550,000. Ignore Cost of Goods Sold.
• Collections on account, \)584,000.
• Write-offs of uncollectible receivables, $4,000.
Requirements
1. Journalize all September entries using the allowancemethod. Bad debts expense wasestimated at 2% of credit sales. Show all September activity in Accounts Receivable,Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts).
2. Using the same facts, assume that Bouquet used the direct write-off method toaccount for uncollectible receivables. Journalize all September entries using thedirect write-offmethod. Post to Accounts Receivable and Bad Debts Expense, andshow their balances at September 30, 2018.
3. What amount of Bad Debts Expense would Bouquet report on its Septemberincome statement under each of the two methods? Which amount better matchesexpense with revenue? Give your reason.
4. What amount of netaccounts receivable would Bouquet report on its September30, 2018, balance sheet under each of the two methods? Which amount is morerealistic? Give your reason.
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