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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List some common examples of other receivables, besides accounts receivable and notes receivable.
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
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.
Collecting a receivable previously written off—direct write-off method
Spring Garden Greenhouse had trouble collecting its account receivable from Steve Stone. On June 19, 2018, Spring Garden Greenhouse finally wrote off Stone’s
Journalize the entries required for Spring Garden Greenhouse, assuming Spring Garden Greenhouse uses the direct write-off method.
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 December 31, 2018, the Accounts Receivable balance of GPS Technology is
| 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
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