Chapter 8: Q7RQ (page 465)
What occurs when a business factors its receivables?
It sells its receivables to a finance company or bank.
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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 \(600 account receivable. On December 31, Stone sent a \)600 check to Spring Garden Greenhouse.
Journalize the entries required for Spring Garden Greenhouse, assuming Spring Garden Greenhouse uses the direct write-off method.
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
When is bad debts expense recorded when using the allowance method?
Question: A table of notes receivable for 2018 follows:
Principal | Interest | Interest Period During 2018 | |
Note 1 | \( 30,000 | 6% | 6 months |
Note 2 | \) 12,000 | 10% | 270 days |
Note 3 | \( 14,000 | 14% | 75 days |
Note 4 | \) 100,000 | 7% | 10 months |
For each of the notes receivable, compute the amount of interest revenue earned during 2018. Round to the nearest dollar
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
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