Chapter 8: Q9RQ (page 465)
What is the expense account associated with the cost of uncollectible receivables called?
Answer
Bad debt expense is the expense account associated with the cost of uncollectible receivables.
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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.
Consider the following transactions for CC Publishing.
2018
Dec. 6 Received a \(18,000, 90-day, 6% note in settlement of an overdue accountsreceivable from Go Go Publishing.
31 Made an adjusting entry to accrue interest on the Go Go Publishing note.
31 Made a closing entry for interest revenue.
2019
Mar. 6 Collected the maturity value of the Go Go Publishing note.
Jun. 30 Loaned \)11,000 cash to Lincoln Music, receiving a six-month, 20% note.
Oct. 2 Received a $2,400, 60-day, 20% note for a sale to Tusk Music. Ignore Cost ofGoods Sold.
Dec. 1 Tusk Music dishonored its note at maturity.
1 Wrote off the receivable associated with Tusk Music. (Use the allowance method.)
30 Collected the maturity value of the Lincoln Music note.
Journalize all transactions for CC Publishing. Round all amounts to the nearest dollar.
How is the acid-test ratio calculated, and what does it signify?
Question: Endurance Running Shoes reports the following:
2018 | |
May 6 | Recorded credit sales of \(102,000. Ignore Cost of Goods Sold. |
Jul. 1 | Loaned \)18,000 to Jerry Paul, an executive with the company, on a one-year, 7% note |
Dec. 31 | Accrued interest revenue on the Paul note |
2019 | |
Jul. 1 | Collected the maturity value of the Paul note |
Journalize all entries required for Endurance Running Shoes.
Question:
Journalizing note receivable transactions including a dishonored note
On September 30, 2018, Team Bank loaned $94,000 to Kendall Warner on a one-year, 6% note. Team’s fiscal year ends on December 31.
Requirements
1. Journalize all entries for Team Bank related to the note for 2018 and 2019.
2. Which party has a
a. note receivable?
b. note payable?
c. interest revenue?
d. interest expense?
3. Suppose that Kendall Warner defaulted on the note. What entry would the Team record for the dishonored note?
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