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.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Accounting for notes receivable and accruing interestCarley Realty loaned money and received the following notes during 2018.Note Date Principal Amount Interest Rate Term
(1) Apr. 1 $ 6,000 7% 1 year
(2) Sep. 30 12,000 6% 6 months
(3) Sep. 19 18,000 8% 90 days
Requirements
1. Determine the maturity date and maturity value of each note.
2. Journalize the entries to establish each Note Receivable and to record the collection ofprincipal and interest at maturity. Include a single adjusting entry on December 31, 2018, the fiscal year-end, to record accrued interest revenue on any applicable note.Explanations are not required. Round to the nearest dollar.
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?
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.
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.
Recording credit sales and collections
Record the following transactions for Summer Consulting. Explanations are not required.
Apr. 15 | Provided consulting services to Bob Jones and billed the customer \(1,500. |
18 | Provided consulting services to Samantha Cruise and billed the customer \)865. |
25 | Received \(750 cash from Jones. |
28 | Provided consulting services to Regan Taylor and billed the customer \)625. |
28 | Received \(865 cash from Cruise. |
30 | Received \)1,375 cash, \(750 from Jones and \)625 from Taylor |
What do you think about this solution?
We value your feedback to improve our textbook solutions.
