Receivables Chapter 8 Exercises

Accounting for Bad Debts Expense In-Class Exercises (Form groups and work exercises): Exercise No. Page E8-17 459 Percent-of-Sales Method E8-18 460 Percent-of-Receivables Method E8-19 460 Aging-of-Receivables Method (Use the format, as reflected on the next chart, to complete these exercises)

Accounting for Bad Debts Expense General Journal Date Description Debit Credit Exercises E8-17, E8-18, and E8-19

Percent-of-Sales Method In-Class Exercise: Exercise No. Page E8-17 459 Percent-of-Sales Method

Percent-of-Sales Method Exercise E8-17 (Percent-of-Sales Method) At January 1, 2016, Hilly Mountain Flagpoles had the following: Accounts Receivable of $31,000 Allowance for Bad Debts of $3,000 (credit balance). During the year, Hilly Mountain Flagpoles recorded the following: (a) Sales of $174,000 ($157,000 on account; $17,000 for cash). (b) Collections on account, $131,000. (c) Write-offs of uncollectible receivables, $2,200. Requirements: (1) Journalized Hilly’s transactions that occurred during 2016. (2) Post transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts. (3) Journalize Hilly’s adjustment for bad debts expense assuming Hilly estimates bad debts as 4% of credit sales. Post adjustment to the appropriate T-accounts. (4) Show how Hilly will report net accounts receivable on its December 31, 2016, balance sheet.

Percent-of-Sales Method

Percent-of-Sales Method

Percent-of-Sales Method

Percent-of-Sales Method Net Realizable Value

Percent-of-Sales Method End of Exercise

Percent-of-Receivables Method In-Class Exercise): Exercise No. Page E8-18 460 Percent-of-Receivables Method

Percent-of-Receivables Method Exercise E8-18 (Percent-of-Receivables Method) At January 1, 2015, Hilly Mountain Flagpoles had the following: Accounts Receivable of $31,000 Allowance for Bad Debts of $3,000 (credit balance). During the year, Hilly Mountain Flagpoles recorded the following: (a) Sales of $174,000 ($157,000 on account; $17,000 for cash). (b) Collections on account, $131,000. (c) Write-offs of uncollectible receivables, $2,200. Requirements: (1) Journalized Hilly’s transactions that occurred during 2016. (2) Post transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts. (3) Journalize Hilly’s adjustment for bad debts expense assuming Hilly estimates bad debts as 3% of accounts receivable. Post adjustment to the appropriate T-accounts. (4) Show how Hilly will report net accounts receivable on its December 31, 2016, balance sheet.

Percent-of-Receivables Method Journal entries are the same as Ex E8-17

Percent-of-Receivables Method Account balances are the same ad Ex E8-17

Percent-of-Receivables Method ($54,800 x 3%)…….……………$ 1,644 Allowance account balance….. (800) Required adjustment………….. $ 844

Percent-of-Receivables Method

Percent-of-Receivables Method Net Realizable Value

Percent-of-Receivables Method End of Exercise

Aging-of-Receivables Method In-Class Exercise: Exercise No. Page E8-19 460 Aging-of-Receivables Method

Aging-of-Receivables Method Exercise E8-19 (Aging-of-Receivables Method) At December 31, 2016, the Accounts Receivable balance of TM Manufacturer is $230,000. The Allowance for Bad Debts Account has a $24,000 debit balance. TM Manufacturer prepares the following aging schedule for its accounts receivable: Age of Accounts . Total 1 to 30 31 to 60 61 to 90 Over 90 . Accounts receivable…..$230,000 $75,000 $80,000 $35,000 $40,000 Percent uncollectible….. 0.8% 4.0% 6.0% 48% Requirements: (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, 2016. (2) Show how TM Manufacturer will report its net accounts receivable on its December 31, 2016, balance sheet.

Aging-of-Receivables Method

Aging-of-Receivables Method Net Realizable Value

Aging-of-Receivables Method End of Exercise

Accounting for Notes Receivable In-Class Exercise (Form groups and work exercise): Exercise No. Page E8-23 461 Notes Receivable Transactions (Use the format, as reflected on the next chart, to complete this exercise)

Accounting for Notes Receivable General Journal Date Description Debit Credit Exercise E8-23 (Page 461)

Notes Receivable Exercise E8-23 The following transactions occurred during 2016 and 2017 for Mediterranean Importers. The company ends its accounting year on April 30. 2016 Feb. 1 Loaned $20,000 cash to Candice Smith on a one-year, 6% note. Apr. 6 Sold goods to Green Masters, receiving a 90-day, 9% note for $10,000. (Ignore cost of goods sold) Apr. 30 Made a single entry to accrue interest revenue on both notes. ??? Collected the maturity value of the Green Masters note. 2017 Feb 1 Collected the maturity value of the Smith note. Requirements: (1) Journalize all required entries. (2) Make sure to determine the missing maturity date (???).

Notes Receivable Accrued interest earned on the two notes. Smith – $20,000 x .06 x 90/360 = $300 Masters – $10,000 x .09 x 24/360 = $ 60 Total $360

Calculating Master’s Note Maturity Date The Green Masters 90-day note, issued on April 6, 2016, matures on July 5, 2016. The maturity date is computed as follows: Number of days in April……...…………..30 Less date of note……...…………………..(6) Cum. Days held in April………………………….24 24 Days in May..….……………………………31 55 Days in June………..………………………30 85 Days held in July…(Due Date)…..……… 5 90

Notes Receivable Accrued interest earned on the two notes. Smith – $20,000 x .06 x 90/360 = $300 Masters – $10,000 x .09 x 24/360 = $ 60 $10,000 x .09 x 66/360 = $ 165

Notes Receivable Accrued interest earned on the two notes. Smith – $20,000 x .06 x 90/360 = $300 Masters – $10,000 x .09 x 24/360 = $ 60 $ 20,000 x .06 x 270/360 = $900

Notes Receivable End of Exercise