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Chapter 8: Q11RQ (page 465)
What are some limitations of using the direct write-off method?
Answer
It is against the matching principle.
Over-estimation of the receivables.
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Sleepy Recliner Chairs completed the following selected transactions:
2018
Jul. 1 Sold merchandise inventory to Stan-Mart, receiving a \(41,000, nine-month, 8%
note. Ignore Cost of Goods Sold.
Oct. 31 Recorded cash sales for the period of \)24,000. Ignore Cost of Goods Sold.
Dec. 31 Made an adjusting entry to accrue interest on the Stan-Mart note.
31 Made an adjusting entry to record bad debts expense based on an aging
of accounts receivable. The aging schedule shows that \(13,800 of accounts
receivable will not be collected. Prior to this adjustment, the credit balance in
Allowance for Bad Debts is \)11,800.
2019
Apr. 1 Collected the maturity value of the Stan-Mart note.
Jun. 23 Sold merchandise inventory to Appeal, Corp., receiving a 60-day, 6% note for
\(7,000. Ignore Cost of Goods Sold.
Aug. 22 Appeal, Corp. dishonoured its note at maturity; the business converted the
maturity value of the note to an account receivable.
Nov. 16 Loaned \)17,000 cash to Crosby, Inc., receiving a 90-day, 16% note.
Dec. 5 Collected in full on account from Appeal, Corp.
31 Accrued the interest on the Crosby, Inc. note.
Record the transactions in the journal of Sleepy Recliner Chairs. Explanations are not
required. (Round to the nearest dollar.)
What type of account must the sum of all subsidiary accounts be equal to?
Dialex Watches completed the following selected transactions during 2018 and 2019:
2018
Dec. 31 Estimated that bad debts expense for the year was 3% of credit sales of
\(410,000 and recorded that amount as expense. The company uses the
allowance method.
31 Made the closing entry for bad debts expense.
2019
Jan. 17 Sold merchandise inventory to Marty White, \)400, on account. Ignore Cost of
Goods Sold.
Jun. 29 Wrote off Marty White鈥檚 account as uncollectible after repeated efforts to
collect from him.
Aug. 6 Received \(400 from Marty White, along with a letter apologizing for being
so late. Reinstated White鈥檚 account in full and recorded the cash receipt.
Dec. 31 Made a compound entry to write off the following accounts as uncollectible:
Barry Krisp, \)1,600; Maria Bryant, \(1,100; and Richard Renik, \)400.
31 Estimated that bad debts expense for the year was 3% on credit sales of
\(490,000 and recorded the expense.
31 Made the closing entry for bad debts expense.
Requirements
1.Open T-accounts for Allowance for Bad Debts and Bad Debts Expense, assuming
the accounts begin with a zero balance. Record the transactions in the general
journal (omit explanations), and post to the two T-accounts.
2.Assume the December 31, 2019, balance of Accounts Receivable is \)136,000. Show
how net accounts receivable would be reported on the balance sheet at that date.
When a receivable is written off under the allowance method, how does it affect the net realizable value shown on the balance sheet?
Question: Silver Clothiers reported the following selected items at April 30, 2018 (last year鈥檚鈥�2017鈥攁mounts also given as needed):
Accounts Payable | \( 328,000 | Accounts Receivable, net: | |
Cash | \) 573,720 | April 30, 2018 | \( 11,000 |
Merchandise Inventory: | April 30, 2017 | \) 165,000 | |
April 30, 2018 | \( 250,000 | Cost of Goods Sold | \) 1,200,000 |
April 30, 2017 | \( 210,000 | Short-term Investments | \) 148,000 |
Net Credit Sales Revenue | \( 3,212,000 | Other Current Assets | \) 100,000 |
Long-term Assets | \( 350,000 | Other Current Liabilities | \) 188,000 |
Long-term Liabilities | $ 130,000 |
Compute Silver鈥檚 (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days鈥� sales in receivables for the year ending April 30, 2018. Evaluate each ratio value as strong or weak. Silver sells on terms of net 30. (Round days鈥� sales in receivables to a whole number.)
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