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Chapter 8: Q12RQ (page 465)
When is bad debts expense recorded when using the allowance method?
Answer
Under the allowance method, bad debt expenses are recorded at year-end while preparing the adjusting entries.
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What do the days鈥� sales in receivables indicate, and how is it calculated?
Johnson Company uses the allowance method to account for uncollectible receivables. On September 2, Johnson wrote off a
\(14,000 account receivable from customer J. Mraz. On December 12, Johnson unexpectedly received full payment from Mraz on
the previously written off account. Johnson records an adjusting entry for bad debts expense of \)800 on December 31.
9. Journalize Johnson鈥檚 write-off of the uncollectible receivable.
10. Journalize Johnson鈥檚 collection of the previously written off receivable.
11. Journalize Johnson鈥檚 adjustment for bad debts expense.
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.
What occurs when a business factors its receivables?
This problem continues the Crystal Clear Cleaning problem begun in Chapter 2 and
continued through Chapter 7.
Crystal Clear Cleaning uses the allowance method to estimate bad debts. Consider the following April 2019 transactions for Crystal Clear Cleaning:
Apr. 1 Performed cleaning service for Debbie鈥檚 D-list for \(13,000 on account with
terms n/20.
10 Borrowed money from First Regional Bank, \)30,000, making a 180-day, 12% note.
12 After discussions with customer More Shine, Crystal Clear has determined that
\(230 of the receivable owed will not be collected. Wrote off this portion of the
receivable.
15 Sold goods to Warner for \)9,000 on account with terms n/30. Cost of Goods Sold
was \(4,500.
28 Sold goods to Lelaine, Inc. for cash of \)2,800 (cost \(840).
28 Collected from More Shine, \)230 of receivable previously written off.
29 Paid cash for utilities of \(150.
30 Created an aging schedule for Crystal Clear Cleaning for accounts receivable.
Crystal Clear determined that \)7,000 of receivables outstanding for 1鈥�30 days
were 3% uncollectible, \(10,000 of receivables outstanding for 31鈥�60 days were
20% uncollectible, and \)5,870 of receivables outstanding for more than 60 days
were 30% uncollectible. Crystal Clear Cleaning determined the total amount of
estimated uncollectible receivables and adjusted the Allowance for Bad Debts.
Assume the account had an unadjusted credit balance of $260. (Round to
nearest whole dollar.)
Requirements
1. Prepare all required journal entries for Crystal Clear. Omit explanations.
2. Show how net accounts receivable would be reported on the balance sheet as of
April 30, 2019.
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