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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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Accounting for uncollectible accounts using the allowance method (aging-of-receivables) and reporting receivables on the balance sheet.
At December 31, 2018, the Accounts Receivable balance of GPS Technology is \(200,000. The Allowance for Bad Debts account has a \)24,110 debit balance. GPS Technology prepares the following aging schedule for its accounts receivable:
| Age of Accounts | ||||
1鈥�30 Days | 31鈥�60 Days | 61鈥�90 Days | Over 90 Days | |
Accounts Receivable | \( 65,000 | \) 50,000 | \(40,000 | \)45,000 |
Estimated percent uncollectible | 0.4% | 3.0% | 5.0% | 48.0% |
Requirement:
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, 2018.
2. Show how GPS Technology will report its net accounts receivable on its December 31, 2018, balance sheet
What is the difference between the percent-of-receivables and aging-of-receivables methods?
On August 1, Taylor Company lent $80,000 to L. King on a 90-day, 5% note.
12. Journalize for Taylor Company the lending of the money on August 1.
13. Journalize the collection of the principal and interest at maturity. Specify the date. Round interest to the nearest dollar.
Defining common receivables terms
Match the terms with their correct definition.
Terms Definitions
1. Accounts receivable | a. The party to a credit transaction who takes on an obligation/payable. |
2. Other receivables | b. The party who receives a receivable and will collect cash in the future. |
3. Debtor | c. A written promise to pay a specified amount of money at a particular future date. |
4. Notes receivable | d. The date when the note receivable is due. |
5. Maturity date | e. A miscellaneous category that includes any other type of receivable where there is a right to receive cash in the future |
6. Creditor | f. The right to receive cash in the future from customers for goods sold or for services performed. |
What is the formula to compute interest on a note receivable?
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