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Chapter 8: Q1RQ (page 465)
What is the difference between accounts receivable and notes receivable?
Answer
Notes receivables are long-term payments made under a contract over an extended period with interest. Accounts receivable is the amount of sales for which payment is due from the customer.
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At September 30, 2018, the accounts of Green Terrace Medical Center (GTMC)
include the following:
Accounts Receivable \( 145,000
Allowance for Bad Debts (credit balance) 3,500
During the last quarter of 2018, GTMC completed the following selected transactions:
鈥� Sales on account, \)450,000. Ignore Cost of Goods Sold.
鈥� Collections on account, \(427,100
鈥� Wrote off accounts receivable as uncollectible: Regan, Co., \)1,400; Owen Reis, \(800;
and Patterson, Inc., \)700
鈥� Recorded bad debts expense based on the aging of accounts receivable, as follows:
Age of Accounts
1鈥�30 Days 31鈥�60
Days
61鈥�90
Days
Over 90
Days
Accounts Receivable \( 104,000 \) 39,000 \( 14,000 \) 8,000
Estimated percent uncollectible 0.3% 3% 30% 35%
Requirements
1. Open T-accounts for Accounts Receivable and Allowance for Bad Debts.
Journalize the transactions (omit explanations) and post to the two accounts.
2. Show how Green Terrace Medical Center should report net accounts receivable on
its December 31, 2018, balance sheet.
What is the difference between the percent-of-receivables and aging-of-receivables methods?
What is the formula to compute interest on a note receivable?
How does the percent-of-sales method compute bad debts expense?
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
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