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Chapter 8: Q6RQ (page 465)
What are some benefits to a business in accepting credit cards and debit cards?
A significant advantage of accepting credit and debit cards are attracting more customers.
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Accounting for uncollectible accounts using the allowance method
(aging-of-receivables) and reporting receivables on the balance sheet
At September 30, 2018, the accounts of Spring Mountain Medical Center (SMMC)
include the following:
During the last quarter of 2018, SMMC completed the following selected transactions:
鈥� Sales on account, \(475,000. Ignore Cost of Goods Sold.
鈥� Collections on account, \)451,800.
鈥� Wrote off accounts receivable as uncollectible: Randall, Co., \(1,800; Oliver Welch,
\)900; and Rain, Inc., \(500
鈥� Recorded bad debts expense based on the aging of accounts receivable, as follows:
Age of Accounts
1鈥�30 Days 31鈥�60
Days
61鈥�90
Days
Over 90
Days
Accounts Receivable \) 97,000 \( 37,000 \) 17,000 $ 14,000
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 Spring Mountain Medical Center should report net accounts receivable
on its December 31, 2018, balance sheet.
How does the percent-of-sales method compute bad debts expense?
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.)
Question: A table of notes receivable for 2018 follows:
Principal | Interest | Interest Period During 2018 | |
Note 1 | \( 30,000 | 6% | 6 months |
Note 2 | \) 12,000 | 10% | 270 days |
Note 3 | \( 14,000 | 14% | 75 days |
Note 4 | \) 100,000 | 7% | 10 months |
For each of the notes receivable, compute the amount of interest revenue earned during 2018. Round to the nearest dollar
What are some limitations of using the direct write-off method?
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