Learning Materials
Features
Discover
Chapter 8: Q7RQ (page 465)
What occurs when a business factors its receivables?
It sells its receivables to a finance company or bank.
Over 30 million students worldwide already upgrade their learning with 91影视!
All the tools & learning materials you need for study success - in one app.
Get started for free
When a receivable is written off under the allowance method, how does it affect the net realizable value shown on the balance sheet?
Weddings on Demand sells on account and manages its own receivables. My average
experience for the past three years has been as follows:
Sales \( 350,000
Cost of Goods Sold 210,000
Bad Debts Expense 4,000
Other Expenses 61,000
Unhappy with the amount of bad debts expense she has been experiencing, Aledia
Sanchez, controller, is considering a major change in the business. Her plan would be
to stop selling on account altogether but accept either cash, credit cards, or debit cards
from her customers. Her market research indicates that if she does so, her sales will
increase by 10% (i.e., from \)350,000 to \(385,000), of which \)200,000 will be credit
or debit card sales and the rest will be cash sales. With a 10% increase in sales, there
will also be a 10% increase in Cost of Goods Sold. If she adopts this plan, she will
no longer have bad debts expense, but she will have to pay a fee on debit/credit card
transactions of 2% of applicable sales. She also believes this plan will allow her to save
$5,000 per year in other operating expenses.
Should Sanchez start accepting credit cards and debit cards? Show the
computations of net income under her present arrangement and under the plan.
Williams Company uses the direct write-off method to account for uncollectible receivables. On July 18, Williams wrote off a
$6,800 account receivable from customer W. Jennings. On August 24, Williams unexpectedly received full payment from Jennings
on the previously written off account.
7. Journalize Williams鈥檚 write-off on the uncollectible receivable.
8. Journalize Williams鈥檚 collection of the previously written off receivable
At January 1, 2018, Hilltop Flagpoles had Accounts Receivable of \(28,000, and Allowance for Bad Debts had a credit balance of \)3,000. During the year, Hilltop Flagpoles recorded the following:
a. Sales of \(185,000 (\)164,000 on account; \(21,000 for cash). Ignore Cost of Goods Sold.
b. Collections on account, \)135,000.
c. Write-offs of uncollectible receivables, $2,300.
Requirements
1. Journalize Hilltop鈥檚 transactions that occurred during 2018. The company uses the allowance method.
2. Post Hilltop鈥檚 transactions to the Accounts Receivable and Allowance for Bad Debts T-accounts.
3. Journalize Hilltop鈥檚 adjustment to record bad debts expense assuming Hilltop estimates bad debts as 10% of accounts receivable. Post the adjustment to the appropriate T-accounts.
4. Show how Hilltop Flagpoles will report net accounts receivable on its December 31, 2018, balance sheet
Suppose The Right Rig Dealership is opening a regional office in Omaha. Cary Regal, the office manager, is designing the internal control system. Regal proposes the following procedures for credit checks on new customers, sales on account, cash collections, and write-offs of uncollectible receivables:
鈥� The credit department runs a credit check on all customers who apply for credit. When an account proves uncollectible, the credit department authorizes the write off of the accounts receivable.
鈥� Cash receipts come into the credit department, which separates the cash received from the customer remittance slips. The credit department lists all cash receipts by customer name and amount of cash received.
鈥� The cash goes to the treasurer for deposit in the bank. The remittance slips go to the accounting department for posting to customer accounts.
鈥� The controller compares the daily deposit slip to the total amount posted to customer accounts. Both amounts must agree.
Recall the components of internal control. Identify the internal control weakness in this situation, and propose a way to correct it.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
Explanations 
Textbooks 
Flashcards 
91影视 AI 
Notes 
Study Plans 
Study Sets 
Find a degree 
Magazine