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Chapter 8: Q9RQ (page 465)
What is the expense account associated with the cost of uncollectible receivables called?
Answer
Bad debt expense is the expense account associated with the cost of uncollectible receivables.
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Question: On December 1, Kyle Corporation accepted a 60-day, 9%, $12,000 note receivable from J. Michael in exchange for his account receivable.
Requirements
1. Journalize the transaction on December 1.
2. Journalize the adjusting entry needed on December 31 to accrue interest revenue. Round to the nearest dollar.
3. Journalize the collection of the principal and interest at maturity. Specify the date. Round to the nearest dollar.
Question:
Journalizing note receivable transactions including a dishonored note
On September 30, 2018, Team Bank loaned $94,000 to Kendall Warner on a one-year, 6% note. Team鈥檚 fiscal year ends on December 31.
Requirements
1. Journalize all entries for Team Bank related to the note for 2018 and 2019.
2. Which party has a
a. note receivable?
b. note payable?
c. interest revenue?
d. interest expense?
3. Suppose that Kendall Warner defaulted on the note. What entry would the Team record for the dishonored note?
Journalizing note receivable transactions
The following selected transactions occurred during 2018 and 2019 for Baltic Importers. The company ends its accounting year on September 30.
2018 | |
Jul. 1 | Loaned \(16,000 cash to Bud Shyne on a one-year, 8% note. |
Sep. 6 | Sold goods to Lawn Pro, receiving a 90-day, 6% note for \)11,000. Ignore Cost of Goods Sold. |
30 | Made a single entry to accrue interest revenue on both notes. |
? | Collected the maturity value of the Lawn Pro note. |
2019 | |
Jul. 1 | Collected the maturity value of the Shyne note. |
Journalize all required entries. Make sure to determine the missing maturity date. Round to the nearest dollar
What is the difference between the percent-of-receivables and aging-of-receivables methods?
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.
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