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Chapter 7: 3BE (page 363)
Use the information from BE7-2, assuming Restin Co. uses the net method to account for cash discounts. Prepare the required journal entries for Restin Co.
The net amount of sales is equal to $48,500.
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(Bad-Debt Reporting) Presented below is information related to the Accounts Receivable accounts of Gulistan Inc. during the current year 2017.
1. An aging schedule of the accounts receivable as of December 31, 2017, is as follows.
Age | Net Debit Balance | % to be applied after correction is made |
Under 60-days | \(172,342 | 1% |
60-90 days | 136,490 | 3% |
91-120 days | 39,924 | 6% |
Over 120 days | 23,644 | \)3,700 definitely uncollectible; estimated remainder uncollectible is 25% |
\(372,400 |
*The \)3,240 write-off of receivables is related to the 91-to-120 day category.
2. The Accounts Receivable control account has a debit balance of \(372,400 on December 31, 2017.
3. Two entries were made in the Bad Debt Expense account during the year: (1) a debit on December 31 for the amount credited to Allowance for Doubtful Accounts, and (2) a credit for \)3,240 on November 3, 2017, and a debit to Allowance for Doubtful Accounts because of a bankruptcy.
4. Allowance for Doubtful Accounts is as follows for 2017.
Allowance for Doubtful Accounts | |||||
Nov 3 | Uncollectible accounts written off | 3,240 | Jan 1 | Beginning balance | 8,750 |
Dec 31 | 5% of \(372,400 | 18,620 |
5. A credit balance exists in Accounts Receivable (60鈥�90 days) of \)4,840, which represents an advance on a sales contract.
Instructions
Assuming that the books have not been closed for 2017, make the necessary correcting entries.
Roeher Company sold \(9,000 of its specialty shelving to Elkins Office Supply Co. on account. Prepare the entries when (a) Roeher makes the sale, (b) Roeher grants an allowance of \)700 when some of the shelving does not meet exact specifications but still could be sold by Elkins, and (c) at year-end; Roeher estimates that an additional $200 in allowances will be granted to Elkins.
Francis Equipment Co. closes its books regularly on December 31, but at the end of 2017 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of January were recorded as December transactions. The information is given below.
1. January cash receipts recorded in the December cash book totaled \(45,640, of which \)28,000 represents cash sales, and \(17,640 represents collections on account for which cash discounts of \)360 were given.
2. January cash disbursements recorded in the December check register liquidated accounts payable of \(22,450 on which discounts of \)250 were taken.
3. The ledger has not been closed for 2017.
4. The amount shown as inventory was determined by physical count on December 31, 2017.
The company uses the periodic method of inventory.
Instructions
(a) Prepare any entries you consider necessary to correct Francis鈥檚 accounts at December 31.
(b) To what extent was Francis Equipment Co. able to show a more favorable balance sheet at December 31 by holding its cash book open? (Compute working capital and the current ratio.) Assume that the balance sheet that was prepared by the company showed the following amounts:
Debit | Credit | |
Cash | \(39,000 | |
Accounts receivables | 42,000 | |
Inventory | 67,00 | |
Accounts payable | \)45,000 | |
Other Current liabilities | 14,200 |
On September 30, 2016, Rolen Machinery Co. sold a machine and accepted the customer鈥檚 zero-interest-bearing note. Rolen normally makes sales on a cash basis. Since the machine was unique, its sales price was not determinable using Rolen鈥檚 normal pricing practices.
After receiving the first of two equal annual installments on September 30, 2017, Rolen immediately sold the note with recourse. On October 9, 2018, Rolen received notice that the note was dishonored, and it paid all amounts due. At all times prior to default, the note was reasonably expected to be paid in full.
Instructions
(c) How should Rolen account for the effects of the note being dishonored?
(Transfer of Receivables) Use the information for Jones Company as presented in E7-20. Jones is planning to factor some accounts receivable at the end of the year. Accounts totaling \(25,000 will be transferred to Credit Factors, Inc. with recourse. Credit Factors will retain 5% of the balances for probable adjustments and assesses a finance charge of 4%. The fair value of the recourse obligation is \)1,200.
Instructions
(a) Prepare the journal entry to record the sale of the receivables.
(b) Compute Jones鈥檚 accounts receivable turnover for the year, assuming the receivables are sold, and discuss how factoring of receivables affects the turnover ratio.
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