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Chapter 7: Question: E7-11 (page 366)

(Bad Debts鈥擜ging) Danica Patrick, Inc. includes the following account among its trade receivables.

Hopkins Company

1/1

Balance forward

700

1/28

Cash (#1710)

$1,100

1/20

Invoice #1710

1,100

4/2

Cash (#2116)

1,350

3/14

Invoice #2116

1,350

4/10

Cash (1/1 Balance)

155

4/12

Invoice #2412

1,710

4/30

Cash (#2412)

1,000

9/5

Invoice #3614

490

9/20

Cash (#3614 and part of #2412)

790

10/17

Invoice #4912

860

10/31

Cash (#4912)

860

11/18

Invoice #5681

2,000

12/1

Cash (#5681)

1,250

12/20

Invoice #6347

800

12/29

Cash (#6347)

800

Instructions

Age the balance and specify any items that apparently require particular attention at year-end

Short Answer

Expert verified

The total balance of receivables is$1,705.

Step by step solution

01

Definition of Aging of Receivables

The process of sorting accounting receivables on the basis of time for which they are outstanding is known as the aging of receivables.

02

Aging of Balance

Date

Amount

Aging

Balance 1/1

$700-$155

$545

Over one year

4/12 (#2412)

$1,710-1,000-300

$410

8 months and 19 days

11/18$2,000-1,250

$750

1 month and 13 days

$1,705

All the invoices are paid by the company in full. The above three items must be investigated as to why their payments have not been made. The major concerns are opening balance and 2412.

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Most popular questions from this chapter

Indicate three reasons why a company might sell its receivables to another company.

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

What are the effects of the sale of the note receivable with recourse on Rolen鈥檚 income statement for the year ended December 31, 2017, and its balance sheet at December 31, 2017?

Of what merit is the contention that the allowance method lacks the objectivity of the direct write-off method? Discuss in terms of accounting鈥檚 measurement function.

Simms Company has significant amounts of trade accounts receivable. Simms uses the allowance method to estimate bad debts instead of the direct write-off method. During the year, some specific accounts were written off as uncollectible, and some that were previously written off as uncollectible were collected.

Instructions

(a) What are the deficiencies of the direct write-off method?

(b) Briefly describe the allowance method to estimate bad debts and the theoretical justification for its use?

(c) How should Simms account for the collection of the specific accounts previously written off as uncollectible?

(Petty Cash) Carolyn Keene, Inc. decided to establish a petty cash fund to help ensure internal control over its small cash expenditures. The following information is available for the month of April.

1. On April 1, it established a petty cash fund in the amount of \(200.

2. A summary of the petty cash expenditures made by the petty cash custodian as of April 10 is as follows

Delivery charges paid on merchandise purchased

\)60

Supplies Purchased and used

25

Postage expenses

33

I.O.U from employees

17

Miscellaneous expenses

36

The petty cash fund was replenished on April 10. The balance in the fund was \(27.

3. The petty cash fund balance was increased \)100 to $300 on April 20.

Instructions

Prepare the journal entries to record transactions related to petty cash for the month of April
See all solutions

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