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Chapter 7: 11Q (page 362)
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.
In comparison to the allowance method, the direct write-off method proves to be more objectivebut it is also not fully objective.
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Kraft Enterprises owns the following assets at December 31, 2017.
Cash in bank 鈥� saving account | 68,000 | Checking account balance | 17,000 |
Cash on hand | 9,300 | Post-dated Checks | 750 |
Cash refunded due from IRS | 31,400 | Certificate of deposits (180-days) | 90,000 |
What amount should be reported as cash?
(Recording Bad Debts) Duncan Company reports the following financial information before adjustments.
Debit | Credit | |
Accounts receivables | \(100,000 | |
Allowance for doubtful accounts | \)2,000 | |
Sales revenue (All on credit) | 900,000 | |
Sales return and allowance | 50,000 |
Instructions
Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.
(Transfer of Receivables without Recourse) JFK Corp. factored $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2017. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1陆% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.
Instructions
(a) Prepare the journal entry on July 1, 2017, for JFK Corp. to record the sale of receivables without recourse.
(b) Prepare the journal entry on July 1, 2017, for LBJ Finance Corporation to record the purchase of receivables without recourse.
(Journalizing Various Receivable Transactions) The trial balance before adjustment for Phil Collins Company shows the following balances.
Debit | Credit | |
Accounts receivables | \(82,000 | |
Allowance for doubtful accounts | \)2,120 | |
Sales revenue | \(430,000 |
Instructions
Using the data above, give the journal entries required to record each of the following cases. (Each situation is independent.)
1. To obtain additional cash, Collins factors without recourse \)25,000 of accounts receivable with Stills Finance. The finance charge is 10% of the amount factored.
2. To obtain a 1-year loan of \(55,000, Collins pledges \)65,000 of specific receivable accounts to Crosby Financial. The finance charge is 8% of the loan; the cash is received and the accounts turned over to Crosby Financial.
3. The company wants to maintain the Allowance for Doubtful Accounts at 5% of gross accounts receivable.
4. Based on an aging analysis, an allowance of \(5,800 should be reported. Assume the allowance has a credit balance of \)1,100.
(Bank Reconciliation and Adjusting Entries) The cash account of Aguilar Co. showed a ledger balance of \(3,969.85 on June 30, 2017. The bank statement as of that date showed a balance of \)4,150. Upon comparing the statement with the cash records, the following facts were determined.
1. There were bank service charges for June of \(25.
2. A bank memo stated that Bao Dai鈥檚 note for \)1,200 and interest of \(36 had been collected on June 29, and the bank had made a charge of \)5.50 on the collection. (No entry had been made on Aguilar鈥檚 books when Bao Dai鈥檚 note was sent to the bank for collection.)
3. Receipts for June 30 for \(3,390 were not deposited until July 2.
4. Checks outstanding on June 30 totaled \)2,136.05.
5. The bank had charged the Aguilar Co.鈥檚 account for a customer鈥檚 uncollectible check amounting to \(253.20 on June 29.
6. A customer鈥檚 check for \)90 (as payment on the customer鈥檚 Accounts Receivable) had been entered as \(60 in the cash receipts journal by Aguilar on June 15.
7. Check no. 742 in the amount of \)491 had been entered in the cash journal as \(419, and check no. 747 in the amount of \)58.20 had been entered as $582. Both checks had been issued to pay for purchases and were payments on Aguilar鈥檚 Accounts Payable.
Instructions
(a) Prepare a bank reconciliation dated June 30, 2017, proceeding to a correct cash balance.
(b) Prepare any entries necessary to make the books correct and complete.
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