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Chapter 7: Q1Q (page 362)
What may be included under the heading of 鈥渃ash鈥�?
Bank deposits, cash in hand, checks issued, money orders received, etc.
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Use the information presented in BE7-5 for Wilton, Inc.
(a) Instead of an Allowance for Doubtful Accounts Balance of \(2,400 credit, the balance was \)1,900 debit. Assume that 10% of accounts receivable will prove to be uncollectible. Prepare the entry to record bad debt expenses.
(b) Instead of estimating uncollectible based on a percentage of receivables, assume Wilton prepares an aging schedule that estimates total uncollectible accounts at \(24,600. (Assume an allowance of \)2,400 credit.) Prepare the entry to record bad debt expenses.
BE7-5 (L03) Wilton, Inc. had net sales in 2017 of \(1,400,000. At December 31, 2017, before adjusting entries, the balances in selected accounts were Accounts Receivable \)250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 8% of its receivables will prove to be uncollectible, prepare the December 31, 2017, journal entry to record bad debt expense.
Milner Family Importers sold goods to Tung Decorators for \(30,000 on November 1, 2017, accepting Tung鈥檚 \)30,000, 6-month, 6% note. Prepare Milner鈥檚 November 1 entry, December 31 annual adjusting entry, and May 1 entry for the collection of the note and interest.
On July 1, 2017, Moresan Company sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Moresan will receive interest at the prevailing rate for a note of this type. Both the principal and interest are due in one lump sum on June 30, 2018.
On September 1, 2017, Moresan sold special-order merchandise on credit and received in return a zero-interest-bearing note receivable from the customer. The prevailing rate of interest for a note of this type is determinable. The note receivable is due in one lump sum on August 31, 2019.
Moresan also has significant amounts of trade accounts receivable as a result of credit sales to its customers. On October 1, 2017, some trade accounts receivable were assigned to Indigo Finance Company on a non-notification (Moresan handles collections) basis for an advance of 75% of their amount at an interest charge of 8% on the balance outstanding.
On November 1, 2017, other trade accounts receivable were sold without recourse. The factor withheld 5% of the trade accounts receivable factored as protection against sales returns and allowances and charged a finance charge of 3%.
Instructions
(b) How should Moresan report the interest-bearing note receivable and the zero-interest-bearing note receivable on its balance sheet at December 31, 2017?
(Petty Cash) The petty cash fund of Fonzarelli鈥檚 Auto Repair Service, a sole proprietorship, contains the following.
1. Coins and Currency | \(15.20 | |
2. Postage Stamps | 2.90 | |
3. An I.O.U from Cunningham, an employee, for cash advance | 40 | |
4. Check payable to Fonzarelli鈥檚 Auto Repair from Pottsie Weber, an employee, marked NSF | 34 | |
5. Vouchers for the following: | ||
Stamps | 20 | |
Two Rose Bowl tickets for Nick Fonzarelli | 170 | |
Printer cartridge | 14.35 | 204.35 |
\)296.45 |
The general ledger account Petty Cash has a balance of $300.
Instructions
Prepare the journal entry to record the reimbursement of the petty cash fund.
(Bad-Debt Reporting) The chief accountant for Dickinson Corporation provides you with the following list of accounts receivable written off in the current year.
Date | Customer | Amount \( |
March 31 | E.L Masters Company | \)7,800 |
June 30 | Stephen Crane Associates | 6,700 |
September 30 | Amy Lowell鈥檚 Dress Shop | 7,000 |
December 31 | R. Frost. Inc | 9,830 |
Dickinson follows the policy of debiting Bad Debt Expense as accounts are written off. The chief accountant maintains that this procedure is appropriate for financial statement purposes because the Internal Revenue Service will not accept other methods for recognizing bad debts.
All of Dickinson鈥檚 sales are on a 30-day credit basis. Sales for the current year total \(2,200,000. The balance in Accounts Receivable at year-end is \)77,000 and an analysis of customer risk and charge-off experience indicates that 12% of receivables will be uncollectible (assume a zero balance in the allowance).
Instructions
(a) Do you agree or disagree with Dickinson鈥檚 policy concerning recognition of bad debt expense? Why or why not?
(b) By what amount would net income differ if bad debt expense was computed using the percentage-of-receivables approach?
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