ACCOUNT 250, Exam 4 (Final Study Guide), (Also study exam study guides 1 -3)

Two methods are used in accounting for uncollectible accounts:

(1) the direct write-off method (2) the allowance method

Here are four items that affect the transaction price and thus the accounts receivable balance:

(1) trade discounts (2) cash discounts (3) sales return and allowances (4) time value of money

BE7.4 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.

(a) Dr Accounts Receivable 9,000 Cr Sales Revenue 9,000 (b) Dr Allowance for sales returns and allowances 700 Cr Accounts Receivable 700 (c) Dr Allowance for sales returns and allowances 200 Cr Accounts Receivable 200

Claims held against others for money, goods, services Classifications

- Accounts receivable (oral agreements; finance charges may be imposed)or notes receivable (written contracts; interest component) - Trade(customers)or non-trade(non-customers, such as employees or other related parties, orinterest receivable) - Currentor long-term(non-current)

Measure transaction price

- Amount of consideration expect to receive in exchange - May be variable consideration component(s)

Under allowance method, we write off an account when we identify a specific account as uncollectible

- Debit (decrease)Allowance for Doubtful Accounts - Credit A/R - Do NOT record Bad Debt Expense again!

Actual returns and allowances that occur

- Debit Sales Returns and Allowances (contra-revenue) - Credit Accounts Receivable

Estimated future returns and allowances at financial statement date

- Debit Sales Returns and Allowances (contra-revenue) - Credit Allowance for Sales Returns and Allowances(contra-asset to Accounts Receivable)

Estimate percentage of outstanding receivables that will become uncollectible

- Do not identify specific accounts - Composite (single overall) rate, or multiple rates based on aging schedule - Past experience; current conditions and expectations

Allowance method (GAAP when amount is material)

- Estimate uncollectible accounts - Debit Bad Debt Expense, Credit Allowance for Uncollectible Accounts

On November 17, 2021, a company records a customer prepayment for services as revenue. On December 31, 2021, the company has not yet performed the services. On the December 31, 2021 financial statements, the results in: a. understatement of revenues and overstatement of liabilities. b. understatement of liabilities and overstatement of net income. c. understatement of liabilities and overstatement of assets. d. all financial statement items being properly reported.

- It's not yet earned - Should be unearned revenue (liability) -> Liability (decreases), Revenues (increases), NI (Increases) => b. understatement of liabilities and overstatement of net income.

Value and report at net realizable value(i.e., "net")

- Net amount expect to receive in cash - Reduce "gross" A/R by estimated uncollectible receivables andestimated future sales returns and allowances

Direct write-off method (not GAAP unless immaterial; use for tax purposes)

- No entry until identify specific account as uncollectible - THEN debit Bad Debt Expense, credit A/R(no allowance account; "cash" basis)

Revenue recognition principle

- Recognize revenue (and related receivable, if appropriate) when satisfy performance obligation - Change in "control" indicators • Right to payment from customer • Legal title passes • Physical possession • "Ownership" of significant rights/rewards • Customer's acceptance of transfer

Given "off the top" to encourage purchase, provide quantity discounts, or hide "true" invoice price

- Record sales revenue after discount (net of discount) - Do not separately record or present discount

A company records credit sales using the net method. On April 16, the company has a $40,000 credit sale (before any discounts). Terms of the sale are 4/15, n/45. The customer pays the appropriate account balance due on April 30. How much does the company report as sales discounts relating to this sale on the current year income statement?

0 (Answer) - Do not record sales discounts using the net method. (40,000 x 4%) = 1,600 - If paid outside of terms, credit sales discount amount (1,600) to sales discount forfeited 40,000 - 1,600 = 38,400 Apr. 16: Dr. A/R 38,400 Cr. Sales 38,400 Apr. 30: Dr. Cash 38,400 Cr. A/R 38,400

A company has net income of $600,000 and earnings per share of $0.40 per common share. The company's common stock account has a $3,000,000 balance. What is the par value per share of the company's common stock? a. $0.50 b. $2.00 c. $2.50 d. $12.50

0.40 = 600,000 / # shares => 600,000 / 0.40 = 1,500,000 of # shares 3,000,000 = 1,500,000 x Par value => 3,000,000 / 1,500,000 = 2 of par value => b. $2.00

When a note is received in exchange for property, goods, or services in a bargained transaction entered into at arm's length, the stated interest rate is presumed to be fair unless:

1. No interest rate is stated, or 2. The stated interest rate is unreasonable, or 3. The face amount of the note is materially different from the current cash sale price for the same or similar items or from the current fair value of the debt instrument.

Record collection of receivable previously written off

1. Re-establish receivable (reverse write-off entry) • Debit A/R • Credit Allowance for Doubtful Accounts 2. Record receipt • Debit Cash • Credit A/R

The transfer of receivables to a third party for cash happens in one of two ways:

1. Sale of receivables 2. Secured borrowing

Some examples of non trade receivables are:

1.) Advances to officers and employees 2.) Advances to subsidaries 3.) Deposits paid to cover potential damages and losses 4.) Deposits paid as a guarantee of performance or payment 5.) Dividends and interest receivable 6.) Claims against: a. Insurance companies for casualties sustained b. Defendants under suit c. Governmental bodies for tax refunds d. Common carriers for damaged or lost goods e. Creditors for returned, damaged, or lost goods f. Customers for returnable items (crates, containers, etc.)

P7.2 The following are a series of unrelated situations. 1.) Halen Company's unadjusted trial balance at December 31, 2020, included the following accounts. Dr. Accounts receivable $53,000 Dr. Allowance for doubtful accounts 4,000 Cr. Net sales $1,200,000 Halen Company estimates its bad debt expense to be 7% of gross accounts receivable. Determine its bad debt expense for 2020. ---------------------- 2.) An analysis and aging of Stuart Corp. accounts receivable at December 31, 2020, disclosed the following. Amounts estimated to be uncollectible $ 180,000 Accounts receivable 1,750,000 Allowance for doubtful accounts (per books) 125,000 What is the net amount expected to be collected of Stuart's receivables at December 31, 2020? ---------------------- 3.) Shore Co. provides for doubtful accounts based on 4% of gross accounts receivable, The following data are available for 2020. Credit sales during 2020 $4,400,000 Bad debt expense 57,000 Allowance for doubtful accounts 1/1/20 17,000 Collection of accounts written off in prior years (customer credit was reestablished) 8,000 Customer accounts written off as uncollectible during 2020 30,000 What is the balance in Allowance for Doubtful Accounts at December 31, 2020? ----------------------- 4.) At the end of its first year of operations, December 31, 2020, Darden Inc. reported the following information. Accounts receivable, net of allowance for doubtful accounts $950,000 Customer accounts written off as uncollectible during 2020 24,000 Bad debt expense for 2020 84,000 What should be the balance in accounts receivable at December 31, 2020, before subtracting the allowance for doubtful accounts? ----------------------- 5.) The following accounts were taken from Bullock Inc.'s trial balance at December 31, 2020. Cr. Net credit sales $750,000 Dr. Allowance for doubtful accounts $ 14,000 Dr. Accounts receivable 310,000 If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2020.

1.) Estimated uncollectible = $ 53,000 account receivables x 7% = $ 3,710 Allowance account balance = $ 4000 Debit Bad Debt expense for 2020 = 3,710 + 4,000 = $ 7,710 ------------------------ 2.) Net amount of expected receivables= $ 1,750,000 - 180,000= $ 1,570,000 ------------------------ 3.) Allowance for doubtful accounts 1/1/20 17,000 + Add: Bad debt expense 57,000 - Less: Customer accounts written off as uncollectible-30,000 + Add: Collection of accounts written off 8,000 = Allowance for Doubtful Accounts at December 31, 2020 52,000 ------------------------ 4.) Accounts Receivable - Allowance for doubtful debts = 950,000 Allowance for doubtful debts = Bad debts Expense - Write offs = 84,000- 24,000 = 60,000 Accounts Receivable before deducting Allowance = Net A/R + Allowance for Doubtful debts = 950,000 + 60,000 = 1,010,000 ------------------------ 5.) Net Credit sales 750,000.00 Accounts receivable 310,000.00 => Bad debt expense(310,000 *3%) = 9,300.00 These bad debts expense can be adjusted from Allowance for Doubtful accounts

During 2020, a company has actual sales returns (customers returned products) totaling $100,000. The company also granted $25,000 in sales allowances, for defective products or products not meeting contract specifications. (Assume the customers had not yet paid the related invoices.)

100,000 + 25,000 = 125,000 Dr. Sales returns and allowances 125,000 Cr. Accounts receivable 125,000

During 2020, a company has gross sales of $5,000,000 and grants $100,000 in returns and allowances in the current year (the company's first year of operations). At year-end, the company estimates an additional $35,000 in future returns and allowances relating to the current year's sales. On the December 31, 2020 financial statements, how much should the company report for the Sales Returns and Allowances (contra-revenue account)?

100,000 + 35,000 = 135,000 Supporting entries: Actual: Dr. Sales return and allowances 100,000 Cr. A/R 100,000 Estimated future: Dr. Sales return and allowances 35,000 Cr. Allowance for sale return and allowance 35,000

A company has the following information at December 31, 2021. Accounts payable 12,000 + Debt investments 270,000 Discount on bonds payable 20,000 - Bonds payable (mature July 1, 2022) 150,000 + Treasury stock 75,000 How much should the company report as current liabilities on December 31, 2021? a. $142,000 b. $162,000 c. $282,000 d. $357,000

12,000 - 20,000 + 150,000 = 142,000 => a. $142,000

A company recorded sales of $2,500,000 for the year. During the year, the company granted $10,000 sales discounts and $50,000 sales returns and allowances. At year-end, the company estimates an additional $45,000 future returns and allowances relating to current year's sales. What is the amount of net sales for the year?

2,500,000 - 10,000 - 50,000 - 45,000 = 2,395,000

A company offers trade and sales discounts to customers. On October 3, the company has a $210,000 sale (before any discounts). The company gives the customer a 3% trade discount and sale terms are 2/15, n/30. The customer pays the appropriate account balance due on October 17. If the company uses the gross method to record credit sales, what is the amount of sales discounts the company will record through the series of entries for this transaction? a. $4,074 b. $4,200 c. $6,300 d. $10,500

210,000 x 3% = 6,300 => (210,000 - 6,300) x 2% = 4,074 => a. $4,074

A company has the following information at December 31, 2021. Cash 374,000 Equity investments 108,000 + Notes receivable 96,000 + Goodwill 200,000 Land 150,000 Additional information: • The cash balance includes $220,000 (+) restricted to pay off long-term debt. • The full notes receivable balance is due in 2024. How much should the company report as long-term investments on December 31, 2021? a. $204,000 b. $424,000 c. $466,000 d. $624,000

220,000 + 108,000 + 96,000 = 424,000 => b. $424,000

A company prepays its 12-month lease on March 1 of each year. On March 1, 2019, the company paid $24,000. On the December 31, 2020 adjusted trial balance, the company reports rent expense of $25,000. On the December 31, 2021 adjusted trial balance, the company reports rent expense of $27,200. What is the amount of prepaid rent reported on the December 31, 2021 adjusted trial balance? a. $4,600 b. $4,640 c. $6,450 d. $6,967

3/1/19: 24,000 / 12 = 2,000 month. 3/1/19 - 3/1/20: 2,000 x 2 = 4,000 3/1/20 - 12/31/20: 25,000 - 4,000 = 21,000 12/31/20: Exp. 25,000 12/31/20 - 3/1/21: 21,000 / 10 = 2,100 x 2 = 4,200 3/1/21 - 12/31/21: 27,200 - 4,200 = 23,000 / 10 = 2,300 12/31/21: Exp. 27,200; pp = ??? 12/31/21 - 3/1/22: ? = 2,300 x 2 = 4,600 => a. $4,600

A company records credit sales using the net method. On April 14, 2021, the company has a $30,000 credit sale (before any discount). Terms of the sale are 3/10, n/30. The customer pays the appropriate account balance on May 30, 2021. How much does the company report as sales discounts forfeited relating to this sale? a. $0 b. $90 c. $900 d. $3,000

30,000 x 3% = 900 => c. $900

A company has the following information. Accounts receivable 38,000 + Cash 67,000 + Equity investments 42,000 Inventory 16,000 + Notes receivable 6,000 Additional information: • The cash balance includes $54,000 restricted to pay off long-term debt. (-) • Allowance for doubtful accounts is $1,900. (-) • The company also has equipment (book value $2,000) that it no longer uses in production but has no plans to sell at this time. How much should the company report as total current assets? a. $65,100 b. $67,000 c. $67,100 d. $71,100

38,000 + 67,000 + 16,000 - 54,000 - 1,900 = 65,100 => a. $65,100

A company recorded sales of $4,000,000 for the year. The company granted trade discounts of $150,000 and $80,000 in sales returns and allowances. At year-end, the company estimates an additional $25,000 in returns and allowances relating to the current year's sales. What is the amount of the company's net sales for the year? a. $3,745,000 b. $3,850,000 c. $3,895,000 d. $3,920,000

4,000,000 - (80,000) - (25,000) = 3,895,000 => c. $3,895,000

4. On December 31, 2021, a company sells goods to a customer, accepting $1,500 immediate cash payment and a 5-year, $15,000 note bearing 4% annual interest in exchange for the goods. The market rate of interest for a note of similar risk is 6%. What amount does the company record as sales revenue on December 31, 2021? a. $11,209 b. $12,709 c. $13,736 d. $15,236 ---------------------------------- 5. Using the information from question 4, how much interest income will the company recognize for this note on the December 31, 2023 income statement? a. $558 b. $802 c. $838 d. $1,438

4.) Interest = 15,000 x 4% = 600 (payment) Principal = 15,000 I = 6% n = 5 Principal PV SS = FV x PV SS factor PV SS = 15,000 x 0.74726 PV SS = 11,209 Interest PV OA = Payment x PV OA factor PV OA = 600 x 4.21236 PV OA = 2,527 => 11,209 + 2,527 = 13,736 ==> 13,736 + 1,500 = 15,236 => d. $15,236 ------------------------------- 5.) Discount = 15,000 - 13,736 = 1,264 2022: Carrying Value note: 15,000 - Discount (1,264) = 13,736 x 6% = 824.16 => 824 Dr. Total Interest 824 Cr. Cash 600 Cr. Discount 224 => Discount = 1,264 - 224 = 1,040 2023: Carrying Value note: 15,000 - Discount (1,040) = 13,960 x 6% = 837.6 => 838 Dr. Total Interest 838 Cr. Cash 600 Cr. Discount 238 => c. $838

A company factors $400,000 of accounts receivable on a without recourse basis. The factor assesses a finance charge of 4% of the receivables. The company debits cash for $376,000 when recording this transaction. What percentage of the receivables did the factor retain to cover possible future sales discounts, returns, and allowances? a. 0% b. 2% c. 4% d. 6%

400,000 x 4% = 16,000 => 400,000 - 16,000 - 376,000 = 8,000 ==> 8,000 / 400,000 = 0.02 or 2% or Dr. Cash 376,000 Dr. Due from factor ? Dr. Loss 16,000 Cr. A/R 400,000 ==> 400,000 - 16,000 - 376,000 = 8,000 ===> 8,000 / 400,000 = 0.02 or 2% => b. 2%

A company's comparative balance sheet shows a $41,000 (+) decrease in accounts receivable and a $77,000 (+) increase in accounts payable. The company paid $91,000 in cash dividends during the year and reports the following data from the income statement: • $690,000 net sales • $360,000 gross profit + • $490,000 operating expenses (excluding depreciation) - • $43,000 depreciation expense - • $29,000 interest revenue + • $71,000 interest expense - What is the amount of net cash provided (used) by operating activities? a. $276,000 b. ($54,000) c. ($97,000) d. ($215,000)

41,000 + 77,000 + 360,000 - (490,000) - (43,000) + 29,000 - (71,000) = -97,000 or (97,000) + $43,000 depreciation expense (Added back as a cash flow adjustment) => -97,000 + 43,000 = -54,000 or (54,000) => b. ($54,000)

A company has the following information at December 31, 2021. • Issued $40,000 common stock • Issued $47,000 note to acquire equipment + • Net income was $90,000 • Declared $40,000 dividends (paid $23,000 in 2021) • Converted $60,000 of bonds to common stock + What is the amount of non-cash activities to report as supplemental information for the December 31, 2021 statement of cash flows? a. $60,000 b. $87,000 c. $107,000 d. $124,000

47,000 + 60,000 = 107,000 => c. $107,000

A company offers trade discounts and sales discounts to customers. On December 19, the company has a $5,000 sale (before any discounts). The company gives the customer a 3% trade discount and sale terms are 2/10, n/45. The company receives the appropriate payment on the balance due on December 28. If the company uses the gross method to record credit sales, what is the amount of sales discounts the company will record through the series of entries for this transaction?

5,000 x 3% = 150 trade discount (5,000 - 150) x 2% = 97 sales discount (Answer) 5,000 - 150 = 4,850 Dec. 19: Dr. A/R 4,850 Cr. Sales 4,850 Dec. 28: Dr. Cash 4,753 Dr. Sales discount 97 Cr. A/R 4,850

A company has the following information at December 31, 2021. • Paid $30,000 for dividends - • Long-term investments increased $55,000 • Issued $50,000 common stock + • Bonds payable decreased $100,000 - What is the amount of net cash provided (used) by financing activities? a. $20,000 b. $65,000 c. ($80,000) d. ($135,000)

50,000 - (30,000) - (100,000) = -80,000 or (80,000) => c. ($80,000)

RestinCo. offers a trade discount of 3% to qualified customers. On June 1, it made qualified sales of $50,000 (before applying trade discount). On June 12, Restinreceived full payment for the June 1 sale.

50,000 - (50,000 x 3%) => 50,000 - 1,500 = 48,500 June 1: Dr. Accounts receivable 48,500 Cr. Sales revenue 48,500 June 12: Dr. Cash 48,500 Cr. Accounts receivable 48,500

RestinCo. uses the net method to record sales made on credit. On June 1, it made sales of $50,000 with terms 3/15, n/45. On June 12, Restinreceived full payment for the June 1 sale. • Terms: 3/15, n/45 3% discount if paid within 15 days (by June 16), net due within 45 days

50,000 - (50,000 x 3%) = 48,500 June 1: Dr. Accounts receivable 48,500 Cr. Sales revenue 48,500 June 12: Dr. Cash 48,500 Cr. Accounts receivable 48,500

A company has the following at December 31, 2021. • There are 100,000 shares of $0.01 par value preferred stock authorized, with 50,000 shares issued and outstanding. • There are 500,000 shares of $1.25 par value common stock authorized, with 100,000 shares issued and outstanding. • The common shares were all issued at $2.00 per share. • Retained earnings has an ending balance of $740,000. • Accumulated other comprehensive income totals $8,000. • The company has repurchased 30,000 common shares at $1.25 per share. • Noncontrolling interest ownership is 28%. • Consolidated 2021 net income is $800,000. In 2021, the company declared $37,500 dividends for preferred shareholders and $50,000 dividends for common shareholders. How much should the company report as total stockholders' equity on December 31, 2021? a. $601,920 b. $655,920 c. $911,000 d. $1,168,920

50,000 x 0.01 = 500 + 100,000 x 1.25 = 125,000 + 100,000 (2.00 - 1.25) = 75,000 + 740,000 + 8,000 + 30,000 x 1.25 = 37,500 - => 500 + 125,000 + 75,000 + 740,000 + 8,000 - 37,500 = 911,000 Attributable to stockholders: 911,000 - Less non-controlling interest (28%) (911,000 x 28%): (255,080) = 655,920 => b. $655,920

A company factors $500,000 of accounts receivable on a with recourse basis. The fair value of the recourse provision is $20,000. The factor retains 5% of the receivables to cover possible future sales discounts, returns, and allowances. The company receives $460,000 cash in the initial transaction. What percentage of the receivables did the factor assess as a finance charge? a. 3% b. 4% c. 7% d. 8%

500,000 x 5% = 25,000 Dr. Cash 460,000 Dr. Due from factor 25,000 Dr. Loss ? ==> 35,000 Cr. Recourse Liability 20,000 Cr. A/R 500,000 520,000 - 460,000 - 25,000 = 35,000 => 35,000 - 20,000 = 15,000 => 15,000 / 500,000 = 3% => a. 3%

A company has the following information. The company's tax rate is 20%. Noncontrolling interest ownership is 35%. Net sales 540,000 + Sales returns and allowances 20,000 Cost of goods sold 210,000 - Selling expenses 80,000 - Administrative expenses 100,000 - Loss on discontinued operations 40,000 - What net income figure should be used to compute earnings per common share? a. $57,200 b. $72,000 c. $67,600 d. $88,000

540,000 - 210,000 - 80,000 - 100,000 - 40,000 = 110,000 Income before tax: 110,000 - NI (80%) (110,000 x 80%) 88,000 = Controlling (65%) (88,000 x 65%) 57,200 => a. $57,200

A company offers trade discounts to customers. On February 25, the company has a sale of $8,272 (before any discount). The entry for this sale records $7,941 to accounts receivable. What percentage trade discount was applied to this sale? a. 0% b. 4% c. 96% d. Cannot determine from the information given

8,272 x (100% - trade discount) = 7,941 100% - TD = 0.96 or 96% TD = 4% => b. 4%

A company has the following items at December 31, 2021. Commercial paper due February 15, 2022 80,000 + Check from customer dated January 2, 2022 5,000 Checking account at First United Bank 10,000 + Checking account at Second National Bank (8,000) Travel advance that employee will repay 1,500 How much should the company report as total "cash and cash equivalents" in the current asset section on the balance sheet on December 31, 2021? a. $16,500 b. $82,000 c. $90,000 d. $95,000

80,000 + 10,000 = 90,000 => c. $90,000

A company has the following information. The company's tax rate is 40%. Sales 800,000 + Interest revenue 10,000 + Dividends 15,000 Cost of goods sold 300,000 Sales discounts 16,000 - Selling expenses 80,000 Administrative expenses 150,000 Interest expense 3,000 Gain on sale of equipment 8,000 + What amount should the company report as total revenues on a single-step income statement? a. $784,000 b. $800,000 c. $802,000 d. $818,000

800,000 + 10,000 + 8,000 - 16,000 = 802,000 => c. $802,000

BE7.10 Wood Incorporated factored $150,000 of accounts receivable with Engram Factors Inc. on a without-recourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram.

92% x $150,000 = 138,000 -> Cash 6% x $150,000 = 9,000-> Due from Factor 2% x $150,000 = 3,000-> Loss on Sale of Receivables Wood Incorporated: Dr. Cash 138,000 Dr. Due from Factor 9,000 Dr. Loss on Sale of Receivables 3,000 Cr. Accounts Receivable 150,000 Engram Factors: Dr. Accounts Receivable 150,000 Cr. Due to Customer 9,000 Cr. Interest Revenue 3,000 Cr. Cash 138,000

A company has the following information. The company's tax rate is 40%. Sales 100,000 + Cost of goods sold 60,000 - Salaries expense 8,000 - Depreciation expense 11,000 - Dividend revenue 9,000 + Utilities expense 1,000 - Discontinued operations, loss on disposal ??? Interest expense 2,000 - If net income is $10,200, what is the pre-tax loss on disposal of discontinued operations? a. $6,000 b. $10,000 c. $15,000 d. $28,000

=> 100,000 + 9,000 - 60,000 - 8,000 - 11,000 - 1,000 - 2,000 = 27,000 Income from continuing op. before tax: 27,000 + Income from continuing op. (60%) (27,000 x 60%): 16,200 Discontinued op., net of tax: ??? <== (6,000) = Net Income: 10,200 Pre-tax x (100% - 40%) = (6,000) Pre-tax = (10,000) => b. $10,000

At December 31, 2021, a company's ending retained earnings balance is $497,000. The company had a correction of error for a $5,000 pre-tax understatement of net income in 2017. The company also changed the useful life of the building that houses primary operations. The cumulative effect of this change is a $20,000 pre-tax overstatement of prior years' net income. The 2021 income statement reports $90,000 net income. The company declared and paid $2,500 in dividends in 2021. The company has a 30% tax rate. What was January 1, 2021 beginning retained earnings, as reported? a. $406,000 b. $413,000 c. $420,000 d. $423,500

??? + (5,000 x 70%) + 90,000 - (2,500) = 497,000 => ??? + 3,500 + 90,000 - (2,500) = 497,000 ==> 497,000 + 2,500 - 90,000 - 3,500 = 406,000 => a. $406,000

A company's balance sheet reports net accounts receivable of $170,000. The general ledger shows balances of $19,000 in Allowance for Doubtful Accounts, $9,000 in the Allowance for Sales Returns and Allowances, and $30,000 in Sales Returns and Allowances. What is the balance in Accounts Receivable? a. $142,000 b. $189,000 c. $198,000 d. $228,000

??? - (19,000) - (9,000) = 170,000 => 170,000 + 19,000 + 9,000 = 198,000 => c. $198,000

At December 31, 2020, company has Accounts Receivable of $390,000 and an Allowance for Doubtful Accounts of $19,500, before any adjustments for the additional information below: - In 2020, the company received $1,800 in payment of an account written off as uncollectible in 2019. - Customer accounts totaling $21,600 were written off during 2020. - The company estimates 5% of accounts receivable will be uncollectible. What is the amount of the necessary credit adjustment to Allowance for Doubtful Accounts at December 31, 2020?

A/ R (T-account): Dr. 390,000 Dr. 1,800 Cr. 1,800 Cr. 21,600 = Dr. 368,400 ADA (T-account): Cr. 19,500 Cr. 1,800 Dr. 21,600 = 300 Cr. 18,720 ( Answer ) = Cr. 18,420 18,420 / 368,400 = 0.05 or 5%

In the current year, a company receives $2,000 payment for an account the company wrote off in a prior year. After all necessary entries are posted for this event, allowance for doubtful accounts _[1]_ and accounts receivable _[2]_. a. [1] decreases; [2] does not change b. [1] increases; [2] decreases c. [1] increases; [2] does not change d. [1] does not change; [2] decreases

A/R (T-account): Dr. 2,000 Cr. 2,000 (Cash Dr.) ADA (T-account): Cr. 2,000 => c. [1] increases; [2] does not change

For the current year, a company had a beginning accounts receivable balance of $200,000 and an ending accounts receivable balance of $160,000. The ending balance in the allowance for doubtful accounts is $4,000 after current-year adjustments. The company has applied a consistent percent of accounts receivable to estimate future uncollectible accounts each year. During the current year, the company received $200 in payment of an account written off as uncollectible in a previous year and recorded bad debt expense of $700. What is the amount of accounts written off during the year?

A/R (T-account): Dr. 200,000 Dr. 160,000 ADA (T-account): Cr. ? <= 200,000 x 2.5% = 5,000 Cr. 200 Dr. ??? (Write off) Cr. 700 = Cr. 4,000 160,000 --> 4,000 160,000 x ? = 4,000 => ? = 2.5% ==> 4,000 - 700 = 3,300 ==> 5,000 + 200 = 5,200 ====> 5,200 - 3,300 = 1,900 (Answer)

A company factors $250,000 of accounts receivable on a with recourse basis. The recourse provision has a fair value of $2,000. The factor retains 10% of the receivables to cover possible future sales discounts, returns, and allowances, and assesses a finance charge of 3% of the receivables. How much cash does company receive in initial transaction? a. $217,500 b. $219,500 c. $227,000 d. $242,500

A/R - 10% withheld - finance fees => 250,000 - (250,000 x 10%) - (250,000 x 3%) ==> 250,000 - 20,000 - 7,500 = 217,500 or 100% - 10% - 3% = 87% => 250,000 x 87% = 217,500 => a. $217,500

During 2020, a company has gross sales of $10,000,000 and grants $300,000 in returns and allowances. At December 31, 2020, the company estimates an additional $150,000 in future returns and allowances relating to 2020 sales. The company's gross accounts receivable at December 31, 2020 total $3,500,000. The company estimates 3 percent of accounts receivable will be uncollectible. On the December 31, 2020 financial statements, what amount should the company report as the net Accounts Receivable?

A/R 3,500,000 (-) Allowance for doubtful accounts (3,500,000 x 3%) = (105,000) (-) Allowance for sale return and allowances (150,000) (=) A/R, net 3,245,000

A company has the following data recorded in the books for the current year: $500 bad debt expense $700 collected for accounts written off in prior years $400 written off as uncollectible during current year The January 1, 2021, beginning balance in the allowance for doubtful accounts was $2,500. If the company estimates 4% of year-end accounts receivable will be uncollectible, what is the balance in accounts receivable on December 31, 2021?

ADA (T-account): Cr. 2,500 Cr. 700 Dr. 400 Cr. 500 = Cr. 3,300 = 4% x A/R => 3,300 / 4% = 82,500 (Answer)

On January 1, 2021, a company had a balance of $260,000 in the Allowance for Doubtful Accounts. Based on past experience, 2% of the company's accounts receivable have been uncollectible. During 2021, the company wrote off $325,000 of uncollectible accounts and collected $50,000 of accounts written off as uncollectible in previous years. Ending Accounts Receivable is $9,000,000. How much is bad debt expense for 2021?

ADA (T-account): Cr. 260,000 Dr. 325,000 Cr. 50,000 Cr. ??? BDE = Cr. 180,000 = 9,000,000 x 2% => 260,000 - 325,000 + 50,000 = -15,000 ==> 180,000 + 15,000 = 195,000 (Answer)

At December 31, a company has $50,000 accounts receivable. During the current year, the company collected $1,000 for an account written off in a prior year. The company wrote off $4,500 as uncollectible during the current year and recorded $5,000 of bad debt expense. If the company estimates 4% of accounts receivable will be uncollectible, what was the beginning balance in the allowance for doubtful accounts at January 1? a. $0 b. $500 c. $3,500 d. $5,500

ADA (T-account): Cr. ??? <=== 500 Cr. 1,000 Dr. 4,500 Cr. 5,000 = Cr. 2,000 <== (50,000 x 4%) => b. $500

A company has the following data for 2020: Allowance for doubtful account balance January 1, 2020 15,000 Collection of account that was written off in 2018 2,000 Accounts written off as uncollectible during 2020 3,200 Bad debt expense recorded for 2020 6,200 The company estimates 4 percent of gross accounts receivable will be uncollectible. What is the amount of gross Accounts Receivable at December 31, 2020?

Allowance for Doubtful Accounts (T-account): Cr. 15,000 Cr. 2,000 Dr. 3,200 Cr. 6,200 = Cr. 20,000 20,000 = 4% x A/R A/R = 500,000

At December 31, 2020, a company has Accounts Receivable of $190,000. On January 1, 2020, the Allowance for Doubtful Accounts had a balance of $25,100. During 2020, the company wrote off uncollectible accounts totaling $16,800. The company estimates 6% of accounts receivable will be uncollectible. How much is bad debt expense for 2020?

Allowance for doubtful accounts (T-account): Cr. 25,100 Dr. 16,800 Cr. BDE ? = Cr. 11,400 Write-off entry: Dr. ADA 16,800 Cr. A/R 16,800 Target balance: 190,000 x 6% = 11,400 BDE entry: Dr. BDE 3,100 ( Answer ) Cr. ADA 3,100

Sale With Recourse A company factors $400,000 of its accounts receivable with a financing company on a with recourse basis. The finance company assesses a finance charge of 2% of the accounts receivable and reserves 5% of the accounts receivable to cover any discounts, returns, and allowances. The recourse provision has a fair value of $5,000. Transferor (Seller)

Amount factor retains: 400,000 x 5% = 20,000 Finance charge: 400,000 x 2% = 8,000 Dr. Cash (400,000 - 20,000 - 8,000) 372,000 Dr. Due from factor 20,000 Dr. Loss (finance charge) (8,000 + 5,000) 13,000 Cr. A/R 400,000 Cr. Recourse liability 5,000

Sale Without Recourse A company factors $400,000 of its accounts receivable with a financing company on a without recourse basis. The finance company assesses a finance charge of 2% of the accounts receivable and reserves 5% of the accounts receivable to cover any discounts, returns, and allowances. Transferor (Seller)

Amount factor retains: 400,000 x 5% = 20,000 Finance charge: 400,000 x 2% = 8,000 Dr. Cash (400,000 - 20,000 - 8,000) 372,000 Dr. Due from factor 20,000 Dr. Loss (finance charge) 8,000 Cr. A/R 400,000

A company factors $300,000 of accounts receivable on a with recourse basis. The recourse provision has a fair value of $2,500. The factor retains 5% of the receivables to cover possible future sales discounts, returns, and allowances, and assesses a finance charge of 1.5% of the receivables. What amount of cash does the company receive in the initial transaction? a. $278,000 b. $280,500 c. $283,000 d. $287,000

Cash is net of amount retained (5%) and finance charge (1.5%) => 5% + 1.5% = 6.5% Cash = 300,000 x (100% - 6.5%) = 280,500 => b. $280,500

Below are net changes for the year in all a company's balance sheet accounts, except for retained earnings. Accounts payable 5,000 decrease Accounts receivable 50,000 decrease Additional paid-in capital 5,000 increase Cash 80,000 increase Common stock 30,000 increase Equipment, net 10,000 increase Inventory 20,000 increase Long-term liabilities 15,000 decrease The company reports $47,000 net income. What is the amount of dividends declared for the year? (Hint: Just as Assets = Liabilities + Equity, Change in Assets = Changes in Liabilities + Change in Equity) a. $2,000 b. $5,000 c. $15,000 d. $45,000

Change in Assets: - A/R (50,000) + Cash 80,000 + Equipment 10,000 + Inventory 20,000 = 60,000 ----------------------- Change in Liabilities: - A/P (5,000) - Long-term Liabilities. (15,000) = (20,000) ----------------------- 60,000 = (20,000) + Change in Equity => 80,000 = Change in Equity ==> 80,000 = 5,000 + 30,000 + Change in R/E ==> 45,000 = Change in R/E => NI - Div. ====> NI - Div. = 45,000 ====> 47,000 - Div. = 45,000 ======> Div. = 2,000 => a. $2,000

Mark each of the following that are classified as accounts receivable (i.e., trade receivables). ____ Customer purchased $400 of goods and financed the purchase with a signed agreement to pay the amount in full, plus 3% interest, within 180 days. ____ Customer purchased $600 of goods on credit and payment is expected within 30 days. ____ The CFO borrowed $2,000 from the company and is expected to repay the amount in full within 6 months. ____ Customer purchased $200 of goods, paying cash in full upon delivery. ____ The company has earned $70 interest (payment not yet received) on a signed contract with a customer for deferred payment on goods purchased.

Customer purchased $600 of goods on credit and payment is expected within 30 days.

On December 10 Cruz Co. writes off as uncollectible Yusado's $8,000 balance. The entry is:

December 10 Dr. Bad Debt Expense 8,000 Cr. Accounts Receivable (Yusado) 8,000 (To record write-off of Yusado account)

At December 31, 2020, the company estimates it will grant customers an additional $5,000 in 2021 for sales returns and allowances relating to 2020 sales.

December 31, 2020 Dr. Sales returns and allowances 5,000 Cr. Allowance for sales returns and allowances 5,000

A company has the following information. Dividends declared in 2021 5,000 Dividends payable at December 31, 2020 2,000 Dividends payable at December 31, 2021 1,000 Net income for 2021 24,000 Retained earnings at January 1, 2021 180,000 Retained earnings at December 31, 2021 199,000 How much did the company pay in cash for dividends during 2021? a. $3,000 b. $4,000 c. $5,000 d. $6,000

Dividends Payable (T-account): Cr. 2,000 Cr. 5,000 Dr. ??? <== 6,000 = Cr. 1,000 = d. $6,000

Sale With Recourse A company factors $400,000 of its accounts receivable with a financing company on a with recourse basis. The finance company assesses a finance charge of 2% of the accounts receivable and reserves 5% of the accounts receivable to cover any discounts, returns, and allowances. The recourse provision has a fair value of $5,000. Transferee (Factor or Buyer)

Dr. A/R 400,000 Cr. Cash 372,000 Cr. Due to customer 20,000 Cr. Interest revenue 8,000

Sale Without Recourse A company factors $400,000 of its accounts receivable with a financing company on a without recourse basis. The finance company assesses a finance charge of 2% of the accounts receivable and reserves 5% of the accounts receivable to cover any discounts, returns, and allowances. Transferee (Factor or Buyer)

Dr. A/R 400,000 Cr. Cash 372,000 Cr. Due to customer 20,000 Cr. Interest revenue 8,000

P7.5 Presented below is information related to the Accounts Receivable accounts of Gulistan Inc. during the current year 2020. 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% Total net debit balance: $ 372,400 2. The Accounts Receivable control account has a debit balance of $372,400 on December 31, 2020. 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 Doubtful Accounts. and (2) a credit for $3,240 on November 3, 2020, and a debit to Allowance for Doubtful Accounts because of a bankruptcy. 4. Allowance for Doubtful Accounts is as follows for 2020. Allowance for Doubtful Accounts Dr. Nov. 3 Uncollectible accounts written off 3,240 Cr. Jan. 1 Beginning balance 8,750 Cr. Dec. 31 5% of $372,400 18,620 5. A credit balance exists in Accounts Receivable (60-90 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.

Dr. Bad Debt Expense 3,700 Cr. Accounts Receivable 3,700 Dr. Bad Debt Expense 3,240 Cr. Accounts Receivable 3,240 Dr. Accounts Receivable 4,840 Cr. Advance on Sales Contract 4,840 Dr. Allowance for Doubtful Accounts 7,280 Cr. Bad debts expense 7,280 172,342 x 1% = 1,723.42 (136,490 + 4,840) x 3% = 4,239.90 (39,924 - 3,240) x 6% = 2,201.04 (23,644 - 3,700) x 25% = 4,986.00 ==> 1,723.42 + 4,239.90 + 2,201.04 + 4,986 = 13,150.36 Balance: (8,750 + 18,620 - 3,240 - 3,700) = 20,430 - Corrected balance: (13,150.36) = Adjustment: 7,279.64 ==> 7,280

BE7.5 Wilton, Inc. had net sales in 2020 of $1,400,000. At December 31, 2020, before adjusting entries, thebalances in selected accounts were: Accounts Receivable $250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 8% of its net sales will prove to be uncollectible, prepare the December 31, 2020, journal entry to record bad debt expense.

Dr. Bad Debts Expense 17,600 Cr. Allowance for Doubtful Accounts 17,600 [(8% x 250,000) - 2,400 = 17,600]

BE7.13 Use the information presented in BE7.12 for Arness Woodcrafters but assume that the recourse liability has a fair value of $4,000, instead of $8,000. Prepare the journal entry and discuss the effects of this change in the value of the recourse liability on Arness"s financial statements. (Reference: Arness Woodcrafters sells $250,000 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5% and retains an amount equal to 4% of accounts receivable. Arness estimates the fair value of the recourse liability to be $8,000. Prepare the journal entry for Arness to record the sale.)

Dr. Cash (91% x 250,000) 227,500 Dr. Due from Factor (4% x 250,000) 10,000 Dr. Loss on Sale of Receivables 16,500 Cr. Accounts Receivable 250,000 Cr. Recourse Liability 4,000 (227,500 + 10,000) - 4,000 = 233,500 -> Net Proceeds 250,000 - 233,500 = 16,500 -> Loss on Sale of Receivables This lower estimate for the recourse liability reduces the amount of the loss—this will result in higher income in the year of the sale.

BE7.12 Arness Woodcrafters sells $250,000 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5% and retains an amount equal to 4% of accounts receivable. Arness estimates the fair value of the recourse liability to be $8,000. Prepare the journal entry for Arness to record the sale.

Dr. Cash (91% x 250,000) 227,500 Dr. Due from Factor (4% x 250,000) 10,000 Dr. Loss on Sale of Receivables 20,500 Cr. Accounts Receivable 250,000 Cr. Recourse Liability 8,000 (227,500 + 10,000) - 8,000 = 229,500 -> Net Proceeds 250,000 - 229,500 = 20,500 -> Loss on Sale of Receivables

BE7.11 Use the information in BE7.10 for Wood. Assume that the receivables are sold with recourse. Prepare the journal entry for Wood to record the sale, assuming that the recourse liability has a fair value of $7,500. (Reference: Wood Incorporated factored $150,000 of accounts receivable with Engram Factors Inc. on a without-recourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram.)

Dr. Cash 138,000 Dr. Due from Factor 9,000 Dr. Loss due to sale of Receivables 10,500 Cr. Accounts Receivable 150,000 Cr. Recourse Liability 7,500 (92% x 150,000 = 138,000 [cash]) (6% x 150,000 = 9,000 [due from factor]) (138,000 + 9,000 - 7,500 = 139,500 [net proceeds]) (150,000 - 139,500 = 10,500 [loss due to sale])

A company factors receivables on a without recourse basis. The factor assesses a finance charge of 2% of the receivables and reserves 5% of the receivables to cover possible future sales discounts, returns, and allowances. The company receives $372,000 in the sale transaction. What amount of receivables did the company factor? a. $372,000 b. $380,000 c. $392,000 d. $400,000

Dr. Cash 372,000 = A/R x 93% Dr. Due from factor A/R x 5% Dr. Loss A/R x 2% Cr. A/R ??? => 372,000 / 93% = 400,000 of A/R => d. $400,000

Notes Issued at Face Value (stated interest rate = effective interest rate) A company sells goods to a customer for $5,000, accepting a $5,000 3-year note bearing interest at 8% annually in exchange for the goods.

Face Value (FV) = 5,000 Present Value (PV) = 5,000 Stated rate = 8% 5,000 x 8% = 400 Sale Date: Dr. Notes Receivable 5,000 (FV) Cr. Sales 5,000 (PV) End of Years 1, 2, and 3: Dr. Cash 400 Cr. Interest Income 400 End of year 3: Dr. Cash 5,000 Cr. Notes receivable 5,000 Notes issued at face value: face value = present value PV SS = FV x PV SS factor I = 8% n = 3 => 5,000 x 0.79383 = 3,969.15 PV OA = Payment x PV OA factor I = 8% n = 3 => Payment = 5,000 x 8% = 400 ==> 400 x 2.57710 = 1,030.84 ===> 3,696.15 + 1,030.84 = 5,000 (PV)

A company factors $300,000 of accounts receivable on a with recourse basis. The recourse provision has a fair value of $2,500. The factor retains 5% of the receivables to cover possible future sales discounts, returns, and allowances, and assesses a finance charge of 1.5% of the receivables. What amount of loss should the company recognize on this transaction? a. $2,500 b. $4,500 c. $7,000 d. $15,000

Finance charges for factoring + Fair value => (300,000 x 1.5%) + 2,500 => 4,500 + 2,500 = 7,000 => c. $7,000

A company sold equipment for $4,100 cash. The equipment was purchased seven years ago at a cost of $32,000. The equipment had accumulated depreciation of $30,500 at the time of the sale. What is the necessary adjustment relating to this sale to compute net cash from operating activities? a. ($5,600) b. ($4,100) c. ($2,600) d. ($1,500)

Gain (Loss) = Proceeds - Book Value Gain (Loss) = 4,100 - (32,000 - 30,500) Gain = 2,600 => Subtract gain as adjustment ==> (2,600) => c. ($2,600)

A company sold an investment with a book (carrying) value of $54,000 for a gain of $9,700. What is the amount of the investing cash flow relating to this transaction? a. $9,700 b. $44,300 c. $54,000 d. $63,700

Gain (Loss) = Proceeds - Book value 9,700 = Proceeds - 54,000 => Proceeds = 63,700 => d. $63,700

A company has the following information at December 31, 2021. • Accounts receivable increased $8,000 - • Accounts payable decreased $9,000 - • Notes payable increased $23,000 • Inventory decreased $12,000 + • Net income was $130,000 + • The income statement reported $20,000 depreciation expense + • Equipment with a book value of $16,000 was sold for $46,000 What is the amount of net cash provided (used) by operating activities? a. $75,000 b. $115,000 c. $138,000 d. $145,000

Gain: 46,000 - 16,000 = 30,000 - => 130,000 + 12,000 + 20,000 - 8,000 - 9,000 - 30,000 = 115,000 => b. $115,000

When a company has a net loss, the closing entry to close income summary _[1]_ income summary and _[2]_ retained earnings. a. [1] debits; [2] debits b. [1] debits; [2] credits c. [1] credits; [2] debits d. [1] credits; [2] does not affect

Income Summary (T-account): Cr. 1.) Revs. Dr. 2.) Exps. Dr. Net Loss (Exps > Revs) balance Cr. Credit to close => c. [1] credits; [2] debits

BE7.8 Dold Acrobats lent $16,529 to Donaldson, Inc., accepting Donaldson's 2-year, $20,000, zero interestbearing note. The implied interest rate is 10%. Prepare Dold's journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity.

Initial transaction: Dr. Notes Receivable 20,000 Cr. Cash 16,529 Cr. Discount on notes receivable 3471 Recognition of interest 1st year: Dr. Discount on notes receivable 1653 Cr. Interest revenue 1653 (interest = 0.1*(20,000-3471) Recognition of interest 2nd year: Dr. Discount on notes receivable 1818 Cr. Interest revenue 1818 (interest = 0.1*(20,000 - 1818) Payment: Dr. Cash 20,000 Cr. Note receivable 20,000

A company issues $900,000 of 12% term corporate bonds on January 1, 2025, due on January 1, 2035, with interest payable semiannually. The current market rate of interest for bonds of similar risk is 10%. What is the selling price of the bonds? a. $678,793 b. $899,996 c. $1,012,160 d. $1,685,120

Interest: PV OA = Payment x PV OA factor I = 10% / 2 = 5% n = 10 x 2 = 20 Payment = 900,000 x 12% = 108,000 / 2 = 54,000 => 54,000 x 12.46221 = 672,959 + --------------------------- Principal: PV SS = FV x PV SS factor I = 10% / 2 = 5% n = 10 x 2 = 20 PV SS = 900,000 x 0.37689 PV SS = 339,201 + --------------------------- => PV OA + PV SS => 672,959 + 339,201 = 1,012,160 => c. $1,012,160

On January 16, 2020, Max grants an allowance of $300 to Oliver because some of the hurricane glass is defective. The entry to record this transaction is as follows:

January 16, 2020 Dr. Sales Returns and Allowances 300 Cr. Accounts Receivable 300

On January 31, 2020, before preparing financial statements, Max estimates that an additional $100 in sales returns and allowances will result from the sale to Oliver on January 4, 2020. An adjusting entry to record this additional allowance is as follows.

January 31, 2020 Dr. Sales Returns and Allowances 100 Cr. Allowance for Sales Return and Allowances 100

On January 4, 2020, Max sells $5,000 of hurricane glass to Oliver on account. Max records the sale on account as follows:

January 4, 2020 Dr. Accounts Receivable 5,000 Cr. Sales Revenue 5,000

On July 1,2021, Randall Co. pays the $1,000 amount that Brown had written off on March 1, These are the entries:

July 1, 2021 Dr. Accounts Receivable (Randall Co.) 1,000 Cr. Allowance for Doubtful Accounts 1,000 (To reverse write-off of account) Dr. Cash 1,000 Cr. Accounts Receivable (Randall Co.) 1,000 (Collection of account)

BE7.3 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.

June 1: Dr. Accounts Receivable 48,500 Cr. Sales Revenue 48,500 June 12: Dr. Cash 48,500 Cr. Accounts Receivable 48,500 $50,000 - ($50,000 X .03) = $48,500

BE7.2 Restin Co. uses the gross method to record sales made on credit. On June 1, 2020, it made sales of$50,000 with terms 3/15, n/45. On June 12, 2020, Restin received full payment for the June 1 sale. Preparethe required journal entries for Restin Co.

June 1: Dr. Accounts Receivable 50,000 Cr. Sales Revenue 50,000 June 12: Dr. Cash 48,500 Dr. Sales Discounts 1,500 Cr. Accounts Receivable 50,000 $50,000 - ($50,000 X 0.03) = $48,500

RestinCo. uses the net method to record sales made on credit. On June 1, it made sales of $50,000 with terms 3/15, n/45. On June 20, Restinreceived full payment for the June 1 sale.• Terms: 3/15, n/453% discount if paid within 15 days (by June 16), net due within 45 daysJune 1: Accounts receivable 48,500Sales revenue 48,500June 20: Cash 50,000Accounts receivable 48,500Sales discounts forfeited 1,500

June 1: Dr. Accounts receivable 48,500 Cr. Sales revenue 48,500 June 20: Dr. Cash 50,000 Cr. Accounts receivable 48,500 Cr. Sales discounts forfeited 1,500

Restin Co. uses the gross method to record sales made on credit. On June 1, it made sales of $50,000 with terms 3/15, n/45. On June 12, Restin received full payment for the June 1 sale. • Terms: 3/15, n/45 3% discount if paid within 15 days (by June 16), net due within 45 days

June 1: Dr. Accounts receivable 50,000 Cr. Sales revenue 50,000 June 12: Dr. Cash 48,500 Dr. Sales discounts 1,500 Cr. Accounts receivable 50,000

RestinCo. uses the gross method to record sales made on credit. On June 1, it made sales of $50,000 with terms 3/15, n/45. On June 20, Restinreceived full payment for the June 1 sale. • Terms: 3/15, n/45 3% discount if paid within 15 days (by June 16), net due within 45 days

June 1: Dr. Accounts receivable 50,000 Cr. Sales revenue 50,000 June 20: Dr. Cash 50,000 Cr. Accounts receivable 50,000

A company factors $500,000 of receivables for $425,000 on a with recourse basis. The recourse provision has a fair value of $5,000. The factor retains 3% of the receivables to cover possible future sales discounts, returns, and allowances. What amount of loss should the company recognize in this transaction? a. $5,000 b. $85,000 c. $80,000 d. $75,000

Loss = Finance Charge + Recourse Provision Loss = (500,000 - 425,000) + 5,000 Loss = 75,000 + 5,000 Loss = 80,000 => c. $80,000

A company wants to offer sales discounts to customers and is trying to decide whether to use the gross method or the net method to record credit sales. Which of the following is true about the impact on net sales if customers make payments after the discount period ends? a. The gross method results in higher net sales than the net method if payments are made after the discount period ends. b. The net method results in higher net sales than the gross method if payments are made after the discount period ends. c. The gross method and the net method result in the same net sales if payments are made after the discount period ends.

Net sales: - Sales less - Sales discount Gross => nothing recorded for sales discount Net => record original sale net of discount => a. The gross method results in higher net sales than the net method if payments are made after the discount period ends.

On July 17, 2021, a company sells goods to a customer, accepting a 4-year, $1,500 note bearing 3% annual interest in exchange for the goods. How much interest income will the company recognize in total over the 4-year life of the note? a. $45 b. $167 c. $180 d. $188

No periodic principal payments, so each year, payment is: 1,500 x 3% = 45 => 45 x 4 years = 180 => c. $180

P7.8 On December 31, 2020, Oakbrook Inc. rendered services to Begin Corporation at an agreed priceof $102,049, accepting $40,000 down and agreeing to accept the balance in four equal installments of $20,000 receivable each December 31. An assumed interest rate of 11% is imputed. Instructions: Prepare the entries that would be recorded by Oakbrook Inc. for the sale and for the receipts and interest on the following dates. (Assume that the effective-interest method is used for amortization purposes.) (a) December 31, 2020 (b) December 31, 2021 (c) December 31, 2022 (d) December 31, 2023 (e) December 31, 2024

Note Amortization Schedule - Oakbrook Inc.: Date; Interest revenue; Cash Received; Decrease in Balance; Carrying value of Note 31-Dec-20; -; -; -; $62,049 31-Dec-21; $6,825 (62,049 x 11%); $20,000; $13,175; $48,874 31-Dec-22; $5,376 (48,874 x 11%); $20,000; $14,624; $34,251 31-Dec-23; $3,768 (34,251 x 11%); $20,000; $16,232; $18,018 31-Dec-24; $1,982 (18,018 x 11%); $20,000; $18,018; $0 --------------------------------- Journal Entries - Oakbrook Inc. a.) 31-Dec-20: Dr. Cash $40,000 Dr. Note receivables $62,049 Cr. To Service revenue $102,049 (To record service revenue) b.) 31-Dec-21: Dr. Cash $20,000 Cr. To Interest revenue $6,825 Cr. To Note receivables$13,175 (To record installment received) c.) 31-Dec-22: Dr. Cash $20,000 Cr. To Interest revenue $5,376 Cr. To Note receivables $14,624.00 (To record installment received) d.) 31-Dec-23: Dr. Cash $20,000 Cr. To Interest revenue $3,768 Cr. To Note receivables $16,232 (To record installment received) e.) 31-Dec-24: Dr. Cash $20,000 Cr. To Interest revenue $1,982 Cr. To Note receivables $18,018 (To record installment received)

On August 8, 2020, a company sells goods to a customer, accepting a 3-year, $4,000 note bearing 6% annual interest, payable semi-annually, in exchange for the goods. What amount does the company record as sales revenue on August 8, 2020? a. $3,358 b. $3,953 c. $4,000 d. $4,720

Note issued at face value (face value = present value) c. $4,000

BE7.7 Milner Family Importers sold goods to Tung Decorators for $30,000 on November 1, 2020, accepting Tung's $30,000, 6-month, 6% note. Prepare Milner's November 1 entry, December 31 annual adjusting entry, and May 1 entry for the collection of the note and interest.

Nov. 1: Dr. Notes Receivable 30,000 Cr. Sales Revenue 30,000 Dec. 31: Dr. Interest Receivable 300 Cr. Interest Revenue 300 May 1: Dr. Cash 30,900 Cr. Notes Receivable 30,000 Cr. Interest Receivable 300 Cr. Interest Revenue 600

P7.7 On October 1, 2020, Arden Farm Equipment Company sold a pecan-harvesting machine to Valco Brothers Farm, Inc. In lieu of a cash payment Valco Brothers Farm gave Arden a 2-year, $120,000, 8% note (a realistic rate of interest for a note of this type). The note required interest to be paid annually on October 1. Arden's financial statements are prepared on a calendar-year basis. Instructions: Assuming Valco Brothers Farm fulfills all the terms of the note, prepare the necessary journal entries for Arden Farm Equipment Company for the entire term of the note.

Oct. 1, 2020: Dr. Note Receivable 120,000 Cr. Sales Rev 120,000 (120,000 x 8% x 3/12) = 2,400 Dec. 31, 2020: Dr. Interest Receivable 2,400 Cr. Interest Revenue 2,400 (120,000 x 8%) = 9,600 Oct. 1, 2021: Dr. Cash 9,600 Cr. Interest Revenue 2,400 Cr. Interest Receivable 7,200 Dec, 31, 2021: Dr. Interest Receivable 2,400 Cr. Interest Revenue 2,400 Oct. 1, 2022: Dr. Cash 9,600 Cr. Interest Revenue 2,400 Cr. Interest Receivable 7,200 Dr. Cash 120,000 Cr. Note Receivable 120,000

A company records credit sales using the net method. On April 6, the company has a credit sale, giving the customer a 4% trade discount. Terms of the sale are 3/15, n/60. The customer pays the appropriate account balance due on May 2 and the company records $2,700 in sales discounts forfeited. What was the original amount of the credit sale on April 6 (before any discount)?

Original sale x (100% - trade discount %) = sale after trade discount => Sale after trade discount x sale discount % = sale discount forfeited => Sale after trade discount x 3% = 2,700 => Sale after trade discount = 90,000 => Original sale x (100% - 4%) = 90,000 ==> Original sale = 93,750 (Answer)

A company has 10 employees who will be eligible for the company's pension plan. The company expects to pay out annual pension payments of $8,000 per employee at the end of each year for 10 years. The average length of time until these employees retire is 7 years. If the relevant interest rate is 9%, what is the present value of the company's pension liability? a. $28,085 b. $72,000 c. $280,854 d. $513,413

PV OA = Payment x PV OA factor I = 9% n = 17 - n = 7 PV OA = (10 x 8,000) x (8.54363 - 5.03295) PV OA = 80,000 x 3.51068 PV OA = 280,854 => c. $280,854

On December 31, 2020, a company sells goods to a customer, accepting $5,000 immediate cash payment and agreeing to accept the balance as a non-interest-bearing note due in four equal installments of $3,000, payable each subsequent December 31. The market rate of interest for a note of similar risk is 9%. How much interest income will the company recognize in total over the 4-year life of the note? a. $331 b. $2,281 c. $3,501 d. $4,719

PV OA = Payment x PV OA factor I = 9% n = 4 PV OA = 3,000 x 3.23972 => PV OA = 9,719 Face Value = 3,000 x 4 = 12,000 Discount = 12,000 - 9,719 = 2,281 => b. $2,281

On December 31, 2021, a company rendered services at a price of $11,615, accepting payment in five equal installments of $2,500 due each subsequent December 31. How much interest income will the company recognize on December 31, 2022? a. $0 b. $177 c. $290 d. $313

PV OA = Payment x PV OA factor I = ? n = 5 11,615 = 2,500 x PV OA factor PV OA factor = 4.646 => I = 2.5% ==> 2,500 x 5 = 12,500 (face value) Discount = 12,500 - 11,615 = 885 Year 1: Carrying value: 12,500 - 885 = 11,615 => 11,615 x 2.5% = 290 => c. $290

On January 1, 2021, company sells goods for $10,900, accepting $2,000 immediate cash payment and a 2-year, $10,000, non-interest-bearing note for the balance due. How much interest income will the company recognize for this note on the December 31, 2021 income statement? a. $0 b. $114 c. $534 d. $900

PV SS = 10,900 - 2,000 = 8,900 (PV) I = ? n = 2 PV SS = FV x PV SS factor 8,900 = 10,000 x PV SS factor PV SS factor = 0.89000 ==> I = 6% Discount: 10,000 - 8,900 = 1,100 Year 1 interest: Carrying value note: 10,000 - Discount: 1,100 = 8,900 ===> 8,900 x 6% = 534 => c. $534

Notes Not Issued at Face Value (stated interest rate ≠ effective interest rate) Notes Issued at a Discount (stated interest rate < effective interest rate) A company sells goods to a customer for $4,751.34, accepting a $5,000 3-year note bearing interest at 8% annually in exchange for the goods. Market rate of interest for a note of similar risk is 10%.

PV SS = FV x PV SS factor I = 10% n = 3 => 5,000 x 0.75132 = 3,756.60 PV OA = Payment x PV OA factor I = 10% n = 3 => Payment = 5,000 x 8% = 400 ==> 400 x 2.48685 = 994.74 ===> 3,756.60 + 994.74 = 4,751.34 (PV) => 5,000 - 4,751.34 = 248.66 ---------------------- Sale date: Dr. Note receivable 5,000 Cr. Sales 4,751.34 Cr. Discount on notes receivable 248.66 End of yr. 1: Carrying value of note: 5,000 - 248.66 = 4,751.34 Carrying value x effective rate = 4,751.34 x 10% = 475.13 Principal bal. x stated rate = 5,000 x 8% = 400 => 475.13 - 400 = 75.13 ==> 248.66 - 75.13 = 173.53 Entry: Dr. Cash 400 Dr. Discount on notes receivable 75.13 Cr. Interest Income 475.13 --------------------- End of yr. 2: Carrying value of note: 5,000 - 173.53 = 4,826.47 => 4,826.47 x 10% = 482.65 482.65 - 400 = 82.65 ==> 173.53 - 82.65 = 90.88 Entry: Dr. Cash 400 Dr. Discount on notes receivable 82.65 Cr. Interest Income 482.65 --------------------- End of yr. 3: Carrying value of note: 5,000 - 90.88 = 4,909.12 => 4,909.12 x 10% = 490.91 490.91 - 400 = 90.91 Entry: Dr. Cash 400 Dr. Discount on notes receivable 90.88 Cr. Interest Income 490.88 Dr. Cash 5,000 Cr. Notes receivable 5,000

On January 1, 2021, company sells goods, accepting $1,000 immediate cash payment and a 4-year, $8,000, non-interest-bearing note for the balance due. The market rate of interest for a note of similar risk is 3%. What amount does the company record as sales revenue on January 1, 2021? a. $7,108 b. $7,996 c. $8,108 d. $9,000

PV SS = FV x PV SS factor I = 3% n = 4 PV SS = 8,000 x 0.88849 PV SS = 7,108 => 7,108 + 1,000 cash = 8,108 => c. $8,108

Notes Not Issued at Face Value (stated interest rate ≠ effective interest rate) Non-Interest-Bearing Notes (stated interest rate, of zero < effective interest rate) A company sells goods to a customer for $3,969.15, accepting a $5,000 3-year non-interest-bearing note in exchange for the goods. The market rate of interest for a note of similar risk is 8%.

PV SS = FV x PV SS factor I = 8% n = 3 => 5,000 x 0.79383 = 3,969.15 ==> 5,000 - 3,969.15 = 1,030.85 ----------------------- Sale date: Dr. Notes receivable 5,000 Cr. Sales 3,696.15 Cr. Discount on notes receivable 1,030.85 ----------------------- End of yr. 1: Carrying value of note = 5,000 - 1,030.85 = 3,696.15 => 3,696.15 x 8% = 317.53 Entry: Dr. Discount on notes receivable 317.53 Cr. Interest income 317.53 ----------------------- End of yr. 2: 1,030.85 - 317.53 = 713.32 (5,000 - 713.32 = 4,286.68 x 8% = 342.93 Entry: Dr. Discount on notes receivable 342.93 Cr. Interest Income 342.93 ------------------------ End of yr. 3: 713.32 - 342.93 = 370.39 (5,000 - 370.39 = 4,629.61 x 8% = 370.37 Entry: Dr. Discount on notes receivable 370.39 Cr. Interest Income 370.39 Dr. Cash 5,000 Cr. Notes receivable 5,000

Notes Not Issued at Face Value (stated interest rate ≠ effective interest rate) Non-Interest-Bearing Notes (stated interest rate, of zero < effective interest rate) On December 31, 2021, McDowell Inc. rendered services to Gissel Corporation at a price of $23,875, accepting $10,000 immediate cash payment and agreeing to accept the balance in three equal installments of $5,000 due each subsequent December 31. Prepare all the necessary entries to account for this and related transactions and events on McDowell's books, assuming McDowell has a December 31 year-end.

Sale: 23,875 Cash: 10,000 Payment: 5,000 - No stated rate of interest => assume "non-interest-bearing" (no periodic interest payments But! Interest component exist due to time value of money Need to find effective interest rate in order to recognize interest over life of note PV OA = 23,875 - 10,000 = 13,875 I = ? n = 3 - OA is a sense of three $5,000 payments PV OA = Payment x PV OA factor 13,875 = 5,000 x PV OA factor PV OA factor = 2.77500 I = 4% (5,000 x 3) - 13,875 = 1,125 Dec. 31, 2021: Dr. Cash 10,000 Dr. Notes receivable 15,000 Cr. Sales 23,875 Cr. Discount on notes receivable 1,125 ---------------------------- (15,000 - 1,125 = 13,875 x 4% = 555) Dec. 31, 2022: Dr. Discount on notes receivable 555 Cr. interest Income 555 Dr. Cash 5,000 Cr. Notes receivable 5,000 ---------------------------- (10,000 - 570 = 9,430 x 4% = 377.20) Dec. 31, 2023: Dr. Discount on notes receivable 377.20 Cr. interest Income 377.20 Dr. Cash 5,000 Cr. Notes receivable 5,000 ---------------------------- (5,000 - 192.80 = 4,807.20 x 4% = 192.29) Dec. 31, 2024: Dr. Discount on notes receivable 192.80 Cr. interest Income 192.80 Dr. Cash 5,000 Cr. Notes receivable 5,000

A company offers sales discounts to customers. On August 20, the company has a $700 sale on account (before any discount). Sale terms are 1/10, n/30. The company receives the appropriate payment of the balance due on September 6. If the company uses the net method to record sales made on credit, what is the debit to Accounts Receivable in the August 20 entry to record this sale?

Sales discount = 1% 700 x 1% = 7 700 - 7 = 693 Aug. 20 Dr. A/R 693 Cr. Sales 693 Sep. 6 Dr. Cash 700 Cr. A/R 693 Cr. Sales discount forfeited 7

A company uses the gross method to record sales made on credit. On April 13, it made sales of $3,000 with terms 2/10, n/30. On April 28, the company received full payment for the April 13 sale.

Sales discount—Gross method, outside of terms April 13 Dr. Accounts receivable 3,000 Cr. Sales revenue 3,000 April 28 Dr. Cash 3,000 Cr. Accounts receivable 3,000

A company uses the gross method to record sales made on credit. On April 13, it made sales of $3,000 with terms 2/10, n/30. On April 20, the company received full payment for the April 13 sale.

Sales discount—Gross method, within terms (3,000 - (3,000 x 2%)) = 2,940 3,000 x 2% = 60 April 13 Dr. Accounts receivable 3,000 Cr. Sales revenue 3,000 April 20 Dr. Cash 2,940 Dr. Sales discounts 60 Cr. Accounts receivable 3,000

A company uses the net method to record sales made on credit. On April 13, it made sales of $3,000 with terms 2/10, n/30. On April 28, the company received full payment for the April 13 sale.

Sales discount—Net method, outside of terms (3,000 - (3,000 x 2%)) = 2,940 3,000 x 2% = 60 April 13 Dr. Accounts receivable 2,940 Cr. Sales revenue 2,940 April 28 Dr. Cash 3,000 Cr. Accounts receivable 2,940 Cr. Sales discounts forfeited 60

A company uses the net method to record sales made on credit. On April 13, it made sales of $3,000 with terms 2/10, n/30. On April 20, the company received full payment for the April 13 sale.

Sales discount—Net method, within terms (3,000 - (3,000 x 2%)) = 2,940 April 13 Dr. Accounts receivable 2,940 Cr. Sales revenue 2,940 April 20 Dr. Cash 2,940 Cr. Accounts receivable 2,940

A company's general ledger reflects the following transaction entry on December 10: A $75 payment from a customer for a November 3 sale is recorded as a debit to accounts receivable and credit to revenue. The company properly recorded the November 3 sale in the general ledger. In preparing the December 31 adjusted trial balance, the correcting entry should include a: a. $75 credit to cash. b. $150 credit to accounts receivable. c. $150 debit to revenue. d. A correcting entry is not required.

Should be: Dec. 10: Dr. Cash 75 Cr. A/R 75 Recorded: Dec. 10: Dr. A/R 75 Cr. Revenue 75 => b. $150 credit to accounts receivable.

A company reports the following information before adjusting the allowance for the current period. - $320,000 Accounts Receivable - $1,000 Allowance for Uncollectible Accounts debit balance The company estimates 5% of accounts receivable will be uncollectible.

Target balance in allowance = $320,000 x 5% = $16,000 Current balance in allowance = $1,000 debit Allowance forUncollectible Accounts (T-account): Dr. 1,000 Cr. ? = Cr. 16,000 Required journal entry: Dr. Bad debt expense 17,000 Cr. Allowance for uncollectible accounts 17,000

A company reports the following information before adjusting the allowance for the current period. - $320,000 Accounts Receivable - $4,000 Allowance for Uncollectible Accounts The company estimates 5% of accounts receivable will be uncollectible.

Target balance in allowance = $320,000 x 5% = $16,000 Current balance in allowance = $4,000 Allowance forUncollectible Accounts (T-account): Cr. 4,000 Cr. ? = Cr. 16,000 Required journal entry: Dr. Bad debt expense 12,000 Cr. Allowance for uncollectible accounts 12,000

A company has the following information. Cash dividends paid in 2021 3,000 Dividends payable at December 31, 2021 2,000 Net income for 2021 170,000 Retained earnings at December 31, 2020 723,000 Retained earnings at December 31, 2021 882,800 The company had a single adjustment to beginning retained earnings for a correction of error in a prior period's net income. If the company's tax rate is 35% is all years, what was the pre-tax amount of the adjustment to beginning retained earnings? a. ($5,200) b. ($7,200) c. ($8,000) d. ($11,077)

Total declared: 3,000 + 2,000 = 5,000 732,000 +/- ??? <== (5,200) net of tax + 170,000 - (5,000) = 882,800 => 882,800 + 5,000 - 170,000 = 717,800 ==> 732,000 - ??? = 717,800 ====> ??? = -5,200 Pre-tax x (100% - 35%) = (5,200) Pre-tax = (8,000) => c. ($8,000)

A company offers both trade discounts and sales discounts to customers and uses the net method to record sales made on credit. On October 13, the company has a $30,000 sale on account (before any discount). The trade discount is 2% and sale terms are 1/15, n/30. The company receives the appropriate payment of the balance due on October 20. How much should the company record as sales revenue for this transaction?

Trade discount = 30,000 x 2% = 600 Sales discount = 1% 30,000 - 600 = 29,400 x 1% = 294 (29,400 - 294 = 29,106) Oct. 13 Dr. A/R 29,106 Cr. Sales 29,106 Oct. 20 Dr. Cash 29,106 Cr. A/R 29,106

A company offers trade discounts to qualified customers. On April 4, the company has a $500 credit sale (before any discount) and gives this customer a 2% trade discount. What is the amount of the debit to Accounts Receivable in the April 4 entry to record this sale?

Trade discount = 500 x 2% = 10 500 - 10 = 490 April 4 Dr. Accounts receivable 490 Cr. Sales 490

A company offers both trade discounts and sales discounts. The company offers a 1% trade discount to qualified customers and has sales terms of 2/10, n/30. The company uses the gross method to record sales made on credit. On April 13, it made a qualified sale of $3,000 (before applying any discounts). On April 28, the company received full payment for the April 13 sale.

Trade discount and Sales discount—Gross method, outside of terms April 13 Dr. Accounts receivable 2,970 Cr. Sales revenue 2,970 April 28 Dr. Cash 2,970 Cr. Accounts receivable 2,970

A company offers both trade discounts and sales discounts. The company offers a 1% trade discount to qualified customers and has sales terms of 2/10, n/30. The company uses the gross method to record sales made on credit. On April 13, it made a qualified sale of $3,000 (before applying any discounts). On April 20, the company received full payment for the April 13 sale.

Trade discount and Sales discount—Gross method, within terms (3,000 - (3,000 x 1%)) = 2,970; (2,970 - (2,970 x 2%)) = 2,911 April 13 Dr. Accounts receivable 2,970 Cr. Sales revenue 2,970 April 20 Dr. Cash 2,911 Dr. Sales discounts 59 Cr. Accounts receivable 2,970

A company offers both trade discounts and sales discounts. The company offers a 1% trade discount to qualified customers and has sales terms of 2/10, n/30. The company uses the net method to record sales made on credit. On April 13, it made a qualified sale of $3,000 (before applying any discounts). On April 28, the company received full payment for the April 13 sale.

Trade discount and Sales discount—Net method, outside of terms (3,000 - (3,000 x 2%)) = 2,940 => 2,940 - (2,940 x 1%) = 2,911 April 13 Dr. Accounts receivable 2,911 Cr. Sales revenue 2,911 April 28 Dr. Cash 2,970 Cr. Accounts receivable 2,911 Cr. Sales discounts forfeited 59

A company offers both trade discounts and sales discounts. The company offers a 1% trade discount to qualified customers and has sales terms of 2/10, n/30. The company uses the net method to record sales made on credit. On April 13, it made a qualified sale of $3,000 (before applying any discounts). On April 20, the company received full payment for the April 13 sale.

Trade discount and Sales discount—Net method, within terms (3,000 - (3,000 x 2%)) = 2,940 => 2,940 - (2,940 x 1%) = 2,911 April 13 Dr. Accounts receivable 2,911 Cr. Sales revenue 2,911 April 20 Dr. Cash 2,911 Cr. Accounts receivable 2,911

A company offers a 1% trade discount to qualified customers. On April 13, it made a qualified sale of $3,000 (before applying trade discount). On April 20, the company received full payment for the April 13 sale.

Trade discount only April 13 Dr. Accounts receivable 2,970 Cr. Sales revenue 2,970 April 20 Dr. Cash 2,970 Cr. Accounts receivable 2,970

In a factoring or a securitization transaction:

a company sells receivables on either a without recourse or a with recourse basis.

E7.7 Duncan Company reports the following financial information before adjustments. Dr. Accounts Receivable $100,000 Cr. Allowance for Doubtful Accounts $ 2,000 Cr. Sales Revenue (all on credit) 900,000 Dr. Sales Returns and Allowances 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.

a) Dr. Bad Debt Expense Dr. $3,000 Cr. Allowance for Doubtful Accounts $3,000 b) Dr. Bad Debt Expense $6,500 Cr. Allowance for Doubtful Accounts $6,500 Solution: (a) Allowance for Doubtful Accounts = 5% × $100,000 = $5,000 (desired credit balance in allowance account) $5,000 - $2,000 = $3,000 (required credit entry to bring allowance account to $5,000 credit balance) (b) Allowance for Doubtful Accounts = [($100,000 x 0.05) + $1,500] = $6,500

Which of the following leads to the use of adjusting entries? a. Revenue recognition principle b. Materiality c. Measurement principle d. Completeness

a. Revenue recognition principle

A company's allowance for doubtful accounts has a debit balance before making the current year-end adjusting entry to adjust the allowance to the target balance. Which of the following is true? a. The company previously underestimated uncollectible accounts. b. The company previously overestimated uncollectible accounts. c. The company's previous estimate of uncollectible accounts was accurate. d. The allowance for doubtful accounts cannot have a debit balance at any time.

a. The company previously underestimated uncollectible accounts.

A company has the following aging schedule and estimates for uncollectible accounts: Age; Balance; Estimated percent uncollectible Less than 30 days overdue; $ 10,000; 1% 30-59 days overdue; $ 8,000; 2% 60-89 days overdue; $ 9,000; 4% 90 or more days overdue; $ 1,000; 18% a. What is the company's target balance in the allowance account if the company uses multiple rates based on the aging schedule? b. What if the company uses a composite rate of 5%?

a.) 10,000 x 1% = 100 8,000 x 2% = 160 9,000 x 4% = 360 1,000 x 18% = 180 => 100 + 160 + 360 + 180 = 800 --------------------------- b.) 10,000 + 8,000 + 9,000 + 1,000 = 28,000 => 28,000 x 5% = 1,400

A company has the following aging schedule and estimates for uncollectible accounts: Age; Balance; Estimated percent uncollectible; Less than 30 days overdue; $15,000; 1%; 30-59 days overdue; $12,000; 3% 60-89 days overdue; $10,000; 5% 90 or more days overdue; $5,000; 20% Total $42,000 a. What is the company's target balance in the allowance account if the company uses multiple rates based on the aging schedule? b. What if the company uses a composite rate of 7%?

a.) 15,000 x 1% = 150 12,000 x 3% = 360 10,000 x 5% = 500 5,000 x 20% = 1,000 => 150 + 360 + 500 + 1,000 = 2,010 ------------------------------------------ b.) 42,000 x 7% = 2,940

A company has the following information from its ledger: Accounts Receivable (T-account): Dr. Bal. 12/1 500,000 Dr. #1 12/10 2,000 Cr. #2 12/10 2,000 Dr. #3 12/15 15,000 Cr. #4 12/17 8,500 = Dr. Bal. 12/31 506,500 Allowance for Doubtful Accounts (T-account): Cr. Bal. 12/1 5,000 Cr. #1 12/10 2,000 Dr. #4 12/17 8,500 Cr. #5 12/31 26,825 = Cr. Bal. 12/31 25,325 a. What occurs in transaction #1 on December 10? b. What occurs in transaction #3 on December 15? c. What occurs in transaction #4 on December 17? d. What is the amount of bad debt expense? e. What percentage of accounts receivable does the company estimate will be uncollectible?

a.) Dr. A/R 2,100 Cr. ADA 2,100 Reestablish account previously written off ------------------------------------------- b.) Dr. A/R 15,000 Cr. ??? 15,000 Sale to customer on account (cannot see credit, so assume to sales) ------------------------------------------- c.) Dr. ADA 8,500 Cr. A/R 8,500 Account written off ------------------------------------------- d.) (Entry to get ADA to target balance) 26,825 ------------------------------------------- e.) A/R x % uncollectible = target balance 506,500 x % uncollectible = 25,325 % uncollectible = 5%

E7.9 The trial balance before adjustment of Taylor Swift Inc. shows the following balances. Dr. Accounts Receivable $90,000 Dr. Allowance for Doubtful Accounts 1,750 Cr. Sales Revenue (all on credit) $680,000 Instructions: Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 5% of gross accounts receivable and Allowance for Doubtful Accounts has a $1,700 credit balance.

a.) Dr. Bad Debt Expense $5,350 Cr. Allowance for Doubtful Accounts $5,350 b.) Dr. Bad Debt Expense Dr. $2,800 Cr. Allowance for Doubtful Accounts $2,800 Solution: (a) Allowance for Doubtful Accounts = ($90,000 × 4%) + $1,750 = $5,350 (b) Allowance for Doubtful Accounts = [($90,000 x 5%) - $1,700] = $2,800

BE7.6 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 expense. b. Instead of estimating uncollectibles 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 expense. (Reference: Wilton, Inc. had net sales in 2020 of $1,400,000. At December 31, 2020, before adjusting entries, thebalances in selected accounts were: Accounts Receivable $250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 8% of its net sales will prove to be uncollectible, prepare the December 31, 2020, journal entry to record bad debt expense.)

a.) Dr. Bad Debts Expense 26,900 Cr. Allowance for Doubtful Accounts 26,900 [(10% x $250,000) + 1,900 = 26,900] --------------------------- b.) Dr. Bad Debts Expense 22,200 Cr. Allowance for Doubtful Accounts 22,200 [24,600 - 2,400 = 22,200]

E7.8 At the end of 2020, Aramis Company has accounts receivable of $800,000 and an allowance for doubtful accounts of $40,000. On January 16, 2021, Aramis Company determined that its receivable from Ramirez Company of $6,000 will not be collected, and management authorized its write-off. a. Prepare the journal entry for Aramis Company to write off the Ramirez receivable. b. What is the net amount expected to be collected of Aramis Company's accounts receivable before the write-off of the Ramirez receivable? c. What is the net amount expected to be collected of Aramis Company's accounts receivable after the write-off of the Ramirez receivable?

a.) Jan. 16, 2018 Dr. Allowance for Doubtful Accounts $6,000 Cr. Accounts Receivable $6,000 b.) Net realizable value before write off = 800000-40000 = 760000 c.) Net realizable value after write off = (800000-6000)-(40000-6000) = 760000

Nontrade receivables:

arise from a variety of transactions.

Which of the following steps occurs the latest (of these steps) in the FASB's system of due process? a. Public hearing on proposed standard. b. Board issues exposure draft. c. Research and analysis conducted and preliminary views of pros and cons issued. d. Topics placed on Board's agenda.

b. Board issues exposure draft.

Which of the following does the textbook identify as a financial reporting challenge? a. Comparability b. Forward-looking information c. Verifiability d. Fixed assets

b. Forward-looking information

FASB identifies which of the following as qualities as fundamental? Timeliness; Relevance; Understandability a. Yes Yes Yes b. No Yes No c. No Yes Yes d. Yes No Yes

b. No Yes No

U.S. GAAP: a. identifies the characteristics of useful accounting information. b. is found in the Codification. c. does not change over time. d. All of the above

b. is found in the Codification.

E7.18b Beyoncé Corporation factors $175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collectthe receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2014.Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and alsoreserves an amount equal to 4% of accounts receivable to cover probable adjustments. Instructions b.) Assume that the conditions are met for a transfer of receivables with recourse to be accounted for as a sale. Prepare the journal entry on August 15, 2020, for Blossom to record the sale of receivables, assuming the recourse obligation has a fair value of $2,000.

b.) Dr. Cash $164,500 Dr. Due from factor $7,000 Dr. Loss on sale of receivables $5,500 Cr. Recourse liability $2,000 Cr. Accounts receivable $175,000 Solution: Computation of net proceeds:Cash received (175,000*94%). 164,500 Due from factor (175,000*4%). 7,000. Less: recourse liability (2,000) Net proceeds 169,500 Computation of gain or loss: Carrying value 175,000 - Net proceeds (169,500) = Loss on sale of receivables 5,500

Under the allowance method, companies debt every:

bad debt write-off to the allowance account rather than to Bad Debt Expense.

On December 1, 2021, a key officer of JGM Corporation borrows $10,000 from the company, with an oral agreement for repayment of the $10,000 within 6 months. How should JGM Corporation report this $10,000 on its December 31, 2021 balance sheet? a. Account receivable b. Current portion of note receivable c. Non-trade receivable d. JGM should not report this amount on the December 31, 2021 balance sheet

c. Non-trade receivable

Receivables are:

claims held against customers and others for money, goods, or services.

For financial statement purposes, companies classify receivables as either:

current (short-term) or noncurrent (long-term)

Companies expect to collect ___________________________ within a year or during the current operating cycle, whichever is longer. They classify all other receivables as ___________________.

current receivables; noncurrent

FASB's Conceptual Framework: a. establishes the concepts that underlie financial reporting. b. helps the profession address emergent issues more quickly. c. provides a basis for useful, consistent standards. d. All of the above

d. All of the above

FASB identifies which of the following as an enhancing quality? a. Collectability b. Liquidity c. Materiality d. None of the above

d. None of the above

The ___ have been instrumental in the development of U.S. GAAP. a. SEC and FASB b. FASB and AICPA c. AICPA and SEC d. SEC, FASB, and AICPA

d. SEC, FASB, and AICPA

On May 4, a company records the full acquisition cost of a machine as an operating expense. As a result, assets are _[1]_ and net income is _[2]_ on the year-end financial statements. a. [1] properly stated; [2] properly stated b. [1] overstated; [2] understated c. [1] understated; [2] overstated d. [1] understated; [2] understated

d. [1] understated; [2] understated

If a company applying U.S. GAAP adjusts numbers each year for inflation, the ___ is challenged. a. going concern assumption b. revenue recognition principle c. periodicity assumption d. monetary unit assumption

d. monetary unit assumption

Companies record the difference between the future (face) amount and the present value (Cash paid) as a:

discount and amortize it to interest revenue over the life of the note.

The allowance method of accounting for bad debts involves:

estimating uncollectible accounts at the end of each period.

Factors are:

finance companies or banks that buy receivables from businesses for a fee and then collect the remittances directly from the customers.

The resulting interest rate is called an _________________________________.

imputed interest rate

Theoretically, any revenue after the period of sale is __________________________.

interest revenue

Receivable are often referred to as:

loans and receivables

Accounts Receivable are:

oral promises of the purchaser to pay for goods and services sold.

Companies record and report long-term notes receivables at the:

present value of the cash they expect to collect.

Like cash, __________________ are also financial assets

receivables

The basic issues in accounting for accounts and notes receivable are the same:

recognition, valuation, and disposition

The basic issues in accounting for notes receivable are the same as those for accounts receivable:

recognition, valuation, and disposition

A note receivable is:

supported by a formal promissory note, a written promise to pay a certain sum of money at a specific future date.

Transaction price is:

the amount of consideration that a company expects to receive from a customer in exchange for transferring goods or services.

In note transactions, other factors involved in the exchange, such as the fair value of the property, goods, or services, determine:

the effective or real interest rate

An unrealized holding gain or loss is:

the net change in the fair value of the receivable from one period to another, exclusive of interest revenue.

If companies choose the fair value option:

the receivables are recorded at fair value, with unrealized holding gains or losses reported as part of net income

For receivables sold with recourse:

the seller guarantees payment to the purchaser in the event the debtor fails to pay.

For receivables sold without recourse (nonrecourse):

the seller of the receivable assumes on responsibility for any credit losses associated with the transferred receivables.

When companies have exhausted all means of collecting a past-due account and collection appears impossible, the company should:

write-off the account

Notes Receivable are:

written promises to pay a certain sum of money on a specified future date.

Given to encourage prompt payment

• Example: Terms 2/10, n/30 2% discount if paid within 10 days, or net amount due within 30 days - Gross method: Record sales revenue before discount - Record sales discount separately (contra-revenue account) - Net method: Record sales revenue after discount (net of discount) • Recall! Measure transaction price by amount of consideration expect to receive in exchange Customers usually take sales discounts unless severe cash flow issues - If customer fails to take sales discount, separately record Sales Discounts Forfeited (non-operating revenue account in Other Revenues and Gains section of Income Statement)

At December 31, 2021, a company has accounts receivable of $420,000 before accounting for the following information: • In 2021, the company received $1,500 in payment of an account written off as uncollectible in 2018. • Customer accounts totaling $60,000 were written off during 2021. The January 1 balance in the Allowance for Doubtful Accounts was $56,000. If the company estimates 4% of accounts receivable will be uncollectible, what is the amount of bad debt expense the company must record in 2021? a. $11,900 b. $16,900 c. $16,960 d. $19,300

• In 2021, the company received $1,500 in payment of an account written off as uncollectible in 2018. (Dr. A/R, Cr. ADA, Dr. Cash, Cr. A/R) • Customer accounts totaling $60,000 were written off during 2021. (Dr. ADA, Cr. A/R) A/R (T-account): Dr. 420,000 Dr. 1,500 Cr. 1,500 Cr. 60,000 = Dr. 360,000 ADA (T-account): Cr. 56,000 Cr. 1,500 Dr. 60,000 Cr. ??? <== 16,900 = Cr. 14,400 <== (360,000 x 4%) => b. $16,900

Under the direct write-off, when a company determines a particular account to be uncollectible, it charges the loss to:

Bad Debt Expense