Trade Receivables
During an accounting period, cash collections from customers would equal sales adjusted by deducting the:
"accounts receivable written off" and deducting the "increase in the accounts receivable balance"
On March 31, Vale Co. had an unadjusted credit balance of 1,000 in its allowance for uncollectible accounts. An analysis of Vale's trade accounts receivable at that date revealed the following: Age Amount Estimated Uncollectible 0-30 days 60,000 5% 31-60 days 4,000 10% Over 60 days 2,000 1,400 What amount should Vale report as allowance for uncollectible accounts in its March 31 balance sheet?
$60,000 x 5% $3,000 $4,000 x 10% 400 Over 60 days 1,400 4,800 - 1,000 (unadjusted credit balance) = 3,800
Ward, a consultant, keeps her accounting records on a cash basis. During Year 2, Ward collected 200,000 in fees from clients. At December 31, Year 1, Ward had accounts receivable of 40,000. At December 31, Year 2. Ward had accounts receivable of 60,000 and unearned fees of 5,000. On an accrual basis, what was Ward's service revenue for Year 2?
Accounts Receivable 12/31/Year 1 40,000 Revenue-Squeeze 215,000 Subtotal 255,000 Collections (195,000) Balance at 12/31/Year 2 60,000
The allowance method journal entry to restore the account previously written off is:
Debit Accounts Receivable Credit Allowance for uncollectible accounts
A shoe retailer allows customers to return shoes within 90 days of purchase. The company estimates that 5% of sales will be returned within the 90-day period. During the month, the company has sales of $200,000 and returns of sales made in prior months of $5,000. What amount should the company record as net sales revenue for new sales made during the month?
5% x 200,000 = 10,000 200,000 - 10,000 = 190,000
When the allowance method of recognizing uncollectible accounts is used, how would the collection of an account previously written off affect accounts receivable and the allowance for uncollectible accounts?
Accounts Receivable No effect Allowance for uncollectible accounts Increase
Gibbs Co. uses the allowance method for recognizing uncollectible accounts. Ignoring deferred taxes, the entry to record the write-off of a specific uncollectible account
Affects neither net income nor working capital
Which method of recording uncollectible accounts expense is consistent with accrual accounting? Allowance Direct write-off: Yes No
Allowance Direct write-off: Yes No The allowance method is used to match expenses with revenues and to record the proper carrying amount for accounts receivable.
At the end of year one, Boller Co. had an ending balance in allowance for uncollectible accounts of $30,000. During year two, Boller wrote-off $40,000 of accounts receivable. At the end of the year two, Boller had 300,000 in accounts receivable and determined that 8% of these would be uncollectible. What amount should be reported two as uncollectible accounts expense on Boller's year two income statement?
Allowance for Doubtful Accounts $30,000 $40,000 $34,000 ( Plug) $24,000 (300,000 x .08) = 24,000. The beginning balance in the allowance account for Year 2 is 30,000. The write-off decreases the allowance account balance to a negative 10,000. So, an adjusting entry of $34,000 must be recorded to increase the allowance balance to 24,000 at year-end. So DR Uncollectible accounts expense 34,000 and CR Allowance for uncollectable accounts 34,000
Foster Co. adjusted its allowance for uncollectible accounts at year end. The general ledger balances for the accounts receivable and the related allowance account were $1,000,000 and $40,000, respectively. Foster uses the percentage-of-receivables method to estimate its allowance for uncollectible accounts. Accounts receivable were estimated to be 5% uncollectible. What amount should Foster record as an adjustment to its allowance for uncollectible accounts at year end?
Allowance for uncollectible accounts: Beginning balance (given) 40,000 Add expense (squeezed) 10,000 Subtotal (added up) 50,000 Subtract write offs (none given) 0 Ending balance (calculated) 50,000 Journal entry for above: DR Bad debt expense 10,000 CR Allowance for uncollectible accounts 10,000
Bost Company at December 31, Year 5, changed to the aging of accounts receivable approach for measuring its allowance for uncollectible accounts. Bost previously used the percent of sales approach. Allowance for uncollectibel accounts 1/1/Year 5 20,000 Provision for uncollectible accounts during Year 5 14,000 (2% of credit sales of 700,000) Bad debts written off, 11/30/Year 5 12,500 Estimated total of uncollectible accounts, per aging 20,500 at 12/31/Year 5 Required: Calculate the bad debt expense for Year 5 using the new approach. Prepare the journal entry to record the write-off of bad debts at November 30, Year 5. Prepare the journal entry to record any necessary adjustment to the allowance for uncollectible accounts at year-end Year 5.
Allowance: Balance 1/1/Year 5 20,000 Plus: Year 5 provision 14,000 Less: Year 5 write-offs (12,500) Preliminary balance 21,500 Desired balance (20,500) Decrease needed 1,000 Provision: Original provision 14,000 Less: necessary adjustment (1,000) Year 5 bad debt expense 13,000 Journal entry to record the write-off of bad debts at November 30, Year 5: DR Allowance for uncollectible accounts 12,500 CR Accounts Receivable 12,500 Journal entry to record the adjustment at December 31, Year 5: DR Allowance for uncollectible accounts 1,000 CR Bad debt expense 1,000
On June 1, Pitt Corp. sold merchandise with a list price of $5,000 to Burr on account. Pitt allowed trade discounts of 30% and 20%. Credit terms were 2/15, n/40, and the sale was made FOB shipping point. Pitt prepaid $200 of delivery costs for Burr as an accommodation. On June 12, Pitt received from Burr a remittance in full payment amounting to
Balance Subject to Discount: Cost of merchandise sold 5,000 Trade discount % 30% Trade discount amounts 1,500 Balance 3,500 $3,500 20% Trade discount amount $700 Balance 2,800 $2,800 Cash discount % 2% Cash discount $56 Balance 2,744 Add: Loan of delivery cost 200 Expected remittance 2,944
The following information relates to Jay Co.'s accounts receivable for Year 2: Accounts receivable, 1/1/Year 2 Credit Sales for Year 2 Sales Returns for Year 2 Accounts written off during Year 2 Collections from customers during Year 2 Estimated future sales returns at 12/31/Year 2 Estimated uncollectible accounts at 12/31/Year 2 What amount should Jay report for accounts receivable, before allowances for sales returns and uncollectible accounts, at December 31, Year 2?
Begin Balance 1/1/Year 2: 650,000 Add: Credit Sales 2,700,000 Subtotal 3,350,000 Less: Collections (2,150,000) Write-offs (40,000) Sales Returns (75,000) Ending balance, 12/31/Year 2 1,085,000
Direct write-off method for tax purposes is a journal entry example of:
Debit Bad Debt Expense Credit Accounts Receivable
When the allowance method of recognizing uncollectable accounts is used, the entry to record the write-off of a specific account:
Decreases both accounts receivable and the allowance for uncollectible accounts.
On April 1, Aloe, Inc. factored 80,000 of its accounts receivable without recourse. The factor retained 10% of the accounts receivable as an allowance for sales returns and charged a 5% commission on the gross amount of the factored receivables. What amount of cash did Aloe receive from the factored receivables?
Of the $80,000 factored, 10% was retained by the factor (80,000x10% = $8,000) and another 5% for commission is taken off (80,000 x 5% - 4,000) to get to cash received of 68,000 (80,000 - 8,000 - 4,000).
Gar Co. factored its receivables without recourse with Ross Bank. Gar received cash as a result of this transaction, which is best described as a
Sale of Gar's accounts receivable to Ross, with the risk of uncollectible accounts transferred to Ross.
The following information pertains to Tara Co.'s accounts receivable at December 31, Year 2: Days Outstanding Amount Estimated % uncollectable 0-60 $120,000 1% 61-120 90,000 2% over 120 100,000 6% 310,000
Under the Aging method of calculating uncollectible accounts, the balance in the allowance account is determined by multiplying receivables by the uncollectible percentage. The existing balance in the allowance account is used to determine expense for the year. $120,000 x 1% $1,200 $90,000 x 2% 1,800 $100,000 x 6% 6,000 Allowance, 12/31/Year 2 9,000
Delta, Inc. sells to wholesalers on terms of 2/15, net 30. Delta has no cash sales but 50% of Delta's customers take advantage of the discount. Delta uses the gross method of recording sales and trade receivables. An analysis of Delta's trade receivables balances at December 31 revealed the following: Age Amount Collectible 0-15 days 100,000 100% 16-30 days 60,000 95% 31-60 days 5,000 90% Over 60 days 2,500 $500 167,500
1,000. Accounts receivable (0-15 days) $100,000 50% of customers take 2% discount x 1% Allowance for discounts at 12/31 $1,000
Marr Co. had the following sales and accounts receivable balances, prior to any adjustments at year end: Credit sales $10,000,000 Accounts receivable 3,000,000 Allowance for uncollectible accounts 50,000 Marr uses 3% of accounts receivable to determine its allowance for uncollectible accounts at year end. By what amount should Marr adjust its allowance for uncollectible accounts at year end?
40,000. Allowance for uncollectible accounts: Beginning balance (given) 50,000 Add expense (squeezed) 40,000 Subtotal (added up) 90,000 Subtract write offs (none given) 0 Ending balance (calculated) 90,000
On the December 31 balance sheet of Mann Co, the current receivables consisted of the following: Trade Accounts receivable 93,000 Allowance for uncollectible accounts (2,000) Claim against shipper for goods lost in transit 3,000 Selling price of unsold goods sent by Mann on consignment at 130% of cost (not included in Mann's 26,000 ending inventory) Security deposit on lease of warehouse used for storing 30,000 some inventories Total: 150,000 At December 31, the correct total of Mann's current net receivables was:
94,000. Trade accounts receivable 93,000 Less: Allowance for uncollectible amounts (2,000) Add: Claim against shipper for goods lost in transit 3,000 Total: 94,000
Orr Co. prepared an aging of its accounts receivable at December 31 and determined that the net realizable value of the receivables was $250,000. Additional information is available as follows: Allowance for uncollectible accounts at 1/1 -- credit balance $ 28,000 Accounts written off as uncollectible during the year 23,000 Accounts receivable at 12/31 270,000 Uncollectible accounts recovered during the year 5,000 For the year ended December 31, Orr's uncollectible accounts expense is:
Allowance for Uncollectible Accounts Beginning Balance 28,000 Add: Uncollectible accounts exp 10,000 Recovery of previous write-offs 5,000 Subtotal 43,000 Less: Accounts written off (23,000) Ending balance (270,000 - 250,000) 20,000
Garr Co. received a $60,000, 6-month, 10°/o interest-bearing note from a customer. After holding the note for two months, Garr was in need of cash and discounted the note at the United Local Bank at 12°/o. The amount of cash Garr received from the bank was: a. $60,480 b. $60,630 c. $61,740 d. $62,520
Approach 1 Face of note $60,000 Int Rt on note 10% x 1/2 year x 5% 3,000 Maturity value of note 63,000 63,000 Disc by bank - 12% x 4/12 year x 4% (2,520) Proceeds from the bank 60,480 Net Interest income (expense)
Morris Co. determined that the net realizable value of its accounts receivable at December 31, was 435,000. This estimate was based on an aging schedule. Additional information is as follows: Allowance for uncollectible accounts-January 1 229,000 Uncollectible accounts written off 61,000 Accounts written off in prior years recovered 26,000 Accounts receivable at December 31 700,000
Beginning Balance 229,000 Additions: recoveries 26,000 expense (squeeze) 71,000 Subtract: write-offs (61,000) Ending balance (700,000- 435,000) 265,000
Inge Co. determined that the net value of its accounts receivable at December 31, based on an aging of the receivables, was $325,000. Additional information is as follows: Allowance for credit losses at 1/1 $ 30,000 Uncollectible accounts written off during the year 18,000 Collection of accounts previously written off that were not expected to be recovered 2,000 Gross amount of accounts receivable at 12/31 350,000 For the year, what would be Inge's credit loss expense?
Beginning Balance 30,000 Uncollectible accounts written off (18,000) Written-off accounts now collectible 2,000 Uncollectible accounts expense ? year-end balance 25,000
For the year ended December 31, Beal estimated its allowance for uncollectible accounts using the year-end aging of accounts receivable. The following data are available: Allowance for uncollectible accounts, 1/1 42,000 Provision for uncollectible accounts (2% on credit 40,000 sales of $2,000,000) Uncollectible accounts written off, 11/30 46,000 Estimated uncollectible accounts per aging, 12/31 52,000 After year-end adjustment, the uncollectible accounts expense should be:
Beginning Balance 42,000 Add: Provision for year 40,000 Subtotal 82,000 Less: Uncollectible A&R (46,000) written off Ending balance before adjustment 36,000 Estimated uncollectible accounts 52,000 per aging Difference 16,000 (40.000 + 16,000) = 56,000 The JE would be: DR Provision for uncollectible accounts 16,000 CR Allowance for uncollectible amounts 16,000
Tinsel Co.'s balances in allowance for uncollectible accounts were $70,000 at the beginning of the current year and $55,000 at year end. During the year, receivables of $35,000 were written off as uncollectible. What amount should Tinsel report as uncollectible accounts expense at year end?
Beginning Balance, allowance for uncollectible 70,000 accounts Uncollectible accounts expense unknown Accounts written off (35,000) Ending balance, allowance for uncollectible accounts 55,000 20,000 is the uncollectible account expense
Rue Co.'s allowance for uncollectible accounts had a credit balance of $12,000 at December 31, Year 1. During Year 2, Rue wrote off uncollectible accounts of $48,000. The aging of accounts receivable indicated that a $50,000 allowance for uncollectible accounts was required at December 31, Year 2. What amount of uncollectible accounts expense should Rue report for Year 2?
Beginning allowance 12,000 Plus uncollectible accounts expense 86,000 Less:Write-offs (48,000) Ending Allowance 50,000
Mill Co.'s allowance for credit losses was $100,000 at the end of Year 2 and $90,000 at the end of Year 1. For the year ended December 31, Year 2, Mill reported credit loss expense of $16,000 in its income statement. What amount did Mill debit to the appropriate account in Year 2 to write off actual bad debts? A, 6,000
Beginning balance 12-31-Year 1 90,000 Add: Bad debt expense 16,000 Subtotal 106,000 Less: Actual bad debt write-off (6,000) Ending balance 12-31-Year 2 100,000
aging of receivables method
Emphasizes asset valuation rather than income measurement
Roth, Inc. received from a customer a one-year, $500,000 note bearing annual interest of 8%. After holding the note for six months, Roth discounted the note at Regional Bank at an effective interest rate of 10%. What amount of cash did Roth receive from the bank?
Face of note: 500,000 Interest rate on note (8% x 1 year) x 8% 40,000 Maturity value of note 540,000 Discount by bank (10% x 1/2 year) x 5% (27,000) Proceeds from bank 513,000
Red Co. had $3 million in accounts receivable recorded on its books. Red wanted to convert the $3 million in receivables to cash in a more timely manner than waiting the 45 days for payment as indicated on its invoices. Which of the following would alter the timing of Red's cash flows for the $3 million in receivables already recorded on its books?
Factor the Receivables Outstanding
The following accounts were abstracted from Roxy Co.'s unadjusted trial balance at December 31: DR Accounts Receivable 1,000,000 DR Allowance uncollectible amounts 8,000 CR Net credit sales 3,000,000 Roxy estimates that 3% of the gross accounts receivable will become uncollectible. After adjustment at December 31, the allowance for uncollectible amounts should have a credit balance of:
Gross accounts receivable 1,000,000 3% will become uncollectible 3% Allowance for uncollectible AR 12-31 30,000
Under the allowance method of recognizing uncollectible accounts, the entry to write-off an uncollectible account:
Has no effect on net income.
The allowance method to record the cash collection on the account is to
Increase cash and reduce accounts receivable Debit Cash Credit Accounts Receivable
After being held for 40 days, a 120-day, 12% interest-bearing note receivable was discounted at a bank at 15%. The proceeds received from the bank equal
Maturity value less the discount at 15% The discount is always applied on the maturity value.
A company entered into a loan with a lender for 100,000 and pledged 120,000 of the company's accounts receivable as collateral. The lender does not have the right to sell or repledge the accounts receivable. When the company receives the cash for the loan proceeds, what entry should be made to accounts receivable?
No entry needed
When the allowance method of recognizing bad debt expense is used, the allowance would decrease when an:
Specific uncollectible account is written off.
When you debit an allowance for doubtful accounts, you are reducing a:
contra-asset
By crediting accounts receivable, you are:
reducing your assets