Q1.

The following information is from the annual financial statements of RA

Company. Please try to (1) Compute its accounts receivable turnover for Year2
and Year3. (2) Assuming its competitor has a turnover of 10, is RA performing
better or worse at collecting receivables than its competitor?
Item Year3 Year2 Year1
Net sales $405,140 335,280 388,000
AR, net(year-end) 44,800 41,400 34,800
Ans:
(1).
Year 2 accounts receivable turnover:
335,280
= 8.8 𝑡𝑖𝑚𝑒𝑠
(41,400 + 34,800)/2

Year 3 accounts receivable turnover:

405,140
= 9.4 𝑡𝑖𝑚𝑒𝑠
(44,800 + 41,400)/2
(2) Worse.
Analysis: Even Ra Company is getting better, but still worse than its competitor.

Q2. Da Comp any prepared the following aging of receivables analysis at December
31. Please try to
Days past due
item
Total 0 1 to 30 31 to 60 61 to 90 Over 90
AR 570,000 396,000 90,000 36,000 18,000 30,000
Percent uncollectible 1% 2% 5% 7% 10%

(1) Estimate the balance of the Allowance for Doubtful Accounts using aging of
accounts receivable.
(2) Prepare the adjusting entry to record bad debts expense using the estimate from
(1). Assume the unadjusted balance in the Allowance for Doubtful Accounts is a
$3,600 credit.
(3) Prepare the adjusting entry to record bad debts expense using the estimate form
(1). Assume the unadjusted balance in the Allowance for Doubtful Accounts is a
$100 debit.
Ans:
(1)
Not due: $396,000 x 0.01 = $ 3,960
1 to 30: 90,000 x 0.02 = 1,800
31 to 60: 36,000 x 0.05 = 1,800
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 61 to 90: 18,000 x 0.07 = 1,260
Over 90: 30,000 x 0.10 = 3,000
$11,820 credit
(2)
12/31 Bad Debts Expense ....................................... 8,220
Allowance for Doubtful Accounts ........... 8,220
Record estimated bad debts.
11,820-3,600=8,220

(3)
12/31 Bad Debts Expense ....................................... 11,920
Allowance for Doubtful Accounts ........... 11,920
Record estimated bad debts.
11,820+100=11,920

Q3. Refer to the info in above exercise to complete the following requirements.
(1) Estimate the balance of the Allowance for Doubtful Accounting assuming the
company uses 4.5% of total accounts receivable to estimate uncollectible, instead
of the aging of receivables method.
(2) Prepare the adjusting entry to record bad debts expense using the estimate from
(1). Assume the unadjusted balance in the Allowance for Doubtful Accounts is a
$12,000 credit.
(3) Prepare the adjusting entry to record bad debts expense using the estimate from
(1). Assume the unadjusted balance in the Allowance for Doubtful Accounts is a
$1,000 debit.
Ans:
(1)
$570,000 x 0.045 = $25,650 credit

(2)
12/31 Bad Debts Expense .............................................. 13,650
Allowance for Doubtful Accounts ........... 13,650
Record estimated bad debts.
25,650-12,000=13,650
(3)
12/31 Bad Debts Expense .............................................. 26,650
Allowance for Doubtful Accounts ........... 26,650
Record estimated bad debts.
25,650+1,000=26,650
Q4. Total interest to be earned on a $7,500, 5%, 90-day note is
A. $93.75
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B. $1,125.00
C. $125.00
D. $375.00
E. $31.25
Ans: A

Q5. Describe the allowance(A) method or the direct write-off (DW) method.
DW: (1) Does not predict bad debts expense. (2) when an account is written off, the
debit is to Bad Debts Expense. (3) Usually does not match sales and expense because
bad debts expense is not recorded until an account becomes uncollectible, which
usually occurs in a period after the credit sale.

A: (1) The write-off of a specific account does not affect net profit. (2) Estimates bad
debts expense related to the sales recorded in the period. (3) Accounts receivable on
the balance sheet is reported at net realizable value.

Q6. Z-Mart uses the perpetual inventory system and has its own credit card. Z-Mart
charges a per-month interest fee for any unpaid balance on its store credit card at
each month-end. Prepare journal entries to record the following transactions.
Apr. 30 Z-Mart sold merchandise for $1,000 (that had cost $650) and
accepted the customer’s Z-Mart.
May 31 Z-Mart recorded $4 of interest earned from its store credit card
as of this month-end.

Ans:
Apr. 30 Accounts Receivable 1,000
Sales 1,000
Record own-store credit card sales.

30 Cost of Goods Sold 650

Merchandise Inventory 650
Record cost of sales.

May 31 Accounts Receivable 4

Interest Revenue 4
Interest earned from its own-store credit card.
Q7. On January 1, Wei Company begins the accounting period with a $30,000 credit
balance in Allowance for Doubtful Accounts.
(1) On February 1, the company determined that $6,800 in customer accounts was
uncollectible; specifically, $900 for Oaklay Co. and $5,900 for Brookes Co.

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 Prepare the journal entry to write off those accounts.
(2) On June 5, the company unexpectedly received a $900 payment on a customer
account, Oakley Company, that had previously been written off in above. Prepare
the entries to reinstate the account and record the cash received.
Ans:
(1)
Feb. 1 Allowance for Doubtful Accounts 6,800
Accounts Receivable—Oakley Co 900
Accounts Receivable—Brookes Co 5,900
Write off specific accounts.

(2)
June 5 Accounts Receivable—Oakley 900
Allowance for Doubtful Accounts 900
Reinstate an account.

June 5 Cash 900

Accounts Receivable—Oakley 900
Record cash received on account.

Q8. Following is a list of credit customers along with their amounts owed and the
days past due at December 31. Following that list are five classifications of
accounts receivable and estimated bad debts percent for each class.
(1) Create an aging of accounts receivable schedule and calculate the estimated
balance for the Allowance for Doubtful Accounts.
(2) Assuming an unadjusted credit balance of $100, record the required adjustments
to the Allowance for Doubtful Accounts.
Customer Account Receivables Days Past Due
Bcc Company $4,000 12
Lannister Co. 1,000 0
Mike Properties 5,000 107
Ted Reeves 500 72
Jen Seffens 2,000 35

Days Past Due 0 1to30 31to60 61to90 Over90

Percent uncollectible 1% 3% 5% 8% 12%

Ans:

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(1)
1 to 30 31 to 60 61 to 90 Over 90
Customer Not Yet Days Days Days Days
Due Past Due Past Due Past Due Past Due
BCC Company $4,000
Lannister Co. $1,000
Mike Properties $5,000
Ted Reeves $500
Jen Steffens $2,000
Total receivables $1,000 $4,000 $2,000 $500 $5,000
Percent uncollectible 1% 3% 5% 8% 12%
Estimated uncollectible $10 $120 $100 $40 $600

Estimated balance for Allowance for Doubtful Accounts: $870 [$10+$120+$100+$40+$600].

(2)
Dec. 31 Bad Debts Expense ........................................... 770
Allowance for Doubtful Accounts ............ 770
Record estimated bad debts.*

* Unadjusted balance ................ $100 credit

Estimated balance ............... 870 credit
Required adjustment .............. $770 credit

Q9.Prepare journal entries for the following transactions of Danica Company.

X1 year
Dec. 13 Accepted a $9,500, 45-day, 8% note in granting Miranda Lee a time
extension on her past-due account receivable.
31 Prepare an adjusting entry to record the accrued interest on the Lee
note.
X2 year
Jan. 27 Receivable Lee’s payment for principal and interest on the note dated
December 13.
Mar. 3 Accepted a $5,000, 10%, 90-day note in granting a time extension on
the past-due account receivable of Tomas Company.
17 Accepted a $2,000, 30-day, 9% note in granting H. Cheng a time
extension on his past-due account receivable.

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Apr. 16 Cheng dishonored his note.
May 1 Wrote off the Cheng account against the Allowance for Doubtful
Accounts.
June 1 Received the Tomas payment for principal and interest on the note
dated March 3.
Ans:
X1 year,
Dec. 13 Notes Receivable—M. Lee .................................... 9,500
Accounts Receivable—M. Lee .................... 9,500
Record receipt of note on account.

Dec. 31 Interest Receivable ................................................ 38

Interest Revenue ......................................... 38
Record interest earned [$9,500 x 0.08 x 18/360].

X2 year,
Jan. 27 Cash ................................................................... 9,595
Interest Revenue* ................................... 57
Interest Receivable ................................. 38
Notes Receivable—M. Lee ..................... 9,500
Record cash received on note plus interest.
* $9,500 x 0.08 x (45-18)/360 = $57

Mar. 3 Notes Receivable—Tomas Co. .......................... 5,000

Accounts Receivable-Tomas Co ............. 5,000
Record receipt of note on account.

17 Notes Receivable—H. Cheng ............................ 2,000

Accounts Receivable—H. Cheng ............ 2,000
Record receipt of note on account.

Apr. 16 Accounts Receivable—H. Cheng ...................... 2,015

Interest Revenue ..................................... 15
Notes Receivable—H. Cheng ................. 2,000
Record receivable for dishonored
note plus interest [$2,000 x 0.09 x 30/360].

May 1 Allowance for Doubtful Accounts ....................... 2,015

Accounts Receivable—H. Cheng ............ 2,015
Write off account.

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June 1 Cash ................................................................... 5,125
Interest Revenue ..................................... 125
Notes Receivable—Tomas Co ................ 5,000
Record cash received on note with
interest [$5,000 x 0.10 x 90/360].