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Principles of Accounting, Volume 1: Financial Accounting

Exercise Set B

Principles of Accounting, Volume 1: Financial AccountingExercise Set B
EB 1.

LO 9.1Prepare journal entries for the following transactions from Movie Mart.

Sept. 10 Customer Ellie Monk purchased $43,820 worth of merchandise from Movie Mart, costing Movie Mart $28,745. Terms of the sale are 3/10, n/60, invoice dated September 10.
Sept. 22 Ellie Monk pays in full with cash for her purchase on September 22.
EB 2.

LO 9.1Prepare journal entries for the following transactions from Angled Pictures.

June 21 Customer LeShaun Rogers purchased 167 picture frames at a sales price of $28 per frame with her American credit card. The cost to Angled Pictures for the sale is $19 per frame. American credit card charges Angled Pictures a fee of 3% of the sale.
June 30 American remits payment to Angled Pictures, less any fees.
EB 3.

LO 9.1Consider the following transaction: On February 15, Darling Dolls sells 110 dolls with a sales price of $15 per doll to Rosemary Cummings The cost to Darling Dolls is $5 per doll. Prepare a journal entry under each of the following conditions. Assume Gentry charges a 3.5% fee for each sales transaction using its card.

  1. Payment is made using a credit, in-house account.
  2. Payment is made using a Gentry credit card.
EB 4.

LO 9.2Laminate Express extended credit to customer Amal Sunderland in the amount of $244,650 for his January 4 purchase of flooring. Terms of the sale are 2/30, n/120. The cost of the purchase to Laminate Express is $88,440. On April 5, Laminate Express determined that Amal Sunderland’s account was uncollectible and wrote off the debt. On June 22, Amal Sunderland unexpectedly paid 30% of the total amount due in cash on his account. Record each Laminate Express transaction with Amal Sunderland. In order to demonstrate the write-off and then subsequent collection of an account receivable, assume in this example that Laminate Express rarely extends credit directly, so this transaction is permitted to use the direct write-off method. Remember, though, that in most cases the direct write-off method is not allowed.

EB 5.

LO 9.2Olena Mirrors records bad debt using the allowance, income statement method. They recorded $343,160 in accounts receivable for the year and $577,930 in credit sales. The uncollectible percentage is 4.4%. On May 10, Olena Mirrors identifies one uncollectible account from Elsa Sweeney in the amount of $2,870. On August 12, Elsa Sweeney unexpectedly pays $1,441 toward her account. Record journal entries for the following.

  1. Year-end adjusting entry for 2017 bad debt
  2. May 10, 2018 identification entry
  3. Entry for payment on August 12, 2018
EB 6.

LO 9.2Olena Mirrors records bad debt using the allowance, balance sheet method. They recorded $343,160 in accounts receivable for the year and $577,930 in credit sales. The uncollectible percentage is 4.4%. On June 11, Olena Mirrors identifies one uncollectible account from Nadia White in the amount of $4,265. On September 14, Nadia Chernoff unexpectedly pays $1,732 toward her account. Record journal entries for the following.

  1. Year-end adjusting entry for 2017 bad debt
  2. June 11, 2018 identification entry
  3. Entry for payment on September 14, 2018
EB 7.

LO 9.2The following accounts receivable information pertains to Envelope Experts.

Past Due Category, Accounts Receivable Total, Uncollectible Percentage, respectively are: 0–30 days, $39,540, 10 percent; 1–90 days, 23,280, 26 percent; Over 90 days, 14,630, 42 percent.

Determine the estimated uncollectible bad debt from Envelope Experts using the balance sheet aging of receivables method, and record the year-end adjusting journal entry for bad debt.

EB 8.

LO 9.3Using the following select financial statement information from Mover Supply Depot, compute the accounts receivable turnover ratios for 2018 and 2019 (round answers to two decimal places). What do the outcomes tell a potential investor about Mover Supply Depot if the industry average is 4 times?

Year, Net Credit Sales, and Ending Accounts Receivable, respectively: 2017, $1,230,680, 321,500; 2018, 1,477,440, 345,700; 2019, 1,724,400, 326,600.
EB 9.

LO 9.3 Using the following select financial statement information from Mover Supply Depot, compute the number of days’ sales in receivables ratios for 2018 and 2019 (round answers to two decimal places). What do the outcomes tell a potential investor about Mover Supply Depot if the competition collects in approximately 65 days?

Year, Net Credit Sales, and Ending Accounts Receivable, respectively: 2017, $1,230,680, 321,500; 2018, 1,477,440, 345,700; 2019, 1,724,400, 326,600.
EB 10.

LO 9.3Starlight Enterprises has net credit sales for 2019 in the amount of $2,600,325, beginning accounts receivable balance of $844,260, and an ending accounts receivable balance of $604,930. Compute the accounts receivable turnover ratio and the number of days’ sales in receivables ratio for 2019 (round answers to two decimal places). What do the outcomes tell a potential investor about Starlight Enterprises if the industry average is 2.09 times and the number of days’ sales ratio is 175 days?

EB 11.

LO 9.4Outpost Designs uses the balance sheet aging method to account for uncollectible debt on receivables. The following is the past-due category information for outstanding receivable debt for 2019.

0–30 days past due, 31–90 days past due, and Over 90 days past due, respectively: Accounts Receivable amount $35,000, 40,000, 25,000; Percent uncollectible 10 percent, 22 percent, 35 percent; Total per category?; Total uncollectible?

To manage earnings more favorably, Outpost Designs decided to change past-due categories as follows.

0–30 days past due, 31–90 days past due, and Over 90 days past due, respectively: Accounts Receivable amount $50,000, 35,000, 15,000; Percent uncollectible 10 percent, 22 percent, 35 percent; Total per category?; Total uncollectible?

Complete the following.

  1. Complete each table by filling in the blanks.
  2. Determine the difference between total uncollectible.
  3. Explain how the new total uncollectible amount affects net income and accounts receivable.
EB 12.

LO 9.4Clovis Enterprises reports $845,500 in credit sales for 2018 and $933,000 in 2019. It has a $758,000 accounts receivable balance at the end of 2018 and $841,000 at the end of 2019. Clovis uses the income statement method to record bad debt estimation at 4% during 2018. To manage earnings more favorably, Clovis changes bad debt estimation to the balance sheet method at 5% during 2019.

  1. Determine the bad debt estimation for 2018.
  2. Determine the bad debt estimation for 2019.
  3. Describe a benefit to Clovis Enterprises in 2019 as a result of its earnings management.
EB 13.

LO 9.4Fortune Accounting reports $1,455,000 in credit sales for 2018 and $1,678,430 in 2019. It has an $825,000 accounts receivable balance at the end of 2018 and $756,000 at the end of 2019. Fortune uses the balance sheet method to record bad debt estimation at 7.5% during 2018. To manage earnings more favorably, Fortune changes bad debt estimation to the income statement method at 5.5% during 2019.

  1. Determine the bad debt estimation for 2018.
  2. Determine the bad debt estimation for 2019.
  3. Describe a benefit to Fortune in 2019 as a result of its earnings management.
EB 14.

LO 9.6Anderson Air is a customer of Handler Cleaning Operations. For Anderson Air’s latest purchase on January 1, 2018, Handler Cleaning Operations issues a note with a principal amount of $1,255,000, 6% annual interest rate, and a 24-month maturity date on December 31, 2019. Record the journal entries for Handler Cleaning Operations for the following transactions.

  1. Entry for note issuance
  2. Subsequent interest entry on December 31, 2018
  3. Honored note entry at maturity on December 31, 2019
EB 15.

LO 9.6Rain T-Shirts issued a $440,600 note on January 1, 2018 to a customer, Larry Potts, in exchange for merchandise. The merchandise had a cost to Rain T-Shirts of $220,300. The terms of the note are 24-month maturity date on December 31, 2019 at a 4.5% annual interest rate. Larry Potts does not pay on his account and dishonors the note. Record journal entries for Rain T-Shirts for the following transactions.

  1. Initial sale on January 1, 2018
  2. Dishonored note entry on January 1, 2020, assuming interest has not been recognized before note maturity
EB 16.

LO 9.6Element Surfboards issued a $210,800 note on January 1, 2018 to a customer, Leona Marland, in exchange for merchandise. Terms of the note are 9-month maturity date on October 1, 2018 at a 10.2% annual interest rate. Leona Marland does not pay on her account and dishonors the note. On December 2, 2018, Element Surfboards decides to sell the dishonored note to a collection agency for 30% of its value. Record the journal entries for Element Surfboards for the following transactions.

  1. Initial sale on January 1, 2018
  2. Dishonored note entry on October 1, 2018
  3. Receivable sale on December 2, 2018
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