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  1. Preface
  2. 1 Role of Accounting in Society
    1. Why It Matters
    2. 1.1 Explain the Importance of Accounting and Distinguish between Financial and Managerial Accounting
    3. 1.2 Identify Users of Accounting Information and How They Apply Information
    4. 1.3 Describe Typical Accounting Activities and the Role Accountants Play in Identifying, Recording, and Reporting Financial Activities
    5. 1.4 Explain Why Accounting Is Important to Business Stakeholders
    6. 1.5 Describe the Varied Career Paths Open to Individuals with an Accounting Education
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
  3. 2 Introduction to Financial Statements
    1. Why It Matters
    2. 2.1 Describe the Income Statement, Statement of Owner’s Equity, Balance Sheet, and Statement of Cash Flows, and How They Interrelate
    3. 2.2 Define, Explain, and Provide Examples of Current and Noncurrent Assets, Current and Noncurrent Liabilities, Equity, Revenues, and Expenses
    4. 2.3 Prepare an Income Statement, Statement of Owner’s Equity, and Balance Sheet
    5. Key Terms
    6. Summary
    7. Multiple Choice
    8. Questions
    9. Exercise Set A
    10. Exercise Set B
    11. Problem Set A
    12. Problem Set B
    13. Thought Provokers
  4. 3 Analyzing and Recording Transactions
    1. Why It Matters
    2. 3.1 Describe Principles, Assumptions, and Concepts of Accounting and Their Relationship to Financial Statements
    3. 3.2 Define and Describe the Expanded Accounting Equation and Its Relationship to Analyzing Transactions
    4. 3.3 Define and Describe the Initial Steps in the Accounting Cycle
    5. 3.4 Analyze Business Transactions Using the Accounting Equation and Show the Impact of Business Transactions on Financial Statements
    6. 3.5 Use Journal Entries to Record Transactions and Post to T-Accounts
    7. 3.6 Prepare a Trial Balance
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  5. 4 The Adjustment Process
    1. Why It Matters
    2. 4.1 Explain the Concepts and Guidelines Affecting Adjusting Entries
    3. 4.2 Discuss the Adjustment Process and Illustrate Common Types of Adjusting Entries
    4. 4.3 Record and Post the Common Types of Adjusting Entries
    5. 4.4 Use the Ledger Balances to Prepare an Adjusted Trial Balance
    6. 4.5 Prepare Financial Statements Using the Adjusted Trial Balance
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  6. 5 Completing the Accounting Cycle
    1. Why It Matters
    2. 5.1 Describe and Prepare Closing Entries for a Business
    3. 5.2 Prepare a Post-Closing Trial Balance
    4. 5.3 Apply the Results from the Adjusted Trial Balance to Compute Current Ratio and Working Capital Balance, and Explain How These Measures Represent Liquidity
    5. 5.4 Appendix: Complete a Comprehensive Accounting Cycle for a Business
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  7. 6 Merchandising Transactions
    1. Why It Matters
    2. 6.1 Compare and Contrast Merchandising versus Service Activities and Transactions
    3. 6.2 Compare and Contrast Perpetual versus Periodic Inventory Systems
    4. 6.3 Analyze and Record Transactions for Merchandise Purchases Using the Perpetual Inventory System
    5. 6.4 Analyze and Record Transactions for the Sale of Merchandise Using the Perpetual Inventory System
    6. 6.5 Discuss and Record Transactions Applying the Two Commonly Used Freight-In Methods
    7. 6.6 Describe and Prepare Multi-Step and Simple Income Statements for Merchandising Companies
    8. 6.7 Appendix: Analyze and Record Transactions for Merchandise Purchases and Sales Using the Periodic Inventory System
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  8. 7 Accounting Information Systems
    1. Why It Matters
    2. 7.1 Define and Describe the Components of an Accounting Information System
    3. 7.2 Describe and Explain the Purpose of Special Journals and Their Importance to Stakeholders
    4. 7.3 Analyze and Journalize Transactions Using Special Journals
    5. 7.4 Prepare a Subsidiary Ledger
    6. 7.5 Describe Career Paths Open to Individuals with a Joint Education in Accounting and Information Systems
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  9. 8 Fraud, Internal Controls, and Cash
    1. Why It Matters
    2. 8.1 Analyze Fraud in the Accounting Workplace
    3. 8.2 Define and Explain Internal Controls and Their Purpose within an Organization
    4. 8.3 Describe Internal Controls within an Organization
    5. 8.4 Define the Purpose and Use of a Petty Cash Fund, and Prepare Petty Cash Journal Entries
    6. 8.5 Discuss Management Responsibilities for Maintaining Internal Controls within an Organization
    7. 8.6 Define the Purpose of a Bank Reconciliation, and Prepare a Bank Reconciliation and Its Associated Journal Entries
    8. 8.7 Describe Fraud in Financial Statements and Sarbanes-Oxley Act Requirements
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  10. 9 Accounting for Receivables
    1. Why It Matters
    2. 9.1 Explain the Revenue Recognition Principle and How It Relates to Current and Future Sales and Purchase Transactions
    3. 9.2 Account for Uncollectible Accounts Using the Balance Sheet and Income Statement Approaches
    4. 9.3 Determine the Efficiency of Receivables Management Using Financial Ratios
    5. 9.4 Discuss the Role of Accounting for Receivables in Earnings Management
    6. 9.5 Apply Revenue Recognition Principles to Long-Term Projects
    7. 9.6 Explain How Notes Receivable and Accounts Receivable Differ
    8. 9.7 Appendix: Comprehensive Example of Bad Debt Estimation
    9. Key Terms
    10. Summary
    11. Multiple Choice
    12. Questions
    13. Exercise Set A
    14. Exercise Set B
    15. Problem Set A
    16. Problem Set B
    17. Thought Provokers
  11. 10 Inventory
    1. Why It Matters
    2. 10.1 Describe and Demonstrate the Basic Inventory Valuation Methods and Their Cost Flow Assumptions
    3. 10.2 Calculate the Cost of Goods Sold and Ending Inventory Using the Periodic Method
    4. 10.3 Calculate the Cost of Goods Sold and Ending Inventory Using the Perpetual Method
    5. 10.4 Explain and Demonstrate the Impact of Inventory Valuation Errors on the Income Statement and Balance Sheet
    6. 10.5 Examine the Efficiency of Inventory Management Using Financial Ratios
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  12. 11 Long-Term Assets
    1. Why It Matters
    2. 11.1 Distinguish between Tangible and Intangible Assets
    3. 11.2 Analyze and Classify Capitalized Costs versus Expenses
    4. 11.3 Explain and Apply Depreciation Methods to Allocate Capitalized Costs
    5. 11.4 Describe Accounting for Intangible Assets and Record Related Transactions
    6. 11.5 Describe Some Special Issues in Accounting for Long-Term Assets
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  13. 12 Current Liabilities
    1. Why It Matters
    2. 12.1 Identify and Describe Current Liabilities
    3. 12.2 Analyze, Journalize, and Report Current Liabilities
    4. 12.3 Define and Apply Accounting Treatment for Contingent Liabilities
    5. 12.4 Prepare Journal Entries to Record Short-Term Notes Payable
    6. 12.5 Record Transactions Incurred in Preparing Payroll
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  14. 13 Long-Term Liabilities
    1. Why It Matters
    2. 13.1 Explain the Pricing of Long-Term Liabilities
    3. 13.2 Compute Amortization of Long-Term Liabilities Using the Effective-Interest Method
    4. 13.3 Prepare Journal Entries to Reflect the Life Cycle of Bonds
    5. 13.4 Appendix: Special Topics Related to Long-Term Liabilities
    6. Key Terms
    7. Summary
    8. Multiple Choice
    9. Questions
    10. Exercise Set A
    11. Exercise Set B
    12. Problem Set A
    13. Problem Set B
    14. Thought Provokers
  15. 14 Corporation Accounting
    1. Why It Matters
    2. 14.1 Explain the Process of Securing Equity Financing through the Issuance of Stock
    3. 14.2 Analyze and Record Transactions for the Issuance and Repurchase of Stock
    4. 14.3 Record Transactions and the Effects on Financial Statements for Cash Dividends, Property Dividends, Stock Dividends, and Stock Splits
    5. 14.4 Compare and Contrast Owners’ Equity versus Retained Earnings
    6. 14.5 Discuss the Applicability of Earnings per Share as a Method to Measure Performance
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  16. 15 Partnership Accounting
    1. Why It Matters
    2. 15.1 Describe the Advantages and Disadvantages of Organizing as a Partnership
    3. 15.2 Describe How a Partnership Is Created, Including the Associated Journal Entries
    4. 15.3 Compute and Allocate Partners’ Share of Income and Loss
    5. 15.4 Prepare Journal Entries to Record the Admission and Withdrawal of a Partner
    6. 15.5 Discuss and Record Entries for the Dissolution of a Partnership
    7. Key Terms
    8. Summary
    9. Multiple Choice
    10. Questions
    11. Exercise Set A
    12. Exercise Set B
    13. Problem Set A
    14. Problem Set B
    15. Thought Provokers
  17. 16 Statement of Cash Flows
    1. Why It Matters
    2. 16.1 Explain the Purpose of the Statement of Cash Flows
    3. 16.2 Differentiate between Operating, Investing, and Financing Activities
    4. 16.3 Prepare the Statement of Cash Flows Using the Indirect Method
    5. 16.4 Prepare the Completed Statement of Cash Flows Using the Indirect Method
    6. 16.5 Use Information from the Statement of Cash Flows to Prepare Ratios to Assess Liquidity and Solvency
    7. 16.6 Appendix: Prepare a Completed Statement of Cash Flows Using the Direct Method
    8. Key Terms
    9. Summary
    10. Multiple Choice
    11. Questions
    12. Exercise Set A
    13. Exercise Set B
    14. Problem Set A
    15. Problem Set B
    16. Thought Provokers
  18. Financial Statement Analysis
  19. Time Value of Money
  20. Suggested Resources
  21. Answer Key
    1. Chapter 1
    2. Chapter 2
    3. Chapter 3
    4. Chapter 4
    5. Chapter 5
    6. Chapter 6
    7. Chapter 7
    8. Chapter 8
    9. Chapter 9
    10. Chapter 10
    11. Chapter 11
    12. Chapter 12
    13. Chapter 13
    14. Chapter 14
    15. Chapter 15
    16. Chapter 16
  22. Index
PA1.

LO 9.1Prepare journal entries for the following transactions from Barrels Warehouse.

Jul. 1 Sold 2,000 barrels with a sales price of $30 per barrel to customer Luck’s Vineyards. Luck’s Vineyards paid with cash. The cost for this sale is $18 per barrel.
Jul. 3 Sold 1,200 barrels with a sales price of $32 per barrel to customer Paramount Apparel. Paramount paid using its in-house credit account. Terms of the sale are 3/10, n/30. The cost for this sale is $17 per barrel.
Jul. 5 Sold 1,400 barrels with a sales price of $31 per barrel to customer Melody Sharehouse. Melody paid using her MoneyPlus credit card. The cost for this sale is $18 per barrel. MoneyPlus Credit Card Company charges Barrels Warehouse a 2% usage fee based on the total sale per transaction.
Jul. 8 MoneyPlus Credit Card Company made a cash payment in full to Barrels Warehouse for the transaction from July 5, less any usage fees.
Jul. 13 Paramount Apparel paid its account in full with a cash payment, less any discounts.
PA2.

LO 9.1Prepare journal entries for the following transactions of Dulce Delights.

Apr. 10 Sold 320 ice cream buckets with a sales price of $12 per bucket to customer Livia Diaz. Livia paid using her in-house credit account; terms 2/10, n/30. The cost for this sale to Dulce Delights is $4.50 per bucket.
Apr. 13 Sold 290 ice cream buckets with a sales price of $12.50 per bucket to customer Selene Arnold. Selene paid using her Max credit card. The cost for this sale to Dulce Delights is $4.50 per bucket. Max Credit Card Company charges Dulce Delights a 5% usage fee based on the total sale per transaction.
Apr. 20 Livia Diaz paid her account in full with a cash payment, less any discounts.
Apr. 25 Max Credit Card Company made a cash payment in full to Dulce Delights for the transaction from April 13, less any usage fees.
PA3.

LO 9.1Prepare journal entries for the following transactions from Forest Furniture.

Oct. 3 Sold 2 couches with a sales price of $2,450 per couch to customer Norman Guzman. Norman Guzman paid with his Draw Plus credit card. The Draw Plus credit card charges Forest Furniture a 3.5% usage fee based on the total sale per transaction. The cost for this sale is $1,700 per couch.
Oct. 6 Sold 4 end chairs for a total sales price of $1,250 to April Orozco. April paid in full with cash. The cost of the sale is $800.
Oct. 9 Sold 18 can lights with a sales price of $50 per light to customer James Montgomery. James Montgomery paid using his Fund Max credit card. Fund Max charges Forest Furniture a 2.4% usage fee based on the total sale per transaction. The cost for this sale is $29 per light.
Oct. 12 Draw Plus made a cash payment in full to Forest Furniture for the transaction from Oct 3, less any usage fees.
Oct. 15 Fund Max made a cash payment of 25% of the total due to Forest Furniture for the transaction from October 9th, less any usage fees.
Oct. 25 Fund Max made a cash payment of the remainder due to Forest Furniture for the transaction from October 9, less any usage fees.
PA4.

LO 9.2Jars Plus recorded $861,430 in credit sales for the year and $488,000 in accounts receivable. The uncollectible percentage is 2.3% for the income statement method, and 3.6% for the balance sheet method.

  1. Record the year-end adjusting entry for 2018 bad debt using the income statement method.
  2. Record the year-end adjusting entry for 2018 bad debt using the balance sheet method.
  3. Assume there was a previous debit balance in Allowance for Doubtful Accounts of $10,220, record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method.
  4. Assume there was a previous credit balance in Allowance for Doubtful Accounts of $5,470, record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method.
PA5.

LO 9.2The following accounts receivable information pertains to Luxury Cruises.

Past Due Category, Accounts Receivable Total, Uncollectible Percentage, respectively are: 0–30 days, $1,166,350, 15 percent; 31–90 days, 577,870, 33 percent; Over 90 days, 324,450, 48 percent.
  1. Determine the estimated uncollectible bad debt for Luxury Cruises in 2018 using the balance sheet aging of receivables method.
  2. Record the year-end 2018 adjusting journal entry for bad debt.
  3. Assume there was a previous debit balance in Allowance for Doubtful Accounts of $187,450; record the year-end entry for bad debt, taking this into consideration.
  4. Assume there was a previous credit balance in Allowance for Doubtful Accounts of $206,770; record the year-end entry for bad debt, taking this into consideration.
  5. On January 24, 2019, Luxury Cruises identifies Landon Walker’s account as uncollectible in the amount of $4,650. Record the entry for identification.
PA6.

LO 9.2Funnel Direct recorded $1,345,780 in credit sales for the year and $695,455 in accounts receivable. The uncollectible percentage is 4.4% for the income statement method and 4% for the balance sheet method.

  1. Record the year-end adjusting entry for 2018 bad debt using the income statement method.
  2. Record the year-end adjusting entry for 2018 bad debt using the balance sheet method.
  3. Assume there was a previous credit balance in Allowance for Doubtful Accounts of $13,888; record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method.
PA7.

LO 9.3Review the select information for Bean Superstore and Legumes Plus (industry competitors), and then complete the following.

  1. Compute the accounts receivable turnover ratios for each company for 2018 and 2019.
  2. Compute the number of days’ sales in receivables ratios for each company for 2018 and 2019.
  3. Determine which company is the better investment and why. Round answers to two decimal places.
Bean Superstore 2019, 2018, 2017 and Legumes Plus 2019, 2018, and 2017, respectively: Assets: Cash $345,600, 330,460, 300,000 – 407,000, 386,450, 356,367; Accounts Receivable, 67,000, 62,000, 59,000 – 85,430, 82,670, 70,230; Inventory, 145,830, 178,011, 155,205 – 128,080, 40,036, 52,142; Equipment 100,465, 101,202, 103,085 – 182,006, 23,400, 111,701; Total Assets 658,895, 671,673, 617,290 – 802,516, 532,556, 599,440; Liabilities: Salaries Payable 90,200, 88,563, 84,209 – 95,100, 91,455, 89,467; Accounts Payable 70,000, 71,670, 69,331 – 62,430, 86,331, 87,197; Notes Payable 41,000, 50,650, 58,250 – 63,222, 67,880, 68,312; Equity: Common Stock 22,695, 20,990, 19,100 – 25,464, 22,090, 22,188; Retained Earnings 435,000, 439,800, 386,400 – 556,300, 264,800, 332,276; Total Liabilities and Equity 658,895, 671,673, 617,290 – 802,516, 532,556, 599,440. Bean Superstore 2019, 2018, 2017 and Legumes Plus 2019, 2018, and 2017, respectively: Assets: Cash $345,600, 330,460, 300,000 – 407,000, 386,450, 356,367; Accounts Receivable, 67,000, 62,000, 59,000 – 85,430, 82,670, 70,230; Inventory, 145,830, 178,011, 155,205 – 128,080, 40,036, 52,142; Equipment 100,465, 101,202, 103,085 – 182,006, 23,400, 111,701; Total Assets 658,895, 671,673, 617,290 – 802,516, 532,556, 599,440; Liabilities: Salaries Payable 90,200, 88,563, 84,209 – 95,100, 91,455, 89,467; Accounts Payable 70,000, 71,670, 69,331 – 62,430, 86,331, 87,197; Notes Payable 41,000, 50,650, 58,250 – 63,222, 67,880, 68,312; Equity: Common Stock 22,695, 20,990, 19,100 – 25,464, 22,090, 22,188; Retained Earnings 435,000, 439,800, 386,400 – 556,300, 264,800, 332,276; Total Liabilities and Equity 658,895, 671,673, 617,290 – 802,516, 532,556, 599,440.
PA8.

LO 9.3The following select financial statement information from Candid Photography.

Year, Net Credit Sales, and Ending Accounts Receivable, respectively: 2017, $2,988,000, 1,290,450; 2018, 3,750,860, 1,345,600; 2019, 4,000,350, 1,546,550.

Compute the accounts receivable turnover ratios and 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 Candid Photography if industry average for accounts receivable turnover ratio is 3 times and days’ sales in receivables ratio is 150 days?

PA9.

LO 9.4Noren Company 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 $120,000, 80,000, 65,500; Percent uncollectible 7 percent, 20 percent, 40 percent; Total per category?; Total uncollectible?

To manage earnings more favorably, Noren Company considers changing the 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 $160,000, 50,500, 55,000; Percent uncollectible 7 percent, 20 percent, 40 percent; Total per category?; Total uncollectible?
  1. Complete each table by filling in the blanks.
  2. Determine the difference between totals uncollectible.
  3. Complete the following 2019 comparative income statements for 2019, showing net income changes as a result of the changes to the balance sheet aging method categories.
  4. Describe the categories change effect on net income and accounts receivable.
Original Categories and Categories Change, respectively: Net Credit Sales 1,240,000, 1,240,000; Cost of Goods Sold 60,000, 60,000; Gross Margin 1,180,000, 1,180,000; Expenses: General and Admin Expense 300,500, 300,500; Bad Debt Expense ?, ?; Total Expenses ?, ?; Net Income (Loss) ?, ?
PA10.

LO 9.4Elegant Universal 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 $1,330,000, 321,000, 200,650; Percent uncollectible 8 percent, 24 percent, 35 percent; Total per category ?, ?, ?; Total uncollectible?

To manage earnings more favorably, Elegant Universal considers changing the 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 $1,532,000, 289,550, 30,100; Percent uncollectible 8 percent, 24 percent, 35 percent; Total per category ?, ?, ?; Total uncollectible?
  1. Complete each table by filling in the blanks.
  2. Determine the difference between totals uncollectible.
  3. Describe the categories change effect on net income and accounts receivable.
PA11.

LO 9.6Record journal entries for the following transactions of Telesco Enterprises.

Jan. 1, 2018 Issued a $330,700 note to customer Abe Willis as terms of a merchandise sale. The merchandise’s cost to Telesco is $120,900. Note contract terms included a 36-month maturity date, and a 4% annual interest rate.
Dec. 31, 2018 Telesco records interest accumulated for 2018.
Dec. 31, 2019 Telesco records interest accumulated for 2019.
Dec. 31, 2020 Abe Willis honors the note and pays in full with cash.
PA12.

LO 9.6Record journal entries for the following transactions of Wind Solutions.

Jan. 1, 2018 Issued a $2,350,100 note to customer Solar Plex as terms of a merchandise sale. The merchandise’s cost to Wind Solutions is $1,002,650. Note contract terms included a 24-month maturity date, and a 2.1% annual interest rate.
Dec. 31, 2018 Wind Solutions records interest accumulated for 2018.
Dec. 31, 2019 Wind Solutions converts Solar Plex’s dishonored note into account receivable. This includes accumulated interest for the 24-month period.
Mar. 8, 2020 Wind Solutions sells the outstanding debt from Solar Plex to a collection agency at 25% of the accounts receivable value.
PA13.

LO 9.6Record journal entries for the following transactions of Commissary Productions.

Jan. 1, 2018 Issued a $425,530 note to customer June Solkowski as terms of a merchandise sale. The merchandise’s cost to Commissary is $231,700. Note contract terms included a 36-month maturity date, and a 5% annual interest rate.
Dec. 31, 2018 Commissary records interest accumulated for 2018.
Dec. 31, 2019 Commissary records interest accumulated for 2019.
Dec. 31, 2020 June Stevens honors the note and pays in full with cash.
PA14.

LO 9.6Record journal entries for the following transactions of Piano Wholesalers.

Jan. 1, 2018 Issued a $1,235,650 note to customer Arrowstar as terms of a merchandise sale. The merchandise’s cost to Piano Wholesalers is $602,000. Note contract terms included a 24-month maturity date and a 3.4% annual interest rate.
Dec. 31, 2018 Piano Wholesalers records interest accumulated for 2018.
Dec. 31, 2019 Piano Wholesalers converts Arrowstar’s dishonored note into account receivable. This includes accumulated interest for the 24-month period.
Apr. 12, 2020 Piano Wholesalers sells the outstanding debt from Arrowstar to a collection agency at 32% of the accounts receivable value.
PA15.

LO 9.7Organics Plus is considering which bad debt estimation method works best for its company. It is deciding between the income statement method, balance sheet method of receivables, and balance sheet aging of receivables method. If it uses the income statement method, bad debt would be estimated at 4% of credit sales. If it were to use the balance sheet method, it would estimate bad debt at 12% of accounts receivable. If it were to use the balance sheet aging of receivables method, it would split its receivables into three categories: 0–30 days past due at 6%, 31–90 days past due at 19%, and over 90 days past due at 26%. There is currently a zero balance, transferred from the prior year’s Allowance for Doubtful Accounts. The following information is available from the year-end income statement and balance sheet.

2018 Year-End Totals for Organics Plus. Credit Sales $1,850,000, Accounts Receivable 600,000.

There is also additional information regarding the distribution of accounts receivable by age.

Past Due Category and Accounts Receivable Total, respectively: 0–30 days $350,000; 31–90 days 100,000; Over 90 days 150,000.

Prepare the year-end adjusting entry for bad debt, using

  1. Income statement method
  2. Balance sheet method of receivables
  3. Balance sheet aging of receivables method.
  4. Which method should the company choose, and why?
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