Problem Set A
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. |
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. |
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. |
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.
- Record the year-end adjusting entry for 2018 bad debt using the income statement method.
- Record the year-end adjusting entry for 2018 bad debt using the balance sheet method.
- 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.
- 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.
LO 9.2The following accounts receivable information pertains to Luxury Cruises.
- Determine the estimated uncollectible bad debt for Luxury Cruises in 2018 using the balance sheet aging of receivables method.
- Record the year-end 2018 adjusting journal entry for bad debt.
- 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.
- 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.
- On January 24, 2019, Luxury Cruises identifies Landon Walker’s account as uncollectible in the amount of $4,650. Record the entry for identification.
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.
- Record the year-end adjusting entry for 2018 bad debt using the income statement method.
- Record the year-end adjusting entry for 2018 bad debt using the balance sheet method.
- 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.
LO 9.3Review the select information for Bean Superstore and Legumes Plus (industry competitors), and then complete the following.
- Compute the accounts receivable turnover ratios for each company for 2018 and 2019.
- Compute the number of days’ sales in receivables ratios for each company for 2018 and 2019.
- Determine which company is the better investment and why. Round answers to two decimal places.
LO 9.3The following select financial statement information from Candid Photography.
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?
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.
To manage earnings more favorably, Noren Company considers changing the past-due categories as follows.
- Complete each table by filling in the blanks.
- Determine the difference between totals uncollectible.
- 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.
- Describe the categories change effect on net income and accounts receivable.
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.
To manage earnings more favorably, Elegant Universal considers changing the past-due categories as follows.
- Complete each table by filling in the blanks.
- Determine the difference between totals uncollectible.
- Describe the categories change effect on net income and accounts receivable.
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. |
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. |
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. |
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. |
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.
There is also additional information regarding the distribution of accounts receivable by age.
Prepare the year-end adjusting entry for bad debt, using
- Income statement method
- Balance sheet method of receivables
- Balance sheet aging of receivables method.
- Which method should the company choose, and why?