Problem Set B
LO 9.1Prepare journal entries for the following transactions from Lumber Wholesale.
| Aug. 9 | Sold 48,320 pounds of lumber with a sales price of $5.50 per pound to customer Homes Unlimited. Homes Unlimited paid with cash. The cost for this sale is $1.35 per pound. |
| Aug. 10 | Sold 34,700 pounds of lumber with a sales price of $6.75 per pound to customer Barry Njegren. Njegren paid using his in-house credit account. Terms of the sale are 4/15, n/35. The cost for this sale is $1.20 per pound. |
| Aug. 11 | Sold 50,330 pounds of lumber with a sales price of $4.60 per pound to customer Goodson Houses. Goodson paid using its American credit card. The cost for this sale is $1.40 per pound. American Credit Card Company charged Lumber Wholesale a 2.5% usage fee based on the total sale per transaction. |
| Aug. 14 | American Credit Card Company made a cash payment in full to Lumber Wholesale for the transaction from August 11, less any usage fees. |
| Aug. 25 | Barry Njegren paid his account in full with a cash payment, less any discounts. |
LO 9.1Prepare journal entries for the following transactions of Maritime Memories.
| May 2 | Sold $864,920 worth of maritime products to customer Jordan Scott. Jordan paid using his in-house credit account; terms 3/15, n/60. The cost to Maritime Memories for this sale is $532,187. |
| May 6 | Sold $567,120 worth of maritime products to customer Joe Hsu. Joe paid using his Longstand credit card. The cost to Maritime Memories is $321,864. Longstand Credit Card Company charged Maritime Memories a 1.5% usage fee based on the total sale per transaction. |
| May 16 | Jordan Scott paid his account in full with a cash payment, less any discounts. |
| May 23 | Longstand Credit Card Company made a cash payment in full to Maritime Memories for the transaction from May 6, less any usage fees. |
LO 9.1Prepare journal entries for the following transactions from School Mart.
| Mar. 6 | Sold 1,000 pencil packages with a sales price of $5.72 per package to customer Sonia Norris. Sonia Norris paid with her American credit card. The American credit card charges School Mart a 4.6% usage fee based on the total sale per transaction. The cost for this sale is $1.27 per package. |
| Mar. 8 | Sold 76 dry erase boards for a total sales price of $6,535 to Henry Malta. Henry paid in full with cash. The cost of the sale is $4,308. |
| Mar. 11 | Sold 55 reams of paper with a sales price of $3.25 per ream to customer Alex Forsun. Alex Forsun paid using his Union credit card. Union charges School Mart a 2% usage fee based on the total sale per transaction. The cost for this sale is $1.99 per ream. |
| Mar. 14 | American made a cash payment in full to School Mart for the transaction from March 6, less any usage fees. |
| Mar. 21 | Union made a cash payment of 40% of the total due to School Mart for the transaction from March 11, less any usage fees. |
| Mar. 29 | Union made a cash payment of the remainder due to School Mart for the transaction from March 11, less any usage fees. |
LO 9.2Bristax Corporation recorded $1,385,660 in credit sales for the year, and $732,410 in accounts receivable. The uncollectible percentage is 3.1% for the income statement method and 4.5% 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 $20,550; 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 $17,430; 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 Select Distributors.
- Determine the estimated uncollectible bad debt for Select Distributors 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 $233,180; 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 $199,440; record the year-end entry for bad debt, taking this into consideration.
- On March 21, 2019, Select Distributors identifies Aida Norman’s account as uncollectible in the amount of $10,890. Record the entry for identification.
LO 9.2Ink Records recorded $2,333,898 in credit sales for the year and $1,466,990 in accounts receivable. The uncollectible percentage is 3% for the income statement method and 5% 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 $20,254; 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 Liquor Plaza and Beer Buddies (industry competitors) and complete the following.
- Compute the accounts receivable turnover ratios for each company for 2018 and 2019.
- Compute the number of day’s 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 Vortex Computing.
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 Vortex Computing if industry average for accounts receivable turnover ratio is 4 times and days’ sales in receivables ratio is 85 days?
LO 9.4Elegant Linens 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 Linens considers changing the past-due categories as follows.
- Complete each table by filling in the blanks.
- Determine the difference between total 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 9.4Goods for Less 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, Goods for Less 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 Noreen Turbines.
| Jan. 1, 2018 | Issued a $1,800,500 note to customer Axel Premium Metal as terms of a merchandise sale. The merchandise’s cost to Noreen is $760,430. Note contract terms included a 36-month maturity date, and a 3.8% annual interest rate. |
| Dec. 31, 2018 | Noreen Turbines records interest accumulated for 2018. |
| Dec. 31, 2019 | Noreen Turbines records interest accumulated for 2019. |
| Dec. 31, 2020 | Axel Premium Metal honors the note and pays in full with cash. |
LO 9.6Record journal entries for the following transactions of Mesa Construction.
| Jan. 1, 2018 | Issued a $1,460,200 note to customer Miramar Industries as terms of a merchandise sale. The merchandise’s cost to Mesa Construction is $812,110. Note contract terms included a 24-month maturity date, and a 3.3% annual interest rate. |
| Dec. 31, 2018 | Mesa Construction records interest accumulated for 2018. |
| Dec. 31, 2019 | Mesa Construction converts Miramar Industries’ dishonored note into account receivable. This includes accumulated interest for the 24-month period. |
| Apr. 4, 2020 | Mesa Construction sells the outstanding debt from Miramar Industries to a collection agency at 40% of the accounts receivable value. |
LO 9.6Record journal entries for the following transactions of Graphics & Signs.
| Jan. 1, 2018 | Issued a $248,400 note to customer Elliott Thompson as terms of a merchandise sale. The merchandise’s cost to Graphics & Signs is $99,500. Note contract terms included a 36-month maturity date, and a 4.3% annual interest rate. |
| Dec. 31, 2018 | Graphics & Signs records interest accumulated for 2018. |
| Dec. 31, 2019 | Graphics & Signs records interest accumulated for 2019. |
| Dec. 31, 2020 | Elliott Thompson honors the note and pays in full with cash. |
LO 9.6Record journal entries for the following transactions of Trout Masters.
| Jan. 1, 2018 | Issued a $390,820 note to customer Fishing Warehouse as terms of a merchandise sale. The merchandise’s cost to Trout Masters is $155,770. Note contract terms included a 24-month maturity date, and a 3% annual interest rate. |
| Dec. 31, 2018 | Trout Masters records interest accumulated for 2018. |
| Dec. 31, 2019 | Trout Masters converts Fishing Warehouse’s dishonored note into account receivable. This includes accumulated interest for the 24-month period. |
| May 6, 2020 | Trout Masters sells the outstanding debt from Fishing Warehouse to a collection agency at 40% of the accounts receivable value. |
LO 9.7Shimmer Products 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 5.6% of credit sales. If it were to use the balance sheet method, it would estimate bad debt at 13.7% percent 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 5%, 31–90 days past due at 21%, and over 90 days past due at 30%. 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?