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# Journal entries - Receivables

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1:
A company is preparing its year end adjusting entries and, before adjustments, shows the following account balances as of the beginning of the year:

Account Debit Credit
Accounts Receivable 1,420,000
Allowance for Doubtful Accounts 79,000

During the year, sales revenue totaled \$9,000,000.

An aging of accounts receivable at the end of the year is as follows:

Days Outstanding Amount
0 - 30 940,000
31 - 60 350,000
61 - 90 160,000
91 - 120 72,000
121 - 180 34,000
Over 180 12,500

The company estimates the probability of collecting accounts receivable as follows:

Days Outstanding Probability of Collection
0 - 30 99%
31 - 60 95%
61 - 90 90%
91 - 120 80%
121 - 180 50%
Over 180 20%

Independently, the company has estimated that approximately 1% of sales will be uncollectable.

During the year, the following items occurred relative to accounts receivables:

April 17: The accounts receivable from the Tim Miller Construction Company was determined to be uncollectable due to the company filing for bankruptcy. The balance in accounts receivable was \$34,500 at the time.

May 9: The Company received notice that the Grandfather Clock Company was ceasing operations due to insolvency. Included with the notice was a check in the amount of \$7,000 with the endorsement "To satisfy account in full". The outstanding A/R balance was \$13,500. The Company decided to accept the check in full payment.

June 20: It was determined that the Wiz-Bang Fireworks Company was out of business when it's factory exploded and the Company had not been able to reach any of Wiz-Bang's employees for over 6 months. Wiz-Bang owed the Company \$67,500 and it was determined that there was little possibility of collecting any of the amount due.

September 30: A check was received from a law firm representing the few surviving shareholders of Wiz-Bang. The check was in the amount of \$15,000 and was tendered in full satisfaction of Wiz-Bang's obligations to the Company. The Company accepted the offer.

Instructions:

1) Assuming that the Company uses the percentage of sales method:

a) Prepare the journal entries the Company would have recorded during the year for the four items above
b) Prepare the journal entry to record bad debt expense for the year
c) Compute the net realizable value of accounts receivable at the end of the year, after adjustments

2) Assuming that the Company uses the aging of receivables method:

a) Prepare the journal entries the Company would have recorded during the year for the four items above
b) Prepare the journal entry to record bad debt expense for the year
c) Compute the net realizable value of accounts receivable at the end of the year, after adjustments

_______________________________________________________________________

2:
A company sold supplies on October 1. The total amount of the sale was \$25,000 and the invoice for the purchase was issued on October 2. The terms of the sale were 2/10, n/30 and the goods were sold f.o.b. shipping point. Shipping costs were \$100 and were billed directly to the buyer. The goods were shipped on October 2nd, and the customer received the goods on October 6. The customer records purchases net of discounts.
Instructions:

Record the journal entries for the seller to properly reflect the all of the above events under each of the following assumptions:

1) The seller records sales and receivables at the gross sales price, and
a) The seller received the proper payment in full on October 10.
b) The seller received the proper payment in full on November 5.

2) The seller records sales and receivables at the net of cash discounts, and
a) The seller received the proper payment in full on October 10.
b) The seller received the proper payment in full on November 5.

#### Solution Preview

1: A company is preparing its year end adjusting entries and, before adjustments, shows the following account balances as of the beginning of the year:

Account Debit Credit
Accounts Receivable 1,420,000
Allowance for Doubtful Accounts 79,000

During the year, sales revenue totaled \$9,000,000.

An aging of accounts receivable at the end of the year is as follows:

Days Outstanding Amount
0 - 30 940,000
31 - 60 350,000
61 - 90 160,000
91 - 120 72,000
121 - 180 34,000
Over 180 12,500

The company estimates the probability of collecting accounts receivable as follows:

Days Outstanding Probability of Collection
0 - 30 99%
31 - 60 95%
61 - 90 90%
91 - 120 80%
121 - 180 50%
Over 180 20%

Independently, the company has estimated that approximately 1% of sales will be uncollectible.

During the year, the following items occurred relative to accounts receivables:

April 17: The accounts receivable from the Tim Miller Construction Company was determined to be uncollectible due to the company filing for bankruptcy. The balance in accounts receivable was \$34,500 at the time.

May 9: The Company received notice that the Grandfather Clock Company was ceasing operations due to insolvency. Included with the notice was a check in the amount of \$7,000 with the endorsement "To satisfy account in full". The outstanding A/R balance was \$13,500. The Company decided to accept the check in full payment.

June 20: It was determined that the Wiz-Bang Fireworks Company was out of business when it's factory exploded and the Company had not been able to reach any of Wiz-Bang's employees for over 6 months. Wiz-Bang owed the Company \$67,500 and it was determined that there was little possibility of collecting any of the amount due.

September 30: A check was received from a law firm representing the few surviving shareholders of Wiz-Bang. The check was in the amount of \$15,000 and was tendered in ...

#### Solution Summary

The solution explains the journal entries relating to receivables.

\$2.19

## Notes Receivable - Preparing a Journal Entry

PART IV ? NOTES RECEIVABLE
Instructions: Prepare journal entries to record the following events:

July 1 Stone Company received an 8%, 4-month \$9,000 note dated July 1 from a customer on account.

Nov. 1 The note is honored and no interest has been accrued.

Nov. 1 Assume instead that the note is dishonored by its maker and there is hope of future collection.

Nov. 1 Assume instead that the note is dishonored and there is no hope of future collection.

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