Chapter: 9 (Receivables)

PE 9-2A Allowance method

Journalize the following transactions, using the allowance method of accounting for uncollectible
receivables:

Apr. 15. Received $800 from Jean Tooley and wrote off the remainder owed of $1,200 as
uncollectible.

Apr.15 Cash $800

Bad debt expense $1,200
Accounts Receivable -Jean Tooley $2,000

Aug. 7. Reinstated the account of Jean Tooley and received $1,200 cash in full payment.

Aug.7 Dr. Accounts Receivable Jean Tooley $1,200

Cr. Bad debt expense $1,200
7 Cash $1,200
Accounts Receivable-Jean Tooley $1,200
Chapter: 9 (Receivables)

PE 9-3A Percent of sales method

At the end of the current year, Accounts Receivable has a balance of $3,750,000, Allowance for
Doubtful Accounts has a credit balance of $22,750, and sales for the year total $48,400,000. Bad
debt expense is estimated at ¾ of 1% of sales.
Determine
a. the amount of the adjusted entry for uncollectible accounts.
¾ of 1% = 0.0075
Sales x bad debt %
$48,400,000*0.0075 = $363,000
(b) the adjusted balances of
Accounts Receivable $3,750,000
Allowance for Doubtful Accounts($22,750+$363,000)= $385,750
and Bad Debt Expense $363,000

and (c) the net realizable value of accounts receivable.

Acc Receivable – Adjusting balance for allowance for doubtful accounts
3,750,000- 385,750 = 3,364,250
Chapter: 9 (Receivables)

PE 9-3B Percent of sales method

At the end of the current year, Accounts Receivable has a balance of $3,460,000, Allowance for
Doubtful Accounts has a debit balance of $12,500, and sales for the year total $46,300,000. Bad
debt expense is estimated at ½ of 1% of sales.
Determine
(a) the amount of the adjusting entry for uncollectible accounts;
½ of 1% of sales = 0.005
Sales x bad debt %
$46,300,000*0.005 = $231,500
(b) the adjusted balances of
Accounts Receivable $3,460,000
Allowance for Doubtful Accounts($12,500 - $231,500) $219,000
and Bad Debt Expense $231,500

and (c) the net realizable value of accounts receivable

Acc Receivable – allowance for doubtful accounts(adjusting balance)
$3,460,000 - $219,000 = $3, 241,000
Chapter: 9 (Receivables)

EX 9-4 Entries for uncollectible receivables, using allowance method

Journalize the following transactions in the accounts of Sedona Interiors Company, a restaurant
supply company that uses the allowance method of accounting for uncollectible receivables:
May 1. Sold merchandise on account to Beijing Palace Co., $18,900. The cost of the merchandise
sold was $11,200.
May 1 Accounts Receivable-Beijing Palace Co. 18,900
sales 18,900
1 Cost of Merchandise Sold 11,200
Merchandise Inventory 11,200

Aug. 30. Received $8,000 from Beijing Palace Co. and wrote off the remainder owed on the sale of
May 1 as uncollectible.
Aug 30 Cash $8,000
Bad debt expense(18,900-8,000) $10,900
Accounts Receivable -Beijing Palace Co. $18,900

Dec. 8. Reinstated the account of Beijing Palace Co. that had been written off on August 30 and
received $10,900 cash in full payment.
Dec 8 Accounts Receivable- Beijing Palace Co. 10,900
Allowance for doubtful debt 10,900
8 Cash 10,900
Accounts Receivable- Beijing Palace Co. 10,900
Chapter: 9 (Receivables)

EX 9-17 Entries for bad debt expense under the direct write-off and allowance methods
Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of
its operations ending December 31:
Customer Amount
Shawn Brooke $ 4,650
Eve Denton 5,180
Art Malloy 11,050
Cassie Yost 9,120
Total $30,000

a. Journalize the write-offs under the direct write-off method.

Dec. 31 Bad Debt Expense $30,000
Accounts Receivable – Shawn Brooke $4,650

31 Bad Debt Expense $5,180

Accounts Receivable – Eve Denton 5,180
31 Bad Debt Expense $11,050
Accounts Receivable – Art Malloy 11,050
31 Bad Debt Expense $9,120
Accounts Receivable – Cassie Yost 9,120

b. Journalize the write-offs under the allowance method. Also, journalize the adjusting entry for
uncollectible accounts. The company recorded $5,250,000 of credit sales during the year. Based
on past history and industry averages, ¾% of credit sales are expected to be uncollectible.
Dec. 31 Allowance for Doubtful Accounts $30,000
Accounts Receivable – Shawn Brooke $4,650
Accounts Receivable – Eve Denton 5,180
Accounts Receivable – Art Malloy 11,050
Accounts Receivable – Cassie Yost 9,120
31 No entry
Bad Debt Expense $39,375
Allowance for Doubtful Accounts $39,375
Chapter: 9 (Receivables)

Uncollectible accounts estimate

(5,250,000 x ¾% = 39,375)

c. How much higher (lower) would Casebolt Company’s net income have been under the direct
write-off method than under the allowance method?
Answer: Casebolt Company’s net income will be higher under the write off method.
Direct bad debt expense $30,000
Allowance method $39,375
Higher expense the lower the net income
Lower your expense the higher the income.
Chapter: 9 (Receivables)

PE 9-4A Analysis of receivables method

At the end of the current year, Accounts Receivable has a balance of $3,750,000,
Allowance for Doubtful Accounts has a credit balance of $22,750, and sales for the year
total $48,400,000. Using the aging method, the balance of Allowance for Doubtful
Accounts is estimated as $390,000.

Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the
adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt
Expense; and (c) the net realizable value of accounts receivable.

A. Allowance for doubtful accounts

Dr. Cr. Beg $22,750

Adj entry $367,250

Ending bal. $390,000

B. Accounts receivable

Bag bal $3,750,000

Adj Entry $0.00
Ending Balance$3,750,000

Allowance for doubtful accounts

Beg. Bal $22,750

Adj. entry $367,250
Ending Bal $390,000

Bad debt expense

Beg. Bal $0
Adj entry $367,250
Ending bal. $367,250

C. NRV
Accounts receivable – allowance for doubtful accounts
$3,750,000 - $390,000 = $3, 360,000
Chapter: 9 (Receivables)

PE 9-4B Analysis of receivables method

At the end of the current year, Accounts Receivable has a balance of $3,460,000,
Allowance for Doubtful Accounts has a debit balance of $12,500, and sales for the year
total $46,300,000. Using the aging method, the balance of Allowance for Doubtful
Accounts is estimated as $245,000.

Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the
adjusted balances of Accounts Receivable, Allowance for Doubtful Accounts, and Bad Debt
Expense; and (c) the net realizable value of accounts receivable.

Beg bal $12,500 Adj Entry $257,500

Ending Bal $245,000

Accounts Receivable

Beg bal $3,460,00

Adj. Entry $ 0

Ending Bal $3,460,00

Allowance

Beg bal $12,500

Adj Entry $ 257,500

Ending Bal $245,500

Bad Debt Expense

Beg Bal $0

Adj Entry $ 257,500

Ending Bal $257,500

C. NRV

Accounts receivables – adj. allowance

$3,460,000 - $245,000 = $3, 215,000

Chapter: 9 (Receivables)

EX 9-19

Determine due date and interest on notes

Determine the due date and the amount of interest due at maturity on the following
notes:

Date of Note Face Amount Interest Rate Term of Note

a. January 10* $40,000 5% 90 days

b. March 19 18,000 8% 180 days

c. June 5 90,000 7% 30 days

d. September 8 36,000 3% 90 days

e. November 20 27,000 4% 60 day

A. January 10* $40,000 5% 90 days

issues Jan 10
January 21 days
February 21 days
March 31 days
April 10 days
Total days 90

Mature April 10
Face value *rate*time/360)
$40,000 x 5% x (90/360) = $500

B. March 19 18,000 8% 180 days

Issue March 19
March 12 days
April 30 days
May 31 days
June 30 days
July 31
August 31
September 15 days

Mature September 15

Fv * rate* time/360
$18,000 x 8% x (180/360) = $720
Chapter: 9 (Receivables)

C. June 5 90,000 7% 30 days

Issued June 5
June 25 days
July 5 days
mature July 5th.

Interest= $90,000x 7% X (30/360) = $525

D. September 8 36,000 3% 90 days

Issued September 8
September 22 days
October 31 days
November 30 days
December 7 days

Mature December 7th

face
value
$36,000 x 3% x (90/360)= $270

E. November 20 27,000 4% 60 day

Issued November 20 (60 days )

November 10 days
December 31 days
January 19 days

Mature on Jan 19th

27,000 x 4% x (60/360) = $180

Chapter: 9 (Receivables)

A. Apr 17 days
May 31 days
June 30 days
July 31 days
August 11 days

Mature august 11th

B. Interest + face value

60,000 x 4% x (120/360) = 800
60,000 + 800 = $60,800

C. Dr. Notes Receivables $60,000

Cr. Accounts Receivables $ 60, 000

Dr. Cash $60,800

Cr. Notes receivable $60,000

Cr. Interest revenue $800

Chapter: 9 (Receivables)

Nov 21 Notes Receivable $96,000

Accounts Receivable $96,000

Dec 31

Calculate interest: 96,000 x 3% X (40/369) = $320

Dr. Interest Receivable $320

Cr. Interest Revenue $320

Jan 20

Calculate interest: 96,00 x 3% x (60/360) = $480

Dr. Cash $96.480

Cr. Notes Receivable $96,000
Interest Revenue $160 (480-320)
Interest Receivables $320 (only when accrued a note)