ExErcisEs: sEt BEvaluating the Level of Accounts ReceivableE1B. During its first year of operation in 2014, Habanese Sales Corporation made most of its sales on credit. At the end of the year, accounts receivable amounted to $142,000. On December 31, 2014, management reviewed the collectible status of the accounts receivable. Approximately $8,300 of the $142,000 of accounts receivable were esti-mated to be uncollectible. What adjusting entry would be made December 31, 2014?

Percentage of Net Sales MethodE2B. At the end of the year, Dahl Enterprises estimates the uncollectible accounts expense to be 0.8 percent of net sales of $7,575,000. The current credit balance of Allowance for Uncollectible Accounts is $12,900. Prepare the entry to record the uncollectible accounts expense. What is the balance of Allowance for Uncollectible Accounts after this adjustment?

Accounts Receivable Aging MethodE3B. Dacahr Company’s Accounts Receivable account shows a debit balance of $52,000 at the end of the year. An aging analysis of the individual accounts indicates estimated uncollectible accounts to be $3,350.

Prepare the journal entry to record the uncollectible accounts expense under each of the following independent assumptions: (a) Allowance for Uncollectible Accounts has a credit balance of $400 before adjustment, and (b) Allowance for Uncollectible Accounts has a debit balance of $400 before adjustment. What is the balance of Allow-ance for Uncollectible Accounts after each of these adjustments?

Aging Method and Net Sales Method ContrastedE4B. At the beginning of 2014, the balances for Accounts Receivable and Allowance for Uncollectible Accounts were $430,000 and $31,400 (credit), respectively. During the year, credit sales were $3,200,000 and collections on account were $2,950,000. In addi-tion, $35,000 in uncollectible accounts was written off.

Using T accounts, determine the year-end balances of Accounts Receivable and Allowance for Uncollectible Accounts. Then prepare the year-end adjusting entry to record the uncollectible accounts expense under each of the following conditions. Also show the year-end balance sheet presentation of accounts receivable and allowance for uncollectible accounts.

a. Management estimates the percentage of uncollectible credit sales to be 1.4 percent of total credit sales.

b. Based on an aging of accounts receivable, management estimates the end-of-year uncollectible accounts receivable to be $38,700.

Post the results of each of the entries to the T account for Allowance for Uncollectible Accounts.

Aging Method and Net Sales Method ContrastedE5B. Accounting connEction ▶ During 2014, SABA Company had net sales of $11,400,000. Most of the sales were on credit. At the end of 2014, the balance of Accounts Receivable was $1,400,000 and Allowance for Uncollectible Accounts had a debit balance of $48,000. SABA Company’s management uses two methods of esti-mating uncollectible accounts expense: the percentage of net sales method and the accounts receivable aging method. The percentage of uncollectible sales is 1.5 percent of net sales, and based on an aging of accounts receivable, the end-of-year uncollectible accounts total $140,000.

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Chapter Assignments 1

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2 Chapter 9: Receivables

Prepare the year-end adjusting entry to record the uncollectible accounts expense under each method. What will the balance of Allowance for Uncollectible Accounts be after each adjustment? Why are the results different? Which method is likely to be more reliable? Why?

Aging Method and Net Sales Method ContrastedE6B. Accounting connEction ▶ Delft House Company sells merchandise on credit. During the fiscal year ended July 31, the company had net sales of $1,150,000. At the end of the year, it had Accounts Receivable of $300,000 and a debit balance in Allow-ance for Uncollectible Accounts of $1,700. In the past, approximately 1.4 percent of net sales have proved to be uncollectible. Also, an aging analysis of accounts receivable reveals that $15,000 of the receivables appears to be uncollectible.

Prepare journal entries to record uncollectible accounts expense using (a) the per-centage of net sales method and (b) the accounts receivable aging method. What is the resulting balance of Allowance for Uncollectible Accounts under each method? How would your answers under each method change if Allowance for Uncollectible Accounts had a credit balance of $1,700 instead of a debit balance? Why do the methods result in different balances?

Write-off of Accounts ReceivableE7B. Yangsoo Company, which uses the allowance method, began the year with Accounts Receivable of $65,000 and an allowance for uncollectible accounts of $6,400 (credit). The company sold merchandise to Tex Kinkaid for $7,200 and later received $2,400 from Kinkaid. The rest of the amount due from Kinkaid had to be written off as uncol-lectible. Using T accounts, show the beginning balances and the effects of the Kinkaid transactions on Accounts Receivable and Allowance for Uncollectible Accounts. What is the amount of net accounts receivable before and after the write-off?

Interest ComputationsE8B. Determine the interest on the following notes. (Round to the nearest cent.)a. $77,520 at 10 percent for 90 days.b. $54,400 at 12 percent for 60 days.c. $61,200 at 9 percent for 30 days.d. $102,000 at 15 percent for 120 days.e. $36,720 at 6 percent for 60 days.

Notes Receivable CalculationsE9B. Determine the maturity date, interest at maturity, and maturity value for a 90-day, 10 percent, $36,000 note from Felasco Corporation dated February 15. (Round to the nearest cent.)

Notes Receivable CalculationsE10B. Determine the maturity date, interest in 2013 and 2014, and maturity value for a 90-day, 12 percent, $30,000 note from a customer dated December 1, 2013, assuming a December 31 year end. (Round to the nearest cent.)

Notes Receivable CalculationsE11B. Determine the maturity date, interest at maturity, and maturity value for each of the following notes. (Round to the nearest cent.)a. A 60-day, 10 percent, $4,800 note dated January 5 received from P. Shah for grant-

ing a time extension on a past-due account.b. A 60-day, 12 percent, $3,000 note dated March 9 received from I. Bell for granting

a time extension on a past-due account.

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Chapter Assignments 3

Management IssuesE12B. BusinEss ApplicAtion ▶ Indicate whether each of the following actions is primarily related to (a) managing cash needs, (b) setting credit policies, (c) financing receivables, or (d) ethically reporting accounts receivable: 1. Buying a U.S. Treasury bill with cash that is not needed for a few months. 2. Comparing receivable turnovers for two years. 3. Setting a policy that allows customers to buy on credit. 4. Selling notes receivable to a financing company. 5. Making careful estimates of losses from uncollectible accounts. 6. Borrowing funds for short-term needs in a period when sales are low. 7. Changing the terms for credit sales in an effort to reduce the days’ sales uncollected. 8. Revising estimated credit losses in a timely manner when conditions change. 9. Establishing a department whose responsibility is to approve customers’ credit.

Short-Term Liquidity RatiosE13B. BusinEss ApplicAtion ▶ Using the following data from Andres Corporation’s financial statements, compute the receivables turnover and the days’ sales uncollected. (Round to one decimal place or to the nearest whole day.)

Current assets:Cash $ 35,000Short-term investments 85,000Notes receivable 120,000Accounts receivable, net 200,000Inventory 250,000Prepaid assets 25,000

Total current assets $ 715,000Current liabilities:

Notes payable $ 300,000Accounts payable 75,000Accrued liabilities 10,000

Total current liabilities $ 385,000Net sales $1,600,000Last year’s accounts receivable, net $ 180,000

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