ACCOUNTS WORK

27 Jun ACCOUNTS WORK

ne Lee is the owner of a small consulting firm called Lee Solutions. She uses the direct

method to account for uncollectible receivables. On April 14, 2010, Lee Solution’s accounts receivable account balance was $10,000. A week later, it was discovered that Mr. Joe Black, who owed the firm $1,500, will not be able to make the payment.

Required:

a) Prepare a journal entry to account for the amount deemed uncollectible.

Date	Account Title and Explanation	Debit	Credit

b) On May 26, 2010, Mr. Joe Black was able to repay 50% of the amount he owed, which had been previously written-off. Prepare the journal entries required to record this transaction.

Date	Account Title and Explanation	Debit	Credit

On December 31, 2011, Mann Company’s accounts receivable ledger showed an ending balance of $40,000. The company realized that $2,000 of accounts receivable was deemed uncollectible. Prepare a journal entry to demonstrate the treatment of $2,000 uncollectible amount using (a) direct method and (b) allowance method.

a) Direct Method

Date	Account Title and Explanation	Debit	Credit

b) Allowance Method

Date	Account Title and Explanation	Debit	Credit

WK-4-3

B&B Inc. uses the allowance method to account for uncollectible receivables. During 2012,

the company made total credit sales of $1,250,000, of which $300,000 was currently owed by customers. According to the company’s historical sales, 1.5% of the amount will be uncollected. B&B Inc. uses an income statement approach to estimate the amount of uncollectible receivables.

Required: Prepare the journal entry to account for the amount deemed uncollectible.

Date Account Title and Explanation Debit Credit

W K – 4 – 2

Fishy Inc. uses the balance sheet approach to estimate uncollectible receivables. Use the following table to determine the amount of bad debt expense, and prepare the journal entry to record the bad debt expense. The allowance account currently has a zero balance.

Aging Category	Bad Debt %	Balance
30 days	2%	$25,000
31 – 60 days	3%	10,000
Over 60 days	4%	2,000
Total		$37,000

Aging Category	Bad Debt %	Balance	Estimated Bad Debts
30 days	2%	$25,000
31 – 60 days	3%	10,000
Over 60 days	4%	2,000
Total		$37,000

Date	Account Title and Explanation	Debit	Credit

W K – 4 – 6

Wechsler Company has net accounts receivable opening balance of $250,000 and ending balance of $300,000. The total sales amount for the year is $1,700,000, of which 80% are on credit. Normal credit terms are 30 days. Calculate the day sales outstanding and the accounts receivable turnover. Comment on the calculated ratios.

Day Sales Outstanding = (Average Net Accounts Receivable ÷ Net Credit Sales) × 365

Accounts Receivable Turnover (ART) = Net Credit Sales ÷ Average Net Accounts Receivable

Comments:

Lakisha Ogata operates a proprietorship selling machinery. Because of the high value of the machinery sold, Lakisha often requires customers to sign a note. Lakisha originally sold a Gadget machine to Neil Marcin for $10,000 on November 14. The sale was initially recorded as an account receivable, but now Lakisha decides to ask Neil to sign a note. On December 1, Neil signs a one-year note to be paid in quarterly installments, plus 5% interest on the balance outstanding. Lakisha’s company has a year end of April 30.

Required:

Prepare an amortization schedule showing the interest and payments due on the note. Use the following format:

Date	Opening Balance	Interest	Total	Payment	Closing Balance
Dec 1
Mar 1
Jun 1
Sep 1
Dec 1

Note: The answers have been rounded to the nearest whole number.

Prepare the journal entries to reflect the transactions related to the receivable and note.

Date	Account Title and Explanation	Debit	Credit