Ch8 AR Test 9902

Ch8 AR
Ex. 228
The December 31, 2010 balance sheet of Sauder Company had Accounts
Receivable of 500,000 and a credit balance in Allowance for Doubtful Accounts of
33,000. During 2011, the following transactions occurred: sales on account
1,200,000; sales returns and allowances, 50,000; collections from customers,
1,165,000; accounts written off 35,000; previously written off accounts of 5,000
were collected.
Instructions
(a) Journalize the 2011 transactions.
(b) If the company uses the percentage-of-sales basis to estimate bad debts
expense and anticipates 2% of net sales to be uncollectible, what is the
adjusting entry at December 31, 2011?
(c) If the company uses the percentage-of-receivables basis to estimate bad debts
expense and determines that uncollectible accounts are expected to be 4% of
accounts receivable, what is the adjusting entry at December 31, 2011?
(d) Which basis would produce a higher net income for 2011 and by how much?
Ans: N/A, SO: 3, Bloom: AN, Difficulty: Medium, Min: 20, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN:
Measurement, AICPA PC: Problem Solving, IMA: FSA
Solution 228 (2030 min.)

(a) Accounts Receivable..................................................................... 1,200,000
Sales....................................................................................
1,200,000
(To record credit sales)
Sales Returns and Allowances......................................................
50,000
Accounts Receivable...........................................................
50,000
(To record credits to customers)
Cash ............................................................................................ 1,165,000
1,165,000
(To record collection of receivables)
Allowance for Doubtful Accounts...................................................
35,000
35,000
(To write off specific accounts)
Accounts Receivable.....................................................................
5,000
Allowance for Doubtful Accounts.........................................

5,000
(To reverse write-off of account)
Cash ............................................................................................
5,000
(To record collection of account)
5,000
Solution 228 (cont.)

(b) Percentage-of-sales basis:
Sales ............................................................................................
$1,200,000
Less: Sales Returns and Allowances............................................
50,000
Net Sales.............................................................................
1,150,000
Bad debt percentage......................................................................
.02
Bad debt provision.........................................................................
23,000
Dec. 31 Bad Debts Expense ........................................................
23,000
Allowance for Doubtful Accounts ........................................

23,000
(c) Percentage-of-receivables basis:
ALLOWANCE FOR DOUBTFUL
ACCOUNTS RECEIVABLE
ACCOUNTS
500,000
50,000
1,200,000
1,165,000
5,000
35,000
35,000
33,000
5,000
Bal.
3,000
5,000
Bal.
450,000
Required balance ($450,000 .04)..............................................................

$18,000
Balance before adjustment...........................................................................
3,000
Adjustment required.....................................................................................
$15,000
Dec. 31
Bad Debts Expense.......................................................

Allowance for Doubtful Accounts...........................
15,000
15,000
(d) Percentage of sales basis............................................................................

$23,000
Percentage of receivables basis...................................................................
15,000
Net income higher with percentage of receivables basis by.........................
8,000
Ex. 230
The income statement approach to estimating uncollectible accounts expense is
used by Landis Company. On February 28, the firm had accounts receivable in the
amount of $437,000 and Allowance for Doubtful Accounts had a credit balance of
$2,140 before adjustment. Net credit sales for February amounted to $2,000,000.
The credit manager estimated that uncollectible accounts expense would amount to
1% of net credit sales made during February. On March 10, an accounts receivable
from Kathy Brown for $6,100 was determined to be uncollectible and written off.
However, on March 31, Brown received an inheritance and immediately paid her past
due account in full.
Instructions
(a) Prepare the journal entries made by Landis Company on the following dates:
1. February 28
2. March 10
3. March 31
(b) Assume no other transactions occurred that affected the allowance account
during March. Determine the balance of Allowance for Doubtful Accounts at
March 31.
Ans: N/A, SO: 3, Bloom: AN, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN:

(a) 1. Feb. 28 Bad Debts Expense ($2,000,000 .01)...................
Allowance for Doubtful Accounts.....................
20,000
(To record the bad debts expense for
February)
20,000
2. Mar. 10 Allowance for Doubtful Accounts..............................
6,100
Accounts ReceivableK. Brown.....................

6,100
(To write off K. Brown account deemed
uncollectible)
3. Mar. 31 Accounts ReceivableK. Brown..............................
Allowance for Doubtful Accounts.....................
6,100
(To reinstate an account previously
written off)
6,100
Solution 230 (cont.)

Mar. 31 Cash ........................................................................
6,100
Accounts ReceivableK. Brown.....................

6,100
(To record payment on account in full)
(b) $2,140 + $20,000 $6,100 + $6,100 = $22,140.
Ex. 231
Greig Company uses the allowance method for estimating uncollectible accounts.
Prepare journal entries to record the following transactions:
January 5 Sold merchandise to Jane Harder for 1,000, terms n/15.
April
15 Received 200 from Jane Harder on account.
August 21 Wrote off as uncollectible the balance of the Jane Harder account when
she declared bankruptcy.
October 5 Unexpectedly received a check for 250 from Jane Harder.
Ans: N/A, SO: 3, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN:

January 5 Accounts ReceivableJ. Harder......................................
1,000
Sales........................................................................
1,000
April
15 Cash .................................................................................
200
Accounts ReceivableJ. Harder..............................

August 21 Allowance for Doubtful Accounts......................................
200
800

October 5 Accounts ReceivableJ. Harder......................................
Allowance for Doubtful Accounts..............................
800
250
250
Cash .................................................................................
250
250

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Ch8 AR

Solution 228 (2030 min.)

Allowance for Doubtful Accounts.........................................

Solution 228 (cont.)

Allowance for Doubtful Accounts ........................................

Required balance ($450,000 .04)..............................................................

Bad Debts Expense.......................................................

(d) Percentage of sales basis............................................................................

Solution 230 (15 min.)

2. Mar. 10 Allowance for Doubtful Accounts..............................

Accounts ReceivableK. Brown.....................

Solution 230 (cont.)

Accounts ReceivableK. Brown.....................

15 Received 200 from Jane Harder on account.

Solution 231 (10 min.)

Accounts ReceivableJ. Harder..............................

Accounts ReceivableJ. Harder..............................

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