103. Jill Company provides for bad debt expense at the rate of 3% of credit sales.

The
following data are available for 2016:

Allowance for doubtful accounts, 1/1/16 (Cr.)........................ $ 15,000

Accounts written off as uncollectible during 2016................... 9,000
Credit sales in 2016............................................................... 1,000,000

The Allowance for Doubtful Accounts balance at December 31, 2016, should be
a. $45,000.
b. $24,000.
c. $30,000.
d. $36,000.
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting
Solution: ($1,000,000  .03)  ($15,000  $9,000)  $36,000
[(Credit sales x Est. uncollect. %) + (Beg. bal. allow. for dbtfl. accts – Accts. written off) = End. bal. allow. for dbtfl. accts.]

104. In 2016, Yale Company had credit sales of $1,050,000 and granted sales discounts of
$25,000. On January 1, 2016, Allowance for Doubtful Accounts had a credit balance of
$26,400. During 2016, $43,000 of uncollectible accounts receivable were written off.
Past experience indicates that 3% of net credit sales become uncollectible. What should
be the adjusted balance of Allowance for Doubtful Accounts at December 31, 2016?
a. $14,150
b. $14,900
c. $31,500
d. $47,350
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting
Solution: $26,400  $43,000  [($1,050,000  $25,000)  .03]  $14,150
[(Beg. bal. allow. for dbtfl. accts. – Accts. written off) + ((Credit sales – Sales disc.) x Est. uncollect. %) = End. bal. allow. for dbtfl. accts.]

105. An analysis and aging of the accounts receivable of Downs Company at December 31
revealed the following data:

Accounts Receivable............................................................. $800,000

Allowance for Doubtful Accounts per books
before adjustment (Cr.)....................................................... 50,000
Amounts expected to become uncollectible........................... 53,000

The cash realizable value of the accounts receivable at December 31, after adjustment,
is:
a. $694,000.
b. $747,000.
c. $750,000.
d. $794,000.
Ans: B, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting
Solution: $800,000  $53,000  $747,000
(Accts. rec. – Amts. expect. to become uncollect. = Cash real. value)

106. Woulk Company has a debit balance of $8,000 in its Allowance for Doubtful Accounts
before any adjustments are made at the end of the year. Based on review and aging of
its accounts receivable at the end of the year, Woulk estimates that $60,000 of its
 receivables are uncollectible. The amount of bad debt expense which should be reported for
the year is:
a. $8,000.
b. $52,000.
c. $60,000.
d. $68,000.
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting
Solution: $60,000  $8,000  $68,000
(Tot. est. uncollect. amt. + Debit bal. in allow. for dbtfl. accts. = Bad debt exp.)

107. On October 1, 2016, Beane Company sells (factors) $600,000 of receivables to Milago
Factors, Inc. Milago assesses a service charge of 4% of the amount of receivables sold.
The journal entry to record the sale by Beane will include
a. a debit of $600,000 to Accounts Receivable.
b. a credit of $624,000 to Cash.
c. a debit of $624,000 to Cash.
d. a debit of $24,000 to Service Charge Expense.
Ans: D, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting
Solution: $600,000  .04  $24,000
(Accts. rec. sold x Serv. chrg. % = Serv. chrg. exp.)

135. On November 1, Tacoma Company received a $4,000, 5%, three-month note

receivable. The cash to be received by Tacoma Company when the note becomes due
is:
a. $4,000.
b. $4,033.
c. $4,050.
d. $4,200.
Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting
Solution: $4,000  ($4,000  .05  312)  $4,050
[Prin. + (Prin. x Int. rate x Fraction of a yr.) = Cash rec’d. at maturity]

136. On January 15, 2016, Jaymes Company received a two-month, 4%, $7,000 note from
Peter Long for the settlement of his open account. The entry by Jaymes Company on
January 15, 2016 would include a:
a. debit of $7,047 to Notes Receivable.
b. debit of $7,000 to Notes Receivable.
c. credit of $7,047 to Accounts Receivable.
d. credit of $7,000 to Notes Receivable.

154. The financial statements of Georgi Manufacturing Company report net sales of $595,000
and accounts receivable of $80,000 and $60,000 at the beginning and end of the year,
respectively. What is the accounts receivable turnover for Georgi?
a. 7.4 times
b. 8.5 times
c. 4.3 times
d. 9.9 times
Ans: B, LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA FC: Measurement, IMA: FSA
Solution: $595,000  [($80,000  $60,000)  2]  8.5
[Net sales ÷ ((Beg. accts. rec. + End. accts. rec.) ÷ 2) = Accts. rec. turnover]
155. The financial statements of Georgi Manufacturing Company report net sales of $595,000
and accounts receivable of $80,000 and $60,000 at the beginning and end of the year,
respectively. What is the average collection period for accounts receivable in days?
a. 36.9 days
b. 84.9 days
c. 42.9 days
d. 49.3 days

161. Kerr Company's account balances at December 31 for Accounts Receivable and
Allowance for Doubtful Accounts were $2,100,000 and $20,000 (Cr.), respectively. An
aging of accounts receivable indicated that $170,000 are expected to become
uncollectible. The amount of the adjusting entry for bad debts at December 31 is
a. $150,000.
b. $170,000.
c. $210,000.
d. $190,000.
Ans: A, LO: 2, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting
Solution: $170,000  $20,000  $150,000
(Est. tot. uncollect. amt. – Existing bal. in allow. for dbtfl. accts. = Bad debt exp.)

162. In recording the sale of accounts receivable, the commission charged by a factor is
recorded as
a. Bad Debt Expense.
b. Commission Expense.
c. Loss on Sale of Receivables.
d. Service Charge Expense.

165. On February 1, Carson Company received a $9,000, 4%, four-month note receivable.
The cash to be received by Carson Company when the note becomes due is
a. $120.
b. $9,000.
c. $9,120.
d. $9,360.
Ans: C, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA FC: Measurement, IMA: Reporting
Solution: $9,000  ($9,000  .04  412)  $9,120
[Prin. + (Prin. x Int. rate x Fraction of a yr.) = Cash rec’d. at maturity]

166. The entry to record the dishonor of a note receivable assuming the payee expects
eventual collection includes a debit to
a. Notes Receivable.
b. Cash.
c. Allowance for Doubtful Accounts.
d. Accounts Receivable.

Ex. 212
Jasmine's Supply Co. has the following transactions related to notes receivable during the last 2
months of 2016.
Nov. 1 Loaned $24,000 cash to Simone Buil on a 1-year, 7% note.
Dec. 11 Sold goods to Dac Jo, Inc., receiving a $12,000, 90-day, 3% note.
16 Received an $18,000, 6-month, 8% note in exchange for Jason Tanner’s
outstanding accounts receivable.
31 Accrued interest revenue on all notes receivable.

Instructions
(a) Journalize the transactions for Jasmine's Supply Co.
(b) Record the collection of the Buil note at its maturity in 2017.
Ans: N/A, LO: 3, Bloom: AN, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting

Solution 212 (10 min.)

(a) 2016
Nov. 1 Notes Receivable..................................................... 24,000
Cash..................................................................... 24,000

Dec. 11 Notes Receivable..................................................... 12,000

Sales Revenue..................................................... 12,000
16 Notes Receivable..................................................... 18,000
Accounts Receivable—Tanner............................. 18,000
31 Interest Receivable.................................................. 360
Interest Revenue*................................................ 360

*Calculation of interest revenue:

Buil’s note: $24,000  7%  2/12 = $280
Jo’s note: 12,000  3%  20/360 = 20
Tanner’s note: 18,000  8%  15/360 = 60
Total accrued interest $360

(b) 2017
Nov. 1 Cash......................................................................... 25,680
Interest Receivable............................................... 280
Interest Revenue*................................................. 1,400
Notes Receivable................................................. 24,000
*($24,000  7%  10/12)

Ex. 213
Morton Company had the following select transactions.

Apr. 1, 2016 Accepted Remington Company's 1-year, 12% note in settlement of a $25,000
account receivable.
July 1, 2016 Loaned $15,000 cash to Jenny Green on a 9-month, 10% note.
Dec. 31, 2016 Accrued interest on all notes receivable.
Apr. 1, 2017 Received principal plus interest on the Remington note.
Apr. 1, 2017 Jenny Green dishonored its note: Morton expects it will eventually collect.
Instructions
Prepare journal entries to record the transactions. Morton prepares adjusting entries once a
year on December 31.
Ans: N/A, LO: 3, 4, Bloom: AP, Difficulty: Medium, Min: 8, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting

Solution 213 (12 min.)

4/1/16 Notes Receivable................................................. 25,000
Accounts Receivable—Remington................. 25,000

7/1/16 Notes Receivable................................................. 15,000

Cash............................................................... 15,000

12/31/16 Interest Receivable............................................... 2,250

Interest Revenue............................................ 2,250
($25,000  12%  9/12)

Interest Receivable............................................... 750

Interest Revenue............................................ 750
($15,000  10%  6/12)
[Remington note: Prin. x Int. rate x Fraction of a yr. = Int. rec./Int. rev.); (Green note: Prin. x Int. rate x Fraction of a yr. = Int. rec./Int.
rev.)]

4/1/17 Cash..................................................................... 28,000

Notes Receivable........................................... 25,000
Interest Receivable......................................... 2,250
Interest Revenue............................................ 750
($25,000  12%  3/12 = $750)

Accounts Receivable............................................ 16,125

Notes Receivable........................................... 15,000
Interest Receivable......................................... 750
Interest Revenue............................................ 375
($15,000  10%  3/12 = $375)
Ex. 215
Record the following transactions in general journal form for Karen Heller Company.

July 1 Received a $20,000, 8%, 3-month note, dated July 1, from Nancy Freeman in
payment of her open account.

Oct. 1 Received notification from Nancy Freeman that she was unable to honor her note at
this time. It is expected that Freeman will pay at a later date.

Nov. 15 Received full payment from Nancy Freeman for her note receivable previously
dishonored.
Ans: N/A, LO: 3,4, Bloom: AP, Difficulty: Medium, Min: 15, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting
Solution 215 (15 min.)
July 1 Notes Receivable................................................................. 20,000
Accounts Receivable—Nancy Freeman...................... 20,000
(To record acceptance of Nancy Freeman note as
payment on account)

Oct. 1 Accounts Receivable— Nancy Freeman.............................. 20,400

Notes Receivable........................................................ 20,000
Interest Revenue ($20,000 × 8% × 3/12) ................... 400
(To record dishonored note, $20,000, plus interest)
[(Prin. x Int. rate x Fraction of a yr. = Int. rev.); (Prin. + Int. rev. = Accts. rec.)]

Nov. 15 Cash.................................................................................... 20,400

Accounts Receivable—Nancy Freeman...................... 20,400
(To record payment on account)

Ex. 217
The following information is available for Edmiston Company.
Beginning accounts receivable $ 70,000
Ending accounts receivable 110,000
Net sales 990,000

Instructions
Compute the accounts receivable turnover and the average collection period.

Ans: N/A, LO: 4, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA FC: Measurement, IMA: FSA

Solution 217 (5 min.)

Accounts receivable turnover = 11 times $990,000  [($70,000 + $110,000)  2]
Average collection period = 33.2 days (365  11)

[(Net sales ÷ ((Beg. accts. rec. + End. accts. rec.) ÷ 2) = Accts. rec. turnover); (Days in a yr. ÷ Accts. rec. turnover = Ave. collect.
period)]

Ex. 218
Rivers Company had accounts receivable of $150,000 on January 1, 2016. The only
transactions that affected accounts receivable during 2016 were net credit sales of $1,500,000,
cash collections of $1,400,000, and accounts written off of $50,000.

Instructions
(a) Compute the ending balance of accounts receivable.
(b) Compute the accounts receivable turnover for 2016.
(c) Compute the average collection period in days.
Ans: N/A, LO: 4, Bloom: AN, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA FC: Measurement, IMA: Reporting, FSA

Solution 218 (5 min.)

(a) Beginning accounts receivable................................... $ 150,000
Net credit sales.......................................................... 1,500,000
Cash collections......................................................... (1,400,000)
Accounts written off.................................................... (50,000)
Ending accounts receivable....................................... $ 200,000
(Beg. accts. rec. + Net credit sales – Cash collect. – Accts. written off = End. accts. rec.)

(b) $1,500,000/[($150,000 + $200,000)/2] = 8.57

[Net credit sales ÷ ((Beg. accts. rec. + End. accts. rec.) ÷ 2) = Accts. rec. turnover]

(c) 365/8.57 = 42.6 days

(Days in a yr. ÷ Accts. rec. turnover = Ave. collect. period)