CH 08

CHAPTER 8
Accounting for Receivables
ASSIGNMENT CLASSIFICATION TABLE
Brief
Learning Objectives Questions Exercises Do It! Exercises Problems
1. Explain how companies 1, 2, 3 1, 2 1 1, 2, 3, 4 1, 6, 7

recognize accounts
receivable.
2. Describe how companies 4, 5, 6, 7, 3, 4, 5, 2a, 2b 4, 5, 6, 7, 1, 2, 3, 4,

value accounts receivable 8, 9, 10, 6, 7, 11 8, 9, 10, 5, 6, 7
and record their disposition. 11, 12 11
3. Explain how companies 13, 14, 15, 8, 9, 10 3 12, 13, 14, 6, 7

recognize value, and 16,17 15
dispose of notes
receivable.
4. Describe the statement 18, 19, 20 3, 11, 12 4 16, 17 1, 6, 8, 9

presentation and analysis
of receivables.
Copyright © 2019 WILEY Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual (For Instructor Use Only) 8-1
ASSIGNMENT CHARACTERISTICS TABLE
Problem Difficulty Time

Number Description Level Allotted (min.)
1 Prepare journal entries related to bad debt expense. Simple 15–20
2 Compute bad debt amounts. Moderate 20–25
3 Journalize entries to record transactions related to bad debts. Moderate 20–30
4 Journalize transactions related to bad debts. Moderate 20–30
5 Journalize entries to record transactions related to bad debts. Moderate 20–30
6 Prepare entries for various credit card and notes receivable Moderate 40–50
transactions.
7 Prepare entries for various receivable transactions. Complex 50–60
8 Calculate and interpret various ratios. Moderate 10–15
9 Prepare financial statements. Moderate 25–35
8-2 Copyright © 2019 WILEY Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual (For Instructor Use Only)
WEYGANDT FINANCIAL ACCOUNTING, IFRS Edition, 4e
CHAPTER 8
ACCOUNTING FOR RECEIVABLES
Number LO BT Difficulty Time (min.)

BE1 1 C Simple 1–2
BE2 1 AP Simple 5–7
BE3 2, 4 AN Simple 4–6
BE7 2 AN Simple 4–6
BE10 3 AP Moderate 8–10
BE11 2, 4 AP Simple 2–4
DI1 1 AP Simple 5–7
DI2a 2 AP Simple 2–4
DI2b 2 AP Simple 2–4
DI3 3 AP Simple 4–6
DI4 4 AN Simple 4–6
EX1 1 AP Simple 8–10
EX3 1 AN Simple 8–10
EX4 1,2 AN Simple 6–8
EX12 3 AP Moderate 10–12
ACCOUNTING FOR RECEIVABLES (Continued)
Number LO BT Difficulty Time (min.)

P1 1, 2, 4 AN Simple 15–20
P2 2 AN Moderate 20–25
P6 1, 2, 3, 4 AN Moderate 40–50
P7 1, 2, 3 AP Complex 50–60
P9 4 AP Moderate 25–35
CT1 2 E Moderate 20–25
CT2 4 AN, E Simple 10–15
CT3 2 C Simple 10–15
CT4 2 AN Moderate 20–30
CT5 2 E Simple 10–15
CT6 2 E Simple 10–15
Copyri BLO
ght © Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems OM’
2019
WILE
S
Learning Objective Knowledge Comprehension Application Analysis Synthesis Evaluation
Y TAX
Weyg 1. Explain how companies recognize
accounts receivable.
Q8-2 Q8-1
BE8-1
Q8-3
BE8-2
E8-2
P8-7
E8-3
E8-4
ONO
andt,
Finan
DI8-1 P8-1 MY
E8-1 P8-6
cial TAB
2. Describe how companies Q8-8 Q8-4 Q8-11 E8-7 P8-6 P8-1
Accou
value accounts receivable and Q8-9 Q8-5 BE8-4 E8-6 Q8-7 P8-2 LE
nting, record their disposition. Q8-6 BE8-5 E8-8 BE8-3 P8-3
IFRS Q8-10 BE8-6 E8-9 BE8-7 P8-4
4/e, Q8-12 BE8-11 P8-7 E8-3 P8-5
Soluti DI8-2a E8-4
E8-5 E8-10
ons
DI8-2b E8-11
Manu
al 3. Explain how companies recognize, Q8-13 Q8-16 BE8-8 E8-13 P8-6
value, and dispose of notes Q8-17 BE8-11 E8-14
(For
receivable. Q8-14 E8-15
Instru Q8-15 P8-7
ctor BE8-9 E8-12
Use BE8-10
Only) DI8-3
4. Describe the statement presentation Q8-18 Q8-20 Q8-19 E8-14 BE8-3

and analysis of receivables. BE8-11 P8-7 DI8-4
BE8-12 P8-1
E8-12 P8-6
E8-13 P8-8
Expand Your Critical Thinking Real-World Decision-Making Financial Reporting

Focus Across Comparative
the Organization Analysis
Comparative Analysis Ethics Case
Communication
ANSWERS TO QUESTIONS
1. Accounts receivable are amounts owed by customers on account. They result from the sale of goods
and services. Notes receivable represent claims that are evidenced by formal instruments of credit.
2. Other receivables include nontrade receivables such as interest receivable, loans to company officers,
advances to employees, and income taxes refundable.
3. Accounts Receivable.............................................................................................. 40

Interest Revenue............................................................................................ 40
4. The essential features of the allowance method of accounting for bad debts are:
(1) Uncollectible accounts receivable are estimated and matched against revenue in the same
accounting period in which the revenue occurred.
(2) Estimated uncollectibles are debited to Bad Debt Expense and credited to Allowance for Doubtful
Accounts through an adjusting entry at the end of each period.
(3) Actual uncollectibles are debited to Allowance for Doubtful Accounts and credited to Accounts
Receivable at the time the specific account is written off.
5. Roger Holloway should realize that the decrease in cash realizable value occurs when estimated
uncollectibles are recognized in an adjusting entry. The write-off of an uncollectible account reduces
both accounts receivable and the allowance for doubtful accounts by the same amount. Thus, cash
realizable value does not change.
6. TSMC reports Receivables from related parties and other receivables from related parties
under Current Assets. It uses the allowance method to account for uncollectibles.
7. The adjusting entry is:

Bad Debt Expense................................................................................ 280,000
Allowance for Doubtful Accounts (NT$580,000 – NT$300,000)..... 280,000
8. Under the direct write-off method, bad debt losses are not estimated and no allowance account is used.
When an account is determined to be uncollectible, the loss is debited to Bad Debt Expense. The
direct write-off method makes no attempt to match bad debts expense to sales revenues or to show
the cash realizable value of the receivables in the statement of financial position.
9. Offering credit usually results in an increase in sales because customers prefer to “buy now and
pay later”. If a company decides to extend credit to customers, it should also establish credit
standards to determine if a particular customer is credit worthy. Standards that are easily met can
result in additional sales being made to customers that may not be able to meet the “tighter” credit
policies of competitors. If such customers fail to pay, the additional sales revenue will be offset by
higher collection costs and bad debt expense.
10. From its own credit cards, the Freida ASA may realize financing revenue from customers who do not
pay the balance due within a specified grace period. Other credit cards offer the following
advantages:
(1) The credit card issuer makes the credit investigation of the customer.
(2) The issuer maintains individual customer accounts.
Questions Chapter 8 (Continued)
(3) The issuer undertakes the collection process and absorbs any losses from uncollectible accounts.
(4) The retailer receives cash more quickly from the credit card issuer than it would from individual
customers.
11. The reasons companies are selling their receivables are:

(1) Receivables may be sold because they may be the only reasonable source of cash.
(2) Billing and collection are often time-consuming and costly. It is often easier for a retailer to sell
the receivables to another party with expertise in billing and collection matters.
12. Cash....................................................................................................... 7,760,000

Service Charge Expense (3% X HK$8,000,000)..................................... 240,000
Accounts Receivable....................................................................... 8,000,000
13. A promissory note gives the holder a stronger legal claim than one on an accounts receivable. As a
result, it is easier to sell to another party. Promissory notes are negotiable instruments, which
means they can be transferred to another party by endorsement. The holder of a promissory note also
can earn interest.
14. The maturity date of a promissory note may be stated in one of three ways: (1) on demand, (2) on
a stated date, and (3) at the end of a stated period of time.
15. The maturity dates are: (a) March 13 of the next year, (b) August 4, (c) July 20, and (d) August 30.
16. The missing amounts are: (a) €15,000, (b) €9,000, (c) 6%, and (d) four months.
17. When Jana Company has dishonored a note, the lender can set up a receivable equal to the
face amount of the note plus the interest due. It will then try to collect the balance due, or as
much as possible. If there is no hope of collection it will write-off the receivable.
18. Each of the major types of receivables should be identified in the statement of financial position or in
the notes to the financial statements. Both the gross amount of receivables and the allowance for
doubtful accounts should be reported. If collectible within a year or the operating cycle, whichever
is longer, these receivables are reported as current assets immediately above short-term
investments.
19. Net credit sales for the period are 8.14 X 400,000 = 3,256,000.
20. TSMC’s 2016 allowance for doubtful accounts of $480,118 represents less than 1% of its gross
receivables of $128,815,389.
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 8.1
(a) Accounts receivable.

(b) Notes receivable.
(c) Other receivables.
BRIEF EXERCISE 8.2
(a) Accounts Receivable............................................ 17,200

Sales Revenue............................................... 17,200
(b) Sales Returns and Allowances............................ 3,800

Accounts Receivable.................................... 3,800
(c) Cash ($13,400 – $268)........................................... 13,132

Sales Discounts ($13,400 X 2%).......................... 268
Accounts Receivable ($17,200 – $3,800)........ 13,400
BRIEF EXERCISE 8.3
(a) Bad Debt Expense................................................ 31,000

Allowance for Doubtful Accounts................ 31,000
(b) Current assets

Prepaid insurance......................................... € 7,500
Inventory........................................................ 130,000
Accounts receivable..................................... €600,000
Less: Allowance for doubtful
Accounts............................................ 31,000 569,000
Cash............................................................... 90,000
Total current assets.................................. €796,500
BRIEF EXERCISE 8.4
(a) Allowance for Doubtful Accounts............................. 6,200

Accounts Receivable—Gray............................... 6,200
(b) (1) Before Write-Off (2) After Write-Off

Accounts receivable ¥700,000 ¥693,800
Allowance for doubtful
accounts 54,000 47,800
Cash realizable value ¥646,000 ¥646,000
BRIEF EXERCISE 8.5
Accounts Receivable—Gray.............................................. 6,200

Allowance for Doubtful Accounts............................. 6,200
Cash..................................................................................... 6,200
Accounts Receivable—Gray...................................... 6,200
BRIEF EXERCISE 8.6

(a) Bad Debt Expense [(£420,000 X 1%) – £1,500]............ 2,700
Allowance for Doubtful Accounts...................... 2,700
(b) Bad Debt Expense [(£420,000 X 1%) + £800] = £5,000
BRIEF EXERCISE 8.7

(a) Cash (€175 – €7).......................................................... 168
Service Charge Expense (€175 X 4%)....................... 7
Sales Revenue..................................................... 175
(b) Cash (€60,000 – €1,800).............................................. 58,200

Service Charge Expense (€60,000 X 3%).................. 1,800
Accounts Receivable.......................................... 60,000
BRIEF EXERCISE 8.8
Interest Maturity Date

(a) NT$800 August 9
(b) NT$1,120 October 12
(c) NT$200 July 11
BRIEF EXERCISE 8.9
Maturity Date Annual Interest Rate Total Interest

(a) May 31 6% 6,000
(b) August 1 8% 600
(c) September 7 10% 6,000
BRIEF EXERCISE 8.10
Jan. 10 Accounts Receivable........................................ 84,600

Sales Revenue........................................... 84,600
Feb. 9 Notes Receivable.............................................. 84,600

Accounts Receivable................................ 84,600
BRIEF EXERCISE 8.11
(a) Bad Debt Expense................................................. 18,000

Allowance for Doubtful Accounts................ 18,000
(b) Current assets
Supplies.......................................................... R$ 13,000
Inventory......................................................... 180,000
Accounts receivable...................................... R$400,000
Less: Allowance for doubtful accounts...... 18,000 382,000
Cash................................................................ 90,000
R$665,000
BRIEF EXERCISE 8.11 (Continued)
R$3,000,000
(c) Accounts receivable turnover = R$300,000 = 10 times
365 days
Average collection period = 10 = 36.5 days
The accounts receivable turnover is a liquidity measure. The average
collection period indicates the effectiveness of a company’s credit and
collection policies. To evaluate Fertig’s liquidity and credit policies,
these measures should be compared to the same measures for
competitors.
BRIEF EXERCISE 8.12
Accounts Receivable Turnover:
$20B $20B
($2.7B + $2.8B) ÷ 2 = $2.75B = 7.3 times
Average Collection Period for Accounts Receivable:
365 days
7.3 times = 50 days
SOLUTIONS FOR DO IT! EXERCISES
DO IT! 8.1
March 1 Accounts Receivable...................................... 28,000

Sales Revenue........................................ 28,000
March 6 Sales Returns and Allowances...................... 1,000

Accounts Receivable............................. 1,000
March 11 Cash (€27,000 – €270)..................................... 26,730

Sales Discounts (€27,000  1%)..................... 270
Accounts Receivable.............................. 27,000
DO IT! 8.2a
The following entry should be prepared to increase the balance in the

Allowance for Doubtful Accounts from R$6,100 credit to R$15,500 credit
(5% X R$310,000):
Bad Debt Expense...................................................... 9,400
Allowance for Doubtful Accounts.................... 9,400
(To record estimate of uncollectible
accounts)
DO IT! 8.2b
To speed up the collection of cash, Neumann could sell its accounts

receivable to a factor. Assuming the factor charges Neumann a 3% service
charge, it would make the following entry:
Cash............................................................................. 166,600
Service Charge Expense............................................ 3,400
Accounts Receivable........................................ 170,000
(To record sale of receivables to factor)
DO IT! 8.3
(a) The maturity date is September 30. When the life of a note is expressed
in terms of months, you find the date it matures by counting the months
from the date of issue. When a note is drawn on the last day of a month,
it matures on the last day of a subsequent month.
(b) The interest to be received at maturity is ₤186:

Face X Rate X Time = Interest
₤6,200 X 9% X 4/12 = ₤186
The entry recorded by Gentry Wholesalers at the maturity date is:

Cash...................................................................... 6,386
Notes Receivable........................................... 6,200
Interest Revenue............................................ 186
(To record collection of Benton note)
DO IT! 8.4
(a)
Average net Accounts receivable
Net credit sales ÷ =
accounts receivable turnover
NT$101,000 +
NT$1,300,000 ÷ NT$107,000 = 12.5 times
2
(b)
Accounts receivable Average collection

Days in year ÷ =
turnover period in days
365 ÷ 12.5 times = 29 days
SOLUTIONS TO EXERCISES
EXERCISE 8.1
Jan. 6 Accounts Receivable........................................ 9,200

Sales Revenue........................................... 9,200
16 Cash (£9,200 – £92)........................................... 9,108

Sales Discounts (1% X £9,200)........................ 92
Accounts Receivable................................. 9,200
EXERCISE 8.2
March 1 Accounts Receivable—Lynda Company..... 5,000

Sales Revenue........................................ 5,000
3 Sales Returns and Allowances..................... 500

Accounts Receivable—Lynda
Company............................................... 500
9 Cash (CHF4,500  CHF90)............................. 4,410

Sales Discounts (2%  CHF4,500)................ 90
Accounts Receivable—Lynda
Company............................................... 4,500
15 Accounts Receivable..................................... 400

Sales Revenue........................................ 400
31 Accounts Receivable (CHF400  1.5%  1/2) 3

Interest Revenue.................................... 3
EXERCISE 8.3
(a) Jan. 6 Accounts Receivable—Pryor........................ 7,000

Sales Revenue........................................ 7,000
16 Cash (€7,000 – €140)...................................... 6,860

Sales Discounts (2% X €7,000)..................... 140
Accounts Receivable—Pryor................ 7,000
EXERCISE 8.3 (Continued)
(b) Jan. 10 Accounts Receivable—Farley....................... 9,000

Sales Revenue........................................ 9,000
Feb. 12 Cash................................................................ 5,000

Accounts Receivable—Farley............... 5,000
Mar. 10 Accounts Receivable—Farley....................... 40

Interest Revenue
[1% X (€9,000 – €5,000)]....................... 40
EXERCISE 8.4
(a) Accounts Receivable............................................. 800,000

Sales Revenue.................................................. 800,000
Cash........................................................................ 763,000
Accounts Receivable....................................... 763,000
(b) Allowance for Doubtful Accounts........................ 7,300

(c) Accounts Receivable............................................. 3,100

Allowance for Doubtful Accounts................... 3,100
Cash........................................................................ 3,100
(d) Bad Debt Expense................................................. 20,200

Allowance for Doubtful Accounts.............. 20,200
Allowance for Doubtful Accounts

Beg. Bal. 9,000
Write-off 7,300 Recovery 3,100
Bad Debts 20,200
[£25,000 – (£9,000 + £3,100 – £7,300)]
End Bal. 25,000
(e) Accounts Receivable Allowance for Doubtful Accounts

Beg. Bal. 200,000 Collections 763,000 Beg. Bal. 9,000
Sales 800,000 Write-off 7,300 Write-off 7,300 Recovery 3,100
Recovery 3,100 Collections 3,100 Bad Debts 20,200
End Bal. 229,700 End Bal. 25,000
(f) Net realizable value of receivables is £204,700 (£229,700 – £25,000)
EXERCISE 8.5
(a) Dec. 31 Bad Debt Expense............................... 1,400

Accounts Receivable—L. Dole....... 1,400
(b)
Dec. 31 Bad Debt Expense............................... 8,900

[($110,000 X 10%) – $2,100]........ 8,900
(c)
Dec. 31 Bad Debt Expense............................... 6,800

[($110,000 X 6%) + $200]............ 6,800
EXERCISE 8.6
(a) Accounts Receivable Amount % Estimated Uncollectible

Current ₩65,000 2 ₩1,300
1–30 days past due 12,900 5 645
31–90 days past due 10,100 30 3,030
Over 90 days past due 7,400 50 3,700
₩8,675
(b) Mar. 31 Bad Debt Expense............................................ 6,575

(₩8,675 – ₩2,100).................................... 6,575
(c) The total balance of receivables increased from 2019 to 2020. However,
of concern is the fact that each of the three categories of older accounts
increased substantially during 2020. That is, customers are taking longer
to pay and bad debts are likely to increase. Management needs to inves-
tigate the causes of this change.
EXERCISE 8.7
Allowance for Doubtful Accounts.................................... 11,000
Accounts Receivable................................................. 11,000
Accounts Receivable......................................................... 1,800
Cash.................................................................................... 1,800
Accounts Receivable................................................. 1,800
Bad Debt Expense............................................................. 13,200
[€19,000 – (€15,000 – €11,000 + €1,800)]............... 13,200
EXERCISE 8.8
December 31, 2020

Bad Debt Expense (2% X ¥450,000)................................. 9,000
May 11, 2021
Allowance for Doubtful Accounts.................................... 1,100
Accounts Receivable—Shoemaker.......................... 1,100
June 12, 2021

Accounts Receivable—Shoemaker.................................. 1,100
Cash.................................................................................... 1,100
Accounts Receivable—Shoemaker.......................... 1,100
EXERCISE 8.9
(a) Mar. 3 Cash ($650,000 – $19,500)........................ 630,500
Service Charge Expense
(3% X $650,000)....................................... 19,500
Accounts Receivable........................ 650,000
(b) May 10 Cash ($3,000 – $120)................................. 2,880
(4% X $3,000)........................................... 120
Sales Revenue................................... 3,000
EXERCISE 8.10
(a) Apr. 2 Accounts Receivable—J. Elston............. 1,500

Sales Revenue................................... 1,500
May 3 Cash........................................................... 500

Accounts Receivable—
J. Elston........................................... 500
June 1 Accounts Receivable—J. Elston............. 10

Interest Revenue
[(€1,500 – €500) X 1%]..................... 10
(b) July 4 Cash........................................................... 196

(2% X €200).............................................. 4
Sales Revenue................................... 200
EXERCISE 8.11
Jan. 15 Accounts Receivable................................ 18,000

Sales Revenue................................... 18,000
20 Cash (NT$4,500 – NT$90)......................... 4,410

(NT$4,500 X 2%)...................................... 90
Sales Revenue................................... 4,500
Feb. 10 Cash........................................................... 10,000

15 Accounts Receivable (NT$8,000 X 1.5%) 120

Interest Revenue............................... 120
EXERCISE 8.12
(a) 2020
Nov. 1 Notes Receivable.............................................. 300,000
Cash........................................................... 300,000
Dec. 11 Notes Receivable.............................................. 67,500

Sales Revenue.......................................... 67,500
16 Notes Receivable.............................................. 400,000

Accounts Receivable—Fernetti............... 400,000
31 Interest Receivable........................................... 6,800

Interest Revenue*..................................... 6,800
*Calculation of interest revenue:

Shin’s note: HK$300,000 X 10% X 2/12 = HK$5,000
Malcolm’s note: 67,500 X 8% X 20/360 = 300
Fernetti’s note: 400,000 X 9% X 15/360 = 1,500
Total accrued interest HK$6,800
(b) 2021
Nov. 1 Cash.................................................................. 330,000
Interest Receivable................................... 5,000
Interest Revenue*..................................... 25,000
Notes Receivable...................................... 300,000
*(HK$300,000 X 10% X 10/12)
EXERCISE 8.13
2020
May 1 Notes Receivable.............................................. 9,000
Chamber.................................................. 9,000
Dec. 31 Interest Receivable........................................... 600

Interest Revenue
(€9,000 X 10% X 8/12).............................. 600
31 Interest Revenue............................................... 600

Income Summary...................................... 600
2021
May 1 Cash................................................................... 9,900
Interest Receivable................................... 600
Interest Revenue
(€9,000 X 10% X 4/12)............................. 300
EXERCISE 8.14
4/1/20 Notes Receivable.............................................. 30,000

Accounts Receivable—Goodwin............. 30,000
7/1/20 Notes Receivable.............................................. 25,000

Cash........................................................... 25,000
12/31/20 Interest Receivable........................................... 1,350

Interest Revenue
($30,000 X 6% X 9/12)........................... 1,350
Interest Receivable........................................... 1,250

Interest Revenue
($25,000 X 10% X 6/12)......................... 1,250
4/1/21 Cash................................................................... 31,800

Interest Revenue
($30,000 X 6% X 3/12 = $450)............... 450

Interest Revenue
($25,000 X 10% X 3/12 = $625)............. 625
EXERCISE 8.15
(a) May 2 Notes Receivable........................................ 9,000

Cash...................................................... 9,000
(b) Nov. 2 Accounts Receivable—Chen
Inc............................................................... 9,315
Notes Receivable................................. 9,000
Interest Revenue
(¥9,000 X 7% X 1/2)........................... 315
(To record the dishonor of
Chen, Inc. note with
expectation of collection)
(c) Nov. 2 Allowance for Doubtful Accounts.............. 9,000

(To record the dishonor of
Chen, Inc. note with no
expectation of collection)
EXERCISE 8.16
EILEEN CORP.
Statement of Financial Position (Partial)
October 31, 2020
(in thousands)
Receivables
Notes receivable.......................................................... $1,353
Accounts receivable................................................... 2,910
Other receivables........................................................ 189
Total receivables......................................................... $4,452
Less: Allowance for doubtful accounts......................... 52
Net receivables................................................................. $4,400
EXERCISE 8.17
(a) Beginning accounts receivable........................................ € 100,000

Net credit sales................................................................... 1,000,000
Cash collections................................................................. (920,000)
Accounts written off........................................................... (30,000)
Ending accounts receivable.............................................. € 150,000
(b) €1,000,000/[(€100,000 + €150,000)/2] = 8
(c) 365/8 = 45.6 days
SOLUTIONS TO PROBLEMS
PROBLEM 8.1
(a) 1. Accounts Receivable................................. 3,700,000

Sales Revenue.................................... 3,700,000
2. Sales Returns and Allowances................. 50,000

Accounts Receivable.......................... 50,000
3. Cash............................................................. 2,810,000
Accounts Receivable.......................... 2,810,000
4. Allowance for Doubtful Accounts............. 90,000

5. Accounts Receivable................................. 29,000

Allowance for Doubtful Accounts....... 29,000
Cash............................................................. 29,000
(b)
Accounts Receivable Allowance for Doubtful Accounts
Bal. 960,000 (2) 50,000 (4) 90,000 Bal. 80,000
(1) 3,700,000 (3) 2,810,000 (5) 29,000
(5) 29,000 (4) 90,000
(5) 29,000
Bal. 1,710,000 Bal. 19,000
PROBLEM 8.1 (Continued)
(c) Balance before adjustment [see (b)]..................................... R$ 19,000

Less: Balance needed............................................................ 115,000
Adjustment required............................................................... R$ 96,000
The journal entry would therefore be as follows:
Bad Debt Expense........................................... 96,000

Allowance for Doubtful Accounts........... 96,000
R$3,700,000 – R$50,000 R$3,650,000
(d) ( R$ 880 ,000 + R$1,595,000) ÷ 2 = R $ 1,237 ,5 00 = 2.95 times
PROBLEM 8.2
(a) £33,000.
(b) £49,500 [(£875,000 X 6%) – £3,000].

[($875,000 x 6%) - $3,000 = $49,500]
(c) £55,500 [(£875,000 X 6%) + £3,000].

[($875,000 x 6%) + $3,000 = $55,500]
(d) The weakness of the direct write-off method is two-fold. First, it does not
match expenses with revenues. Second, the accounts receivable are not
stated at cash realizable value at the statement of financial position
date.
PROBLEM 8.3
2020
(a) Dec. 31 Bad Debt Expense.................................... 26,610
(€38,610 – €12,000).......................... 26,610
(a) & (b)
Bad Debt Expense

Date Explanation Ref. Debit Credit Balance
2020
Dec. 31 Adjusting 26,610 26,610

Date Explanation Ref. Debit Credit Balance
2020
Dec. 31 Balance 12,000
31 Adjusting 26,610 38,610
2021
Mar. 31 1,000 37,610
May 31 1,000 38,610
(b) 2021
(1)
Mar. 31 Allowance for Doubtful Accounts........... 1,000
(2)
May 31 Accounts Receivable................................ 1,000
Allowance for Doubtful Accounts...... 1,000
31 Cash........................................................... 1,000
(c) 2021
Dec. 31 Bad Debt Expense.................................... 32,400
(€31,600 + €800)............................... 32,400
PROBLEM 8.4
(a) Total estimated bad debts
Number of Days Outstanding

Total 0–30 31–60 61–90 91–120 Over 120
Accounts
receivable ¥200,000 ¥77,000 ¥46,000 ¥39,000 ¥23,000 ¥15,000
% uncollectible 1% 4% 5% 8% 20%
Estimated
Bad debts ¥ 9,400 ¥ 770 ¥ 1,840 ¥ 1,950 ¥ 1,840 ¥ 3,000
(b) Bad Debt Expense...................................................... 17,400

[¥9,400 + ¥8,000]................................................ 17,400
(c) Allowance for Doubtful Accounts............................. 5,000

Accounts Receivable............................................ 5,000
(d) Accounts Receivable................................................. 5,000

Allowance for Doubtful Accounts....................... 5,000
Cash............................................................................ 5,000
Accounts Receivable............................................ 5,000
(e) If Ho Publishers used 4% of total accounts receivable rather than aging

the individual accounts the bad debt expense adjustment would be
¥16,000 [(¥200,000 X 4%) + ¥8,000]. The rest of the entries would be the
same as they were when aging the accounts receivable.
Aging the individual accounts rather than applying a percentage to the

total accounts receivable should produce a more accurate allowance
account and bad debts expense.
PROBLEM 8.5
(a) The allowance method. Since the balance in the allowance for doubtful
accounts is given, they must be using this method because the account
would not exist if they were using the direct write-off method.
(b) Dec. 31 Bad Debt Expense

(£11,750 – £1,000)............................ 10,750
Allowance for Doubtful
Accounts.................................. 10,750
(c) Dec. 31 Bad Debt Expense

(£11,750 + £1,000)............................ 12,750
Allowance for Doubtful
Accounts.................................. 12,750
(d) Allowance for Doubtful Accounts............................. 3,000

(e) Bad Debt Expense...................................................... 3,000

(f) Allowance for Doubtful Accounts is a contra-asset account. It is subtracted

from the gross amount of accounts receivable so that accounts receivable
is reported at its cash realizable value.
PROBLEM 8.6
(a) July 5 Accounts Receivable................................. 4,500

Sales Revenue...................................... 4,500
14 Cash (NT$600 – NT$18)............................. 582

Service Charge Expense (NT$600 X 3%). 18
Sales Revenue...................................... 600
20Cash ........................................................... 6,120

Interest Revenue
(NT$6,000 X 8% X 90/360)................. 120
(The interest computation assumes a 360-day year)
24Cash ........................................................... 7,930

Interest Revenue
(NT$7,800 X 10% X 60/360)............... 130
(The interest computation assumes a 360-day year)
31 Interest Receivable ................................... 50

Interest Revenue
(NT10,000 X 6% X 1/12)..................... 50
(b)
Notes Receivable Interest Receivable
7/1 Bal. 23,800 7/20 6,000 7/31 50
7/24 7,800
7/31 Bal. 10,000 7/31 Bal. 50
Accounts Receivable
7/5 4,500
7/31 Bal. 4,500
(c ) Current assets:
Notes Receivable NT$10,000
Accounts Receivable 4,500
Interest Receivable 50
NT$14,550
PROBLEM 8.7
Jan. 5 Accounts Receivable—Sheldon.......................... 20,000

Sales Revenue............................................. 20,000
20 Notes Receivable................................................ 20,000

Accounts Receivable—Sheldon................. 20,000
Feb. 18 Notes Receivable................................................ 8,000

Sales Revenue............................................. 8,000
Apr. 20 Cash (€20,000 + €400)......................................... 20,400

Notes Receivable......................................... 20,000
Interest Revenue
(€20,000 X 8% X 3/12)................................ 400
30 Cash (€25,000 + € 750)........................................ 25,750

Interest Revenue
(€25,000 X 9% X 4/12)................................ 750
May 25 Notes Receivable................................................ 6,000

Accounts Receivable—Potter.................... 6,000
Aug. 18 Cash (€8,000 + €360)........................................... 8,360

Interest Revenue
(€8,000 X 9% X 6/12).................................. 360
25 Accounts Receivable—Potter
(€6,000 + €105)................................................... 6,105
Interest Revenue
(€6,000 X 7% X 3/12).................................. 105
Sept. 1 Notes Receivable................................................ 12,000

Sales Revenue............................................. 12,000
PROBLEM 8.8
Nike adidas
Accounts receivable $19,176.1 $10,381
turnover a b c d
($2,795.3 + $2,883.9 )/2 ($1,624 + $1,429 )/2
$19,176.1 $10,381
= 6.8 times = 6.8 times
$2,839.6 $1,526.5
a
2,873.7 – 78.4
b
2,994.7 – 110.8
c
1,743 – 119
d
1,553 – 124
365 365
= 53.7 days = 53.7 days
Average collection period 6.8 6.8
Both companies have the same turnover ratios and average collection
periods.
PROBLEM 8.9
GIBSON COMPANY
Income Statement
In the Year Ended December 31, 2020
Sales revenue ¥13,000

Cost of goods sold 8,000
Gross profit 5,000
Operating expenses
Salaries and wages expense ¥1,400
Rent expense 700
Bad debt expense 60
Service charge expense 40
Total operating expenses 2,200
Income from operations 2,800
Other revenue and gains
Interest revenue 100
Net income ¥2,900
GIBSON COMPANY
Retained Earnings Statement
Retained Earnings, January 1, 2020 11,000

Add: Net income 2,900
13,900
Deduct: Dividend 1,000
Retained Earnings, December 31, 2020 ¥12,900
GIBSON COMPANY
Income Statement
Assets
Property, plant and equipment
Equipment ¥7,500
Less: Accumulated depreciation - equipment 1,000 ¥6,500
Current assets
Inventory 10,000
Notes receivable 6,300
Accounts receivable ¥2,700
Less: Allowance for doubtful accounts 300 2,400
Cash 6,400
Total current assets 25,100
Total assets ¥31,600
Equity and Liabilities
Equity
Share capital—ordinary ¥17,000
Retained earnings 12,900 ¥29,900
Current liabilities
Notes payable ¥1,100
Accounts payable 600
Total current liabilities 1,700
Total equity and liabilities ¥31,600
ACR 8 COMPREHENSIVE ACCOUNTING CYCLE REVIEW
(a) Jan. 1 Notes Receivable............................................ 1,200

Merando Company.............................. 1,200
3 Allowance for Doubtful Accounts................. 730

Accounts Receivable............................. 730
8 Inventory......................................................... 17,200
Accounts Payable................................... 17,200
11 Accounts Receivable..................................... 28,000

Sales Revenue........................................ 28,000
Cost of Goods Sold........................................ 19,600

Inventory................................................. 19,600
15 Cash................................................................ 970
Service Charge Expense............................... 30
Sales Revenue........................................ 1,000
Cost of Goods Sold........................................ 700

Inventory................................................. 700
17 Cash................................................................ 22,900
Accounts Receivable............................. 22,900
21 Accounts Payable.......................................... 14,300

Cash......................................................... 14,300
24 Accounts Receivable..................................... 280

Allowance for Doubtful Accounts......... 280
Cash................................................................ 280
Accounts Receivable............................. 280
27 Supplies.......................................................... 1,400
Cash......................................................... 1,400
31 Other Operating Expenses............................ 3,718

Cash......................................................... 3,718
ACR 8 (Continued)
Adjusting Entries
Jan. 31 Interest Receivable......................................... 8
Interest Revenue (£1,200 X 8% X 1/12)...... 8
31 Bad Debt Expense [(£22,950 X 6%) –

(£800 – £730 + £280)]..................................... 1,027
Allowance for Doubtful Accounts.......... 1,027
31 Supplies Expense........................................... 840

Supplies (£1,400 – £560)......................... 840
(b) VICTORIA LTD.

Adjusted Trial Balance
January 31, 2020
Debit Credit
Cash............................................................. £17,832
Notes Receivable........................................ 1,200
Accounts Receivable.................................. 22,950
Allowance for Doubtful Accounts............. £1,377
Interest Receivable..................................... 8
Inventory...................................................... 6,300
Supplies....................................................... 560
Accounts Payable....................................... 11,650
Share Capital—Ordinary............................. 20,000
Retained Earnings....................................... 12,730
Sales Revenue............................................. 29,000
Cost of Goods Sold..................................... 20,300
Supplies Expense....................................... 840
Bad Debt Expense....................................... 1,027
Service Charge Expense............................ 30
Other Operating Expenses......................... 3,718
Interest Revenue......................................... 8
£74,765 £74,765
ACR 8 (Continued)
(b) Optional T accounts for accounts with multiple transactions
Cash Accounts Receivable

1/1 Bal. 13,100 1/21 14,300 1/1 Bal. 19,780 1/1 1,200
1/15 970 1/27 1,400 1/11 28,000 1/3 730
1/17 22,900 1/31 3,718 1/24 280 1/17 22,900
1/24 280 1/24 280
1/31 Bal. 17,832 1/31 Bal. 22,950

1/3 730 1/1 Bal. 800
1/24 280
1/31 1,027
1/31 Bal. 1,377
Inventory
1/1 Bal. 9,400 1/11 19,600
1/8 17,200 1/15 700
1/31 Bal. 6,300
Supplies
1/27 1,400 1/31 840
1/31 Bal. 560
Accounts Payable
1/21 14,300 1/1 Bal. 8,750
1/8 17,200
1/31 Bal. 11,650
Sales Revenue
1/11 28,000
1/15 1,000
1/31 Bal. 29,000
Cost of Goods Sold

1/11 19,600
1/15 700
1/31 Bal. 20,300
ACR 8 (Continued)
(c) VICTORIA LTD.

Income Statement
For the Month Ending January 31, 2020
Sales revenue................................................... £29,000

Cost of goods sold........................................... 20,300
Gross profit....................................................... 8,700
Operating expenses.........................................
Other operating expenses....................... £3,718
Bad debt expense..................................... 1,027
Supplies expense..................................... 840
Service charge expense........................... 30
Total operating expenses................................ 5,615
Income from operations.................................. 3,085
Other revenues and gains...............................
Interest revenue........................................ 8
Net Income........................................................ £ 3,093
ACR 8 (Continued)
VICTORIA LTD.
Retained Earnings Statement
For the Month Ending January 31, 2020
Retained earnings, January 1............................................. £12,730

Add: Net income.................................................................. 3,093
Retained earnings, January 31........................................... £15,823
VICTORIA LTD.
Statement of Financial Position
January 31, 2020
Assets
Current assets
Supplies....................................................... £ 560
Inventory..................................................... 6,300
Interest receivable...................................... 8
Accounts receivable................................... £22,950
Less: Allowance for doubtful
accounts.......................................... 1,377 21,573
Notes receivable......................................... 1,200
Cash............................................................. 17,832
Total assets........................................................ £47,473
Equity and Liabilities
Equity
Share capital—ordinary............................. £20,000
Current liabilities 15,823 £35,823
Accounts payable....................................... 11,650
Total equity and liabilities................................. £47,473
CT 8.1 FINANCIAL REPORTING PROBLEM
(a) CAF AG
Accounts Receivable Aging Schedule
May 31, 2020
Proportion Amount Probability Estimated

of in of Non- Uncollectible
Total Category Collection Amount
Not yet due .600 € 840,000 .02 €16,800
Less than 30 days past due .220 308,000 .04 12,320
30 to 60 days past due .090 126,000 .06 7,560
61 to 120 days past due .050 70,000 .09 6,300
121 to 180 days past due .025 35,000 .25 8,750
Over 180 days past due .015 21,000 .70 14,700
1.000 €1,400,000 €66,430
(b) CAF AG
Analysis of Allowance for Doubtful Accounts
May 31, 2020
June 1, 2019 balance...................................................... € 29,500

Bad debts expense accrual (€2,800,000 X .045).......... 126,000
Balance before write-offs of bad accounts.................. 155,500
Write-offs of bad accounts............................................ (102,000)
Balance before year-end adjustment............................ 53,500
Estimated uncollectible amount................................... (66,430)
Additional allowance needed........................................ € (12,930)
Bad Debt Expense.......................................................... 12,930

Allowance for Doubtful Accounts......................... 12,930
CT 8.1 (Continued)
(c) 1. Steps to Improve the 2. Risks and

Accounts Receivable Situation Costs Involved
Establish more selective credit- This policy could result in lost sales
granting policies, such as more and increased costs of credit
restrictive credit requirements or evaluation. The company may be all
more thorough credit investigations. but forced to adhere to the pre-
vailing credit-granting policies of
the office equipment and supplies
industry.
Establish a more rigorous collec- This policy may offend current

tion policy either through external customers and thus risk future
collection agencies or by its own sales. Increased collection costs
personnel. could result from this policy.
Charge interest on overdue accounts. This policy could result in lost sales
Insist on cash on delivery (cod) or and increased administrative costs.
cash on order (coo) for new cus-
tomers or poor credit risks.
CT 8.2 COMPARATIVE ANALYSIS PROBLEM
(a) (1) Accounts receivable turnover
Delfi Limited Nestlé
US$402,083 CHF89,469
(US$56,280 + US$61,756) ÷ 2 (CHF12,411 + CHF12,252) ÷ 2
US$402,083 CHF89,469
US$59,018 CHF12,331.5
(2) Average collection period
365 = 53.6 days 365 = 50.3 days

6.81 7.26
(b) Nestlé’s average collection period is about 3 days shorter than Delfi’s.
CT 8.3 REAL-WORLD FOCUS
(a) Factoring invoices enhances cash flow and allows a company to meet
business expenses and take on new opportunities. The benefits of
factoring include:
 Is available to small business that have no credit

 Provides you with money quickly
 Improves your cash flow
 Is easier to get than business loans
 Allows you to offer net 30 to net 60 days to clients
 Can be set up quickly
(b) Factoring rates range between 1.5% and 3.5% per month. The two
major variables considered when determining the rate are: (1) the size
of the line, and (2) the credit quality of the company’s clients.
(c) The first installment, ranges from 80% to 95% and vary depending on
your industry, your experience, and the credit profile of your clients. It
is deposited in your bank account as soon as you submit an invoice
and the invoice is verified. The second installment, the rebate, is
deposited in your account once your client pays the invoice in full on
their regular terms.
CT 8.4 DECISION-MAKING ACROSS THE ORGANIZATION
(a) 2020 2019 2018
Net credit sales............................................................... NT$500,000 NT$650,000 NT$400,000
Credit and collection expenses

Collection agency fees...................................... NT$ 2,450 NT$ 2,500 NT$ 2,300
Salary of accounts receivable
clerk 4,100 4,100 4,100
Uncollectible accounts (1.6%).......................... 8,000 10,400 6,400
Billing and mailing costs (0.5%)....................... 2,500 3,250 2,000
Credit investigation fees (0.15%)..................... 750 975 600
Total......................................................... NT$ 17,800 NT$ 21,225 NT$ 15,400
Total expenses as a percentage of
net credit sales............................................................. 3.56% 3.27% 3.85%
(b) Average accounts receivable (5%)................................... NT$ 25,000 NT$ 32,500 NT$ 20,000
Investment earnings
(8% X Ave. acc. rec.).................................................... NT$ 2,000 NT$ 2,600 NT$ 1,600
Total credit and collection expenses

per above NT$ 17,800 NT$ 21,225 NT$ 15,400
Add: Investment earnings*........................................... 2,000 2,600 1,600
Net credit and collection expenses.................................. NT$ 19,800 NT$ 23,825 NT$ 17,000
Net expenses as a percentage of

net credit sales............................................................. 3.96% 3.67% 4.25%
* The investment earnings on the cash tied up in accounts

receivable is an additional expense of continuing the existing credit
policies.
(c) The analysis shows that the credit card fee of 4% of net credit sales will
be higher than the percentage cost of credit and collection expenses in
each year before considering the effect of earnings from other investment
opportunities. However, after considering investment earnings, the
credit card fee of 4% will be less than the company’s percentage cost if
annual net credit sales are less than NT$500,000.
CT 8.4 (Continued)
Finally, the decision hinges on: (1) the accuracy of the estimate of
investment earnings, (2) the expected trend in credit sales, and (3) the
effect the new policy will have on sales. Non-financial factors include the
effects on customer relationships of the alternative credit policies and
whether the Piweks want to continue with the problem of handling their
own accounts receivable.
CT 8.5 COMMUNICATION ACTIVITY
Of course, this solution will differ from student to student. Important factors
to look for would be definitions of the methods, how they are similar and how
they differ. Also, look for use of good sentence structure, correct spelling, etc.
Example:
Dear Lily,
The two methods you asked about are methods of dealing with uncollectible
accounts receivable. The percentage-of-receivables (allowance) method is
used to estimate the amount uncollectible.
Under the percentage-of-receivables basis, management establishes a per-

centage relationship between the amount of receivables and expected losses
from uncollectible accounts. Customer accounts are classified by the length of
time they have been unpaid. This basis emphasizes cash realizable value of
receivables and is therefore deemed a “statement of financial position”
approach.
The direct write-off method does not estimate losses and an allowance account
is not used. Instead, when an account is determined to be uncollectible, it is
written off directly to Bad Debt Expense. Unless bad debt losses are insignifi-
cant, this method is not acceptable for financial reporting purposes.
Sincerely,
CT 8.6 ETHICS CASE
(a) The stakeholders in this situation are:
 The president of Diaz Fashions.

 The controller of Diaz Fashions.
 The shareholders.
(b) Yes. The controller is posed with an ethical dilemma—should he/she

follow the president’s “suggestion” and prepare misleading financial
statements (understated net income) or should he/she attempt to stand up
to and possibly anger the president by preparing a fair (realistic) income
statement.
(c) Diaz Fashions’ growth rate should be a product of fair and accurate
financial statements, not vice versa. That is, one should not prepare
financial statements with the objective of achieving or sustaining a
predetermined growth rate. The growth rate should be a product of
management and operating results, not of creative accounting.
GAAP FINANCIAL REPORTING PROBLEM
GAAP 8.1
(a) Accounts receivable turnover
2016 2015
$215,639 __ $233,715 ___
($15,754 + $16,849)/2 ($16,849 + $17,460)/2
= $215,639 = $233,715
$16,301.5 $17,154.5
Average collection period
365 = 27.7 days 365 = 26.8 days

13.2 13.6
(b) The accounts receivable turnover measures the number of times, on

average, a company collects accounts receivable during a period. The
average collection period measures the number of days it takes to
collect a receivable. From the results shown in (a), it is apparent that
Apple’s accounts receivable collections deteriorated slightly in 2016
over 2015. Both the turnover and the related collection period were
worse in 2016 as compared to 2015. However, if Apple’s credit terms
are 30 days, both years’ collection period fall within those terms.

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CHAPTER 8

Accounting for Receivables

ASSIGNMENT CLASSIFICATION TABLE

1. Explain how companies 1, 2, 3 1, 2 1 1, 2, 3, 4 1, 6, 7

2. Describe how companies 4, 5, 6, 7, 3, 4, 5, 2a, 2b 4, 5, 6, 7, 1, 2, 3, 4,

3. Explain how companies 13, 14, 15, 8, 9, 10 3 12, 13, 14, 6, 7

4. Describe the statement 18, 19, 20 3, 11, 12 4 16, 17 1, 6, 8, 9

Problem Difficulty Time

1 Prepare journal entries related to bad debt expense. Simple 15–20

2 Compute bad debt amounts. Moderate 20–25

3 Journalize entries to record transactions related to bad debts. Moderate 20–30

4 Journalize transactions related to bad debts. Moderate 20–30

5 Journalize entries to record transactions related to bad debts. Moderate 20–30

7 Prepare entries for various receivable transactions. Complex 50–60

8 Calculate and interpret various ratios. Moderate 10–15

9 Prepare financial statements. Moderate 25–35

Number LO BT Difficulty Time (min.)

Number LO BT Difficulty Time (min.)

4. Describe the statement presentation Q8-18 Q8-20 Q8-19 E8-14 BE8-3

Expand Your Critical Thinking Real-World Decision-Making Financial Reporting

3. Accounts Receivable.............................................................................................. 40

7. The adjusting entry is:

11. The reasons companies are selling their receivables are:

12. Cash....................................................................................................... 7,760,000

BRIEF EXERCISE 8.1

(a) Accounts receivable.

BRIEF EXERCISE 8.2

(a) Accounts Receivable............................................ 17,200

(b) Sales Returns and Allowances............................ 3,800

(c) Cash ($13,400 – $268)........................................... 13,132

BRIEF EXERCISE 8.3

(a) Bad Debt Expense................................................ 31,000

(b) Current assets

(a) Allowance for Doubtful Accounts............................. 6,200

(b) (1) Before Write-Off (2) After Write-Off

BRIEF EXERCISE 8.5

Accounts Receivable—Gray.............................................. 6,200

BRIEF EXERCISE 8.6

(b) Bad Debt Expense [(£420,000 X 1%) + £800] = £5,000

BRIEF EXERCISE 8.7

(b) Cash (€60,000 – €1,800).............................................. 58,200

Interest Maturity Date

BRIEF EXERCISE 8.9

Maturity Date Annual Interest Rate Total Interest

BRIEF EXERCISE 8.10

Jan. 10 Accounts Receivable........................................ 84,600

Feb. 9 Notes Receivable.............................................. 84,600

BRIEF EXERCISE 8.11

(a) Bad Debt Expense................................................. 18,000

BRIEF EXERCISE 8.12

Accounts Receivable Turnover:

Average Collection Period for Accounts Receivable:

March 1 Accounts Receivable...................................... 28,000

March 6 Sales Returns and Allowances...................... 1,000

March 11 Cash (€27,000 – €270)..................................... 26,730

The following entry should be prepared to increase the balance in the

To speed up the collection of cash, Neumann could sell its accounts

(b) The interest to be received at maturity is ₤186:

The entry recorded by Gentry Wholesalers at the maturity date is: