Wiley Accounts receivable turnover

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					                     8
                                                                                                       Exercises: Set B               37
Chapter

  EXERCISES: SET B
E8-1B Presented below are selected transactions of Scotland Company. Scotland sells in large          Journalize entries related to
quantities to other companies and also sells its product in a small retail outlet.                    accounts receivable.
March 1    Sold merchandise on account to CF Company for $4,000, terms 2/10, n/30.                    (SO 2)
      3    CF Company returned merchandise worth $600 to Scotland.
      9    Scotland collected the amount due from CF Company from the March 1 sale.
     15    Scotland sold merchandise for $1,000 in its retail outlet. The customer used his
           Scotland credit card.
        31 Scotland added 1.5% monthly interest to the customer’s credit card balance.


Instructions
Prepare journal entries for the transactions above.

E8-2B     Presented below are two independent situations.
(a) On January 6, Chris Co. sells merchandise on account to Columbus Inc. for $10,000, terms          Journalize entries for
    2/10, n/30. On January 16, Columbus Inc. pays the amount due. Prepare the entries on Chris’s      recognizing accounts
    books to record the sale and related collection.                                                  receivable.
(b) On January 10, Mary Dawson uses her Midwest Co. credit card to purchase merchandise               (SO 2)
    from Midwest Co. for $11,000. On February 10, Dawson is billed for the amount due of
    $11,000. On February 12, Dawson pays $8,000 on the balance due. On March 10, Dawson is
    billed for the amount due, including interest at 2% per month on the unpaid balance as of
    February 12. Prepare the entries on Midwest Co.’s books related to the transactions that oc-
    curred on January 10, February 12, and March 10.

E8-3B The ledger of Perez Company at the end of the current year shows Accounts                       Journalize entries to record
Receivable $150,000, Sales $850,000, and Sales Returns and Allowances $35,000.                        allowance for doubtful accounts
                                                                                                      using two different bases.
                                                                                                      (SO 3)
Instructions
(a) If Perez uses the direct write-off method to account for uncollectible accounts, journalize the
    adjusting entry at December 31, assuming Perez determines that Rosie’s $1,700 balance is
    uncollectible.
(b) If Allowance for Doubtful Accounts has a credit balance of $2,200 in the trial balance, jour-
    nalize the adjusting entry at December 31, assuming bad debts are expected to be (1) 1% of
    net sales, and (2) 10% of accounts receivable.
(c) If Allowance for Doubtful Accounts has a debit balance of $400 in the trial balance, journalize
    the adjusting entry at December 31, assuming bad debts are expected to be (1) 0.75% of net
    sales and (2) 6% of accounts receivable.

E8-4B Laura Company has accounts receivable of $100,000 at March 31. An analysis of the               Determine bad debts expense;
accounts shows the information on the next page.                                                      prepare the adjusting entry for
                                                                                                      bad debts expense.
                                                                                                      (SO 3)
                            Month of Sale          Balance, March 31
                            March                        $63,000
                            February                      19,000
                            January                       10,000
                            Prior to January               8,000
                                                        $100,000


Credit terms are 2/10, n/30. At March 31, Allowance for Doubtful Accounts has a credit balance
of $1,400 prior to adjustment.The company uses the percentage-of-receivables basis for estimating
uncollectible accounts. The company’s estimate of bad debts is as follows.

                                                                                                                                      37
38       Chapter 8 Exercises: Set B

                                                                                       Estimated Percentage
                                                            Age of Accounts                Uncollectible
                                                               1–30 days                        2.0%
                                                              31–60 days                        5.0%
                                                              61–90 days                       30.0%
                                                              Over 90 days                     50.0%

                                    Instructions
                                    (a) Determine the total estimated uncollectibles.
                                    (b) Prepare the adjusting entry at March 31 to record bad debts expense.

Journalize write-off and            E8-5B At December 31, 2010, Carvey Company had a balance of $19,000 in the Allowance
recovery.                           for Doubtful Accounts. During 2011, Carvey wrote off accounts totaling $16,000. One of those
(SO 3)                              accounts ($2,000) was later collected. At December 31, 2011, an aging schedule indicated that the
                                    balance in the Allowance for Doubtful Accounts should be $24,800.


                                    Instructions
                                    Prepare journal entries to record the 2011 transactions of Carvey Company.

Journalize percentage of sales      E8-6B On December 31, 2011, Jacques Co. estimated that 2% of its net sales of $500,000
basis, write-off, recovery.         will become uncollectible. The company recorded this amount as an addition to Allowance
(SO 3)                              for Doubtful Accounts. On May 11, 2012, Jacques Co. determined that Iraheta’s account
                                    was uncollectible and wrote off $1,300. On June 12, 2012, Iraheta paid the amount previously
                                    written off.


                                    Instructions
                                    Prepare the journal entries on December 31, 2011, May 11, 2012 and June 12, 2012.

Journalize entries for the sale     E8-7B     Presented below are two independent situations.
of accounts receivable.             (a) On March 3, Cornie Appliances sells $700,000 of its receivables to Horicon Factors Inc.
(SO 4)                                  Horicon Factors assesses a finance charge of 3% of the amount of receivables sold. Prepare
                                        the entry on Cornie Appliances’ books to record the sale of the receivables.
                                    (b) On May 10, Chip Company sold merchandise for $4,000 and accepted the customer’s
                                        America Bank MasterCard. America Bank charges a 4% service charge for credit card sales.
                                        Prepare the entry on Chip Company’s books to record the sale of merchandise.

Journalize entries for credit       E8-8B     Presented below are two independent situations.
card sales.
                                    (a) On April 2, Nancy Drew uses her J. C. Penney Company credit card to purchase merchandise
(SO 4)                                  from a J. C. Penney store for $2,000. On May 1, Drew is billed for the $2,000 amount due.
                                        Drew pays $800 on the balance due on May 3. On June 1, Drew receives a bill for the amount
                                        due, including interest at 1.0% per month on the unpaid balance as of May 3. Prepare the
                                        entries on J. C. Penney Co.’s books related to the transactions that occurred on April 2,
                                        May 3, and June 1.
                                    (b) On July 4, Minitori’s Restaurant accepts a Visa card for a $300 dinner bill. Visa charges a 3%
                                        service fee. Prepare the entry on Minitori’s books related to this transaction.

Journalize credit card sales, and   E8-9B Dekalb Stores accepts both its own and national credit cards. During the year the fol-
indicate the statement presenta-    lowing selected summary transactions occurred.
tion of financing charges and
                                    Jan. 15   Made Dekalb credit card sales totaling $20,000. (There were no balances prior to
service charge expense.
                                              January 15.)
(SO 4)                                   20   Made Visa credit card sales (service charge fee 2%) totaling $6,500.
                                    Feb. 10   Collected $11,000 on Dekalb credit card sales.
                                         15   Added finance charges of 1% to Dekalb credit card balance.


                                    Instructions
                                    (a) Journalize the transactions for Dekalb Stores.
                                    (b) Indicate the statement presentation of the financing charges and the credit card service
                                        charge expense for Dekalb Stores.
                                                                                                     Exercises: Set B              39

E8-10B Ivanez Supply Co. has the following transactions related to notes receivable during          Journalize entries for notes
the last 2 months of 2011.                                                                          receivable transactions.
                                                                                                    (SO 5, 6)
Nov. 1 Loaned $10,000 cash to Sally Brown on a 1-year, 12% note.
Dec. 11 Sold goods to Linus Smith, Inc., receiving a $7,000, 90-day, 9% note.
     16 Received a $6,000, 6-month, 10% note in exchange for Putty Pepper’s outstanding ac-
        counts receivable.
     31 Accrued interest revenue on all notes receivable.

Instructions
(a) Journalize the transactions for Ivanez Supply Co.
(b) Record the collection of the Brown note at its maturity in 2012.

E8-11B    Record the following transactions for Somonauk Co. in the general journal.                Journalize entries for notes
                                                                                                    receivable.
2011
                                                                                                    (SO 5, 6)
May 1 Received a $22,500, 1-year, 10% note in exchange for Joan Cooney’s outstanding ac-
        counts receivable.
Dec. 31 Accrued interest on the Cooney note.
Dec. 31 Closed the interest revenue account.
2012
May 1    Received principal plus interest on the Cooney note. (No interest has been accrued in
         2012.)

E8-12B    Briggs Company had the following select transactions.                                     Prepare entries for note receiv-
                                                                                                    able transactions.
Apr. 1, 2011 Accepted Harris Company’s 1-year, 12% note in settlement of a $25,000 account
              receivable.                                                                           (SO 5, 6, 8)
July 1, 2011 Loaned $30,000 cash to Alex Brown on a 9-month, 10% note.
Dec. 31, 2011 Accrued interest on all notes receivable.
Apr. 1, 2012 Received principal plus interest on the Harris note.
Apr. 1, 2012 Alex Brown dishonored its note; Briggs expects it will eventually collect.

Instructions
Prepare journal entries to record the transactions. Briggs prepares adjusting entries once a year
on December 31.

E8-13B On May 2, Patrick Company lends $16,000 to Sandy, Inc., issuing a 6-month, 9% note.          Journalize entries for dishonor
At the maturity date, November 2, Sandy indicates that it cannot pay.                               of notes receivable.
                                                                                                    (SO 5, 8)
Instructions
(a) Prepare the entry to record the issuance of the note.
(b) Prepare the entry to record the dishonor of the note, assuming that Patrick Company expects
    collection will occur.
(c) Prepare the entry to record the dishonor of the note, assuming that Patrick Company does
    not expect collection in the future.

E8-14B Alexis Company had accounts receivable of $300,000 on January 1, 2011. The only              Compute receivables turnover
transactions that affected accounts receivable during 2011 were net credit sales of $3,100,000,     and average collection period.
cash collections of $2,800,000, and accounts written off of $100,000.                               (SO 9)

Instructions
(a) Compute the ending balance of accounts receivable.
(b) Compute the accounts receivable turnover ratio for 2011.
(c) Compute the average collection period in days.

				
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