PROBLEM SET C
Rittenhouse Co. allows select customers to make purchases on credit. Its other customers can
useeither of two major credit cards: Big Bank and Plastic Fantastic. Big Bank charges a 5%
service charge on all sales and credits the bank account of Rittenhouse immediately when credit
card receipts are deposited. Rittenhouse deposits Big Bank credit card receipts each business day.
When customers use the Plastic Fantastic credit cards, Rittenhouse accumulates the receipts for
several days before submitting them to Plastic Fantastic for payment. Plastic Fantastic deducts a
3% service charge and usually pays within one week of being billed. The following transactions
were completed during September. (The terms of all credit salesare 2/15, n/30, and all sales are
recorded at the gross price.)
Sept. 1 Sold $800 or merchandise (that had cost $500) to John Tasker.
3 Made $670 ( that had cost $450) of sales to parents who used the Big Bank card.
5 Made $1,290 (that had cost $850) of sales to parents who used the Plastic Fantastic
6 Made another $2,050 (that had cost $1425) of sales to parents who used the Plastic
7 Submitted Plastic Fantastic card receipts to the credit card company for payment.
14 Received the amount due from Plastic Fantastic.
15 Received Tasker’s check in full payment for the purchase of September 1.
Prepare journal entries to record the preceding transactions and events.(The company uses the
perpetual inventory system.)
Winston Company began operations on January 1, 2007, During its first two years, the company
completed a number of transactions involving sales on credit, accounts receivable collections,
and bad debts. These transactions are summarized as follows:
a. Sold $875,000 of merchandise (that had cost $520,000) on credit, terms n/30.
b. Wrote off $20,000 of uncollectible accounts receivable.
c. Received $764,000 cash in payment of accounts receivable.
d. In adjusting the accounts on December 31, the company estimated that 2% of accounts
receivable will be uncollectible.
e. Sold $666,000 of merchandise (that had cost $420,000) on credit, terms n/30.
f. Wrote off $15,000 of uncollectible accounts receivable.
g. Received $802,000 cash in payment of accounts receivable.
h. In adjusting the accounts on December 31, the company concluded that 2.5% of accounts
receivable will be uncollectible.
Prepare journal entries to record Winston’s 2007 and 2008 summarized transactions and its year-
end adjustments to record bad debts expense. (The company uses the perpetual inventory
On December 31, 2008, Wiley Company’s records show the following results for the year:
Cash sales $1,181,000
Credit sales 2,012,000
In addition, its unadjusted trial balance includes the following items:
Accounts receivable $692,300 debit
Allowance for doubtful accounts 14,515 credit
1. Prepare the adjusting entry for Wiley Co. to recognize bad debts under each of the following
a. Bad debts are estimated to be 3% of credit sales.
b. Bad debts are estimated to be 2% of total sales.
c. An aging analysis suggests 8% of accounts receivable at year-end are uncollectible.
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on the
December 31, 2008, balance sheet given the facts in part (1a).
3. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on the
December 31, 2008, balance sheet given the facts in part (1c).
Newcomer Company has credit sales of $1.8 million dollars. On December 31, 2008, the
company’s Allowance for Doubtful Accounts has an unadjusted credit balance of $1,520.
Newcomer prepares a schedule of its December 31, 2008, accounts receivable by age. On the
basis of past experience, it also estimates the percent of receivables in each age category that will
become uncollectible. This information is summarized here:
December 31, Age of Accounts Expected
2008 Accounts Receivable Percent
$26,000 Not yet due 1.5%
18,000 1 to 30 days past due 3.0%
8,000 31 to 60 days past due 6.0%
4,000 61 to 90 days past due 20%
1,500 Over 90 days past due 60%
1. Estimate the amount needed in the Allowance for Doubtful Accounts at December 31, 2008,
using the aging of accounts receivable method.
2. Prepare the journal entry to record bad debts expense at December 31, 2008.
3. On June 30, 2009, Newcomer concludes that a customer’s $450 receivable (created in 2008) is
uncollectible and that the account should be written off. What effect will this action have on
Newcomer’s 2009 net income? Explain.
The following selected transactions are from Virginia Company:
Dec. 16 Accepted a $40,000, 60-day, 9% note dated this day granting Bonnie Parker a time
extension on her account receivable.
31 Made an adjusting entry to record the accrued interest on the Parker note.
Jan. 31 Accepted a $25,000, 60-day, 12% note dated this day granting Clyde Barrows a time
extension on his past-due account receivable.
Feb. 14 Received payment of principal plus interest from Parker for the note of December 15.
April 1 Barrows dishonored his note when presented for payment.
June 10 Accepted a $10,000, 30-day, 6% note dated this day in granting Alphonse Capone a
time extension on his past due account.
July 15 Capone refuses to pay the note that was due July 10. Prepare the journal entry to charge
the dishonored note plus accrued interest to Capone’s account receivable.
Aug. 20 Received payment from Capone for the maturity value of his dishonored note plus
18% interest for the 35 days past the maturity of the note.
Nov. 21 Accepted a $65,000, 120-day, 8% note dated this day from Dutch Shultz granting a time
extension on his account.
Dec. 31 Wrote off the Barrows account against Allowance for Doubtful Accounts.
Dec. 31 Made an adjusting entry to record accrued interest on the Shultz note.
1. Prepare journal entries to record these transactions and events.
2. What reporting is necessary when a business pledges receivables with recourse as security for
a loan and the loan is still outstanding at the end of the period? Explain the reason for this
requirement and the accounting principle being satisfied.
ccounting principle being satisfied.