E 8-3

E 8-3
Req. 1

Journal
DATE	ACCOUNTS AND EXPLANATIONS	POST. REF.	DEBIT	CREDIT
Oct.	Cash		67,000
	Accounts Receivable		120,000
	Sales Revenue			187,000

Oct.	Cash		91,000
	Accounts Receivable			91,000

Oct.	Uncollectible-Account Expense
	($120,000 ´ .02)		2,400
	Allowance for Uncollectible Accounts			2,400

Oct.	Allowance for Uncollectible Accounts		1,070
	Accounts Receivable			1,070

Req. 2

Accounts Receivable			Allowance for Uncollectible Accounts
	28,000	91,000		1,070	1,600
	120,000	1,070			2,400
	55,930				2,930

Net accounts receivable = $53,000 ($55,930 ! $2,930)

Ageless Technology expects to collect the net receivable.

Req. 3
Balance sheet:

Current assets:

Accounts receivable, net of allowance for uncollectible

accounts of $2,930.............................................................. $53,000

(10 min.) E 8-4

Req. 1

Journal
DATE	ACCOUNTS AND EXPLANATIONS	POST. REF.	DEBIT	CREDIT
Oct.	Uncollectible-Account Expense		1,070
	Accounts Receivable			1,070

Req. 2

Ageless would report net accounts receivable $55,930, the balance in Accounts Receivable, computed as follows:

Accounts Receivable

Beg. Bal.

28,000

Collections

91,000

Cr. sales

120,000

Write-offs

1,070

End. bal.

55,930

Ageless does not expect to collect the full $55,930 because some credit customers are likely not to pay their accounts.

(15-30 min.) E 8-5

Req. 1

The credit balance at December 31, 20X4, in Allowance for Doubtful Accounts should be: ($140,000 ´ .003) + ($78,000 ´ .012) + ($69,000 ´ .06) + ($13,000 ´ .50) = $11,996. The current balance is $3,910. Thus, the adjusting entry amount is $8,086 ($11,996 ! $3,910).

Journal
DATE	ACCOUNTS AND EXPLANATIONS	POST. REF.	DEBIT	CREDIT
	Adjusting Entry:
	Doubtful-Account Expense		8,086
	Allowance for Doubtful Accounts			8,086

Allowance for Doubtful Accounts

3,910

Adj. entry

8,086

11,996

Req. 2
Balance sheet:

Current assets:

Accounts receivable, net of allowance

for doubtful accounts of $11,996 $288,004*

*Another way to report accounts receivable is

Accounts receivable $300,000

Less allowance for doubtful accounts (11,996) $288,004

(15 min.) E 8-6

Journal
DATE		ACCOUNTS AND EXPLANATIONS	POST. REF.	DEBIT	CREDIT
20X2
Dec.	31
	a.	Year-end adjusting entry:
		Uncollectible-Account Expense
		($450,000 ´ .01 ´ 1/2)		2,250
		Allowance for Uncollectible Accounts			2,250

Balance sheet:
Current assets:
Accounts receivable, net of allowance
for uncollectible accounts of $3,850¹.......................				$133,150²


^{1$1,600 + $2,250 = $3,850 ²$137,000 ! $3,850 = $133,150}

	b.	Year-end adjusting entry:
		Uncollectible-Account Expense
		($2,600 + $1,700)		4,300
		Allowance for Uncollectible Accounts			4,300

Balance sheet:
Current assets:
Accounts receivable, net of allowance
for uncollectible accounts of $2,600³ ......................				$134,400⁴

__________


^{3Allowance for Uncollectible Accounts}				^{4$137,000 ! $2,600 = $134,400}
Before adj:	1,700	Adj.	4,300
		Bal.	2,600

(10 min.) E 8-7

Req. 1

Interest for:

20X7

($1,000,000 ´ .09 ´ 8/12)……………...

$60,000

20X8

($1,000,000 ´ .09)……………………..

90,000

20X9

($1,000,000 ´ .09 ´ 4/12)……………...

30,000

Req. 2

First National Bank has a note receivable and interest revenue.

M. Redwine has a note payable and interest expense.

Req. 3

Payoff at November 30, 20X7:

Principal……………………………………………

$1,000,000

Interest ($1,000,000 ´ .09 ´ 7/12)………………....

52,500

Total……………………………………………….

$1,052,500

(10-15 min.) E 8-8

Journal
DATE		ACCOUNTS AND EXPLANATIONS	POST. REF.	DEBIT	CREDIT
Nov.	1	Note Receivable—Victor Rashad		50,000
		Cash			50,000

Dec.	3	Note Receivable—Lendox Corp.		3,750
		Sales Revenue			3,750

	16	Note Receivable—CFO Co.		4,000
		Accounts Receivable—CFO Co.			4,000

	31	Interest Receivable		719*
		Interest Revenue			719

__________

*($50,000 ´ .08 ´ 2/12) + ($3,750 ´ .11 ´ 28/360) + ($4,000 ´ .12 ´ 15/360) = $719

$667 $32 $20

(10-15 min.) E 8-9

Journal
DATE		ACCOUNTS AND EXPLANATIONS	POST. REF.	DEBIT	CREDIT
20X3
Feb.	12	Cash		53,900
		Bankcard Discount Expense
		($55,000 ´ .02)		1,100
		Sales Revenue			55,000

Apr.	1	Note Receivable—Peter Liu		8,000
		Cash			8,000

Dec.	31	Interest Receivable
		($8,000 ´ .12 ´ 9/12)		720
		Interest Revenue			720

20X4
Apr.	1	Cash [$8,000 + ($8,000 ´ .12)]		8,960
		Interest Receivable			720
		Interest Revenue
		($8,000 ´ .12 ´ 3/12)			240
		Note Receivable—Peter Liu			8,000

(10 min.) E 8-10

Req. 1

Journal
DATE		ACCOUNTS AND EXPLANATIONS	POST. REF.	DEBIT	CREDIT
Aug.	29	Accounts Receivable—M. Tallus		5,400
		Sales Revenue			5,400

Nov.	1	Note Receivable—M. Tallus		5,400
		Accounts Receivable—M. Tallus			5,400

Dec.	31	Cash		5,490
		Note Receivable—M. Tallus			5,400
		Interest Revenue
		($5,400 ´ .10 ´ 60/360)			90

(15-20 min.) E 8-11

Req. 1

				20X3	20X2

		Cash + Short-term investments		$3,000 + $23,000	$10,000 + $11,000
Acid-test ratio	=	+ Net current receivables	=	+ $73,000	+ $68,000
Acid-test ratio	=	Total current liabilities	=	$124,000	$127,000

			=	0.80	0.70

The acid-test ratio improved in 20X3. The store’s acid-test ratio in 20X3 compares favorably to the industry average of .80.

Req. 2

One day’s sales	=	$703,000	=	$1,926
One day’s sales	=	365	=	$1,926

Days’ sales in		Average net
average accounts	=	accounts receivable	=	($73,000 + $68,000) / 2
receivable	=	One day’s sales	=	$1,926

			=	37 days

The store’s days’-sales-in-receivables measure (37) exceeds the 30-day period of the credit terms by seven days. The company is having to wait seven days too long to collect its receivables.

(10-15 min.) E 8-12

Req. 1

Average collection period:		Billions of dollars

One day’s sales	=			$165	=		$.45
				365

Day’s sales in average receivables	=		($1 + $1) / 2			=	2 days
(average collection period)			$.45

Req. 2

Wal-Mart’s receivables are so low because most of its sales are for cash or on credit and bank cards. Wal-Mart can have a $1 billion receivable balance with no significant allowance for uncollectibles because Wal-Mart’s receivables are mainly from the bankcard companies (VISA, Mastercard, and so on). These companies’ credit is impeccable, and Wal-Mart expects to collect virtually all its receivables.

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Accounts Receivable
Beg. Bal.	28,000	Collections	91,000
Cr. sales	120,000	Write-offs	1,070
End. bal.	55,930

20X7	($1,000,000 ´ .09 ´ 8/12)……………...	$60,000
20X8	($1,000,000 ´ .09)……………………..	90,000
20X9	($1,000,000 ´ .09 ´ 4/12)……………...	30,000

Principal……………………………………………	$1,000,000
Interest ($1,000,000 ´ .09 ´ 7/12)………………....	52,500
Total……………………………………………….	$1,052,500