Chap 008

Chapter 08 - Reporting and Interpreting Receivables, Bad Debt Expense, and Interest Revenue
Chapter 8
Reporting and Interpreting Receivables, Bad
Debt Expense, and Interest Revenue
ANSWERS TO QUESTIONS
1. The advantages of extending credit are that it allows a company to compete

effectively with competitors who extend credit. The additional gross profit earned
from selling on account is greater than the additional costs incurred.
The disadvantages of selling on credit include increased wage costs incurred in

hiring personnel to monitor and track credit customers, bad debt costs from
accounts that are collected late or not at all, and delayed receipt of cash.
2. Before discontinuing its credit card program, Kohls Corporation would have
compared the gross profit given up as a result of lost credit card sales to the
expenses given up (e.g., bad debts, wages and administration, interest).
Presumably, Kohls cancelled its private credit card program because the extra
expenses to run the credit card program exceeded the gross profit earned from it.
In making this decision, Kohls would note that consumers could use national
credit cards (such as Visa and Mastercard) rather than the Kohls credit card.
3. In conformity with the matching principle, the allowance method records Bad
Debt Expense in the same period in which the credit was granted and the sale
was made. Following the conservatism concept, accounting rules require
accounts receivable be reported at the amount which the company actually
expects to collect rather than the total that it would collect if everyone paid.
4. Using the allowance method, Bad Debt Expense is recognized in the period in
which (a) sales related to the uncollectible account were made.
5. The write-off of uncollectible accounts using the allowance method decreases the
asset Accounts Receivable and decreases the contra-asset Allowance for
Doubtful Accounts by the same amount. As a consequence, (a) net income is
unaffected and (b) net accounts receivable is unaffected.
8-1
6. With the aging of accounts receivables method, the calculated amount is the
desired balance to which the Allowance for Doubtful Accounts is to be adjusted.
That is, the difference between this calculated amount and the existing balance
in the Allowance for Doubtful Accounts is the amount recorded as an adjustment
to Bad Debt Expense and the Allowance for Doubtful Accounts. In contrast, with
the percentage of credit sales method, the calculated amount is the amount
recorded as an adjustment to Bad Debt Expense and the Allowance for Doubtful
Accounts.
7. Using the allowance method, the company would report $300 of revenue and
$15 of Bad Debt Expense in 2009. In 2010, the write off would reduce Accounts
Receivable and the Allowance for Doubtful Accounts, but it would not directly
affect Net Income. (The write-off could indirectly affect Net Income in 2010 if the
company had underestimated its bad debts in 2009, and consequently has to
increase its bad debt estimate in 2010. Not enough information is given in the
question to determine this.)
8. An account receivable is an amount owed to the business by a customer for

merchandise or services sold on credit. In contrast, a note receivable represents
the companys right to collect from another party, as documented in a contract
(called a promissory note).
9. The three components of the interest formula are: (1) the principal, which is
simply the amount of the receivable or payable, (2) the interest rate, which
always is given in annual terms, and (3) the time period covered in the interest
calculation.
Because interest rates are stated in terms of a full year, the time factor is used to
calculate interest for a period shorter than a year. It indicates how many months
out of 12 the interest period covers (e.g. 6/12 month for semi-annual interest
payments).
10. Under GAAP, the Accounts Receivable would be reported as a current asset, net
of the Allowance for Doubtful Accounts ($1,268,000 $249,000 = $1,019,000).
Because the Notes Receivable are due within the upcoming fiscal year, they too
would be reported as a current asset. Under IFRS, these accounts would be
reported as current assets, which would follow noncurrent assets on the balance
sheet.
11. An increase in the receivables turnover ratio generally indicates faster collection
of receivables. Both the top number (net credit sales) and the bottom number
(average receivables) in the ratio increase when credit sales occur. However,
when collections occur, only the bottom number is affected. Thus, an increase in
the ratio implies that collections (which reduce the bottom number in the ratio)
have increased more than sales.
8-2
12. To speed up sluggish receivables collections, managers can:
1) Hound customers for payment.
Two disadvantages of this method are: (1) it is time consuming and costly
and (2) it can annoy customers and cause them to take their business
elsewhere.
An advantage of this method is that it prompts customers to pay their
account balances.
2) Sell outstanding accounts receivable to another company (called a factor).
An advantage of this method is that you dont have to wait to collect cash
for your receivables. You can receive payment for the accounts receivable
with little effort on your part.
The disadvantage of this method is that the company incurs the cost of
having to pay the factor a fee that can be as much as 3% of the
receivables sold.
13. Longer credit periods could entice customers to buy more on account than they
might otherwise do with shorter credit periods. The consequences of greater
credit sales are increased Sales Revenue and increased Accounts Receivable.
All else equal, an increase in Accounts Receivable will require an increase in the
Allowance for Doubtful Accounts. This allowance is likely to be increased by a
greater proportion than the increase in receivables because the sales are being
made to less creditworthy customers. On an overall basis, it is difficult to
determine whether Sales Revenue will increase at a greater rate than the
increase in Net Accounts Receivable. Consequently, it is difficult to determine
how these two components of the receivables turnover ratio will affect the ratio.
Likewise, the impact of longer credit periods on Net Income is not clear. If the
gross profit from the increased sales exceeds the bad debts and other costs of
allowing longer credit periods (e.g., increased wages for following-up on unpaid
balances), Net Income will increase. If the increased sales are less than the
related expenses, then Net Income will decrease.
14. The direct write-off method accounts for uncollectible accounts in the period that
the accounts are determined to be bad. It violates the concept of conservatism by
reporting accounts receivable at the total amount owed by customers (an overly
optimistic point of view) rather than what is estimated to actually be collectible (a
more realistic viewpoint). Under the direct write-off method, an Allowance for
Doubtful Accounts is not used. The direct write-off method breaks the matching
principle by recording Bad Debt Expense in the period that customer accounts
are determined to be bad rather than matching the expense to the revenues
reported in the period when the credit sales are actually made.
15. If the direct write-off method were used, the company would record $300 of
revenue and no Bad Debt Expense in 2009. When the company writes off the
account in 2010, it would decrease Accounts Receivable and increase Bad Debt
Expense, causing a decrease in 2010 Net Income. The allowance method
follows the matching principle and is the more accurate reporting method
because it records Bad Debt Expense in the same period as the related sales.
8-3
Authors' Recommended Solution Time
(Time in minutes)
Skills Continuing
Mini-exercises Exercises Problems Development Case
Cases*
No. Time No. Time No. Time No. Time No. Time
1 5 1 5 CP8-1 15 1 10 1 15
2 4 2 5 CP8-2 20 2 10
3 5 3 15 CP8-3 15 3 30
4 3 4 10 CP8-4 20 4 10
5 3 5 5 CP8-5 20 5 20
6 3 6 15 PA8-1 15 6 15
7 3 7 15 PA8-2 20 7 30
8 3 8 15 PA8-3 15
9 5 9 12 PA8-4 20
10 5 10 10 PA8-5 15
11 3 11 10 PB8-1 15
12 5 12 15 PB8-2 20
13 8 13 10 PB8-3 15
14 3 14 10 PB8-4 20
15 4 15 10 PB8-5 15
16 5 16 15 C8-1 15
17 15
18 15
* Due to the nature of cases, it is difficult to estimate the amount of time students will
need to complete them. As with any open-ended project, it is possible for students to
devote a large amount of time to these assignments. While students often benefit from
the extra effort, we find that some become frustrated by the perceived difficulty of the
task. You can reduce student frustration and anxiety by making your expectations
clear, and by offering suggestions (about how to research topics or what companies to
select). The skills developed by these cases are indicated below.
Financial Ethical Critical

Case Research Technology Writing Teamwork
Analysis Reasoning Thinking
1 x
2 x
3 x x x x x
4 x x x
5 x x x
6 x x x
7 x x
8-4
ANSWERS TO MINI-EXERCISES
M81
Because we know Nutwares sales and gross profit, we can calculate its gross profit
percentage as 33.3%. If Nutwares sales increased to $60,000, we could assume the
same gross profit percentage and derive a gross profit of $20,000. When the additional
$25,000 in expenses is applied, Nutwares Income from Operations decreases by
$5,000 before considering other operating expenses. Given the provided information,
Nutware should not extend credit until it generates sufficient revenue to generate a
profit from credit sales (assuming this decision does not affect Nutwares existing sales.)
M82
JCPenney must have determined that the benefits of a national credit card program
exceeded the costs, whereas the opposite was true for its own private credit card
program. The benefits of both credit card programs would include increased sales
arising from greater customer convenience and improved customer loyalty. Private
credit card programs require the company to incur costs to approve, track, and collect
customer account balances, whereas national credit card programs charge a modest
fee for this service. A final difference between private and national credit card programs
is that national credit card companies provide JCPenney with cash for credit sales
within one or two days of making the credit sales whereas a private credit card would
allow customers 30 days or more before their accounts become due. The easy and
certainty of collecting cash for national credit card sales is the characteristic that justifies
classifying national credit card sales transactions as a Cash Equivalent rather than
Accounts Receivable.
8-5
M83
a.
Accounts Receivable $ 800,000

Less: Allowance for Doubtful Accounts (55,000)
Net Accounts Receivable $745,000
As of December 31, 2009, Extreme Fitness expected to collect $745,000.
b.
dr Allowance for Doubtful Accounts (-xA, +A) ........................ 5,000
cr Accounts Receivable (-A) ....................................... 5,000
c.

Net Accounts Receivable $ 745,000
As of January 3, 2010, Extreme Fitness expected to collect $745,000. No, this has not
changed from December 31, 2009 because these write-offs were estimated and allowed
for in 2009. Notice that the decrease in Accounts Receivable is offset by the decrease
in the Allowance for Doubtful Accounts.
8-6
M84
dr Accounts Receivable (+A) ........................................... 500

cr Allowance for Doubtful Accounts (+xA,-A) ........... 500
dr Cash (+A) .................................................................... 500

cr Accounts Receivable (-A) .................................... 500
M85
a. dr Allowance for Doubtful Accounts (-xA, +A) ......... 17,000

cr Accounts Receivable (-A) ............................. 17,000
b. dr Bad Debt Expense (+E,-SE) ................................ 14,000

cr Allowance for Doubtful Accounts (+xA,-A) ... 14,000
M86
Assets = Liabilities + Stockholders Equity

a. Allowance for Doubtful
Accounts (-xA) +8,000
Accounts Receivable -8,000
b. Allowance for Doubtful Bad Debt

Accounts (+xA) -10,000 Expense (+E) -10,000
M87
Credit sales this period $250,000
Bad debt loss rate (0.5%) .005
Bad Debt Expense this year $ 1,250
M88
Desired balance $1,600 credit
Unadjusted balance 250 credit
Required adjustment $1,350 credit
M89
a. dr Bad Debt Expense (+E,-SE) ................................ 1,250

b. dr Bad Debt Expense (+E,-SE) ................................ 1,350

Either the percentage of credit sales or aging of accounts receivables method may be
used to estimate the bad debts that the allowance method requires under GAAP.
8-7
M810
Principal Amount Annual Interest

on Note Receivable Rate Time Period Interest Earned
a. $ 100,000 10% 6 months $ 5,000
b. $ 40,000 10% 12 months $ 4,000
c. $ 50,000 8% 9 months $ 3,000
M811
Jan. 1 dr Note Receivable (+A) .......................................... 20,000

cr Cash (-A) ...................................................... 20,000
June 30 dr Cash (+A) ............................................................. 20,700

cr Note Receivable (-A) .................................... 20,000
cr Interest Revenue (+R,+SE)
(20,000 x 7% x 6/12) ....................... 700
M812
Nov. 1 dr Notes Receivable (+A) ........................................ 8,000

Dec 31 dr Interest Receivable (+A) ...................................... 80

cr Interest Revenue (+R,+SE) .......................... 80
($8,000 x 6% x 2/12)
Apr. 30 dr Cash (+A) ............................................................. 8,240

cr Note Receivable (-A) .................................... 8,000
cr Interest Receivable (-A)................................ 80
($8,000 x 6% x 4/12) ................................... 160
8-8
M813
Caterpillar, Inc.
Partial Balance Sheet
As of December 31, 2008
(in millions of dollars)
Assets
Current assets:
Cash and Cash Equivalents $ 2,736
Allowance for Doubtful Accounts 391
Accounts Receivable, net of Allowance 9,397
Inventories 8,781
Notes ReceivableCurrent 8,731
Other Current Assets 1,988
Total Current Assets $31,633
M814
Receivables Turnover Ratio Days to Collect

a. - +
b. + -
c. + -
M815
Imperative will receive $485,000 [500,000 x (1-.03)] from the sale. The factoring fee will
be equal to $15,000 (500,000 x 3%) and, because the company rarely factors its
receivables, the fee will be presented as an other expense on the companys income
statement. Factoring receivables increases the receivables turnover ratio because these
receivables are considered collected when they are sold.
8-9
M816
a. Accounts Receivable $ 800,000
As of December 31, 2009 Extreme Fitness reported it had $800,000 to collect (even
though only $745,000 was estimated as collectible).
b.
dr Bad Debt Expense (+E,-SE) .............................................. 5,000

cr Accounts Receivable (-A) ....................................... 5,000
c.
As of January 3, 2010, Extreme Fitness reported it had $795,000 to collect. Yes, this
amount has changed from December 31, 2009, because accounts that were deemed to
be uncollectible were written off.
8-10
ANSWERS TO EXERCISES
E81
(a) dr Bad Debt Expense (+E,-SE) ................................ 9,750

(b) dr Allowance for Doubtful Accounts (-xA, +A) .......... 1,000

E82

a. Allowance for Doubtful Accounts (+xA) -9,750 Bad Debt Expense (+E) -9,750
b. Allowance for Doubtful Accounts (-xA) +1,000

Accounts Receivable -1,000
E83
Req. 1
Dec. 10, 2009

dr Allowance for Doubtful Accounts (-xA, +A) ........... 1,500
cr Accounts Receivable (-A) .......................... 1,500
Dec. 31, 2009

dr Bad Debt Expense (+E,-SE) ................................ 1,700
cr Allowance for Doubtful Accounts (+xA,-A) . 1,700
($1,700 = $85,000 x 2%)
Req. 2
Income statement:
Operating expenses:
Bad Debt Expense ....................................................... $1,700
Balance sheet:
Current assets
Accounts Receivable ................................... $25,500*
Less: Allowance for Doubtful Accounts ...... (1,000)** $24,500
* ($25,500 = $10,000 + $85,000 - $68,000 - $1,500)

** ($1,000 = $800 - $1,500 + $1,700)
8-11
E83 (continued)
Req. 3
The 2% rate on credit sales appears to be too low because the Allowance for Doubtful
Accounts had a balance of only $800 at the beginning of 2009, yet accounts totalling
$1,500 were written off during 2009. This implies that the rate of uncollectible sales on
credit was greater than 2%.
E84
(a) dr Allowance for Doubtful Accounts (-xA, +A) .......... 300

cr Accounts Receivable (-A) ............................. 300
(b) dr Accounts Receivable (+A) .................................... 300

cr Allowance for Doubtful Accounts (+xA,-A) ... 300
dr Cash (+A) ............................................................. 300

E85

a. Allowance for Doubtful Accounts (-xA) +300
Accounts Receivable -300
b. Allowance for Doubtful Accounts (+xA) -300

Accounts Receivable +/-300
Cash +300
8-12
E86
Req. 1
Total Young Old

Accounts Receivable $ 500,000 $ 100,000 $ 400,000
Estimated Uncollectible (%) x5% x 35 %
Estimated Uncollectible ($) $ 145,000 $ 5,000 $140,000
Req. 2
dr- Allowance for Doubtful Accounts cr+

40,000 Unadjusted Bal.
105,000 Adjustment
145,000 Desired balance
The aging method gives us the ending balance in Allowance for Doubtful Accounts
($145,000). To reach this balance, we must increase the Allowance for Doubtful
Accounts by crediting it for $105,000 (and debiting Bad Debt Expense).
Req. 3
dr- Allowance for Doubtful Accounts cr+
Unadjusted Bal. 5,000
150,000 Adjustment
145,000 Desired balance

Because the account has a $5,000 debit balance and the aging method gives us a
credit balance of $145,000, we must credit $150,000 to the account (along with a debit
to Bad Debt Expense).
Req. 4
The Allowance for Doubtful Accounts could have a debit balance if the company were to
write off more accounts receivable than was previously estimated and recorded in the
Allowance for Doubtful Accounts.
8-13
E87
Req. 1
Total 1-30 31-90 > 90

Accounts Receivable $ 20,000 $ 12,000 $ 5,000 $ 3,000
Estimated Uncollectible (%) x3% x 15 % x 30 %
Estimated Uncollectible ($) $ 2,010 $ 360 $ 750 $ 900
Req. 2
Allowance for Doubtful Accounts

800 Unadj. Bal.
1,210 Adjustment
2,010 Desired Bal.
The amount of Bad Debt Expense for the year 2010 should be $1,210 ($2,010 $800).
Req. 3

Unadj. Bal. 600
2,610 Adjustment
2,010 Adj. Bal.
If the unadjusted balance was a $600 debit balance, the amount of Bad Debt Expense for
2010 would be $2,610 ($2,010 + $600).
8-14
E88
Req.1
November 30, 2010 Adjusting Journal Entry:

dr Bad Debt Expense (+E,-SE) ............................................. 500
cr Allowance for Doubtful Accounts (+xA,-A) .............. 500
($500 = $100,000 x 0.005)
Req. 2
The adjustment for estimated Bad Debt Expense for 2010 is computed as follows:
Total 1-30 31-90 > 90

Estimated Uncollectible ($) $ 3,850 $ 750 $ 1,500 $ 1,600
Req. 3

1,600 Unadj. Bal.
2,250 Adjustment
3,850 Desired Bal.
The amount of Bad Debt Expense for the year 2010 should be $2,250 ($3,850 $1,600).
December 31, 2010 Adjusting Journal Entry:

dr Bad Debt Expense (+E,-SE) ............................................. 2,250
cr Allowance for Doubtful Accounts (+xA,-A) .............. 2,250
Req. 4
The accounts related to accounts receivable can be shown one of two ways on the
December 31, 2010 balance sheet:
Accounts Receivable 89,000 OR Accounts Receivable, net of

Less: Allowance for Allowance for Doubtful
Doubtful Accounts (3,850) Accounts of $3,850 85,150
Accounts Receivable,
net of Allowance 85,150
8-15
E89
Req. 1
(a) dr Accounts Receivable (+A) .................................... 25,000

cr Service Revenue (+R,+SE) .......................... 25,000
(b) dr Allowance for Doubtful Accounts (-xA, +A) .......... 1,500

(c) dr Accounts Receivable (+A) .................................... 900

dr Cash (+A) ............................................................. 900

(d) dr Bad Debt Expense (+E,-SE) ................................ 500

Req. 2
Transaction Net Receivables Net Sales Income from

Operations
a. +25,000 +25,000 +25,000
b. NE NE NE
c. -900 NE NE
d. -500 NE -500
8-16
E810
July 1, 2009
dr Notes Receivable (+A) ..................................................70,000
cr Cash (-A) ............................................................... 70,000
Dec. 31, 2009

dr Interest Receivable (+A) ................................................ 3,500
cr Interest Revenue (+R,+SE) .................................. 3,500
($3,500 = $70,000 x 10% x 6/12)
July 1, 2010
dr Cash (+A)....................................................................... 7,000
cr Interest Receivable (-A) ........................................ 3,500
($70,000 x 10% x 6/12) ........................ 3,500
dr Cash (+A)....................................................................... 70,000

cr Notes Receivable (-A)........................................... 70,000
E811
Jan 1
dr Notes Receivable (+A) ..................................................50,000
cr Cash (-A) ............................................................... 50,000
June 30
dr Interest Receivable (+A) ................................................ 1,750
cr Interest Revenue (+R,+SE) .................................. 1,750
($1,750 = $50,000 x 7% x 6/12)
Dec 31
dr Cash (+A)....................................................................... 3,500
cr Interest Receivable (-A) ........................................ 1,750
($50,000 x 7% x 6/12) .......................... 1,750
dr Cash (+A)....................................................................... 50,000

cr Notes Receivable (-A)........................................... 50,000
8-17
E812
Nov. 1, 2010
dr Notes Receivable (+A) ......................................... 100,000
cr Cash (-A) ...................................................... 100,000
Dec. 31, 2010

dr Interest Receivable (+A) ...................................... 1,000
cr Interest Revenue (+R,+SE) .......................... 1,000
($1,000 = $100,000 x 6% x 2/12)
Apr. 30, 2011

dr Cash (+A) ............................................................. 3,000
cr Interest Receivable (-A)................................ 1,000
($2,000 = $100,000 x 6% x 4/12)
Oct. 31, 2011

dr Cash (+A) ............................................................. 3,000
cr Interest Revenue (+R,+SE) ......................... 3,000
($3,000 = 100,000 x 6% x 6/12)
dr Cash (+A) ............................................................. 100,000

cr Notes Receivable (-A) .................................. 100,000
E813
Req. 1
Bad Debt Expense has the effect of increasing (crediting) the Allowance for Doubtful
Accounts. We are given the beginning and ending balances in the Allowance account,
so we can solve for write-offs, which decrease (debit) the Allowance. See the following
T-account (amounts in millions).

117 Beg. balance
Write-offs 52 88 Bad debt estimate
153 End. balance
Req. 2
Receivables = Net Revenue = $60,420 = 4.8 times

Turnover Average Net ($13,589 + $11,338)/2
Ratio Receivables
8-18
E814
The Allowance for Doubtful Accounts is increased (credited) when Bad Debt Expense is
recorded and decreased (debited) when uncollectible accounts are written off. This
exercise gives the beginning and ending balances of the Allowance account and the
amount of uncollectible accounts that were written off. Therefore, the amount of Bad
Debt Expense can be computed as follows:
Allowance for
Doubtful Accounts
(a) 37
(c) 13 (d) 18
(b) 42
(a) + (d) (c) = (b), so (d) = (b) + (c) (a)
(a) Beginning balance (given)

(b) Ending balance (given)
(c) Uncollectible accounts write-off (given)
(d) Bad Debt Expense (calculated amount)
E815
Net Credit Average Net Accounts Receivables

Transaction Sales Receivable Turnover Ratio
a. NE NE NE
b. NE - +
E816
Req. 1
Receivables turnover = Net Sales = $37,953 = 9.1 times

ratio Average Net $4,150.5*
Accounts Receivable
Days to collect = 365 = 365 = 40.1 days

Receivables Turnover 9.1
* ($4,359 + $3,942) 2
Req. 2
The receivables turnover ratio reflects how many times average trade receivables were
recorded and collected during the period. Days to collect indicates the average time it
takes a customer to pay his/her account.
8-19
E817
Req. 1
Receivables = Net sales = $650,000 = 13.1

Turnover Ratio Average net ($50,000 + $49,000)/2
receivables
Req. 2

Turnover Ratio Average net ($50,000 + $49,000)/2
receivables
Req. 3
The receivables turnover ratio would be the same in both cases because Net Accounts
Receivable is not affected when accounts are written off under the allowance method.
Net Accounts Receivable is not affected with a write-off because the Accounts
Receivable balance is credited and the Allowance for Doubtful Accounts is debited by
the same amount. These two entries cancel each other out, making no change in Net
Accounts Receivable.
E818
Req. 1
2009 dr Accounts Receivable (+A) .................................... 30,000

cr Service Revenue (+R,+SE) .......................... 30,000
dr Cash (+A) ............................................................. 26,000

2010 dr Bad Debt Expense (+E,-SE) .......................... 4,000

cr Accounts Receivable (-A) ........................ 4,000
dr Accounts Receivable (+A) .................................... 5,000

cr Service Revenue (-A) ................................... 5,000
8-20
E818 (continued)
Req. 2
TREVORSON ELECTRONICS
Income Statement
For the Years Ended December 31
2009 2010
Service Revenue $30,000 $5,000
Operating Expenses
Bad Debt Expense 4,000
Net Income $30,000 $1,000
2009 was not as profitable as indicated because $4,000 of the revenue reported was
not going to be collected. 2010 was not as bad as indicated because $4,000 of Bad
Debt Expense actually belonged to revenues from the previous year. To receive better
information about profitability, Jon needs to use the allowance method of accounting for
uncollectible accounts.
8-21
ANSWERS TO COACHED PROBLEMS
CP81
Req.1
dr Bad Debt Expense (+E,-SE) ......................................... 97,435

cr Allowance for Doubtful Accounts (+xA,-A) ............ 97,435
($38,974,000 x 0.0025 = $97,435)
Req. 2
dr Bad Debt Expense (+E,-SE) .......................................... 158,000

cr Allowance for Doubtful Accounts (+xA,-A) ............ 158,000
($1,007,000 $849,000 = $158,000)
Req. 3
dr Bad Debt Expense (+E,-SE) .......................................... 1,017,050

cr Allowance for Doubtful Accounts (+xA,-A) ............ 1,017,050
($10,050 + $1,007,000 = $1,017,050)
Req. 4
dr Allowance for Doubtful Accounts (-xA, +A) ..................... 10,000

cr Accounts Receivable (-A) ..................................... 10,000
8-22
CP82
Req. 1 (in thousands)

711 Beg. balance
341 Bad debt exp.
Write-offs 335
717 End. balance
Beg. balance + Additions charged to Bad Debt Expense Write-offs = Ending balance
$711 + $341 $335 = $717
Req. 2
(a)
dr Bad Debt Expense (+E,-SE) ................................................. 341
cr Allowance for Doubtful Accounts (+xA,-A) ................. 341
(b)
dr Allowance for Doubtful Accounts (-xA, +A) ........................... 335
cr Receivables (-A) ........................................................ 335
Req. 3
Net Receivables is not affected when accounts are written off. The decrease in
Receivables is offset by a decrease in the Allowance for Doubtful Accounts. Net
Income also would not be affected as the expense for these estimated bad debts was
incurred when the allowance was set up during the period in which the revenues were
recorded.
8-23
CP83
Req. 1
April 30, 2009

cr Cash (-A) ...................................................... 100,000
Req. 2
June 30, 2009

($100,000 x 10% x 2/12)
Sept. 30, 2009

($100,000 x 10% x 3/12)
Oct. 31, 2009

dr Cash (+A) (100,000 x 10% x 6/12) ....................... 5,000
cr Interest Receivable (-A) ($1,667 + $2,500) .. 4,167
($100,000 x 10% x 1/12) ................................... 833
Dec. 31, 2009

($100,000 x 10% x 2/12)
Mar. 31, 2010
($100,000 x 10% x 3/12)
Apr. 30, 2010

dr Cash (+A) ($100,000 x 10% x 6/12) ..................... 5,000
($100,000 x 10% x 1/12) .................................. 833
Req. 3
Apr. 30, 2010

dr Cash (+A) ............................................................. 100,000
8-24
CP84
Req. 1
a.
Accounts Receivable +200,000 Service Revenue (+R) +200,000
dr Accounts Receivable (+A) 200,000

cr Service Revenue (+R, +SE) 200,000
b.
Allowance for Doubtful 2,000 Bad Debt Expense (+E) 2,000
Accounts (+xA)
dr Bad Debt Expense (+E, -SE) 2,000

cr Allowance for Doubtful Accounts (+xA, A) 2,000
c.
Cash +100,000
Accounts Receivable 100,000
dr Cash (+A) 100,000

cr Accounts Receivable (A) 100,000
d.
Accounts Receivable 500
Allow for Doubtful Accts (-xA) +500
dr Allowance for Doubtful Accounts (-xA, +A) 500

cr Accounts Receivable (A) 500
e.

f.
Accounts (+xA)

8-25
CP84 (continued)
Req. 1 (continued)
g.
Cash 12,000
Note Receivable +12,000
dr Note Receivable (+A) 12,000

cr Cash (A) 12,000
h.
Accounts Receivable +500
Allow. for Doubt. Accts. (+xA) 500
Cash +500
dr Accounts Receivable (+A) 500

cr Allowance for Doubtful Accounts (+xA, A) 500
dr Cash (+A) 500
i. Interest = Principal x Rate x Time = $12,000 x 10% x 1/12 = $100

Interest Receivable +100 Interest Revenue (+R) +100
dr Interest Receivable (+A) 100

cr Interest Revenue (+R, +SE) 100
j. Allowance for Doubtful Accounts AJE = $8,390 desired (see calculation below)
$6,000 current
= $2,390 adjustment
Total 0-30 31-60 61-90 > 90

Total Accounts Receivable $ 90,000 $ 36,500 $42,400 $ 5,100 $ 6,000
Estimated Uncollectible (%) 2% 10% 20% 40%
Estimated Uncollectible ($) $ 8,390 $ 730 $ 4,240 $1,020 $ 2,400

Accounts (+xA)

8-26
CP84 (continued)
Req. 2
EXECUSMART CONSULTANTS
At March 31, 2010
Assets
Current assets:
Less: Allowance for Doubtful Accounts 8,390
Accounts Receivable, Net of Allowance $ 81,610
Note Receivable 12,000
Interest Receivable 100
Req. 3
Execusmart Consultants would report Bad Debt Expense before Income from
Operations, and Interest Revenue after Income from Operations.
CP85
Req.1
Mattel
2008
Turnover Average net ($874 + $991)/2
Ratio receivables

2007
Ratio receivables

8-27
CP85 (continued)
Req. 1 (continued)
Hasbro
2008
Ratio receivables

2007
Ratio receivables

Req. 2
In 2008, the two companies turned over receivables at the same rate (6.3 times, or
every 57.5 days). In 2007, Hasbro was quicker than Mattel at converting its receivables
into cash (57.6 days for Hasbro versus 59.2 days for Mattel).
8-28
ANSWERS TO GROUP A PROBLEMS
PA81
Req. 1
dr Bad Debt Expense (+E,-SE) .......................................... 211

cr Allowance for Doubtful Accounts (+xA,-A) ............ 211
($211 = $42,201 x 0.5%)
Req. 2

($104 = $233 $129)
Req. 3

[$253 = $233 (-$20)]
Req. 4
dr Allowance for Doubtful Accounts (-xA, +A) ..................... 15

cr Accounts Receivable (-A) ..................................... 15
8-29
PA82
Req. 1
189 Beg. balance
Write-offs 69 0 Bad Debt Exp.
120 End. balance
Beginning balance + Bad Debt Expense Write Offs = Ending balance

$189 + 0 69 = $120
Req. 2
Heelys may not have recorded Bad Debt Expense in 2008 to correct for overestimates
in previous years.
Req. 3
(a) dr Bad Debt Expense (+E, SE) ............................................... 333

cr Allowance for Doubtful Accounts (+xA, A) ............... 333
(b) dr Allowance for Doubtful Accounts (xA, +A) .......................... 554

cr Accounts Receivable (A) .......................................... 554
Req. 4
Additions
Allowance for Balance at Charged to Balance at
Doubtful Beginning Bad Debt End
Accounts of Year Expense Write Offs of Year
2006 130 + 435
155 = 410
Req. 5
Net Receivables is not affected when accounts are written off. The decrease in
Accounts Receivable is offset by a decrease in the Allowance for Doubtful Accounts.
Net Income would also not be affected as the expense for these estimated bad debts
was incurred when the allowance was set up during the period in which the revenues
were recorded.
8-30
PA83
Req. 1
Feb. 28, 2009

cr Cash (-A) ...................................................... 50,000
Req. 2
June 30, 2009

($1,333 = $50,000 x 8% x 4/12)
Dec. 31, 2009

($2,000 = $50,000 x 8% x 6/12)
Req. 3
Feb. 28, 2010

dr Cash (+A) ............................................................ 4,000
cr Interest Revenue (+R,+SE) ......................... 667
($50,000 x 8% x 2/12)
Feb. 28, 2010

dr Cash (+A) ............................................................ 50,000
cr Notes Receivable (-A) ............................... 50,000
8-31
PA84
Req. 1
a.

b.
Allowance for Doubtful 400 Bad Debt Expense (+E) 400
Accounts (+xA)
dr Bad Debt Expense (+E, -SE) 400

c.
Cash +20,000
dr Cash (+A) 20,000

d.
Allow. for Doubtful Accts. (-xA) +100
dr Allowance for Doubtful Accounts (-xA, +A) 100

e.

f.
Accounts (+xA)

8-32
PA84 (continued)
Req. 1 (continued)
g.
Cash 2,400
cr Cash (A) 2,400
h.
Accounts Receivable +100
Allow. for Doubt. Accts. (+xA) 100
Cash +100
dr Accounts Receivable (+A) 100

dr Cash (+A) 100
i. Allowance for Doubtful Accounts AJE = $1,678 desired (see calculation below)
$1,200 current
= $ 478 adjustment
Total 0-30 31-60 61-90 > 90

Total Accounts Receivable $ 18,000 $ 7,300 $ 8,480 $ 1,020 $ 1,200
Estimated Uncollectible ($) $ 1,678 $ 146 $ 848 $ 204 $ 480

Accounts (+xA)

j. Interest = Principal x Rate x Time = $2,400 x 6% x 1/12 = $12


8-33
PA84 (continued)
Req. 2
WEB WIZARD, INC.
At March 31, 2010
Assets
Current assets:
Req. 3
Web Wizard would report Bad Debt Expense before Income from Operations, and
Interest Revenue after Income from Operations.
PA85
Req. 1
Coca-Cola
2008
Turnover Average net ($3,090 + $3,317)/2
Ratio receivables

2007
Ratio receivables

8-34
PA85 (continued)
Req. 1 (continued)
PepsiCo
2008
Ratio receivables

2007
Ratio receivables

Req. 2
PepsiCo has collected slightly faster than Coca-Cola. For example, in 2008, PepsiCo
collected in 30.9 days compared with Coca-Colas 36.5 days.
8-35
ANSWERS TO GROUP B PROBLEMS
PB81
Req. 1

($94 = $37,586 x 0.0025)
Req. 2

($23 = $40 $17)
Req. 3

[$60 = $40 (-$20)]
Req. 4
dr Allowance for Doubtful Accounts (-xA, +A) ..................... 15

cr Accounts Receivable (-A) ..................................... 15
PB82
Req. 1

128 Beg. balance
Write-offs 69 72 Bad debt exp.
131 End. balance
Beg. balance + Additions charged to Bad Debt Expense Write-offs = Ending balance
$128 + $72 $69 = $131
8-36
PB82 (continued)
Req. 2
(a)
dr Bad Debt Expense (+E,-SE) ................................................. 72
cr Allowance for Doubtful Accounts (+xA,-A) ................. 72
(b)
dr Allowance for Doubtful Accounts (-xA, +A) ........................... 69
cr Accounts Receivable (-A) .......................................... 69
Req.3
Additions
Allowance for Balance at Charged to Deductions Balance at
Doubtful Beginning Bad Debt From End
Accounts of Year Expense Allowance of Year
2007 116 + 54 - 42 = 128
2006 136 + 27 - 47 = 116
Req. 4
Net Accounts Receivable is not affected when accounts are written off. The decrease in
Accounts Receivable is offset by a decrease in the Allowance for Doubtful Accounts.
Net Income would also not be affected as the expense for these estimated bad debts
was incurred when the allowance was set up during the period in which the revenues
were recorded.
8-37
PB83
Req. 1
May 31, 2010

cr Cash (-A) ...................................................... 100,000
Req. 2
June 30, 2010

dr Interest Receivable (+A) ...................................... 500
($500 = $100,000 x 6% x 1/12)
Sept. 30, 2010

($1,500 = $100,000 x 6% x 3/12)
Nov. 30, 2010

dr Cash (+A) ($100,000 x 6% x 6/12) ....................... 3,000
cr Interest Receivable (-A) ($500 + $1,500) ..... 2,000
($100,000 x 6% x 2/12) ..................................... 1,000
Dec. 31, 2010

dr Interest Receivable (+A) ...................................... 500
($500 = $100,000 x 6% x 1/12)
Mar. 31, 2011

($1,500 = $100,000 x 6% x 3/12)
May 31, 2011

dr Cash (+A) ($100,000 x 6% x 6/12) ....................... 3,000
cr Interest Receivable (-A) ($500 + $1,500) ..... 2,000
($100,000 x 6% x 2/12) ..................................... 1,000
Req. 3
May 31, 2011

dr Cash (+A) ............................................................. 100,000
8-38
PB84
Req. 1
a.

b.
Accounts (+xA)

c.
Cash +250,000
dr Cash (+A) 250,000

d.
Allow. for Doubtful Accts. (-xA) +3,000
dr Allowance for Doubtful Accounts (-xA, +A) 3,000

e.

f.
Accounts (+xA)

8-39
PB84 (continued)
Req. 1 (continued)
g.
Cash 15,000
cr Cash (A) 15,000
h.
Accounts Receivable +3,000
Allow. for Doubt. Accts. (+xA) 3,000
Cash +3,000

dr Cash (+A) 3,000
i. Interest = Principal x Rate x Time = $15,000 x 4% x 1/12 = $50


j. Allowance for Doubtful Accounts AJE = $11,240 desired (see calculation below)
$ 9,000 current
= $ 2,240 adjustment
Total 0-30 31-60 61-90 > 90

Total Accounts Receivable $ 110,000 $ 47,000 $ 43,000 $ 10,000 $ 10,000
Estimated Uncollectible ($) $ 11,240 $ 940 $ 4,300 $ 2,000 $ 4,000

Accounts (+xA)

8-40
PB84 (continued)
Req. 2
ELITE EVENTS CORPORATION
At March 31, 2010
Assets
Current assets:
Req. 3
Elite Events would report Bad Debt Expense before Income from Operations, and
Interest Revenue after Income from Operations.
PB85
Req. 1
Wal-Mart
2009
Ratio receivables

2008
Ratio receivables

8-41
PB85 (continued)
Req. 1 (continued)
Target
2009
Ratio receivables

2008
Ratio receivables

Req. 2
Wal-Mart appears quicker than Target at converting receivables into cash. For the most
part, Wal-Mart does not allow customers to charge on account. (Credit card sales made
on bank cards like VISA and Mastercard are treated just like cash. You can think of
these bank cards as credit sales that are automatically and immediately factored to the
bank providing the credit card.) Target, on the other hand, has its own credit card
operations, which require significant time to collect.
Req. 3
The accounts receivable collections of both companies were adversely affected by the
economic difficulties in 2008-09, as indicated by the decreasing turnover ratios (and
increasing days to collect). This impact was particularly evident in Targets results. As a
result of unemployment and increasing costs of living (e.g., higher mortgage payments),
consumers found it difficult to pay their credit card balances on a timely basis.
8-42
ANSWER TO COMPREHENSIVE PROBLEM
C81
Req. 1
June May April Greater than

Total (one (two (three three
Customer Balance month) months) months) months)
Anjuli Stores $2,000 $2,000
Tonys Pharmacy 3,000 $3,000
Travis Pharmaco 1,500 $1,500
Walgreens 0
TOTAL $6,500 $0 $2,000 $1,500 $3,000
Req. 2
Total 2 months 3 months > 3 months

Estimated Uncollectible ($) $ 1,600 $ 100 $ 300 $ 1,200
Req. 3
OKAY OPTICAL, INC.
At June 30, 2010
Accounts Receivable, Net of Allowance of $1,600..$4,900
OKAY OPTICAL, INC.

Partial Income Statement
For the Six Months Ended June 30, 2010
Sales Revenue...$33,000 ($20,000 + $3,000 + $8,000 + $2,000)

Cost of Goods Sold.... 19,000 ($12,000 + $1,400 + $4,400 + $1,200)
Gross Profit.. 14,000
Income from Operations$12,400
Req. 4
OOI did not accurately estimate the precise amounts that would be collected from each
customer, yet the total estimate was accurate. That is, OOI underestimated the amount
collectible from Tonys Pharmacy (40% of $3,000, or $1,200, was estimated
uncollectible where it later turned out to be collectible in full). It overestimated the
amount collectible from Travis Pharmaco (20% of $1,500, or $300, was estimated
uncollectible where it later turned out to show that $1,500 was uncollectible). Looking at
Travis Pharmaco and Tonys Pharmacy combined, the estimated bad debt for both
customers was $1,500, which is the same amount the company wrote off.
8-43
ANSWERS TO SKILLS DEVELOPMENT CASES
S81
Req. 1
No, the company does not report an allowance for doubtful accounts (or valuation
reserve). According to Note 1 (under the Accounts Receivable heading), the amount
in the companys valuation reserve is not material to the financial statements.
Req. 2
Receivables Net sales $71,288 63.9

Turnover = Average net = =
Ratio receivables ($972 + $1,259)/2 times

S82
Req. 1
No, Lowes does not report any receivables because it decided in 2005 to sell its
receivables to General Electric and to let GEs commercial finance division handle the
task of collecting the receivables. See Note 1 under Credit Programs.
Req. 2
The receivables turnover and days to collect is useful only for companies that have
significant credit sales. Most home improvement retailers have low levels of Accounts
Receivable relative to Sales Revenue because the majority of their sales are collected
immediately as cash. Consequently, the receivables turnover ratio is not particularly
meaningful for these businesses.
S83
The solutions to this project will depend on the company and/or accounting period
selected for analysis.
8-44
S84
Req. 1
Amount in Allowance for Doubtful Accounts, December 31
Total 0-30 days 31-60 days 61-90 days 91-120 days > 120 days
$ 750,000 $340,000 $260,000 $70,000 $30,000 $50,000
x 1% x 5% x 8% x 10% x 50%
$ 50,000 3,400 13,000 5,600 3,000 25,000
Allowance for Doubtful Accounts estimated balance = $ 50,000
Req. 2
dr Bad Debt Expense (+E,-SE) ................................................ 3,180

cr Allowance for Doubtful Accounts (+xA,-A) ......... 3,180
Req. 3
Assets:
Current Assets:
Accounts Receivable $750,000
Req. 4
Total 0 - 30 31 - 60 61 - 90 91 - 120 >120

As previously
reported $750,000 $340,000 $260,000 $70,000 $30,000 $ 50,000
Add:
CT&T 100,000 100,000
NewTel 25,000 25,000
Telemedia 2,000 2,000
Revised
balances $877,000 $340,000 $260,000 $70,000 $30,000 $177,000
Bad debt percentages 1% 5% 8% 10% 50%
Total $113,500 $3,400 $13,000 $5,600 $3,000 $88,500
The new balance in Allowance for Doubtful Accounts would be $113,500, which is
$63,500 higher than the allowance when CT&T, NewTel, and Telemedia were not
included. Because of this increase, Bad Debt Expense would have been higher for the
year by $63,500, decreasing net income.
8-45
S84 (continued)
Req. 5
The matter should be investigated. By issuing notes to companies to enable them to

pay accounts receivable, the company is disguising bad debts as new loans. This leads
to an understatement of the Allowance for Doubtful Accounts and Bad Debt Expense,
which artificially inflates net income.
S85
Req. 1
A bad debts estimate of $2,110 ($8,000 $5,890) will produce the $8,000 balance in
the Allowance for Doubtful Accounts that the controller would like to see.
Req. 2
dr Bad Debt Expense (+E,-SE) ................................................. 2,110

cr Allowance for Doubtful Accounts (+xA,-A) ................. 2,110
Req. 3
Clear Optics, Inc.
Quarterly Income Statement
For the Third Quarter
(amounts in thousands of U.S. dollars)

Net Sales $ 135,800
Cost of Goods Sold 58,400
Gross Profit 77,400
Selling, General, and Administrative Expenses 56,560
Income before Income Tax Expense 18,730
Income Tax Expense 5,620
Net Income $ 13,110
With the adjustment, Clear Optics would report net income of $11,200; $12,030; and
$13,110 in quarters 1, 2, and 3a smooth increase in earnings.
Req. 4
No, the controllers advice is not a logical way to (honestly) estimate uncollectible
accounts. Loss rates are supposed to be used to estimate what the allowance should
be, not the other way around. The controller has advised that you work backwards from
a preferred number for the allowance to forecast bad debt loss rates, almost as if to
legitimize his preferred allowance number.
8-46
S85 (continued)
Req. 5
Clear Optics, Inc.
Quarterly Income Statement
For the third quarter
(amounts in thousands of U.S. dollars)

Net Sales $ 135,800
Cost of Goods Sold 58,400
Gross Profit 77,400
Selling, General, and Administrative Expenses 56,560
Bad Debt Expense 5,160 *
Income before Income Tax Expense 15,680
Income Tax Expense 5,620
Net Income $ 10,060
*$135,800 x 0.038 = $5,160
With this adjustment, the net income across the three quarters would no longer be a
smooth increase. It would go up from $11,200 to $12,030 and then fall to $10,060.
Req. 6
Yes, there is evidence of unethical behavior. The controller appeared to work

backwards to reach a preferred Allowance for Doubtful Accounts balance. This appears
to have been motivated by a desire to smooth income. The reduction in the historical
bad debt rate seems inconsistent with the controllers statement that customers are
slower in paying this quarter.
8-47
S86
Req. 1
(a)
Receivables = Net sales = $7,015,069 = 8.7
Ratio receivables
(b)
Ratio receivables
(c)
Ratio receivables
Req. 2
To: Chief Financial Officer

From: Owen Someone, Corporate Controller
Re: Problem Solved Credit Policies
This memo documents potential benefits and drawbacks of more stringent credit
policies. Potential benefits include (1) reduced employee costs for monitoring and
collecting from customers, (2) fewer bad debt losses, and (3) faster accounts receivable
turnover, which decreases the need for short-term financing to cover cash shortages.
Potential drawbacks include (1) increased employee costs for screening potential
customers, and (2) reduced sales.
8-48
S87
Req. 1
Req. 2
dr Bad Debt Expense (+E,-SE) ............................................. 10,060
cr Allowance for Doubtful Accounts (+xA,-A) .............. 10,060
($10,060 = $18,060 $8,000)
Req. 3
Your highest priority should be the accounts that are the oldest. In this case, both
Uneasy Isaacs and Jumpy Jims Coffee have account balances that have been
outstanding for more than 120 days (4 months). Of these two accounts, focus on
Uneasy Isaacs for two reasons: (1) his account is larger, and (2) he bought additional
goods on credit in the past 30 days, so you know he can be easily reached.
Req. 4
dr Allowance for Doubtful Accounts (-xA, +A) ..................... 1,000
cr Accounts Receivable (-A) ..................................... 1,000
8-49
CC8
Req. 1
September dr Accounts Receivable (+A). 1,800

cr Sales Revenue (+R, +SE) 1,800
dr Cost of Goods Sold (+E, - SE).. 900
cr Inventory (-A).. 900
October dr Accounts Receivable (+A). 450

cr Sales Revenue (+R, +SE). 450
November dr Accounts Receivable (+A). 300

cr Sales Revenue (+R, +SE). 300
December dr Cash (+A). 1,200

cr Accounts Receivable (-A). 1,200
Req. 2
Estimate the allowance for doubtful accounts:

($600 X 35%) + ($450 X 20%) + ($300 X 6%)
= $318
Req. 3
Allowance for Doubtful Accounts (xA)

50 Unadj. Bal.
268 AJE Bad Debt Expense
318 Desired Bal.
dr Bad Debt Expense (+E, -SE).. 268

cr Allowance for Doubtful Accounts (+xA, -A) 268
8-50
CC8 (continued)
Req. 4
Accounts Receivable = ($1,800 $1,200) + $450 + $300 = 1,350
Accounts Receivable $1,350

Less: Allowance for Doubtful Accounts (318)
Accounts Net Sales $9,000

Receivable = Average Accounts Receivable = ($1,032 + $800) = 9.8 times
Turnover Ratio 2
Req. 5
Nicoles accounts receivable turnover ratio of 9.8 times compares favorably against
Audreys Mineral Spas ratio of 9.0 times. This indicates that Nicoles Getaway Spa is
doing a better job in collecting receivables from customers than its competitor.
8-51

Chap 008

Transféré par

Informations du document

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Chap 008

Transféré par

Droits d'auteur :

Formats disponibles

Chapter 08 - Reporting and Interpreting Receivables, Bad Debt Expense, and Interest Revenue

1. The advantages of extending credit are that it allows a company to compete

The disadvantages of selling on credit include increased wage costs incurred in

8. An account receivable is an amount owed to the business by a customer for

Financial Ethical Critical

Accounts Receivable $ 800,000

As of December 31, 2009, Extreme Fitness expected to collect $745,000.

Accounts Receivable $ 795,000

dr Accounts Receivable (+A) ........................................... 500

dr Cash (+A) .................................................................... 500

a. dr Allowance for Doubtful Accounts (-xA, +A) ......... 17,000

b. dr Bad Debt Expense (+E,-SE) ................................ 14,000

Assets = Liabilities + Stockholders Equity

b. Allowance for Doubtful Bad Debt

a. dr Bad Debt Expense (+E,-SE) ................................ 1,250

b. dr Bad Debt Expense (+E,-SE) ................................ 1,350

Principal Amount Annual Interest

Jan. 1 dr Note Receivable (+A) .......................................... 20,000

June 30 dr Cash (+A) ............................................................. 20,700

Nov. 1 dr Notes Receivable (+A) ........................................ 8,000

Dec 31 dr Interest Receivable (+A) ...................................... 80

Apr. 30 dr Cash (+A) ............................................................. 8,240

Receivables Turnover Ratio Days to Collect

a. Accounts Receivable $ 800,000

dr Bad Debt Expense (+E,-SE) .............................................. 5,000

Accounts Receivable $ 795,000

(a) dr Bad Debt Expense (+E,-SE) ................................ 9,750

(b) dr Allowance for Doubtful Accounts (-xA, +A) .......... 1,000

Assets = Liabilities + Stockholders Equity

b. Allowance for Doubtful Accounts (-xA) +1,000

Dec. 10, 2009

Dec. 31, 2009

* ($25,500 = $10,000 + $85,000 - $68,000 - $1,500)

(a) dr Allowance for Doubtful Accounts (-xA, +A) .......... 300

(b) dr Accounts Receivable (+A) .................................... 300

dr Cash (+A) ............................................................. 300

Assets = Liabilities + Stockholders Equity

b. Allowance for Doubtful Accounts (+xA) -300

Total Young Old

dr- Allowance for Doubtful Accounts cr+

145,000 Desired balance

Total 1-30 31-90 > 90

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

November 30, 2010 Adjusting Journal Entry:

Total 1-30 31-90 > 90

Allowance for Doubtful Accounts

December 31, 2010 Adjusting Journal Entry:

Accounts Receivable 89,000 OR Accounts Receivable, net of

(a) dr Accounts Receivable (+A) .................................... 25,000

(b) dr Allowance for Doubtful Accounts (-xA, +A) .......... 1,500

(c) dr Accounts Receivable (+A) .................................... 900

dr Cash (+A) ............................................................. 900

(d) dr Bad Debt Expense (+E,-SE) ................................ 500

Transaction Net Receivables Net Sales Income from

Dec. 31, 2009

dr Cash (+A)....................................................................... 70,000

dr Cash (+A)....................................................................... 50,000

Dec. 31, 2010

Apr. 30, 2011

Oct. 31, 2011

dr Cash (+A) ............................................................. 100,000

Allowance for Doubtful Accounts

Receivables = Net Revenue = $60,420 = 4.8 times