Assignment: Intermediate Accounting
1. Heather uses the allowance method for bad debts. During her first year of operations, Heather recorded (1) $200,000 of estimated bad debts expense, (2) $17,000 of write-offs, and (3) $1,000 of subsequent collections of receivables previously written off.
a. Prepare the entries for the three events that Heather recorded.
b. As of year-end, what was the balance in Heather's allowance for doubtful accounts?
2. Sonja's 12-31-14 unadjusted trial balance shows accounts receivable of $140,000 and an allowance for doubtful accounts of $4,000, credit balance. During 2014, Sonja wrote off $25,000 of receivables. During 2014, Sonja had $3,000 of subsequent collections of receivables previously written off. Sonja only records AJEs once each year as of year-end 12-31.
a. If Sonja estimates 10% of her ARs will be uncollectible, prepare the AJE she should make to record bad debt expense for 2014.
b. After making the AJE in part (a), what will be the net realizable value of Sonja's receivables as of 12-31-14?
c. After making the AJE in part (a), what will be Sonja's 2014 bad debt expense?
3. At the close of its first year of operations, December 31, 2017, the net realizable value of F's ARswas $1,650,000.During 2017, F recorded bad debt expenses of $250,000 and wrote off, as uncollectible, $100,000 of ARs. On the basis of this information, what should F report on its balance sheet at December 31, 2017 as gross accounts receivable?
4. Sonja's accounts receivable balance as of 12-31-16was $900,000. Sonja's 2016 credit sales totaled $8,500,000. Sonja's allowance for doubtful accounts per the 12-31-16unadjusted trial balance was $62,000. During 2016, Sonja wrote off $125,000 of receivables. During 2016, Sonja did NOT have any subsequent collections of receivables previously written off. Sonja only records AJEs once each year as of year-end 12-31.
a. On the basis of the above information, what was the balance in Sonja's allowance for doubtful accounts as of 01-01-16?
b. If Sonja estimates 15% of her outstanding receivables will be uncollectible, prepare the AJE she should make to record her bad debt expense for 2016.
5. G has accounts receivable of $750,000 as of December 31 and sales on credit during the year of $6,000,000. On its unadjusted trial balance, G has a debit balance of $750 in its allowance for doubtful accounts. G estimates 3.5% of its receivables will be uncollectible. Prepare the AJE G should make to adjust its allowance account and record bad debt expense.
6. Before year-end AJEs, D Company's account balances at December 31, 2017, for accounts receivable and the related allowance for uncollectible accounts were $1,500,000 and $90,000, respectively. An aging of accounts receivable indicated that $125,000 of the December 31 receivables are expected to be uncollectible. What is the net realizable value of D's accounts receivable after adjustment?
7. Ace only prepares AJEs once each year as of 12-31. Ace has:
• accounts receivable totaling $5,500,000 million as of 12-31
• an allowance for doubtful accounts of $291,000 as of 01-01
• AR write-offs of $264,000 during the year
• credit sales during the year of $70 million.
If Ace estimates 4% of its receivables will be uncollectible, prepare the AJE Ace should record for bad debt expense.
8. The following information pertains to R:
• Gross accounts receivable balance as of 12-31-14 was $985,000
• Allowance for doubtful accounts balance as of 12-31-14 was $59,000
• Total sales during 2015 (all sales were on a credit basis) were $3,125,000
• AR write-offs during 2015 were $48,000
• R's 12-31-15 AR aging analysis indicates a required balance in the allowance for doubtful accounts of $68,000.
• The NRV of R's receivables as of 12-31-15 was $905,000.
On the basis of the above, how much cash did R collect from its ARs during 2015?
9. Lucy factored $900,000 of accounts receivable with Ethel on a without recourse basis on May 1. Ethel assessed a finance charge of 2% of the total ARs factored. Ethel retained an amount equal to 5% of the total ARs factored to cover sales returns. During May and June, customers returned merchandise to Lucy on $40,000 of credit sales. All of these returns related to receivables from the $900,000 pool of ARs sold. After taking the returns into consideration, Ethel collected $849,000 of the factored ARs. On June 30, Lucy and Ethel "settled up" meaning Lucy and Ethel paid each other any cash that was due the other.
(a) Prepare the entry Lucy should make on May 1.
(b) Prepare the entry Lucy should make on June 30.
10. Lucy factored $750,000 of accounts receivable with Ethel on a with recourse basis on May 1. (Assume the transaction meets the criteria to be classified as a sale.) Ethel assessed a finance charge of $19,000. Ethel retained an amount equal to 3% of the total ARs factored to cover sales returns. Lucy estimated her recourse liability to be $31,000. During May and June, customers returned merchandise to Lucy on $20,000 of credit sales. All of the returns related to receivables from the $750,000 pool of ARs sold. After taking the returns into consideration, Ethel collected $707,000 of the factored receivables. On June 30, Lucy and Ethel "settled up" meaning Lucy and Ethel paid each other any cash that was due to theother.
(a) Prepare the entry Lucy should make on May 1.
(b) Prepare the entry Lucy should make on June 30.