Question 1
Marcelo's Mattresses, Inc. grants its customers 30 days credit. The company uses the allowance method for its uncollectible accounts receivable. At December 31, an aging of accounts receivable schedule is prepared and the allowance for uncollectible accounts is adjusted accordingly. At 12/31/2012 accounts receivable had a debit balance of $1,250,000 and the allowance for bad debt had a credit balance of $106,000. Accounts receivable activity for 2003 was as follows:
Beginning balance $1,250,000
Credit sales $3,800,000
Collections ($3,745,000)
Write-offs ($82,000)
Ending balance $1,223,000
The company's controller prepared the following aging summary of year-end accounts receivable.
|
Age Group
|
Amount
|
% Uncollectible
|
|
0-60 days
|
$825,000
|
2%
|
|
61-90 days
|
$220,000
|
10%
|
|
91-120 days
|
$50,000
|
30%
|
|
Over 120 days
|
$128,000
|
40%
|
|
Total
|
$1,223,000
|
|
(1) Prepare the journal entry to record the year-end adjusting entry for uncollectible accounts.
(2) What is total bad debt expense for 2003? How would accounts receivable appear on the balance sheet for December 31, 2003?
Question 2
Frank's Furnaces sold 200 units to a customer on April 6, 2015. The units have a list price of $800 each, but the customer was given a 20% trade discount. The terms of the sale were 1/10, n/30.
(1) Prepare the journal entries to record the sale on April 6th and payment on April 16th assuming that the gross method of accounting for cash discounts is used. Ignore the entry to record COGS.
(2) Prepare the journal entries to record the sale on April 6th and payment on May 6th assuming that the gross method of accounting for cash discounts is used. Ignore the entry to record COGS.
(3) Repeat requirement (1) and (2) assuming that the net method of accounting for cash discounts is used.
Question 3
Vince's Vintage Company builds specially designed blades for generators used in wind energy farming operations. The company started the year with the following accounts receivable position:
Accounts Receivable $10,500,000
Less: Allowance for Uncollectible Accts. ($320,500)
During the year, customer Sandy Point Power Company was devastated by an unusually severe storm. At that time, Vince concluded that it was highly unlikely that Sandy Point would ever be able to pay its outstanding balance of $150,000. This account was written off against the allowance account. Much later in the year, Sandy Point was rescued by a group of investors to offered to pay $90,000 toward the unpaid balance provide that Vince's Vintage Company would permanently forgive the other $60,000 and resume selling products to Sandy Point. Vince's Vintage Company agreed and has since resumed doing business with Sandy Point.
During the year, sales on account amounted to $25,689,000. Collections on account totaled $21,300,500 (excluding the Sandy Point collection). Also during the year, accounts written off (not including the Sandy Point transaction) were $123,000. At year's end, a detailed analysis of accounts receivable was performed, and it was concluded that the allowance account should contain a balance of $475,000.
Prepare journal entries to record the following:
(a) The write-off of the Sandy Point receivable
(b) To restore the portion of the Sandy Point receivable that was collected
(c) To record the collection of the Sandy Point receivable
(d) To record sales on account
(e) To record collections on account
(f) To record the write-off of accounts
(g) To establish the correct balance in the allowance for uncollectible accounts
Question 4
The Wesley Book Company transferred $100,000 of accounts receivable to the American Trust Bank. The transfer was made without recourse. American Trust remits 90% of the factored amount and retains 10%. When the bank collects the receivables, it will remit to Wesley the retained amount less a 1% fee (1% of the total factored amount).
(a) Prepare the journal entry to record the transfer of accounts receivable to American Trust Bank assuming the sale criteria is met.
(b) Assume the same set of facts above except that the transfer was made with recourse and Wesley anticipates a $4,000 recourse obligation. Prepare the journal entry to record the transfer of accounts receivable to American Trust Bank assuming the sale criteria is met.