Chapter 9

Accounting for Receivables

PROBLEMS: SET B
Prepare journal entries related
to bad debt expense.

P9-1B At December 31, 2013, Obermeyer Imports reported the following information on
its balance sheet.

(LO 2, 3, 9), AN

Accounts receivable
$250,000
Less: Allowance for doubtful accounts
15,000
During 2014, the company had the following transactions related to receivables.
1.
2.
3.
4.
5.

(b) Accounts receivable

$545,000
ADA $8,000
(c) Bad debt expense
$14,000
Compute bad debt amounts.

Sales on account
Sales returns and allowances
Collections of accounts receivable
Write-offs of accounts receivable deemed uncollectible
Recovery of bad debts previously written off as uncollectible

$2,600,000
45,000
2,250,000
10,000
3,000

Instructions
(a) Prepare the journal entries to record each of these five transactions. Assume that no
cash discounts were taken on the collections of accounts receivable.
(b) Enter the January 1, 2014, balances in Accounts Receivable and Allowance for Doubtful
Accounts. Post the entries to the two accounts (use T-accounts), and determine the balances.
(c) Prepare the journal entry to record bad debt expense for 2014, assuming that an aging
of accounts receivable indicates that estimated bad debts are $22,000.
(d) Compute the accounts receivable turnover for the year 2014.
P9-2B Information related to Miracle Company for 2014 is summarized below.

(LO 3), AN

Total credit sales

Accounts receivable at December 31
Bad debts written off

$1,000,000
369,000
22,150

Instructions
(a) What amount of bad debt expense will Miracle Company report if it uses the direct
write-off method of accounting for bad debts?
(b) Assume that Miracle Company decides to estimate its bad debt expense to be 2% of
credit sales. What amount of bad debt expense will Miracle record if Allowance for
Doubtful Accounts has a credit balance of $3,000?
(c) Assume that Miracle Company decides to estimate its bad debt expense based on 5%
of accounts receivable. What amount of bad debt expense will Miracle Company
record if Allowance for Doubtful Accounts has a credit balance of $4,000?
(d) Assume the same facts as in (c), except that there is a $2,000 debit balance in Allowance for Doubtful Accounts. What amount of bad debt expense will Miracle record?
(e)
What is the weakness of the direct write-off method of reporting bad debt expense?
Journalize entries to record
transactions related to bad
debts.

P9-3B Presented below is an aging schedule for Loucks Company.

Worksheet.xls
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(LO 2, 3), AN

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Customer
Alma
Browne
Conlon
Dalton
Others
Esmated
Percentage
Uncollecble
Total Esmated
Bad Debts

Total
$ 30,000
45,000
75,000
57,000
189,000
$396,000

Not
Yet Due

Number of Days Past Due

130
$ 13,500

3160
$16,500

6190

Over 90

$ 45,000
22,500

7,500

138,000
$205,500

22,500
$43,500

19,500
$36,000

$45,000

$57,000
9,000
$66,000

6%

10%

25%

40%

$ 2,610

$ 3,600

2%
$ 47,970

$ 4,110

$45,000

$ 11,250

$26,400

Problems: Set B

P-31

At December 31, 2014, the unadjusted balance in Allowance for Doubtful Accounts is a
credit of $16,000.
Instructions
(a) Journalize and post the adjusting entry for bad debts at December 31, 2014.
(b) Journalize and post to the allowance account the following events and transactions in
the year 2015.
(1) March 1, a $1,900 customer balance originating in 2014 is judged uncollectible.
(2) May 1, a check for $1,900 is received from the customer whose account was written
off as uncollectible on March 1.
(c) Journalize the adjusting entry for bad debts on December 31, 2015. Assume that the
unadjusted balance in Allowance for Doubtful Accounts is a debit of $2,000, and the
aging schedule indicates that total estimated bad debts will be $38,300.
P9-4B The following represents selected information taken from a companys aging schedule
to estimate uncollectible accounts receivable at year-end.

(a) Bad debt expense

$31,970

(c) Bad debt expense

$40,300
Journalize transactions
related to bad debts.

(LO 2, 3), AN
Worksheet.xls
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Number of Days Outstanding

Accounts receivable
% uncollecble
Esmated bad debts

030
Total
$375,000 $220,000
1%

3160
$90,000
4%

6190
$40,000
5%

91120
$10,000
8%

Over 120
$15,000
20%

Instructions
(a) Calculate the total estimated bad debts based on the above information.
(b) Prepare the year-end adjusting journal entry to record the bad debts using the allowance method and the aged uncollectible accounts receivable determined in (a). Assume
the current balance in Allowance for Doubtful Accounts is a $3,000 credit.
(c) Of the above accounts, $1,600 is determined to be specifically uncollectible. Prepare
the journal entry to write off the uncollectible accounts.
(d) The company subsequently collects $700 on a specific account that had previously
been determined to be uncollectible in (c). Prepare the journal entry(ies) necessary to
restore the account and record the cash collection.
(e) Explain how establishing an allowance account satisfies the expense recognition
principle.
P9-5B At December 31, 2014, the trial balance of Markowitz Company contained the
following amounts before adjustment.
Debit
Accounts Receivable
Allowance for Doubtful Accounts
Sales Revenue

Credit

$250,000

(a) Tot. est.

bad debts $11,600

Journalize entries to record

transactions related to bad
debts.

(LO 3), AN

$ 1,100
650,000

Instructions
(a) Prepare the adjusting entry at December 31, 2014, to record bad debt expense under
each of the following independent assumptions.
(1) An aging schedule indicates that $13,500 of accounts receivable will be uncollectible.
(2) The company estimates that 2% of sales will be uncollectible.
(b) Repeat part (a) assuming that instead of a credit balance, there is a $1,100 debit balance
in Allowance for Doubtful Accounts.
(c) During the next month, January 2015, a $3,200 account receivable is written off as
uncollectible. Prepare the journal entry to record the write-off.
(d) Repeat part (c) assuming that Markowitz Company uses the direct write-off method
instead of the allowance method in accounting for uncollectible accounts receivable.
(e)
What are the advantages of using the allowance method in accounting for
uncollectible accounts as compared to the direct write-off method?

(a)(2) $13,000

P-32

9 Accounting for Receivables

Prepare entries for various

notes receivable transactions.

P9-6B Sauer Co. closes its books monthly. On June 30, selected ledger account balances are:
Notes Receivable
Interest Receivable

(LO 2, 4, 5, 8, 9), AN

$47,000
285

Notes Receivable include the following.

Date

Maker

Face

Term

Interest

May 16
May 25
June 30

Eddy Inc.
Masasi Co.
Pelsma Corp.

$12,000
20,000
15,000

60 days
60 days
6 months

7%
9%
8%

During July, the following transactions were completed.

July 5
14
14
15
24

(b) Accounts receivable

$28,010
(c) Total receivables $43,110
Prepare entries for various
receivable transactions.

(LO 2, 4, 5, 6, 8), AP

Made sales of $7,200 on Sauer Co. credit cards.

Made sales of $1,000 on Visa credit cards. The credit card service charge is 3%.
Added $510 to Sauer Co. credit card customer balances for finance charges on
unpaid balances.
Received payment in full from Eddy Inc. on the amount due.
Received notice that the Masasi Co. note has been dishonored. (Assume that
Masasi Co. is expected to pay in the future.)

Instructions
(a) Journalize the July transactions and the July 31 adjusting entry for accrued interest
receivable. (Interest is computed using 360 days.)
(b) Enter the balances at July 1 in the receivable accounts. Post the entries to all of the
receivable accounts.
(c) Show the balance sheet presentation of the receivable accounts at July 31.
P9-7B On January 1, 2014, Morfitt Company had Accounts Receivable $98,000 and Allowance for Doubtful Accounts $8,100. Morfitt Company prepares financial statements annually.
During the year, the following selected transactions occurred.
Jan. 5
Feb. 2
12
26
5
12
June 2
July 5
Apr.

15
Oct. 15

Sold $10,800 of merchandise to Motte Company, terms n/30.

Accepted a $10,800, 4-month, 9% promissory note from Motte Company for
the balance due.
Sold $13,500 of merchandise to Gitchel Company and accepted Gitchels
$13,500, 2-month, 8% note for the balance due.
Sold $9,000 of merchandise to Benedict Co., terms n/10.
Accepted a $9,000, 3-month, 8% note from Benedict Co. for the balance due.
Collected Gitchel Company note in full.
Collected Motte Company note in full.
Benedict Co. dishonors its note of April 5. It is expected that Benedict will
eventually pay the amount owed.
Sold $12,000 of merchandise to Kriley Co. and accepted Krileys $12,000,
3-month, 12% note for the amount due.
Kriley Co.s note was dishonored. Kriley Co. is bankrupt, and there is no hope
of future settlement.

Instructions
Journalize the transactions.