BRIEF EXERCISE 8-5

(a) Bad Debts Expense

[($400,000 X 2%) – $2,800]....................... 5,200
Allowance for Doubtful Accounts......... 5,200

(b) Bad Debts Expense

[($400,000 X 2%) + $900].......................... 8,900
Allowance for Doubtful Accounts......... 8,900
BRIEF EXERCISE 8-6*

Interest Maturity Date

(a) $800 August 9
(b) $875 October 12
(c) $200 July 11
BRIEF EXERCISE 8-7*

Maturity Date Annual Interest Rate Total Interest

(a) May 31 9% $9,000
(b) August 1 8% $ 600
(c) September 7 10% $6,000
BRIEF EXERCISE 8-9

(a) Bad Debts Expense..................................... 18,000

Allowance for Doubtful Accounts.........
18,000

(b) Current assets

Cash...................................................... $
90,000
Accounts receivable.............................$400,000
Less: Allowance for doubtful accounts
18,000 382,000
Inventory...............................................
180,000
Supplies.................................................
13,000

$665,000
EXERCISE 8-8
2011
May 1 Notes Receivable.................................. 5,000
Accounts Receivable—S. Dorsey..... 5,000
Dec.31 Interest Receivable............................... 200
Interest Revenue
($5,000 X 6% X 8/12)..................... 200
2012
May 1 Cash....................................................... 5,300
Notes Receivable............................. 5,000
Interest Receivable......................... 200
Interest Revenue
($5,000 X 6% X 4/12)..................... 100
 PROBLEM 8-1A

(a) Total estimated bad debts

Number of Days Outstanding

Over
Total 0–30 31–60 61–90 91–120 120
Accounts $377,00 $222,00
receivable 0 0 $90,000 $38,000 $15,000 $12,000
%
uncollectible 1% 4% 5% 8% 10%
Estimated
bad debts $10,120 $2,220 $3,600 $1,900 $1,200 $1,200

(b) Bad Debts Expense.............................. 14,120

Allowance for Doubtful Accounts
($10,120 + $4,000).......................
14,120

(c) Allowance for Doubtful Accounts......... 5,000

Accounts Receivable...................... 5,000
BYP 8-2 COMPARATIVE ANALYSIS PROBLEM

(a) (1) Accounts receivable turnover ratio

Tootsie Roll Hershey Foods

$495,592 $5,298,668
($37,512+ $31,213) ÷2 ($410,390 +$455,153) ÷2

$495,592 $5,298,668
=14.4 times = 12.2 times
$34,362.5 $432,771.5

(2) Average collection period

365 365
= 25.3 days = 29.9 days
14.4 12.2

(b) The general rule for the average collection period is that
it should not greatly exceed the credit term period.
Tootsie Roll’s average collection period (approximately
25 days) is shorter than the normal credit term period of
30 days and is better than Hershey Foods’ 30 day average
collection period.