Chapter Eight

Challenge Exercise 1 Expands on: E8-1 LO: 2 Presented below are selected transactions of Heinrich Company Heinrich sells in lar!e "#antities to other companies and also sells its prod#ct in a small retail o#tlet $arch 1 %old merchandise on acco#nt to &ir' Company for ()*+++* terms 2,1+* n,-+ - &ir' Company ret#rned merchandise worth (.++ to Heinrich / Heinrich collected the amo#nt d#e from &ir' Company from the $arch 1 sale 10 Heinrich sold merchandise for (8*+++ in its retail o#tlet 1he c#stomers #sed their Heinrich credit card -1 Heinrich added 1 02 monthly interest to the c#stomers3 credit card balance 4pril 1+ Heinrich collected (-*+0+ from credit card c#stomers 5nstr#ctions: a6 Prepare 7o#rnal entries for the transactions abo8e b6 9hat is the balance from credit card transactions in 4cco#nts :ecei8able after the 4pril 1+ transaction;

Challenge Exercise 2 Expands on: 8-Copyright 2012 John Wiley & Sons, Inc. #For Instr ctor $se %nly&
Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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LO: 1he led!er of :#r# Company at the end of the c#rrent year shows 4cco#nts :ecei8able (2++*+++* %ales (1*)++*+++* and %ales :et#rns and 4llowances (0+*+++ 5nstr#ctions: <a6 5f :#r# #ses the direct write-off method to acco#nt for #ncollectible acco#nts* 7o#rnali=e the ad7#stin! entry at >ecember -1* ass#min! :#r# determines that ?ar'in! @hosts Company3s (2*)++ balance is #ncollectible <b6 5f 4llowance for >o#btf#l 4cco#nts has a credit balance of (-*0++ in the trial balance* 7o#rnali=e the ad7#stin! entry at >ecember -1* ass#min! bad debts are expected to be <16 12 of net sales* and <26 1+2 of acco#nts recei8able <c6 5f 4llowance for >o#btf#l 4cco#nts has a debit balance of (-A+ in the trial balance* 7o#rnali=e the ad7#stin! entry at >ecember -1* ass#min! bad debts are expected to be <16 + A02 of net sales and <26 .2 of acco#nts recei8able <d6 9hy is the allowance method re"#ired by @44P;

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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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Challenge Exercise 3 Expands on: E/-) %O: 9ilder Company has acco#nts recei8able of (1-+*+++ at $arch -1 4n analysis of the acco#nts shows the followin! $onth of %ale $arch Bebr#ary Can#ary Prior to Can#ary ?alance* $arch -1 (8+*+++ 2A*.++ 1)*0++ A*/++ (1-+*+++

Credit terms are 2,1+* n,-+ 4t $arch -1* 4llowance for >o#btf#l 4cco#nts has a credit balance of (1*A++ prior to ad7#stment 1he company #ses the percenta!e-of-recei8ables basis for estimatin! #ncollectible acco#nts 9ilder estimates that 82 of acco#nts recei8able will become #ncollectible 1he company is considerin! #sin! the estimate of bad debts shown below Estimated Percenta!e Dncollectible 2 +2 0 +2 -+ +2 0+ +2

4!e of 4cco#nts 1E-+ days -1E.+ days .1E/+ days O8er /+ days

5nstr#ctions: <a6 Prepare the ad7#stin! entry at $arch -1 to record bad debt expense* ass#min! that the 82 estimate is #sed <b6 Prepare the ad7#stin! entry at $arch -1 to record bad debt expense* ass#min! the a!in! sched#le is #sed <c6 Compare the two approaches #sed abo8e

Challenge Exercise 4
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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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Expands on: E8-0 LO: 4t >ecember -1* 2+1-* >allas Company had a balance of (20*+++ in the 4llowance for >o#btf#l 4cco#nts >#rin! 2+1)* ?raddoc' wrote off acco#nts totalin! (22*2++ One of those acco#nts <(-*+++6 was later collected 4t >ecember -1* 2+1)* an a!in! sched#le indicated that the balance in the 4llowance for >o#btf#l 4cco#nts sho#ld be (-2*+++ 5nstr#ctions: <a6 Prepare 7o#rnal entries to record the 2+1) transactions of >allas Company <b6 5ndicate the effect <increase* decrease* or no effect6 that each of the fo#r transactions has on >allas Company3s assets* liabilities* stoc'holders3 e"#ity* and net income

Challenge Exercise 5 Expands on: E8-A

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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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LO: ) Presented below are two independent sit#ations <a6 On $arch -* $ineral Point 4ppliances sells (A++*+++ of its recei8ables to Horicon Bactors 5nc Horicon Bactors assesses a finance char!e of -2 of the amo#nt of recei8ables sold Prepare the entry on $ineral Point 4ppliances3 boo's to record the sale of the recei8ables <b6 On $ay 1+* Chip Company sold merchandise for ()*+++ and accepted the c#stomer3s 4merica ?an' $asterCard 4merica ?an' char!es a )2 ser8ice char!e for credit card sales Prepare the entry on Chip Company3s boo's to record the sale of merchandise <c6 9hy do companies sell recei8ables; <d6 9hy do companies accept national credit cards;

Challenge Exercise 6
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Expands on: E8-1+ LO: 0* .* 8 Ordone= %#pply Co has the followin! transactions related to notes recei8able d#rin! the last 2 months of 2+1) Fo8 1 Loaned (2+*+++ cash to %oo=ie 1a'ham on a 1-year* 1+2 note >ec 11 %old !oods to Coe 1rater* 5nc * recei8in! a (/*+++* /+-day* 82 note 1. :ecei8ed a (.*+++* .-month* /2 note in exchan!e for ?oba Bett3s o#tstandin! acco#nts recei8able -1 4ccr#ed interest re8en#e on all notes recei8able 5nstr#ctions: <a6 Co#rnali=e the abo8e transactions for Ordone= %#pply Co :o#nd interest to the nearest dollar <b6 :ecord the collection of the 1a'ham note at its mat#rity in 2+10 <c6 4ss#me 1a'ham dishonors its note at its mat#rity in 2+10G Ordone= expects to e8ent#ally collect the note :ecord the dishonor of the 1a'ham note <d6 4ss#me 1a'ham dishonors its note at its mat#rity in 2+10G Ordone= does not expect to collect the note :ecord the dishonor of the 1a'ham note

Challenge Exercise 7 Expands on: E8-1) LO: 2* )* /

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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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1he followin! information pertains to Fapa $erchandisin! Company $erchandise in8entory at end of year (0+*+++ 4cco#nts recei8able at be!innin! of year 0)*+++ Cash sales made d#rin! the year 2A*+++ @ross profit on sales -+*+++ 4cco#nts recei8able written off d#rin! the year 1*0++ P#rchases made d#rin! the year /+*+++ 4cco#nts recei8able collected d#rin! the year 11A*+++ $erchandise in8entory at be!innin! of year 0)*+++ 5nstr#ctions: <a6 Calc#late the amo#nt of credit sales made d#rin! the year <Hint: Ho# will need to #se income statement relationshipsIintrod#ced in Chapter 0Iin order to determine this 6 <b6 Calc#late the balance of acco#nts recei8able at the end of the year <c6 Comp#te the followin! ratios: acco#nts recei8able t#rno8er* and a8era!e collection period in days 4ss#me the allowance for do#btf#l acco#nts was (1*+++ both at the be!innin! and end of the year

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Weygandt, Financial and Managerial Acco nting, Challenge !"ercises

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