Exercise 7-8

Requirement 1

July 15, 2000

Accounts receivable........................................................ 49,000
Sales revenue (98% x $50,000)...................................... 49,000

July 23, 2000

Cash................................................................................ 49,000
Accounts receivable.................................................... 49,000

Requirement 2

July 15, 2000

Accounts receivable........................................................ 49,000
Sales revenue (98% x $50,000)...................................... 49,000

August 15, 2000

Cash................................................................................ 50,000
Accounts receivable.................................................... 49,000
Interest revenue........................................................... 1,000
Exercise 7-18
Requirement 1

Cash (difference).............................................................. 49,000

Loss on sale of receivables (2% x $50,000)...................... 1,000
Accounts receivable (balance sold)............................... 50,000

Requirement 2

Cash (difference).............................................................. 49,000

Discount on liability (2% x $50,000)................................ 1,000
Liability – financing arrangement ............................. 50,000

Accounts receivable factored.......................................... 50,000

Accounts receivable.................................................... 50,000

Problem 7-1
Requirement 1
Computation of balance per books:

Balance per bank statement $14,632.12

Add: Deposits outstanding 575.00
Deduct: Checks outstanding (1,320.25)
Error in recording rent check (18.00)
Add: Automatic mortgage payment 450.00
Add: Bank service charges 14.00
Deduct: Deposit credit to company’s
account in error (875.00)
Add: NSF check charge 85.00
Balance per books $13,542.87
Step 1: Bank Balance to Corrected Balance

Balance per bank statement $14,632.12

Add: Deposits outstanding 575.00
Deduct:
Bank error - deposit incorrectly
credited to company account (875.00)
Checks outstanding (1,320.25)
Corrected cash balance $13,011.87

Step 2: Book Balance to Corrected Balance

Balance per books $13,542.87

Add: Error in recording rent check 18.00
Deduct:
Automatic mortgage note payment (450.00)
Service charges (14.00)
NSF checks (85.00)
Corrected cash balance $13,011.87
Problem 7-1 (concluded)

Requirement 2
To correct error in recording cash disbursement for rent.

Cash................................................................................ 18
Rent expense............................................................... 18

To record credits to cash revealed by the bank reconciliation.

Interest expense.............................................................. 350

Mortgage note payable................................................... 100
Miscellaneous expense (bank service charges).................. 14
Accounts receivable (NSF checks).................................... 85
Cash............................................................................ 549

Requirement 3
Checking account balance $13,011.87
Petty cash 200.00
U.S. treasury bills 5,000.00
Total cash and cash equivalents $18,211.87
Problem 7-3
Requirement 1
Monthly bad debt expense accrual summary.

Bad debt expense (3% x $2,620,000)................................. 78,600

Allowance for uncollectible accounts......................... 78,600

To record year 2000 accounts receivable write-offs.

Allowance for uncollectible accounts............................. 68,000

Accounts receivable.................................................... 68,000

Requirement 2

Bad debt expense ........................................................... 4,300

Allowance for uncollectible accounts (below)............. 4,300

Year-end required allowance for uncollectible accounts:

Summary
Percent Estimated
Age Group Amount Uncollectible Allowance
0-60 days $430,000 4% $17,200
61-90 days 98,000 15% 14,700
91-120 days 60,000 25% 15,000
Over 120 days 55,000 40% 22,000
Totals $643,000 $68,900
Problem 7-3 (concluded)
Allowance for uncollectible accounts:
Beginning balance $54,000
Add: Monthly bad debt accruals 78,600
Deduct: Write-offs (68,000)
Balance before year-end adjustment 64,600
Required allowance (determined above) 68,900
Required year-end increase in allowance $ 4,300

Requirement 3
Bad debt expense for 2000:

Monthly accruals $78,600

Year-end adjustment 4,300
Total $82,900

Balance sheet:

Current assets:
Accounts receivable, net of $68,900 in
allowance for uncollectible accounts $574,100
Problem 7-4
Requirement 1
(a)
Accounts receivable analysis:

Balance, beginning of year ($580,640 + 6,590) $ 587,230

Add: Credit sales 2,158,755
Less: Cash collections (2,230,065)
Less: Balance end of year ($504,944 + 5,042) (509,986)
Accounts receivable written off during year $ 5,934

(b)

Allowance for uncollectible accounts analysis:

Beginning balance $6,590

Less: Write-offs (from above) (5,934)
Less: Year-end balance (5,042)
Bad debt expense for the current year $4,386

(c)

$4,386 of bad debt expense divided by $2,158,755 in credit sales

equals .2% (.002).

Requirement 2
(a)
Current year Previous year
Current assets:
Receivables $509,986 $587,230

(b)

Bad debt expense would be equal to actual receivables written off

of $5,934.
Problem 7-5
Requirement 1
To record accounts receivable written off during the year 2000.

Allowance for uncollectible accounts............................. 35,000

Accounts receivable.................................................... 35,000

To record collection of account receivable previously written off.

Accounts receivable........................................................ 3,000

Allowance for uncollectible accounts......................... 3,000

Cash................................................................................ 3,000
Accounts receivable.................................................... 3,000

Requirement 2
(a)

December 31, 2000

Bad debt expense (3% x $1,750,000)................................. 52,500
Allowance for uncollectible accounts......................... 52,500

(b)

December 31, 2000

Bad debt expense............................................................ 36,700
Allowance for uncollectible accounts (below)............. 36,700
Problem 7-5 (continued)
Accounts receivable analysis:
Beginning balance $ 462,000
Add: Credit sales 1,750,000
Less: Write-offs (35,000)
Less: Cash collections (1,830,000)
Ending balance $ 347,000

$347,000 x 10% = $34,700 = Required allowance for uncollectible accounts

Allowance for uncollectible accounts analysis:

Beginning balance $30,000
Add: Collection of receivable previously written off 3,000
Less: Write-offs (35,000)
Balance before adjustment (2,000) debit balance
Required allowance (determined above) 34,700
Bad debt expense adjustment $36,700

(c)

December 31, 2000

Bad debt expense............................................................ 37,047
Allowance for uncollectible accounts (below)............. 37,047

Required allowance:

Percent Estimated
Age Group Amount uncollectible allowance
0-60 days $225,550 4% $ 9,022
61-90 days 69,400 15% 10,410
91-120 days 34,700 25% 8,675
Over 120 days 17,350 40% 6,940
Totals $347,000 $35,047
Problem 7-5 (concluded)

Allowance for uncollectible accounts analysis:

Beginning balance $30,000
Add: Collection of receivable previously written off 3,000
Less: Write-offs (35,000)
Balance before adjustment (2,000) debit balance
Required allowance 35,047
Bad debt expense adjustment $37,047

Requirement 3
Accounts receivable - Year-end allowance

(a) $347,000 - [$(2,000) + 52,500] = $296,500

(b) $347,000 - 34,700 = $312,300

(c) $347,000 - 35,047 = $311,953

Problem 7-8
Requirement 1

Cash (difference).............................................................. 768,000

Loss on sale of receivables (4% x $800,000)..................... 32,000
Accounts receivable (balance sold)............................... 800,000

Requirement 2

To record the transfer.

April 30, 2000

Cash (difference).............................................................. 768,000
Discount on liability (4% x $800,000)............................... 32,000
Liability – financing arrangement ............................. 800,000

Accounts receivable factored.......................................... 800,000

Accounts receivable.................................................... 800,000

To record the cash collection.

Liability – financing arrangement ................................. 600,000

Accounts receivable factored...................................... 600,000

Interest expense ($32,000 x $600,000/$800,000)...................... 24,000

Discount on liability................................................... 24,000