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ACCTG 1 Lecture Notes - Lecture 30: Promissory Note, Accounts Receivable, Book Value

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School
ELAC
Department
Accounting
Course
ACCTG 1
Professor
Yeung

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Document Summary

Once it is confirmed that the accounts receivable cannot be collected, it has to be written off. Debited: normally: bad debt expense, but already expensed against allowance of. The vice president of finance authorizes a write-off of ,500 owed by t. ebbet: Write off has to be reversed: debit accounts receivable, credit allowances for doubtful accounts. Record the collection: debit cash, credit accounts receivable. Summary of the allowance method: recording estimated uncollectible accounts, recording the write-off of an uncollectible account. Stronger legal claim to assets than accounts receivable; written promise (promissory note) to repay. A credit instrument that normally: requires the payment of interest, extends for time periods greater than 30 days. Often accepted from: customers who need to extend payment of an account receivable, high-risk customers. The basic formula for calculating interest on an interest-bearing note is: The interest rate specified on the note is an annual rate of interest.

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Related Questions

Jan. 19. Reinstated the account of Arlene Gurley, which had been written off in the preceding year as uncollectible. Journalize the receipt of $2,120 cash in full payment of Arlene’s account.
Apr. 3. Wrote off the $12,150 balance owed by Premier GS Co., which is bankrupt.
July 16. Received 30% of the $21,800 balance owed by Hayden Co., a bankrupt business, and wrote off the remainder as uncollectible.
Nov. 23. Reinstated the account of Harry Carr, which had been written off two years earlier as uncollectible. Recorded the receipt of $3,455 cash in full payment.
Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Cavey Co., $9,135 ; Fogle Co., $2,715 ; Lake Furniture, $ 6,975 ; Melinda Shryer, $1,970.
Dec. 31. Based on an analysis of the $1,074,100 of accounts receivable, it was estimated that $46,700 will be uncollectible. Journalize the adjusting entry.

Required:

1. Record the January 1 credit balance of $44,500 in a T account presented below in requirement 2b for Allowance for Doubtful Accounts.

2. a. Journalize the transactions. If an amount box does not require an entry, leave it blank. Note: For the December 31 adjusting entry, assume the $1,074,100 balance in accounts receivable reflects the adjustments made during the year.

Jan. 19-reinstate Accounts Receivable-Arlene Gurley
Allowance for Doubtful Accounts
Jan. 19-collection Cash
Accounts Receivable-Arlene Gurley
Apr. 3 Allowance for Doubtful Accounts
Accounts Receivable-Premier GS Co.
July 16 Cash
Allowance for Doubtful Accounts
Accounts Receivable-Hayden Co.
Nov. 23-reinstate Accounts Receivable-Harry Carr
Allowance for Doubtful Accounts
Nov. 23-collection Cash
Accounts Receivable-Harry Carr
Dec. 31-write-off Allowance for Doubtful Accounts
Accounts Receivable-Cavey Co.
Accounts Receivable-Fogle Co.
Accounts Receivable-Lake Furniture
Accounts Payable-Melinda Shryer
Dec. 31-adjusting Bad Debt Expense
Allowance for Doubtful Accounts

Feedback

Set up T accounts.
Recall that under the allowance method, the entry to write off an account debits Allowance for Doubtful Accounts and credits Accounts Receivable.
In such cases where an account receivable that has been written off is later collected, the account is reinstated by an entry that reverses the write-off entry. Then record the receipt of cash as payment for the account.
The amount of bad debt expense is affected by the balance in the allowance account.

Learning Objective 4.

2. b. Post each entry that affects the following T accounts and determine the new balances:

Allowance for Doubtful Accounts
Apr. 3 Jan. 1 Balance
July 16 Jan. 19
Dec. 31 Nov. 23
Dec. 31 Unadjusted Balance
Dec. 31 Adjusting Entry
Dec. 31 Adjusted Balance
Bad Debt Expense

Feedback

Set up T accounts.
Recall that under the allowance method, the entry to write off an account debits Allowance for Doubtful Accounts and credits Accounts Receivable.
In such cases where an account receivable that has been written off is later collected, the account is reinstated by an entry that reverses the write-off entry. Then record the receipt of cash as payment for the account.
The amount of bad debt expense is affected by the balance in the allowance account.

Learning Objective 4.

3. Determine the expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).
$

4. Assuming that instead of basing the provision for uncollectible accounts on an analysis of receivables, the adjusting entry on December 31 had been based on an estimated expense of ½ of 1% of the sales of $6,630,000 for the year, determine the following:

a. Bad debt expense for the year.
$

b. Balance in the allowance account after the adjustment of December 31.
$

c. Expected net realizable value of the accounts receivable as of December 31 (after all of the adjustments and the adjusting entry).
$

Feedback

Under the allowance method of accounting for uncollectible accounts

a. the net realizable value of accounts receivable is greater before an account is written off than after it is written off.

b. the net realizable value of accounts receivable in the balance sheet is the same before and after an account is written off.

c. Allowance for Doubtful Accounts is closed each year to Income Summary.

d. all of these.

e. Bad Debt Expense is debited when a specific account is written off as uncollectible.

A customer of Exquisite Flooring recently filed for bankruptcy protection two months ago, leading the credit manager of Exquisite Flooring to conclude that the company would never collect the balance of $2,800 owed by the customer to our company.

21.

Required information

Use the information above to answer the following question. Which of the following journal entries would be made by Exquisite Flooring to record the write-off of the customer's Accounts Receivable balance?

Debit Bad Debt Expense and credit Accounts Receivable for $2,800

Debit Sales and credit Accounts Receivable for $2,800

Debit Bad Debt Expense and credit Allowance for Doubtful Accounts for $2,800

Debit Allowance for Doubtful Accounts and credit Accounts Receivable for $2,800

22.

Required information

Use the information above to answer the following question. Suppose that three months after filing bankruptcy, Exquisite Flooring's customer paid its outstanding account balance. Which of the following journal entries would be made to record this transaction?

Debit Cash and credit Sales for $2,800

Debit Cash and credit Allowance for Doubtful Accounts for $2,800

Debit Cash and credit Accounts Receivable for $2,800

Debit Accounts Receivable and credit Allowance for Doubtful Accounts for $2,800; debit Cash and credit Accounts Receivable for $2,800