ACTG 1P91 Lecture Notes - Lecture 7: Accounts Receivable, Income Statement, Promissory Note
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Sparkle Spa Corporation | ||
Transactions for 2015 and 2016 | ||
May 12, 2015 | Provide service to customers on account | $80,000 |
August 19, 2015 | Recieve cash from customers on account | $65,000 |
December 31, 2015 | Estimated A/R that will not be received | 20% |
April 4, 2016 | Provide service to customers on account | $73,000 |
June 22, 2016 | Recieve cash from customers for services | $8,000 |
July 2, 2016 | Finds out a customer who owed $2,000 now cannot pay his Account Recievable. So Sparkle Spa will write off this account | $2,000 |
October 19, 2016 | Recieve cash from customers for services | $42,000 |
December31,2016 | Estimated A/R that will not be received | 20% |
Sparkle Spa Corporation | ||||
2015 Journal Entries | ||||
Date | Account | Debit | Credit | |
May 12, 2015 | Accounts Recievable | |||
Service Revenue | ||||
Provide services on account. | ||||
Aug 19, 2015 | Cash | |||
Accounts Recievableâ | ||||
Recieve cash on account | ||||
Dec 31, 2015 | Bad Debt Expense | |||
Allowance for Uncollectable Accounts | ||||
Estimate future bad debts |
The following selected transactions were taken from the recordsof Shipway Company for the first year of its operations endingDecember 31:
Apr. 13 | Wrote off account of Dean Sheppard, $5,190. | ||||||||||
May 15 | Received $2,600 as partial payment on the $6,900 account of DanPyle. Wrote off the remaining balance as uncollectible. | ||||||||||
July 27 | Received $5,190 from Dean Sheppard, whose account had beenwritten off on April 13. Reinstated the account and recorded thecash receipt. | ||||||||||
Dec. 31 | Wrote off the following accounts as uncollectible (record asone journal entry): | ||||||||||
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Dec. 31 | If necessary, record the year-end adjusting entry for theuncollectible accounts. |
For those amount boxes in which no entry is required, leave thebox blank. If an entry is not required, select "No entry" from thedropdown box(es).
a. Journalize the transactions under the directwrite-off method.
Apr. 13 | Bad Debt Expense | ||
Accounts Receivable-DeanSheppard | |||
May 15 | Cash | ||
Bad Debt Expense | |||
Accounts Receivable-DanPyle | |||
July 27-reinstate | Accounts Receivable-DeanSheppard | ||
Bad Debt Expense | |||
July 27-collection | Cash | ||
Accounts Receivable-DeanSheppard | |||
Dec. 31-write-off | Bad Debt Expense | ||
Accounts Receivable-PaulChapman | |||
Accounts Receivable-DuaneDeRosa | |||
Accounts Receivable-TeresaGalloway | |||
Accounts Receivable-ErnieKlatt | |||
Accounts Receivable-MartyRichey | |||
Dec. 31-adjusting | No entry | ||
No entry |
b. Shipway Company uses the percent of creditsales method of estimating uncollectible accounts expense. Based onpast history and industry averages, 2% of credit sales are expectedto be uncollectible. Shipway Company recorded $1,266,500 of creditsales during the year.
Journalize the transactions under the allowance method.
Apr. 13 | Allowance for DoubtfulAccounts | ||
Accounts Receivable-DeanSheppard | |||
May 15 | Cash | ||
Allowance for DoubtfulAccounts | |||
Accounts Receivable-DanPyle | |||
July 27-reinstate | Accounts Receivable-DeanSheppard | ||
Allowance for DoubtfulAccounts | |||
July 27-collection | Cash | ||
Accounts Receivable-DeanSheppard | |||
Dec. 31-write-off | Allowance for DoubtfulAccounts | ||
Accounts Receivable-PaulChapman | |||
Accounts Receivable-DuaneDeRosa | |||
Accounts Receivable-TeresaGalloway | |||
Accounts Receivable-ErnieKlatt | |||
Accounts Receivable-MartyRichey | |||
Dec. 31-adjusting | Bad Debt Expense | ||
Allowance for DoubtfulAccounts |
Feedback
Remember that under the direct write-off method, Bad DebtExpense is not recorded until the customer's account is determinedto be worthless.
Under the allowance method once a customer account is identifiedas uncollectible, it is written off against the allowanceaccount.
Learning Objective 5.
c. How much higher (lower) would ShipwayCompany's net income have been under the direct write-off methodthan under the allowance method?