AFA 100 Lecture 1: Chapter 8 - 12 Notes with homework/solution examples

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9 Feb 2017

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Percentage of credit statement estimated uncollectible %=ending balance in. Credit sales x estimated bad debt%= bad debt expense. Factoring- where arrangement where receivables are sold to another company (called a factor) for immediate cash. Direct write off method- non-gaap alternative to the allowance method of accounting uncollectable accounts. Multiply it look at unadjusted credit and than multiplication is your final. And try to find what got you to 11,000. Asset- captitalize costs- to get assets ready for use, - cost installation, shipping. Cost, installation, shipping { sept 1 4 months to dec 31} Depreciation method: straight line= cost residual value ( salvage value) Depreciation expenses yr. 1 -------------------------- yr. 5: double declining balance method. Year 2 = nbv x rate *(cost-accumulated depreciation) Depreciation expense= rate per unit x actual production. Yr. i/s depreci. exp b/s a cost b accumulated deprec. Franchise rights 190: under components long lives assets be recorded + depreciated separately.

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Adham Sdn. Bhd. accounts for its uncollectible accounts usingthe allowance method. The company reported the following accountbalances at 31 December 2017.

	RM
Accounts receivable	250,000
Less: Allowance for doubtful accounts	12,500

During the year 2017, the company had the following transactionsrelated to receivables.

	RM
1.Credit sales	600,000
3.Collections of accounts receivable	680,000
4.Write-offs of accounts receivable	10,800
5.Recovery of bad debts previously written off	3,000

Required:

a) Journalise transactions 1 - 5 above.

b) Post the entries to the two accounts: Accounts receivable andAllowance for doubtful account.

c) Record the bad debt expense for 2017 (in T-account) undereach of the following independent assumptions:

i. The company estimates its bad debt expense based on 5% ofoutstanding account receivable balance.

ii. The company bad debt estimate is 1% of its credit sales.

d) What is the net realisable value of Accounts Receivable at 31December 2017 under assumption (i) above.

carminesalmon51

What are the pros and cons of extendingcredit?

Define net realizable value.

Bad debt expense should be recorded in same periodas the sale to avoid violating the expense recognition (matching)principle. Under the allowance method an estimate of the bad debtsare recorded and later adjusted. Describe the following twosteps of the allowance method and provide the required journalentries.

Adjust for estimated bad debts

Remove (write off) specific customerbalances

Small companies are allowed to use the direct write-offmethod instead of the allowance method. Explain this method and thecons to using it.

What kind of account is allowance for doubtful accounts?Is it permanent or temporary? Which financial statement can it befound on?

Bad debt expense can be estimated using two differentmethods. Describe each of the below methods and provide an examplejournal entry.

Percentage of sales method

Aging of accounts receivable method

Explain how account recoveries are treated. What is thejournal entry?

What is the difference between a note receivable and anaccount receivable?

What is the formula to calculate interest on a notereceivable? Explain each of the three variables.

Provide the following journal entries:

Establish note receivable

Accrue interest earned

Record interest received

Record principal received

What is the receivables turnover ratio formula and whatdoes it tell you?

What is the days to collect formula and what does ittell you?

You have just been hired as the accountant for Fan-Tastic Sports Gear Inc., a wholesaler of sporting goods and apparel. The previous accountant left abruptly, and an accounting intern has been drafting the journal entries since January.

You are examining the accounting records before finalizing the journal entries for the first quarter. Below are some accounts receivable transactions that you are reviewing

. PAGE 11

JOURNAL

DATE DESCRIPTION POST. REF. DEBIT CREDIT

1 Jan. 17 Sales 9,800.00 2 Bad Debt Expense 9,800.00 3 18 Bad Debt Expense 9,800.00 4 Accounts Receivable-CJâs Sports Corp. 9,800.00 5 21 Cash 10,600.00 6 Bad Debt Expense 2,300.00 7 Accounts Receivable-Four Seasons Sportswear Co. 12,900.00 8 Feb. 15 Accounts Receivable-Healthy Running Inc. 3,000.00 9 Bad Debt Expense 500.00 10 Sales 3,500.00 11 Mar. 4 Accounts Receivable-Four Seasons Sportswear Co. 2,300.00 12 Bad Debt Expense 2,300.00 13 4 Cash 2,300.00 14 Bad Debt Expense 2,300.00 15 13 Cash 5,540.00 16 Accounts Receivable-Barbâs Best Gear 5,540.00 17 31 Bad Debt Expense 20,770.00 18 Accounts Receivable-Healthy Running Inc. 5,150.00 19 Accounts Receivable-The Locker Room 4,100.00 20 Accounts Receivable-CJâs Sports Corp. 2,780.00 21 Accounts Receivable-Get Your Gear Inc. 7,050.00 22 Accounts Receivable-Ready-2-Go 1,690.00 Assume that Fan-Tastic Sports Gear Inc. will be using the allowance method this year. Select any items(s) from the list below that should be added to the existing chart of accounts. Check all that apply. Balance of Aging Accounts Estimate for Uncollectible Accounts Allowance for Doubtful Accounts Net Realizable Value of Receivables Total Credit Sales 2. Finalize the journal entries shown on the Fan-Tastic Sports Gear Inc. panel and make any necessary changes. Refer to the Chart of Accounts for the exact wording of account titles. You may also use any items from the list above, if needed. PAGE 11 JOURNAL DATE DESCRIPTION POST. REF. DEBIT CREDIT 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 X Final Questions Fan-Tastic Sports Gear Inc. recorded $3,100,000 of sales last year and projects sales to increase by $360,000 in the current year. Last year, 90% of sales were on account, with over 400 customer accounts. Bad debt expense was $26,187. 1. Assume that Fan-Tastic Sports Gear Inc. used the allowance method last year, and the allowance account at the end of the year had a debit balance of $2,240. The company estimated uncollectible accounts expense using the percent of credit sales method and expected 0.65% of credit sales to be uncollectible. What is the amount of the adjusting entry to provide for doubtful accounts on December 31? Round all calculations to the nearest dollar. 2. How much higher (lower) would Fan-Tastic Sports Gear Inc.âs net income have been under the allowance method assumption in (1) above than under the direct write-off method? (Enter â0â if there is no change.) by 3. Using the allowance method, the net realizable value of the receivables would appear on which financial statement? CHART OF ACCOUNTS Fan-Tastic Sports Gear Inc. General Ledger ASSETS 110 Cash 111 Petty Cash 121 Accounts Receivable-Healthy Running Inc. 122 Accounts Receivable-The Locker Room 123 Accounts Receivable-CJâs Sports Corp. 124 Accounts Receivable-Get Your Gear Inc. 125 Accounts Receivable-Four Seasons Sportswear Co. 126 Accounts Receivable-Ready-2-Go 127 Accounts Receivable-Barbâs Best Gear 131 Interest Receivable 132 Notes Receivable 141 Merchandise Inventory 145 Office Supplies 151 Prepaid Insurance 181 Land 193 Office Equipment 194 Accumulated Depreciation-Office Equipment LIABILITIES 210 Accounts Payable 211 Salaries Payable 213 Sales Tax Payable 214 Interest Payable 215 Notes Payable EQUITY 311 Common Stock 340 Retained Earnings 351 Dividends 390 Income Summary

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AFA 100 Lecture 1: Chapter 8 - 12 Notes with homework/solution examples

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