ACC 100 Chapter Notes - Chapter 7: Initial Public Offering, Retained Earnings, Stock Certificate

6. The bad-debt method that uses the accounts receivable agingreport is _______________.

7. When it is determined that too much money has been set asidefor uncollectible accounts, we will _______________.

8. A customer whose account was previously written offunexpectedly pays us. If we are using the allowance method we would_______________.

9. When a retailer accepts a bank card (VISA or MasterCard),they will make what entry for the day’s receipts?

Raintree Cosmetic Company sells its products to customers on a credit basis. An adjusting entry for bad debt expense is recorded only at December 31, the company’s fiscal year-end. The 2017 balance sheet disclosed the following: Current assets: Receivables, net of allowance for uncollectible accounts of $48,000 $ 522,000 During 2018, credit sales were $1,840,000, cash collections from customers $1,920,000, and $57,000 in accounts receivable were written off. In addition, $4,800 was collected from a customer whose account was written off in 2017. An aging of accounts receivable at December 31, 2018, reveals the following: Percentage of Year-End Percent Age Group Receivables in Group Uncollectible 0–60 days 70 % 5 % 61–90 days 20 15 91–120 days 5 20 Over 120 days 5 40 Required: 1. Prepare summary journal entries to account for the 2018 write-offs and the collection of the receivable previously written off. 2. Prepare the year-end adjusting entry for bad debts according to each of the following situations: Bad debt expense is estimated to be 4% of credit sales for the year. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is estimated to be 10% of the year-end balance in accounts receivable. Bad debt expense is estimated by computing net realizable value of the receivables. The allowance for uncollectible accounts is determined by an aging of accounts receivable. 3. For situations (a)–(c) in requirement 2 above, what would be the net amount of accounts receivable reported in the 2018 balance sheet?

b) JMK Corp. had the following situations during the last 4years of operation: i. The Allowance for Uncollectible Accounts hasa $2,100 credit balance prior to adjustment. Net credit salesduring 2011 are $750,000, and 4% are estimated to be uncollectible.Accounts Receivable has a balance of $125,000 on Dec 31, 2011. ii.The Allowance for Uncollectible Accounts has a $1,200 debit balanceprior to adjustment. Based on an aging schedule of accountsreceivable prepared on December 31, 2012, $18,500 of accountsreceivable are estimated to be uncollectible. Accounts Receivablehas a balance of $110,000 on Dec 31, 2012. iii. The Allowance forUncollectible Accounts has a $1,400 credit balance prior toadjustment. Based on an aging schedule of accounts receivableprepared on December 31, 2013, $25,000 of accounts receivable areestimated to be uncollectible. Accounts Receivable has a balance of$98,000 on Dec 31, 2013. iv. The Allowance for UncollectibleAccounts has a $750 debit balance prior to adjustment. Net creditsales during 2014 are $800,000, and 3% are estimated to beuncollectible. Accounts Receivable has a balance of $135,000 on Dec31, 2014.