MODULE 5
ACCOUNTING FOR ASSETS - Accounts Receivable
Demonstration Problem
Morton Precision Tools completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in the years 2000 and 2001. Morton Precision Tools uses the percentage of sales method for estimating uncollectible accounts. This demonstration problem shows how to calculate uncollectible accounts expense and record the transactions in the general journal.
Journal Entries for 2000
Oct. 1Sold merchandise on credit for $64,000.
Nov. 4 $20,000 was collected from customers.
Dec. 31Morton Precision Tools uses the percentage of sales method. The company
estimates that 4% of the sales will be uncollectible. The total sales for 2000 was $64,000.
Journal Entries for 2001
Feb. 5Sold merchandise on credit for $12,000.
Mar. 2Wrote off the account of Brookfield Corporation. The balance in this account was $1,200.
Journal Entries for 2000
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2000
1 / Oct. 1 / Accounts Receivable
Sales Revenue / 64,000 / 64,000
2 / Nov. 4 / Cash
Accounts Receivable / 20,000 / 20,000
3 / Dec. 31 / Uncollectible Accounts Expense
Allowance for Uncollectible Accounts / 2,560 / 2,560
For transaction 3, Uncollectible Accounts Expense = .04 x 64,000 = $2,560
Journal Entries for 2001
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2001
4 / Feb. 5 / Accounts Receivable
Sales Revenue / 12,000 / 12,000
5 / Mar. 2 / Allowance for Uncollectible Accounts
Accounts Receivable / 1,200 / 1,200
Practice Problem 1
Edusoft Inc.
Edusoft Inc. completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Edusoft Inc. uses the percentage of sales method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.
Journal Entries for 2000
Sep. 25 Sold merchandise on credit for $4,400.
Oct. 15 $1,800 was collected from customers for goods sold previously.
Dec. 31Edusoft Inc. uses the percentage of sales method. The company estimates that 3% of the sales will be uncollectible. The total sales for 2000 was $4,400.
Journal Entries for 2001
Feb. 11Sold merchandise on credit for $2,300.
Apr. 30Wrote off the account of Mark Turner. The balance in Turner's account was $46.
Journal Entries for 2000
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2000
1 / Sept. 25 / Accounts Receivable
Sales Revenue / 4,400 / 4,400
2 / Oct. 15 / Cash
Accounts Receivable / 1,800 / 1,800
3 / Dec. 31 / Uncollectible Accounts Expense
Allowance for Uncollectible Accounts / 132 / 132
For transaction 3, Uncollectible Accounts Expense = .03 x $4,400 = $132
Journal Entries for 2001
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2001
4 / Feb. 11 / Accounts Receivable
Sales Revenue / 2,300 / 2,300
5 / Apr. 30 / Allowance for Uncollectible Accounts
Accounts Receivable / 46 / 46
Practice Problem 2
Safeco Security Systems
Safeco Security Systems completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Safeco Security Systems uses the aging method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.
0-30 days31-60 days61-90 daysOver 90 days
Central Alarm Systems$12,400$1,600
Plymouth Security Co.$14,200$3,500
Riverside Alarms$1,300
Estimated % uncollectible 1% 3% 8% 10%
Journal Entries for 2000
Dec. 31Safeco Alarm Systems uses the aging method. Assume that the Allowance for Uncollectible Accounts had a debit balance of $150 prior to the adjustment for uncollectible accounts expense. Review the aging report shown above and prepare the journal entry to record Uncollectible Accounts Expense.
Journal Entries for 2001
Feb. 12Wrote off the account of Riverside Alarms. The balance in the account was $1,300.
Sept. 30Sold merchandise on credit for $6,500.
Nov. 5$1,800 was collected from customers for goods sold previously.
Journal Entries for 2000
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2000
1 / Dec. 31 / Uncollectible accounts Expense
Allowance for Uncollectible Accounts / 1,238 / 1,238
For transaction 1, the required credit balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000 is
= (0.01 x $12,400) + (0.03 x $14,200) + [.08 x ($1,600+$3,500)] + (0.1 x $1,300)
=$1,088
Since the Allowance account already has a debit balance of $150, Uncollectible Accounts Expense = $1,238 ($1,088 + $150).
Note: The ending balance in Accounts Receivable is obtained from the balances in various categories in the aging report.
Journal Entries for 2001
2001
2 / Feb. 12 / Allowance for Uncollectible Accounts
Accounts Receivable / 1,300 / 1,300
3 / Sep. 30 / Accounts Receivable
Sales Revenue / 6,500 / 6,500
4 / Nov. 5 / Cash
Accounts Receivable / 1,800 / 1,800
Homework Problem 1
Alden Industries
Alden Industries completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Alden Industries uses the percentage of sales method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.
Transactions for 2000
Nov. 25 Sold merchandise on credit for $32,000.
Dec. 10$12,000 was collected from customers for goods sold previously.
Dec. 31Alden Industries uses the percentage of sales method. The company estimates
that 2% of the sales will be uncollectible. The total sales for 2000 was $32,000.
Transactions for 2001
Mar. 31 Sold merchandise on credit for $2,500.
Jun. 30Wrote off the account of Eric Lang. The balance in Lang's account was $350.
Journal Entries for 2000
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2000
1 / Nov. 25 / Accounts Receivable
Sales Revenue / 32,000 / 32,000
2 / Dec. 10 / Cash
Accounts Receivable / 12,000 / 12,000
3 / Dec. 31 / Uncollectible Accounts Expense
Allowance for Uncollectible Accounts / 640 / 640
For transaction 3, Uncollectible Accounts Expense = .02 x $32,000 = $640
Journal Entries for 2001
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2001
4 / Mar. 31 / Accounts Receivable
Sales Revenue / 2,500 / 2,500
5 / Jun. 30 / Allowance for Uncollectible Accounts
Accounts Receivable / 350 / 350
Homework Problem 2
Schmidt Office Supplies
Schmidt Office Supplies completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Schmidt Office Supplies uses the aging method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.
Aging Report
Customer0-30 days31-60 days61-90 daysOver 90 days
Computer Stop$4,400$1,500
LaCroix office Supplies $600
Osborne Office Supplies$1,600$2,500$1,200
Estimated % uncollectible 1% 5 % 8% 15%
Transactions for 2000
Dec. 31Schmidt Office Supplies uses the aging method. Assume that the Allowance for Uncollectible Accounts had a credit balance of $100 at the beginning of the period. Review the aging report shown below and prepare the journal entry to record Uncollectible Accounts Expense.
Transactions for 2001
Mar. 25 Wrote off the account of LaCroix Office Supplies. The balance in the account was $600.
Dec. 15Sold merchandise on credit for $5,500.
Dec. 30$1,500 was collected from customers for goods sold previously.
Journal Entries for 2000
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2000
1 / Dec. 31 / Uncollectible Accounts Expense
Allowance for Uncollectible Accounts / 346 / 346
For transaction 1, the required credit balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000, is:
= [0.01 x ($4,400 + $1,600)] + [0.05 x ($1,500 + $2,500)] + (.08 x $1,200) + (0.15 x $600)
=$446
Since the Allowance account already has a credit balance of $100, Uncollectible Accounts Expense = $346 ($446-$100).
Note: The ending balance in Accounts Receivable is obtained from the balances in various categories in the aging report.
Journal Entries for 2001
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2001
2 / Mar. 25 / Allowance for Uncollectible Accounts
Accounts Receivable / 600 / 600
3 / Dec. 15 / Accounts Receivable
Sales Revenue / 5,500 / 5,500
4 / Dec. 30 / Cash
Accounts Receivable / 1,500 / 1,500
Homework Problem 3
Bedford Windows
Bedford Windows completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. Bedford Windows uses the percentage of sales method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.
Transactions for 2000
Oct. 25Sold merchandise on credit for $64,000.
Nov. 16$20,000 was collected from customers for goods sold previously.
Dec. 31Bedford Windows uses the percentage of sales method. The company estimates
that 3% of the sales will be uncollectible. The total sales for 2000 was $64,000.
Transactions for 2001
Aug. 22Sold merchandise on credit for $12,000.
Sep. 12Wrote off the account of Doyle Windows. The balance in this account was $1,200.
Journal Entries for 2000
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2000
1 / Oct. 25 / Accounts Receivable
Sales Revenue / 64,000 / 64,000
2 / Nov. 16 / Cash
Accounts Receivable / 20,000 / 20,000
3 / Dec. 31 / Uncollectible Accounts Expense
Allowance for Uncollectible Accounts / 1,920 / 1,920
For transaction 3, uncollectible accounts expense = .03 x $64,000 = $1,920
Journal Entries for 2001
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2001
4 / Aug. 22 / Accounts Receivable
Sales Revenue / 12,000 / 12,000
5 / Sep. 12 / Allowance for Uncollectible Accounts
Accounts Receivable / 1,200 / 1,200
Homework Problem 4
McCoy Company
McCoy Company completed a number of transactions involving credit sales, accounts receivable collection and uncollectible accounts in 2000 and 2001. McCoy Company uses the aging method for estimating uncollectible accounts. This assignment requires you to calculate uncollectible accounts expense and record the transactions in the general journal.
Customer0-30 days31-60 days61-90 daysOver 90 days
B. Johnson$280
R. Soares$360$450
M. Sylvia $140
Estimated % uncollectible 1% 2% 8% 15%
Transactions for 2000
Dec. 31McCoy Company uses the aging method. Assume that the Allowance for Uncollectible Accounts had a debit balance of $90 at the beginning of the period. Review the aging report shown above and prepare the journal entry to record Uncollectible Accounts Expense.
Transactions for 2001
Mar. 25Wrote off the account of M. Sylvia. The balance in this account was $140.
Dec. 15Sold merchandise on credit for $2,200.
Dec. 30$700 was collected from customers for goods sold previously.
Journal Entries for 2000
Transaction number / DATE / ACCOUNT / DEBIT / CREDIT2000
1 / Dec. 31 / Uncollectible accounts Expense
Allowance for Uncollectible Accounts / 157 / 157
For transaction 1, the required credit balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000, is:
= (0.01 x $280) + (0.02 x $360) + (.08 x $450) + (0.15 x $140)
= $67
Since the Allowance account already has a debit balance of $90, Uncollectible Accounts Expense = $157 ($67+ $90).
Note: The ending balance in Accounts Receivable is obtained from the balances in various categories in the aging report.
Journal Entries for 2001
2001
2 / Mar. 25 / Allowance for Uncollectible Accounts
Accounts Receivable / 140 / 140
3 / Dec. 15 / Accounts Receivable
Sales Revenue / 2,200 / 2,200
4 / Dec. 30 / Cash
Accounts Receivable / 700 / 700
Homework Quiz
Accounts Receivable
1. When using the allowance method for Uncollectible Receivables, the two ways of estimating the amount of uncollectibles are the Percentage of Sales Method and:
a. Aging of Purchases
b. Aging of Receivables
c. Aging of Payables
d. Aging of Sales
2. Which of the following estimation methods emphasizes the matching principle?
a. Percentage of Sales
b. Percentage of Accounts Receivables
c. Aging of Inventory
d. Direct write-off
3. The method for estimating Uncollectible Accounts Expense that focuses on the balance sheet rather than the income statement is:
a. Direct write-off
b. Accounts Receivable Aging
c. Percentage of Sales
d. Specific Account
4. Which of the following pairs correctly describe the account, Allowance for Uncollectible Accounts?
a. Account Classification: Contra Account; Normal Account Balance: Credit
b. Account Classification: Asset; Normal Account Balance: Debit
c. Account Classification: Asset; Normal Account Balance: Credit
d. Account Classification: Contra Account; Normal Account Balance: Debit
5. The existing balance in Allowance for Uncollectible Accounts is not considered when which of the following estimating models is employed?
a. Percentage of Receivables method
b. Percentage of Sales method
c. Aging of Accounts Receivable method
d. None of the above
6. Laura's Window Works employs the Allowance for Uncollectible Accounts method to account for her receivables. When the write-off of a specific uncollectible account occurs:
a. The Allowance for Uncollectible Accounts is debited.
b. Net income is reduced.
c. The net realizable value of Accounts Receivable decreases.
d. Accounts Receivable is debited.
7. Laura's Window Works employs the Allowance for Uncollectible Accounts method to account for her receivables. When the write-off of a specific uncollectible account occurs:
a. The net realizable value of Accounts Receivable increases.
b. Net income is reduced.
c. The net realizable value of Accounts Receivable decreases.
d. The net realizable value of Accounts Receivable does not change.
8. When a specific customer's account is written off by a company using the Allowance for Uncollectible Accounts method, what is the impact on Net Income and the Net Realizable Value of Accounts Receivable?
a. Net Income: Decrease;Net Realizable Value of Accounts Receivable: Decrease
b. Net Income: None; Net Realizable Value of Accounts Receivable: None
c. Net Income: Increase; Net Realizable Value of Accounts Receivable: Increase
d. Net Income: Decrease; Net Realizable Value of Accounts Receivable: None
9. Hilltop Cleaners December 31, 2001 trial balance includes the following accounts:
Accounts Receivable ...... $ 20,000
Allowance for Uncollectible Accounts...... 1,600 (cr.)
Sales Revenue ...... 250,000
Hilltop estimates 2 percent of sales will prove uncollectible. The entry to record Uncollectible Accounts Expense will include:
a. Debit to Allowance of Uncollectible Accounts; credit to Accounts Receivable.
b. Debit to Accounts Receivable; credit to Allowance of Uncollectible Accounts.
c. Debit to Uncollectible Account Expense; credit to Accounts Receivable.
d. Debit to Uncollectible Account Expense; credit to Allowance of Uncollectible Accounts.
10. Hilltop Cleaners December 31, 2001 trial balance includes the following accounts:
Accounts Receivable ...... $ 20,000<BR>
Allowance for Uncollectible Accounts ...... 1,600 (cr.)
Sales Revenue ...... 250,000
Hilltop estimates 2 percent of sales will prove uncollectible. The amount of the entry to record Uncollectible Accounts Expense will be:
a. $ 500
b. $2,500
c. $5,000
d. $5,400
11. Hilltop Cleaners December 31, 2001 trial balance includes the following accounts:
Accounts Receivable ...... $ 20,000
Allowance for Uncollectible Accounts...... 1,500 (cr.)
Sales Revenue ...... 250,000
Hilltop estimates 2 percent of sales will prove uncollectible. After the entry to record Uncollectible Accounts Expense is made, the balance in the Allowance for Uncollectible Accounts will be:
a. $6,500 credit
b. $5,000 credit
c. $3,500 debit
d. $1,500 credit
12. Hilltop Cleaners December 31, 2001 trial balance includes the following accounts:
Accounts Receivable ...... $ 20,000
Allowance for Uncollectible Accounts...... 1,500 (cr.)
Sales Revenue ...... 250,000
Hilltop estimates 2 percent of sales will prove uncollectible. After the entry to record Uncollectible Accounts Expense is made, the net realizable value of Accounts Receivable will be:
a. $20,000
b. $18,500
c. $15,000
d. $13,500
13. Acme, Inc. employs the allowance method to estimate losses from uncollectible receivables. Net sales for the year are $480,000, and the company estimates its bad debts as 1 percent of net sales. If there is already a $2,400 credit balance in Allowance for Uncollectible Accounts, how much should be recorded as Uncollectible Accounts Expense?
a. $ 2,400
b. $ 4,800
c. $48,000
d. Some other amount
14. Acme, Inc. employs the allowance method to estimate losses from uncollectible receivables. Net sales for the year are $480,000, and the company estimates its bad debts as 1 percent of net sales. There is already a $2,400 credit balance in Allowance for Uncollectible Accounts. What will the balance in Allowance for Uncollectible Accounts be after this adjustment is recorded?
a. $ 2,400 credit
b. $ 4,800 credit
c. $ 7,200 credit
d. Some other amount
15. Acme, Inc. employs the allowance method to estimate losses from uncollectible receivables. Net sales for the year are $480,000, and the company estimates its bad debts as 1 percent of net sales. There is already a $2,400 credit balance in Allowance for Uncollectible Accounts and Accounts Receivable total $375,000. What will the net realizable value of Accounts Receivable be after this adjustment is recorded?
a. $ 375,000
b. $ 372,600
c. $ 367,800
d. $ 472,800
16. Martin, Inc. has sales of $800,000 during 2001. On December 31, 2001, Accounts Receivable total $80,000 and Allowance for Bad Debts has a debit balance of $1,200. Uncollectible receivables are estimated to be 3 percent of 12/31/01 Accounts Receivable balance. The December 31, 2001 adjusting entry to record Uncollectible Accounts Expense will include a:
a. Debit to Uncollectible Accounts Expense for $3,600
b. Debit to Uncollectible Accounts Expense for $2,400
c. Debit to Uncollectible Accounts Expense for $1,200
d. Credit to Allowance for Uncollectible Accounts for $2,400
17. Based on the aging of its accounts receivable at December 31, 2001 Winter Enterprises determines the net realizable value of the receivables is $608,000. Additional information is as follows:
Accounts receivable at December 31, 2001...... $704,000
Allowance for bad debts at January 1, 2001 ...... 102,400(cr.)
Accounts written off as uncollectible
during the year ...... 70,400
Winter's Uncollectible Account Expense for the year ended December 31, 2001 is:
a. $ 64,000
b. $ 76,800
c. $ 96,000
d. $128,000
18. Analysis and aging of Scalon Company's Accounts Receivable balances at December 31, 2001 reveal the following:
Accounts receivable ...... $900,000
Allowance for Uncollectible Accounts (before adjustment) ...... 50,000 (cr.)
Accounts estimated to be uncollectible. 64,000
The entry to record Uncollectible Accounts Expense will total: <br>
a. $ 14,000
b. $ 60,000
c. $ 64,000
d. $114,000
19. Analysis and aging of Scalon Company's Accounts Receivable balances at December 31, 2001 reveal the following:
Accounts receivable ...... $900,000
Allowance for Uncollectible Accounts (before adjustment) ...... 50,000 (cr.)
Accounts estimated to be uncollectible. 64,000
The net realizable value of Accounts Receivable at December 31, 2001 will be:<br>
a. $900,000
b. $886,000
c. $850,000
d. $836,000
20. After analyzing Accounts Receivable through an "aging" process, you determined that $6,000 will likely prove uncollectible. Your trial balance shows an Allowance for Uncollectible Accounts balance of $200 debit, what is the correct adjusting entry?
a. Uncollectible Accounts Expense ...... 6,200
Allowance for Uncollectible Accounts .... 6,200
b. Allowance for Uncollectible Accounts...... 6,200
Uncollectible Accounts Expense...... 6,200
c. Allowance for Uncollectible Accounts...... 6,000
Uncollectible Accounts Expense ...... 6,000
d. Uncollectible Accounts Expense ...... 6,000
Allowance for Uncollectible Accounts.....6,000
21.Burton Precision Tools estimates uncollectible accounts using the percentage of sales method. The credit sales for 2000 is $8,000. The company expects 2% of sales to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The uncollectible accounts expense for 2000 is:
a.$ 60
b.$100
c.$160
d.$220
22.Burton Precision Tools estimates uncollectible accounts using the percentage of sales method. The credit sales for 2000 is $8,000. The company expects 2% of sales to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The balance in the Allowance for Uncollectible Accounts on Dec. 31, 2000, is:
a.$100
b.$220
c.$160
d.$ 40
23.Burton Precision Tools estimates uncollectible accounts using the percentage of sales method. The credit sales for 2000 is $8,000. The accounts receivable balance on December 31, 2000, is $6,800. The company expects 2% of sales to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The net realizable value of accounts receivable on Dec. 31, 2000, is:
a.$6,580
b.$6,700
c.$6,640
e.$6,740
Note: If the student gets number 22 wrong, they will also get number 23 wrong.
24.Burton Precision Tools estimates uncollectible accounts using the allowance method. On June 15, 2000, the business decided to write-off the account of L. Smith. The balance in this account was $130. The Allowance for Uncollectible Accounts has a credit balance of $220 just before the write-off. The balance in the Allowance for Uncollectible Accounts accounts after the write-off is:
a.$350
b.$ 90
c.$220
d.$130
25.Stanley Company estimates uncollectible accounts using the aging method. On December 31, 2000, $7,500 of accounts receivable was outstanding for less than 30 days and $2,400 of accounts receivable was outstanding for more than 30 days and less than 60 days. The company expects that 1% and 5% of these accounts receivable balances respectively to be uncollectible. The Allowance for Uncollectible Accounts has a credit balance of $60 at the beginning of the year. The uncollectible accounts expense for 2000 is: