Chapter 8

  1. Polaris Industries recorded an increase in estimated bad debts on Dec 31, 2007. What effect does this have on Net Income and Total Assets?
  1. Kellogg’s wrote-off twelve customers account balances during 2008. What effect does this have on Net Income and Total Assets?
  1. What is the formula for calculating interest?
  1. Under accrual basis accounting interest revenue is recorded when ______rather than when the payment is received in cash.
  1. What two accounts are used to record accrued interest earned?
  1. In a previous year Mad Cartz reported beginning and ending balances in the Allowance for Doubtful Accounts of $5971 and $6329, respectively. It also reported that write-offs of bad accounts amounted to $3,979. Assuming no other changes in the account what amount did Mad Cartz record as bad debt expense for the period?
  1. On March 1, 2006 Rocky Mountain Chocolate Factory, Inc. reported it had issued $120,000 of notes receivable, with an annual interest rate of 10%. As a public company, RMCF prepares financial statements for external reporting every quarter, ending on May 31, August 31, November 30, and February 28. Assume that the notes were created on March 1 when money was loaned to another company, and that RMCF receives interest payments semiannually, on July 31 and January 31.
  2. Calculate the amount of interest that RMCF will earn each month after the notes are issued on March 1.
  1. Prepare journal entries to record the notes’ issuance, interest earned, and interest payments received for each quarter and on each payment date. Below is a list of the journal entries.

March 1, 2006 (Note Issued)

May 31, 2006 (Interest Accrued)

July 31, 2006 (Interest Payment Received)

August 31, 2006 (Interest Accrued)

November 30, 2006 (Interest Accrued)

January 31, 2007 (Interest Payment Received)

February 28, 2007 (Interest Accrued)

  1. What is the formula for the receivable turnover ratio and what does it mean?
  1. T/F A lower receivable turnover ratio is better than a higher receivable turnover ratio.
  1. What is the formula for days to collect?

11. / 31-May
2006 / 2005
Accounts Receivable / 3,660 / 3,422
Less: Allowance for DA / 114 / 125
Accounts Receivable, Net of Allowance / 3,546 / 3,297
Net Sales (Assume of credit) / $ 32,294
  1. Determine the accounts receivable turnover ratio and days to collect for the current year.
  1. Explain the meaning of the number.

12.

Young and Old Corporation (YOC) use two aging categories to estimate uncollectible accounts. Accounts less than 60 days are considered young and have a 5% uncollectible rate. Accounts more than 60 days are considered old and have a 35% uncollectible rate.

  1. If YOC has $10,000 of young accounts and $40,000 of old accounts, how much should be reported in the Allowance for doubtful accounts?
  1. If YOC’s Allowance for doubtful accounts currently has an unadjusted credit balance of $4,000, how much should be credited to the account?
  1. If YOC’s Allowance for doubtful accounts has an unadjusted debit balance of $500, how much should be credited to the account?