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(Solved) Ch 8 Graded Assignment Note: To receive partial credit on problems which require calculations, calculations must be shown. Problem I: (24 points)...


Problem I:  (24 points) Indicate whether each of the following statements is true (T) or false (F).


a.

___

The âAllowance for Doubtful Accountsâ account is an example of a contra-liability account. 

b.

___

The amount shown on the balance sheet called âNet Accounts Receivableâ is determined by adding together the balances in the âAccounts Receivableâ and âAllowance for Uncollectible Accountsâ accounts. 

c.

___

âNet Accounts Receivableâ, also called net realizable value, represents the portion of the total accounts receivable balance the company expects to actually collect.

d.

___

The âAllowance Methodâ of accounting for bad debts requires companies to record an estimate of bad debt expense arising from an uncollectible sale in the same year sales revenue is recorded rather than in the year the bad debt expense is known with certainty.

e.

___

The âAllowance Methodâ of accounting for bad debts is an application of GAAP whereas the âDirect Write-Off Methodâ is not.

f.

___

When a companyâs receivables turnover ratio is decreasing from one year to the next, it implies customers are paying off their accounts receivable more quickly than in the past.

g.

___

As a companyâs receivables turnover ratio increases, the average collection period in terms of days should be decreasing.

h.

___

Before the year-end journal entry to record bad debts, if the âAllowance for Doubtful Accountsâ account has a debit balance, the estimate of uncollectible accounts at the beginning of the year was too low. 

i.

___

When preparing an aging report, most companies should expect that the longer a particular customerâs account has been outstanding, the less likely it is to become uncollectible.

j.

___

A company may accelerate its cash receipts by selling its accounts receivable to a factor company.

k.

___

As a companyâs âBad Debts Expenseâ account balance increases, the amount of net sales revenue reported on its income statement will decrease.

l.

___

The specific write-off of an account receivable will decrease the net realizable value of the accounts receivables.


Problem II:  (17 points) On March 1, 20X6, Newton Corp. provided services worth $20,000 on account to one of its longtime customers. At that time, Newton debited âAccounts Receivableâ and credited âService Revenueâ for $20,000. On April 1, 20X6, Newton agreed to convert the account receivable to a 12-month, 12%, note receivable. The customer will pay Newton $20,000 plus accrued interest on April 1, 20X7. Interest on the note is compounded annually.

Note: Round all interest calculations to the nearest whole month.


A.   How much total interest will Newton eventually earn on the Note Receivable?

Answer: $_____

           


B.    Assuming Newton has a calendar year-end, prepare in the journal below the following:

·        The entry to record the conversion of the account receivable to a note receivable on April 1, 20X6

·        The entry to record accrued interest on December 31, 20X6

·        The entry to record the collection of the noteâs face value plus interest on April 1, 20X7.

Date

Debit

Credit

4/1/X6

12/31/X6

4/1/X7

C.    Accounting Check â    Do your credits to the âInterest Revenueâ account add up to the total interest revenue amount from part âAâ? In addition, there should not be any note receivable balance remaining after the last entry since the note plus all of its interest has been collected. Are your receivables balances equal to zero? If your answer is not âyesâ to both questions, please go back and check your calculations and/or entries.


Problem III: (18 points) Summer Inc.âs trial balance indicates the following select account balances at the end of 20X1 before the year-end adjustment to record bad debts:

Summer Inc.

Trial Balance (partial)

12/31/X1

Debit

Credit

Accounts Receivable â 12/31/X1

$ 500,000

Allowance for Doubtful Accounts (AFDA) â 12/31/X1

 

$  20,000

Sales Revenue

8,000,000

Bad Debts Expense â 1/1/X1

        0

A.   Assume at the end of 20X1, Summerâs management estimates 5% of its ending Accounts Receivable account balance will be uncollectible.


Required: Prepare the 12/31/X1 journal entry to record bad debts for 20X1. 


Date

Debit

Credit

12/31/X1

B.    Assume that on January 15th of the following year (20X2), Summers is notified that one of its customers who owes them money has filed for bankruptcy. As a consequence, $1,000 of the Accounts Receivable balance is deemed to be uncollectible and will be specifically written-off.


Required: Prepare the specific write-off journal entry to record this uncollectible account.

Date

Debit

Credit

1/15/X2

Problem IV: (12 points)  On November 15, Wolfpack Corp. sold $900,000 of its accounts receivables to a factor company. The factor company assesses a service charge of 3% of the accounts receivables sold.

Required: Prepare the journal entry Wolfpack should make when it factors its receivables.

Date

Debit

Credit

Nov 15

Problem V: (18 points)

On November 20, Wolfpack Corp. sold inventory having a cost of $5,000 for $25,000. Wolfpack accepted the customerâs MasterCard for the sales amount. At the end of the day, MasterCard receipts were deposited in the companyâs bank account. MasterCard charges a 3% service charge for credit card sales.

Wolfpack uses the perpetual inventory system.

Required: Prepare the journal entries Wolfpack should make on November 20 related to the above sale.

Date

Debit

Credit

Nov 20



Problem VI: (11 points) The following information is available for Windsor Corp. for the past two  years:

20X3

20X2

Accounts Receivable

$ 200,000

$ 180,000

Allowance for Doubtful Accounts

   (20,000)

   (30,000)

Net Accounts Receivable

$ 180,000

 

$ 150,000

 

Net Cash Sales

$ 500,000

$ 700,000

Net Credit Sales

1,500,000

1,600,000

Total Net Sales

$2,000,000

$2,300,000

A.   In the chart below, indicate Windsorâs accounts receivable turnover and average collection period for 20X3. Assume a 360-day calendar year. Round answers to two decimal places.


20X3

Accounts Receivable Turnover

Average Collection Period

Calculations:




B.    What does the accounts receivable turnover indicate? Also, in general, when comparing the turnover from one year to the next, do companies prefer it to be higher or lower over time? (two â three sentences)







C.    What is the relationship (ex. direct correlation or inverse) between the account receivable turnover and the average collection period? Also, in general, when comparing the average collection period from one year to the next, do companies prefer it to be higher or lower over time? (two â three sentences)

Ch 8 Graded Assignment
Note: To receive partial credit on problems which require calculations, calculations must be shown.
Problem I: (24 points) Indicate whether each of the following statements is true (T) or false (F).
a. ___ The “Allowance for Doubtful Accounts” account is an example of a contra-liability account. b. ___ The amount shown on the balance sheet called “Net Accounts Receivable” is determined by
adding together the balances in the “Accounts Receivable” and “Allowance for
Uncollectible Accounts” accounts. c. ___ “Net Accounts Receivable”, also called net realizable value, represents the portion of the
total accounts receivable balance the company expects to actually collect. d. ___ The “Allowance Method” of accounting for bad debts requires companies to record an
estimate of bad debt expense arising from an uncollectible sale in the same year sales
revenue is recorded rather than in the year the bad debt expense is known with certainty. e. ___ The “Allowance Method” of accounting for bad debts is an application of GAAP whereas
the “Direct Write-Off Method” is not. f. ___ When a company’s receivables turnover ratio is decreasing from one year to the next, it
implies customers are paying off their accounts receivable more quickly than in the past. g. ___ As a company’s receivables turnover ratio increases, the average collection period in terms
of days should be decreasing. h. ___ Before the year-end journal entry to record bad debts, if the “Allowance for Doubtful
Accounts” account has a debit balance, the estimate of uncollectible accounts at the
beginning of the year was too low. i. ___ When preparing an aging report, most companies should expect that the longer a particular
customer’s account has been outstanding, the less likely it is to become uncollectible. j. ___ A company may accelerate its cash receipts by selling its accounts receivable to a factor
company. k. ___ As a company’s “Bad Debts Expense” account balance increases, the amount of net sales
revenue reported on its income statement will decrease. l. ___ The specific write-off of an account receivable will decrease the net realizable value of the
accounts receivables. 1 Problem II: (17 points) On March 1, 20X6, Newton Corp. provided services worth $20,000 on account to
one of its longtime customers. At that time, Newton debited “Accounts Receivable” and credited “Service
Revenue” for $20,000. On April 1, 20X6, Newton agreed to convert the account receivable to a 12-month,
12%, note receivable. The customer will pay Newton $20,000 plus accrued interest on April 1, 20X7. Interest
on the note is compounded annually.
Note: Round all interest calculations to the nearest whole month. A. How much total interest will Newton eventually earn on the Note Receivable?
Answer: $_____ B. Assuming Newton has a calendar year-end, prepare in the journal below the following: The entry to record the conversion of the account receivable to a note receivable on April 1, 20X6 The entry to record accrued interest on December 31, 20X6 The entry to record the collection of the note’s face value plus interest on April 1, 20X7.
Date
4/1/X6 Debit Credit 12/31/X
6
4/1/X7 C. Accounting Check √ Do your credits to the “Interest Revenue” account add up to the total interest
revenue amount from part “A”? In addition, there should not be any note receivable balance remaining
after the last entry since the note plus all of its interest has been collected. Are your receivables balances
equal to zero? If your answer is not “yes” to both questions, please go back and check your calculations
and/or entries. 2 Problem III: (18 points) Summer Inc.’s trial balance indicates the following select account balances at the
end of 20X1 before the year-end adjustment to record bad debts:
Summer Inc.
Trial Balance (partial)
12/31/X1
Debit
Credit
Accounts Receivable – 12/31/X1
$ 500,000
Allowance for Doubtful Accounts (AFDA) – 12/31/X1
$ 20,000
Sales Revenue
8,000,000
Bad Debts Expense – 1/1/X1
0
A. Assume at the end of 20X1, Summer’s management estimates 5% of its ending Accounts Receivable
account balance will be uncollectible. Required: Prepare the 12/31/X1 journal entry to record bad debts for 20X1. Date
12/31/X1 Debit Credit B. Assume that on January 15th of the following year (20X2), Summers is notified that one of its customers
who owes them money has filed for bankruptcy. As a consequence, $1,000 of the Accounts Receivable
balance is deemed to be uncollectible and will be specifically written-off.
Required: Prepare the specific write-off journal entry to record this uncollectible account.
Date
1/15/X2 Debit Credit Problem IV: (12 points) On November 15, Wolfpack Corp. sold $900,000 of its accounts receivables to a
factor company. The factor company assesses a service charge of 3% of the accounts receivables sold.
Required: Prepare the journal entry Wolfpack should make when it factors its receivables.
Date
Nov 15 Debit Credit 3 Problem V: (18 points)
On November 20, Wolfpack Corp. sold inventory having a cost of $5,000 for $25,000. Wolfpack accepted
the customer’s MasterCard for the sales amount. At the end of the day, MasterCard receipts were deposited
in the company’s bank account. MasterCard charges a 3% service charge for credit card sales.
Wolfpack uses the perpetual inventory system.
Required: Prepare the journal entries Wolfpack should make on November 20 related to the above sale.
Date
Nov 20 Debit Credit Problem VI: (11 points) The following information is available for Windsor Corp. for the past two years:
Accounts Receivable
Allowance for Doubtful Accounts
Net Accounts Receivable
Net Cash Sales
Net Credit Sales
Total Net Sales 20X3
$ 200,000
(20,000)
$ 180,000 20X2
$ 180,000
(30,000)
$ 150,000 $ 500,000
1,500,000
$2,000,000 $ 700,000
1,600,000
$2,300,000 A. In the chart below, indicate Windsor’s accounts receivable turnover and average collection period for
20X3. Assume a 360-day calendar year. Round answers to two decimal places.
20X3
Accounts Receivable Turnover
Average Collection Period
Calculations: 4 B. What does the accounts receivable turnover indicate? Also, in general, when comparing the turnover
from one year to the next, do companies prefer it to be higher or lower over time? (two – three sentences) C. What is the relationship (ex. direct correlation or inverse) between the account receivable turnover and
the average collection period? Also, in general, when comparing the average collection period from one
year to the next, do companies prefer it to be higher or lower over time? (two – three sentences) 5

 


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