Chapter 9 exercises
1. A company used the percent of sales method to determine its bad debts expense. At the end of
the current year, the company's unadjusted trial balance reported the following selected amounts:
All sales are made on credit. Based on past experience, the company estimates 0.6% of credit sales
to be uncollectible. What adjusting entry should the company make at the end of the current year to
record its estimated bad debts expense?
A.
B.
C.
D.
E.
2. The Connecting Company uses the percent of sales method of accounting for uncollectible
accounts receivable. During the current year, the following transactions occurred:
a. Prepare the general journal entries to record these transactions.
7/9 Allowance for doubtful account 8100
Account receivable 8100
15/10 Allowance for doubtful account 2500
Account receivable 2500
9/11 Account receivable 6000
Allowance for doubtful account 6000
Cash 6000
Account receivable 6000
31/12 bad debt expense 9500
Allowance for doubtful account 9500
b. If the balance of the allowance for uncollectible accounts was $8,000 on January 1 of the current
year, determine the balance of the allowance for uncollectible accounts at December 31 of the
current year. Assume that the transactions above are the only transactions affecting the allowance
for uncollectible accounts during the year.
ending balance of allowance for doubtful account = 8000 – 8100 – 2500 + 6000 + 9500 = 12900
Allowance for doubtful account
8100 opening balance: $8000
2500 6000
9500
Ending balance: 12900
3. Assume that a company's bad debts are estimated and recorded as 2% of Account receivable.
Accounts receivable .... $125000
Sales revenue............ $1280000
Previous balance of Allowance for doubtful accounts ..... $1600
75% of sales was made on credit.
a. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the
balance sheet after adjustment.
-> Ending balance of allowance for doubtful account = 2% x 125000 = $2500
Balance sheet at 31/12
Assets
Account receivable 125000
Less Allowance for doubtful account (2500)
Net value of account receivable 122500
b. Prepare the entry to write off a $1,500 account receivable on January 1 of the next year.
1/1 Allowance for doubtful account 1500
Account receivable 1500
c. Show how Accounts Receivable and the Allowance for Doubtful Accounts would appear on the
balance sheet immediately after writing off the account in part 2.
Balance sheet at 2/1/x+1
Assets
Account receivable 123500
Less Allowance for doubtful account (1000)
Net value of account receivable 122500
4. A company that uses the percent of sales to account for its bad debts had credit sales of $740,000
in 2008, including a $720 sale to Helen Sweet. On December 31, 2008, the company estimated its
bad debts at 1.5% of its credit sales. On June 1, 2009, the company wrote off, as uncollectible, the
$720 account of Helen Sweet. On December 21, 2009, Helen Sweet unexpectedly paid her account in
full. Prepare the necessary journal entries:
(a) on December 31, 2008, to reflect the estimate of bad debts expense; (b) on June 1, 2009, to write
off the bad debt; and (c) on December 21, 2009, to record the unexpected collection.
5. XYZ company has opening balance of accounts receivable account of $530. During the period, the
company received $300 paid by customers for their debts and made credit sales for $1230, and
wrote-off $200 uncollectible account. What is the balance of accounts receivable at the end of the
period?
AR = 530 -300 + 1230 -200 = $1260
6. On 5 May, 2011, the company sold goods for $500 on credit and received a note from its
customer. It was a $500, 10%, 90-day note. Prepare entries for receipt (issuance) and payment of the
note?
5/5/2011 Note receivable 500
Sales 500
3/8/2011 Cash 512.5
note receivable 500
Interest revenue 12.5
7. On 6 December 2011, the company lent its partner $600 cash and received a note. That was a
$600, 12%, 60 day note.
Prepare journal entries relating this note?
6/12/2011 NOTE receivable 600
Cash 600
31/12/2011 Interest receivable 5
Interest revenue 5
4/2/2012 Cash 612
note receivable 600
Interest receivable 5
Interest revenue 7
8. C company owed the company $2000. On 2/3 The company decided that C Company could not
paid its debt, so wrote-off its AR.
On 5/5 C company paid $1200.
Prepare journal entries, company uses direct write-off method.
2/3 Bad debt expense 2000
Account receivable 2000
(AR=0)
5/5 Account receivable 1200
Bad debt expense 1200
Cash 1200
Account receivable 1200
Solutions
1. D
2.
3.
4.
5. E.B = 530 – 300 + 1230 = $1460
6. 5 May: Dr Note receivable 500
Cr Sale revenue 500
3 August Dr Cash 512.5
Cr Interest earned 12.5
Cr Note receivable 500
7. 6 Dec 2011, Dr Note receivable 600
Cr Cash 600
31 Dec 2011, Dr Interest receivable 5
Cr Interest earned 5
4 Feb, 2012 Dr Cash 612
Cr Interest earned 7
Cr Interest receivable 5
Cr Note receivable 600
