Bad Debts Exercise E1
On 30 June 2012 Crawford Company estimated that 1.5% of its net sales of $400,000 will become uncollectable. The company recorded this amount as an addition to Allowance for Doubtful Debts. On 11 November 2012 Crawford Company determined that XXXXX XXXXX’s account was uncollectable and wrote off $1,100. On 12 December 2012 Hayes paid the amount previously written off.
Prepare the journal entries on 30 June 2012, 11 November 2012 and 12 December 2012.
Receivables Exercise P1
As at 30 June 2012, Sycamore Imports reported the following information on its balance sheet.
Accounts receivable $1 020 000
Less: Allowance for doubtful debts 60 000
During 2012-13, the company had the following transactions related to receivables.
1. Sales on account $2 670 000
2. Sales returns and allowances 40 000
3. Collections of accounts receivable 2 300 000
4. Write-offs of accounts receivable deemed uncollectable 65 000
5. Recovery of doubtful debts previously written off as uncollectable 20 000
(a) Prepare the journal entries to record each of these five transactions. Assume that no cash discounts were taken on the collections of accounts receivable.
(b) Enter the 1 July 2012 balances in Accounts Receivable and Allowance for Doubtful Debts. Post the entries to the two accounts (use T accounts), and determine the balances.
(c) Prepare the journal entry to record bad debts expense for 2012-2013, assuming that an ageing of accounts receivable indicates that estimated doubtful debts are $95 000.
(d) Compute the accounts receivable turnover ratio for the year 2012-13 (round to the second decimal place):
Receivables Exercise P2
The following represents selected information taken from a business’s ageing schedule to estimate uncollectable accounts receivable at year end.
Number of Days Outstanding
1-30 31-60 61-90 91-120 Over 120
Accounts Receivable $260 000 $100 000 $60 000 $50 000 $30 000 $20 000
% Uncollectable 1% 5% 7.5% 10% 12%
Estimated Doubtful Debts $ $ $ $ $ $
(a) Fill in the missing amounts on the table above.
(b) Prepare the year-end adjusting journal entry to record the doubtful debts using the allowance method and the aged uncollectable accounts receivable determined in (a). Assume the opening balance in the Allowance for Doubtful Debts account is a $10 000 credit.
(c) Of the above accounts, $2 000 is determined to be specifically uncollectable. Prepare the journal entry to write-off the uncollectable accounts.
(d) The business subsequently collects $1 000 on a specific account that had previously been determined to be uncollectable in (c). Prepare the journal entry(ies) necessary to restore the account and record the cash collection.
Current Liabilities Exercise E5
Nevin Company publishes a monthly sports magazine, Fishing Preview. Subscriptions to the magazine cost $20 per year. During November 2012, Nevin sells 9,000 subscriptions beginning with the December issue. Nevin prepares financial statements quarterly and recognises subscription revenue earned at the end of the quarter. The business uses the accounts Unearned Subscriptions and Subscriptions Revenue.
(a) Prepare the entry in November for the receipt of the subscriptions.
(b) Prepare the adjusting entry as at 31 December 2012 to record subscription revenue earned in December 2012.
(c) Prepare the adjusting entry as at 31 March 2013 to record subscription revenue earned in the first quarter of 2013.