Chapter 9
Receivables
Short Exercises
S9-3 Applying the direct write-off method to account for uncollectibles
Learning Objective 2
Susan Knoll is an attorney in Los Angeles. Knoll uses the direct write-off method to account for
uncollectible receivables.
At January 31, 2016, Knoll’s accounts receivable totaled $18,000. During February, she earned revenue
of $21,000 on account and collected $23,000 on account. She also wrote off uncollectible receivables of
$1,050 on February 29, 2016.
Requirements
1. Use the direct write-off method to journalize Knoll’s write-off of the uncollectible receivables.
2. What is Knoll’s balance of Accounts Receivable at February 29, 2016?
S9-4 Collecting a receivable previously written off—direct write-off method
Learning Objective 2
Gate City Cycles had trouble collecting its account receivable from Shawna Brown. On June 19, 2016,
Gate City finally wrote off Brown’s $700 account receivable. On December 31, Brown sent a $700
check to Gate City.
Journalize the entries required for Gate City Cycles, assuming Gate City uses the direct write-off
method.
S9-5 Applying the allowance method to account for uncollectibles
Learning Objective 3
The Accounts Receivable balance and Allowance for Bad Debts for Turning Leaves Furniture
Restoration at December 31, 2015, was $10,800 and $2,000 (credit balance). During 2016, Turning
Leaves completed the following transactions:
a. Sales revenue on account, $265,800 (ignore Cost of Goods Sold).
b. Collections on account, $220,000.
c. Write-offs of uncollectibles, $6,100.
d. Bad debts expense of $5,000 was recorded.
Requirements
1. Journalize Turning Leaves’s transactions for 2016 assuming Turning Leaves uses the allowance
method.
2. Post the transactions to the Accounts Receivable, Allowance for Bad Debts, and Bad Debts Expense
T-accounts, and determine the ending balance of each account.
3. Show how accounts receivable would be reported on the balance sheet at December 31, 2016.
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S9-7 Applying the allowance method (percent-of-receivables) to account for uncollectibles
Learning Objective 3
The Accounts Receivable balance for Field, Inc. at December 31, 2015, was $25,000. During 2016,
Field earned revenue of $457,000 on account and collected $326,000 on account. Field wrote off $5,900
receivables as uncollectible. Industry experience suggests that uncollectible accounts will amount to 4%
of accounts receivable.
Requirements
1. Assume Field had an unadjusted $2,300 credit balance in Allowance for Bad Debts at December 31,
2016. Journalize Field’s December 31, 2016, adjustment to record bad debts expense using the
percent-of-receivables method.
2. Assume Field had an unadjusted $1,900 debit balance in Allowance for Bad Debts at December 31,
2016. Journalize Field’s December 31, 2016, adjustment to record bad debts expense using the
percent-of-receivables method.
S9-8 Applying the allowance method (aging-of-receivables) to account for uncollectibles
Learning Objective 3
World Class Work Shoes had the following balances at December 31, 2016, before the year-end
adjustments:
The aging of accounts receivable yields the following data:
Requirements
1. Journalize World Class’s entry to record bad debts expense for 2016 using the aging-of-receivables
method.
2. Prepare a T-account to compute the ending balance of Allowance for Bad Debts.
S9-10 Accounting for a note receivable
Learning Objective 4
On June 6, Southside Bank & Trust lent $90,000 to Samantha Michael on a 60-day, 6% note.
Requirements
1. Journalize for Southside the lending of the money on June 6.
2. Journalize the collection of the principal and interest at maturity. Specify the date.
S9-11 Accruing interest revenue and recording collection of a note
Learning Objective 4
© 2016 Pearson Education, Ltd. 9-2
On December 1, Kole Corporation accepted a 120-day, 6%, $17,000 note receivable from J. Peterman in
exchange for his account receivable.
Requirements
1. Journalize the transaction on December 1.
2. Journalize the adjusting entry needed on December 31 to accrue interest revenue.
3. Journalize the collection of the principal and interest at maturity. Specify the date.
S9-12 Recording a dishonored note receivable
Learning Objective 4
Midway Corporation has a six-month, $24,000, 3% note receivable from L. Summers that was signed on
June 1, 2016. Summers defaults on the loan on December 1.
Journalize the entry for Midway to record the default of the loan.
S9-13 Using the acid-test ratio, accounts receivable turnover ratio, and days’ sales in receivables to
evaluate a company
Learning Objective 5
Gold Clothiers reported the following selected items at September 30, 2016 (last year’s—2015—
amounts also given as needed):
Compute Gold’s (a) acid-test ratio, (b) accounts receivable turnover ratio, and (c) days’ sales in
receivables for 2016. Evaluate each ratio value as strong or weak. Gold sells on terms of net 30. (Round
days’ sales in receivables to a whole number.)
Exercises
E9-19 Accounting for uncollectible accounts using the allowance method (aging- of-receivables)
and reporting receivables on the balance sheet
Learning Objective 3
2. Allowance CR Bal. $25,100
At December 31, 2016, the Accounts Receivable balance of TM Manufacturer is $230,000. The
Allowance for Bad Debts account has a $24,000 debit balance. TM Manufacturer prepares the following
aging schedule for its accounts receivable:
© 2016 Pearson Education, Ltd. 9-3
Requirements
1. Journalize the year-end adjusting entry for bad debts on the basis of the aging schedule. Show the T-
account for the Allowance for Bad Debts at December 31, 2016.
2. Show how TM Manufacturer will report its net accounts receivable on its December 31, 2016,
balance sheet.
E9-20 Journalizing transactions using the direct write-off method versus the allowance method
Learning Objectives 1, 2, 3
During August 2016, Ritter Company recorded the following:
Sales of $62,100 ($55,000 on account; $7,100 for cash). Ignore Cost of Goods Sold.
Collections on account, $37,800.
Write-offs of uncollectible receivables, $1,690.
Recovery of receivable previously written off, $500.
Requirements
1. Journalize Ritter’s transactions during August 2016, assuming Ritter uses the direct write-off
method.
2. Journalize Ritter’s transactions during August 2016, assuming Ritter uses the allowance method.
E9-21 Journalizing credit card sales, note receivable transactions, and accruing interest
Learning Objectives 1, 4
Marathon Running Shoes reports the following:
Journalize all entries required for Marathon Running Shoes.
E9-24 Journalizing note receivable transactions
Learning Objective 4
© 2016 Pearson Education, Ltd. 9-4
Oct. 31 Cash DR $24,240
Like New Steam Cleaning performs services on account. When a customer account becomes four
months old, Like New converts the account to a note receivable. During 2016, the company completed
the following transactions:
Record the transactions in Like New’s journal.
© 2016 Pearson Education, Ltd. 9-5