Financial Accounting

IFRS Edition (2nd)

Questions & Solutions

Chapter - 8

Accounting for Receivables

Jerry J. Weygandt
Paul D. Kimmel
Donald E. Kieso
 Brief Exercises 391

17. Jana Company dishonors a note at maturity. What are 19. The accounts receivable turnover ratio is 8.14,
the options available to the lender? and average net receivables during the period are
18. General Motors Corporation (USA) has accounts £400,000. What is the amount of net credit sales for
receivable and notes receivable. How should the re- the period?
ceivables be reported on the statement of financial
position?

BRIEF EXERCISES

BE8-1 Presented below are three receivables transactions. Indicate whether these receivables Identify different types of
are reported as accounts receivable, notes receivable, or other receivables on a statement of receivables.
financial position. (LO 1)
(a) Sold merchandise on account for W64,000,000 to a customer.
(b) Received a promissory note of W57,000,000 for services performed.
(c) Advanced W8,000,000 to an employee.
BE8-2 Record the following transactions on the books of Galaxy Co. Record basic accounts
(a) On July 1, Galaxy Co. sold merchandise on account to Kingston Inc. for $17,200, receivable transactions.
terms 2/10, n/30. (LO 2)
(b) On July 8, Kingston Inc. returned merchandise worth $3,800 to Galaxy Co.
(c) On July 11, Kingston Inc. paid for the merchandise.
BE8-3 During its first year of operations, Energy Company had credit sales of $3,000,000; Prepare entry for allowance
$600,000 remained uncollected at year-end. The credit manager estimates that $31,000 of method and partial statement
these receivables will become uncollectible. of financial position.
(a) Prepare the journal entry to record the estimated uncollectibles. (LO 3, 9)
(b) Prepare the current assets section of the statement of financial position for Energy
Company. Assume that in addition to the receivables it has cash of $90,000, inventory
of $118,000, and prepaid insurance of $7,500.
BE8-4 At the end of 2014, Endrun Co. has accounts receivable of £700,000 and an allow- Prepare entry for write-off;
ance for doubtful accounts of £54,000. On January 24, 2015, the company learns that its determine cash realizable
receivable from Marcello is not collectible, and management authorizes a write-off of £6,200. value.
(a) Prepare the journal entry to record the write-off. (LO 3)
(b) What is the cash realizable value of the accounts receivable (1) before the write-off
and (2) after the write-off?
BE8-5 Assume the same information as BE8-4. On March 4, 2015, Endrun Co. receives pay- Prepare entries for collection
ment of £6,200 in full from Marcello. Prepare the journal entries to record this transaction. of bad debt write-off.

BE8-6 Hamblin Co. elects to use the percentage-of-sales basis in 2014 to record bad debt (LO 3)
expense. It estimates that 2% of net credit sales will become uncollectible. Sales revenues Prepare entry using percentage-
are $800,000 for 2014, sales returns and allowances are $38,000, and the allowance for of-sales method.
doubtful accounts has a credit balance of $9,000. Prepare the adjusting entry to record (LO 3)
bad debt expense in 2014.
BE8-7 Shenzhen Co. uses the percentage-of-receivables basis to record bad debt expense. Prepare entry using percentage-
It estimates that 1% of accounts receivable will become uncollectible. Accounts receivable of-receivables method.
are £420,000 at the end of the year, and the allowance for doubtful accounts has a credit (LO 3)
balance of £1,500.
(a) Prepare the adjusting journal entry to record bad debt expense for the year.
(b) If the allowance for doubtful accounts had a debit balance of £740 instead of a credit
balance of £1,500, determine the amount to be reported for bad debt expense.
BE8-8 Presented below are two independent transactions. Prepare entries to dispose of
(a) Fiesta Restaurant accepted a Visa card in payment of a €175 lunch bill. The bank accounts receivable.
charges a 4% fee. What entry should Fiesta make? (LO 4)
(b) St. Pierre Company sold its accounts receivable of €70,000. What entry should
St. Pierre make, given a service charge of 3% on the amount of receivables sold?
392 8 Accounting for Receivables

Compute interest and BE8-9 Compute interest and find the maturity date for the following notes.
determine maturity dates
on notes. Date of Note Principal Interest Rate (%) Terms
(LO 5) (a) June 10 $80,000 6% 60 days
(b) July 14 $64,000 7% 90 days
(c) April 27 $12,000 8% 75 days

Determine maturity dates and BE8-10 Presented below are data on three promissory notes. Determine the missing amounts.
compute interest and rates on
notes. Date of Maturity Annual Total
(LO 5) Note Terms Date Principal Interest Rate Interest
(a) April 1 60 days ? $600,000 5% ?
(b) July 2 30 days ? 90,000 ? $600
(c) March 7 6 months ? 120,000 10% ?

Prepare entry for notes BE8-11 On January 10, 2014, Wilfer Co. sold merchandise on account to Elgin Co. for
receivable exchanged for $11,600, n/30. On February 9, Elgin Co. gave Wilfer Co. a 9% promissory note in settlement
account receivable. of this account. Prepare the journal entry to record the sale and the settlement of the account
(LO 6) receivable.
Compute ratios to analyze BE8-12 The financial statements of Minnesota Mining and Manufacturing Company (3M)
receivables. (USA) report net sales of $20.0 billion. Accounts receivable (net) are $2.7 billion at the begin-
(LO 9) ning of the year and $2.8 billion at the end of the year. Compute 3M’s accounts receivable
turnover ratio. Compute 3M’s average collection period for accounts receivable in days.

> DO IT! REVIEW

Prepare entry for DO IT! 8-1 Amazon Company has been in business several years. At the end of the current
uncollectible accounts. year, the ledger shows:
(LO 3) Accounts Receivable R$ 310,000 Dr.
Sales Revenue 2,200,000 Cr.
Allowance for Doubtful Accounts 4,700 Cr.
Bad debts are estimated to be 5% of receivables. Prepare the entry to adjust Allowance for
Doubtful Accounts.

Prepare entry for factored DO IT! 8-2 Paltrow Distributors is a growing company whose ability to raise capital has
accounts. not been growing as quickly as its expanding assets and sales. Paltrow’s local banker has
(LO 4) indicated that the company cannot increase its borrowing for the foreseeable future.
Paltrow’s suppliers are demanding payment for goods acquired within 30 days of the
invoice date, but Paltrow’s customers are slow in paying for their purchases (60–90 days).
As a result, Paltrow has a cash flow problem.
Paltrow needs $860,000 to cover next Friday’s payroll. Its balance of outstanding
accounts receivable totals $1,000,000. To alleviate this cash crunch, the company sells
all of its accounts receivable ($1,000,000). Record the entry that Paltrow would make
when it raises the needed cash. (Assume a 3% service charge.)
Prepare entries for notes DO IT! 8-3 Karbon Wholesalers accepts from Bazaar Stores a $6,200, 4-month, 9% note
receivable. dated May 31 in settlement of Bazaar’s overdue account. (a) What is the maturity date of
(LO 5, 8) the note? (b) What is the entry made by Karbon at the maturity date, assuming Bazaar
pays the note and interest in full at that time?
Compute ratios for DO IT! 8-4 In 2014, Lauren Company has net credit sales of $1,480,000 for the year. It
receivables. had a beginning accounts receivable (net) balance of $112,000 and an ending accounts
(LO 9) receivable (net) balance of $108,000. Compute Lauren Company’s (a) accounts receivable
turnover and (b) average collection period in days.

✔ The Navigator
 Exercises 393

EXERCISES

E8-1 Presented below are selected transactions of Federer Company. Federer sells in large Journalize entries related to
quantities to other companies and also sells its product in a small retail outlet. accounts receivable.
March 1 Sold merchandise on account to Lynda Company for CHF3,800, terms 2/10, n/30. (LO 2)
3 Lynda Company returned merchandise worth CHF500 to Federer.
9 Federer collected the amount due from Lynda Company from the March 1
sale.
15 Federer sold merchandise for CHF200 in its retail outlet. The customer used
his Federer credit card.
31 Federer added 1.5% monthly interest to the customer’s credit card balance.
Instructions
Prepare journal entries for the transactions above.
E8-2 Presented below are two independent situations. Journalize entries for
recognizing accounts
(a) On January 6, Bennett Co. sells merchandise on account to Jackie Inc. for $7,000,
receivable.
terms 2/10, n/30. On January 16, Jackie Inc. pays the amount due. Prepare the entries
on Bennett’s books to record the sale and related collection. (LO 2)
(b) On January 10, Connor Bybee uses his Sheridan Co. credit card to purchase merchan-
dise from Sheridan Co. for $9,000. On February 10, Bybee is billed for the amount
due of $9,000. On February 12, Bybee pays $6,000 on the balance due. On March 10,
Bybee is billed for the amount due, including interest at 2% per month on the unpaid
balance as of February 12. Prepare the entries on Sheridan Co.’s books related to the
transactions that occurred on January 10, February 12, and March 10.
E8-3 The ledger of Elburn Company at the end of the current year shows Accounts Receiv- Journalize entries to record
able €110,000, Sales Revenue €840,000, and Sales Returns and Allowances €28,000. allowance for doubtful
accounts using two different
Instructions bases.
(a) If Elburn uses the direct write-off method to account for uncollectible accounts, jour-
(LO 3)
nalize the adjusting entry at December 31, assuming Elburn determines that T. Thum’s
€1,400 balance is uncollectible.
(b) If Allowance for Doubtful Accounts has a credit balance of €2,100 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 1% of net sales, and (2) 10% of accounts receivable.
(c) If Allowance for Doubtful Accounts has a debit balance of €200 in the trial balance,
journalize the adjusting entry at December 31, assuming bad debts are expected to be
(1) 0.75% of net sales and (2) 6% of accounts receivable.
E8-4 Leland Company has accounts receivable of $98,100 at March 31. An analysis of the Determine bad debt expense;
accounts shows the following information. prepare the adjusting entry for
bad debt expense.
Month of Sale Balance, March 31
(LO 3)
March $65,000
February 17,600
January 8,500
Prior to January 7,000
$98,100

Credit terms are 2/10, n/30. At March 31, Allowance for Doubtful Accounts has a credit
balance of $900 prior to adjustment. The company uses the percentage-of-receivables basis
for estimating uncollectible accounts. The company’s estimate of bad debts is shown below.

Estimated Percentage
Age of Accounts Uncollectible
1–30 days 2.0%
31–60 days 5.0%
61–90 days 30.0%
Over 90 days 50.0%
394 8 Accounting for Receivables

Instructions
(a) Determine the total estimated uncollectibles.
(b) Prepare the adjusting entry at March 31 to record bad debt expense.
Journalize write-off and E8-5 At December 31, 2013, Crawford Company had a credit balance of £15,000 in Allowance
recovery. for Doubtful Accounts. During 2014, Crawford wrote off accounts totaling £14,100. One of
(LO 3) those accounts (£1,800) was later collected. At December 31, 2014, an aging schedule indicated
that the balance in Allowance for Doubtful Accounts should be £19,000.
Instructions
Prepare journal entries to record the 2014 transactions of Crawford Company.
Journalize percentage-of-sales E8-6 On December 31, 2013, Russell Co. estimated that 2% of its net sales of $360,000 will
basis, write-off, recovery. become uncollectible. The company recorded this amount as an addition to Allowance for
(LO 3) Doubtful Accounts. On May 11, 2014, Russell Co. determined that the B. Vetter account
was uncollectible and wrote off $1,100. On June 12, 2014, Vetter paid the amount previ-
ously written off.
Instructions
Prepare the journal entries on December 31, 2013, May 11, 2014, and June 12, 2014.
Journalize entries for the sale E8-7 Presented below are two independent situations.
of accounts receivable.
(a) On March 3, Pusan Appliances sells W620,000,000 of its receivables to Universal Factors
(LO 4) Inc. Universal Factors assesses a finance charge of 3% of the amount of receivables sold.
Prepare the entry on Pusan Appliances’ books to record the sale of the receivables.
(b) On May 10, Taejeon Company sold merchandise for W3,500,000 and accepted the cus-
tomer’s America Bank MasterCard. America Bank charges a 5% service charge for credit
card sales. Prepare the entry on Taejeon Company’s books to record the sale of merchandise.
Journalize entries for credit E8-8 Presented below are two independent situations.
card sales.
(a) On April 2, Julie Keiser uses her JCPenney Company credit card to purchase mer-
(LO 4) chandise from a JCPenney store for $1,500. On May 1, Keiser is billed for the $1,500
amount due. Keiser pays $900 on the balance due on May 3. On June 1, Keiser receives
a bill for the amount due, including interest at 1.0% per month on the unpaid balance
as of May 3. Prepare the entries on JCPenney Co.’s books related to the transactions
that occurred on April 2, May 3, and June 1.
(b) On July 4, Avalon Restaurant accepts a Visa card for a $200 dinner bill. Visa charges a
3% service fee. Prepare the entry on Avalon’s books related to this transaction.
Journalize credit card sales, E8-9 Hong Kong Stores accepts both its own and national credit cards. During the year,
and indicate the statement the following selected summary transactions occurred.
presentation of financing
Jan. 15 Made Hong Kong credit card sales totaling HK$18,000. (There were no balances
charges and service charge
expense. prior to January 15.)
20 Made Visa credit card sales (service charge fee 2%) totaling HK$4,800.
(LO 4) Feb. 10 Collected HK$10,000 on Hong Kong credit card sales.
15 Added finance charges of 1.5% to Hong Kong credit card account balances.
Instructions
(a) Journalize the transactions for Hong Kong Stores.
(b) Indicate the statement presentation of the financing charges and the credit card service
charge expense for Hong Kong Stores.
Journalize entries for notes E8-10 Reeves Supply Co. has the following transactions related to notes receivable during
receivable transactions. the last 2 months of 2014. The company does not make entries to accrue interest except
(LO 5, 6) at December 31.
Nov. 1 Loaned $15,000 cash to Norma Jeanne on a 12-month, 9% note.
Dec. 11 Sold goods to Bob Sharbo, Inc., receiving a $6,750, 90-day, 8% note.
16 Received a $4,400, 180-day, 12% note in exchange for Richard Russo’s outstanding
accounts receivable.
31 Accrued interest revenue on all notes receivable.
Instructions
(a) Journalize the transactions for Reeves Supply Co.
(b) Record the collection of the Jeanne note at its maturity in 2015.
 Problems: Set A 395

E8-11 Record the following transactions for Taylor Co. in the general journal. Journalize entries for notes
receivable.
2014
(LO 5, 6)
May 1 Received a €7,500, 12-month, 9% note in exchange for Len Monroe’s outstand-
ing accounts receivable.
Dec. 31 Accrued interest on the Monroe note.
Dec. 31 Closed the interest revenue account.
2015
May 1 Received principal plus interest on the Monroe note. (No interest has been accrued
in 2015.)

E8-12 Bieber Company had the following select transactions. Prepare entries for note
receivable transactions.
May 1, 2014 Accepted Crane Company’s 12-month, 12% note in settlement of a
$16,000 account receivable. (LO 5, 6, 8)
July 1, 2014 Loaned $25,000 cash to Sam Howard on a 9-month, 10% note.
Dec. 31, 2014 Accrued interest on all notes receivable.
Apr. 1, 2015 Sam Howard dishonored its note; Bieber expects it will eventually collect.
May 1, 2015 Received principal plus interest on the Crane note.

Instructions
Prepare journal entries to record the transactions. Bieber prepares adjusting entries once
a year on December 31.

E8-13 On May 2, Nanjing Company lends ¥7,600,000 to Cortland, Inc., issuing a 6-month, Journalize entries for dishonor
8% note. At the maturity date, November 2, Cortland indicates that it cannot pay. of notes receivable.
(LO 5, 8)
Instructions
(a) Prepare the entry to record the issuance of the note.
(b) Prepare the entry to record the dishonor of the note, assuming that Nanjing Company
expects collection will occur.
(c) Prepare the entry to record the dishonor of the note, assuming that Nanjing Company
does not expect collection in the future.

E8-14 Lashkova Company had accounts receivable of $100,000 on January 1, 2014. The Compute accounts receivable
only transactions that affected accounts receivable during 2014 were net credit sales of turnover and average
$1,000,000, cash collections of $920,000, and accounts written off of $30,000. collection period.
(LO 9)
Instructions
(a) Compute the ending balance of accounts receivable.
(b) Compute the accounts receivable turnover ratio for 2014.
(c) Compute the average collection period in days.

PROBLEMS: SET A

P8-1A At December 31, 2013, Cafu Co. reported the following information on its state- Prepare journal entries related
ment of financial position. to bad debt expense.
(LO 2, 3, 9)
Accounts receivable R$960,000
Less: Allowance for doubtful accounts 70,000

During 2014, the company had the following transactions related to receivables.
1. Sales on account R$3,315,000
2. Sales returns and allowances 50,000
3. Collections of accounts receivable 2,810,000
4. Write-offs of accounts receivable deemed uncollectible 90,000
5. Recovery of bad debts previously written off as uncollectible 29,000
396 8 Accounting for Receivables

Instructions
(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) Accounts receivable (b) Enter the January 1, 2014, balances in Accounts Receivable and Allowance for Doubt-
R$1,325,000 ful Accounts, post the entries to the two accounts (use T-accounts), and determine the
ADA R$9,000 balances.
(c) Bad debt expense (c) Prepare the journal entry to record bad debt expense for 2014, assuming that an aging
R$116,000 of accounts receivable indicates that expected bad debts are R$125,000.
(d) Compute the accounts receivable turnover ratio for 2014, assuming the expected bad
debt information presented in (c).
Compute bad debt amounts. P8-2A Information related to Hamilton Company for 2014 is summarized below.
(LO 3) Total credit sales £2,500,000
Accounts receivable at December 31 970,000
Bad debts written off 66,000
Instructions
(a) What amount of bad debt expense will Hamilton Company report if it uses the direct
write-off method of accounting for bad debts?
(b) Assume that Hamilton Company estimates its bad debt expense to be 3% of credit
sales. What amount of bad debt expense will Hamilton record if it has an Allowance
for Doubtful Accounts credit balance of £4,000?
(c) Assume that Hamilton Company estimates its bad debt expense based on 7% of
accounts receivable. What amount of bad debt expense will Hamilton record if it has
an Allowance for Doubtful Accounts credit balance of £3,000?
(d) Assume the same facts as in (c), except that there is a £3,000 debit balance in Allow-
ance for Doubtful Accounts. What amount of bad debt expense will Hamilton record?
(e) What is the weakness of the direct write-off method of reporting bad debt
expense?
Journalize entries to record P8-3A Presented below is an aging schedule for Sycamore Company.
transactions related to bad
debts. [Link]
(LO 2, 3) Home Insert Page Layout Formulas Data Review View

P18 fx

A B C D E F G
1 Number of Days Past Due
2 Not
3 Customer Total Yet Due 1–30 31–60 61–90 Over 90
4 Anders $ 28,000 $12,000 $16,000
5 Blake 40,000 $ 40,000
6 Cyrs 57,000 16,000 6,000 $35,000
7 De Jong 34,000 $34,000
8 Others 132,000 96,000 16,000 14,000 6,000
9 $291,000 $152,000 $34,000 $30,000 $35,000 $40,000
Esmated
10 percentage
uncollecble 2% 6% 13% 25% 60%
Total esmated
11 bad debts $ 41,730 $ 3,040 $ 2,040 $ 3,900 $ 8,750 $24,000
12

At December 31, 2014, the unadjusted balance in Allowance for Doubtful Accounts is a
credit of $9,000.
Instructions
(a) Bad debt expense $32,730 (a) Journalize and post the adjusting entry for bad debts at December 31, 2014.
(b) Journalize and post to the allowance account the following events and transactions in
the year 2015.
(1) On March 31, a $1,000 customer balance originating in 2014 is judged uncollectible.
(2) On May 31, a check for $1,000 is received from the customer whose account was
written off as uncollectible on March 31.
 Problems: Set A 397

(c) Journalize the adjusting entry for bad debts on December 31, 2015, assuming that (c) Bad debt expense $32,400
the unadjusted balance in Allowance for Doubtful Accounts is a debit of $800 and the
aging schedule indicates that total estimated bad debts will be $31,600.

P8-4A Hú Inc. uses the allowance method to estimate uncollectible accounts receivable. Journalize transactions
The company produced the following aging of the accounts receivable at year-end. related to bad debts.
(LO 2, 3)

[Link]
Home Insert Page Layout Formulas Data Review View

P18 fx

A B C D E F G
1 Number of Days Outstanding
2
3 Total 0–30 31–60 61–90 91–120 Over 120
4 Accounts receivable HK$193,000 HK$70,000 HK$46,000 HK$39,000 HK$23,000 HK$15,000
5 % uncollecble 1% 3% 5% 8% 10%
6 Esmated bad debts
7

Instructions
(a) Calculate the total estimated bad debts based on the above information. (a) Tot. est.
(b) Prepare the year-end adjusting journal entry to record the bad debts using the aged bad debts HK$7,370
uncollectible accounts receivable determined in (a). Assume the current balance in
Allowance for Doubtful Accounts is a HK$3,000 debit.
(c) Of the above accounts, HK$5,000 is determined to be specifically uncollectible. Prepare
the journal entry to write off the uncollectible account.
(d) The company collects HK$5,000 subsequently on a specific account that had previously
been determined to be uncollectible in (c). Prepare the journal entry(ies) necessary to
restore the account and record the cash collection.
(e) Comment on how your answers to (a)–(d) would change if Hú Inc. used 3% of total ac-
counts receivable, rather than aging the accounts receivable. What are the advantages
to the company of aging the accounts receivable rather than applying a percentage to
total accounts receivable?

P8-5A At December 31, 2014, the trial balance of Roberto Company contained the follow- Journalize entries to record
ing amounts before adjustment. transactions related to bad
debts.
Debits Credits (LO 3)
Accounts Receivable $385,000
Allowance for Doubtful Accounts $ 800
Sales Revenue 918,000
Instructions
(a) Based on the information given, which method of accounting for bad debts is Roberto
Company using—the direct write-off method or the allowance method? How can you
tell?
(b) Prepare the adjusting entry at December 31, 2014, for bad debt expense under each of (b) (2) $9,180
the following independent assumptions.
(1) An aging schedule indicates that $11,750 of accounts receivable will be uncollectible.
(2) The company estimates that 1% of sales will be uncollectible.
(c) Repeat part (b) assuming that instead of a credit balance there is an $800 debit balance
in Allowance for Doubtful Accounts.
(d) During the next month, January 2015, a $3,000 account receivable is written off as
uncollectible. Prepare the journal entry to record the write-off.
(e) Repeat part (d) assuming that Roberto uses the direct write-off method instead of the
allowance method in accounting for uncollectible accounts receivable.
(f ) What type of account is Allowance for Doubtful Accounts? How does it affect
how accounts receivable is reported on the statement of financial position at the end
of the accounting period?
398 8 Accounting for Receivables

Prepare entries for various P8-6A Hilo Company closes its books monthly. On September 30, selected ledger account
notes receivable transactions. balances are:
(LO 2, 4, 5, 8, 9) Notes Receivable $31,000
Interest Receivable 170
Notes Receivable include the following.
Date Maker Face Term Interest
Aug. 16 Demaster Inc. $ 8,000 60 days 8%
Aug. 25 Skinner Co. 9,000 60 days 10%
Sept. 30 Almer Corp. 14,000 6 months 9%
Interest is computed using a 360-day year. During October, the following transactions
were completed.
Oct. 7 Made sales of $6,300 on Hilo credit cards.
12 Made sales of $1,200 on MasterCard credit cards. The credit card service charge
is 3%.
15 Added $460 to Hilo customer balance for finance charges on unpaid balances.
15 Received payment in full from Demaster Inc. on the amount due.
24 Received notice that the Skinner note has been dishonored. (Assume that Skinner
is expected to pay in the future.)
Instructions
(a) Journalize the October transactions and the October 31 adjusting entry for accrued
interest receivable.
(b) Accounts receivable (b) Enter the balances at October 1 in the receivable accounts. Post the entries to all of the
$15,910 receivable accounts.
(c) Total receivables $30,015 (c) Show the statement of financial position presentation of the receivable accounts at
October 31.
Prepare entries for various P8-7A On January 1, 2014, Derek Company had Accounts Receivable €139,000, Notes
receivable transactions. Receivable €30,000, and Allowance for Doubtful Accounts €13,200. The note receivable is
(LO 2, 4, 5, 6, 7, 8) from Kaye Noonan Company. It is a 4-month, 12% note dated December 31, 2013. Derek
Company prepares financial statements annually at December 31. During the year, the fol-
lowing selected transactions occurred.
Jan. 5 Sold €24,000 of merchandise to Zwingle Company, terms n/15.
20 Accepted Zwingle Company’s €24,000, 3-month, 9% note for balance due.
Feb. 18 Sold €8,000 of merchandise to Gerard Company and accepted Gerard’s €8,000,
6-month, 8% note for the amount due.
Apr. 20 Collected Zwingle Company note in full.
30 Received payment in full from Kaye Noonan Company on the amount due.
May 25 Accepted Isabella Inc.’s €4,000, 3-month, 7% note in settlement of a past-due
balance on account.
Aug. 18 Received payment in full from Gerard Company on note due.
25 The Isabella Inc. note was dishonored. Isabella Inc. is not bankrupt; future pay-
ment is anticipated.
Sept. 1 Sold €12,000 of merchandise to Fernando Company and accepted a €12,000,
6-month, 10% note for the amount due.
Instructions
Journalize the transactions.

PROBLEMS: SET B

Prepare journal entries related P8-1B At December 31, 2013, Globe Trotter Imports reported the following information
to bad debt expense. on its statement of financial position.
(LO 2, 3, 9) Accounts receivable $220,000
Less: Allowance for doubtful accounts 15,000
During 2014, the company had the following transactions related to receivables.
1. Sales on account $2,400,000
2. Sales returns and allowances 45,000
 Problems: Set B 399

3. Collections of accounts receivable 2,250,000

4. Write-offs of accounts receivable deemed uncollectible 13,000
5. Recovery of bad debts previously written off as uncollectible 2,000
Instructions
(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 January 1, 2014, balances in Accounts Receivable and Allowance for Doubt- (b) Accounts receivable
ful Accounts. Post the entries to the two accounts (use T-accounts), and determine the $312,000
balances. ADA $4,000
(c) Prepare the journal entry to record bad debt expense for 2014, assuming that an aging (c) Bad debt expense
of accounts receivable indicates that estimated bad debts are $22,000. $18,000
(d) Compute the accounts receivable turnover ratio for the year 2014, assuming the ex-
pected bad debt information presented in (c).
P8-2B Information related to Izmir Company for 2014 is summarized below. Compute bad debt amounts.
Total credit sales 920,000 (LO 3)
Accounts receivable at December 31 369,000
Bad debts written off 23,400
Instructions
(a) What amount of bad debt expense will Izmir Company report if it uses the direct
write-off method of accounting for bad debts?
(b) Assume that Izmir Company decides to estimate its bad debt expense to be 3% of credit
sales. What amount of bad debt expense will Izmir record if Allowance for Doubtful
Accounts has a credit balance of 3,000?
(c) Assume that Izmir Company decides to estimate its bad debt expense based on 7% of
accounts receivable. What amount of bad debt expense will Izmir Company record if
Allowance for Doubtful Accounts has a credit balance of 4,000?
(d) Assume the same facts as in (c), except that there is a 2,000 debit balance in Allow-
ance for Doubtful Accounts. What amount of bad debt expense will Izmir record?
(e) What is the weakness of the direct write-off method of reporting bad debt
expense?
P8-3B Presented below is an aging schedule for Garry Owen Company. Journalize entries to record
transactions related to bad
[Link] debts.
Home Insert Page Layout Formulas Data Review View (LO 2, 3)
P18 fx

A B C D E F G
1 Number of Days Past Due
2 Not
3 Customer Total Yet Due 1–30 31–60 61–90 Over 90
4 Alma $ 26,000 $11,500 $14,500
5 Browne 45,000 $ 45,000
6 Conlon 75,000 22,500 7,500 $45,000
7 Dalton 57,000 $57,000
8 Others 189,000 138,000 22,500 19,500 9,000
9 $392,000 $205,500 $41,500 $34,000 $45,000 $66,000
Esmated
10 percentage
uncollecble 2% 6% 10% 25% 50%
11
Total esmated
bad debts $ 54,250 $ 4,110 $ 2,490 $ 3,400 $11,250 $33,000
12

At December 31, 2014, the unadjusted balance in Allowance for Doubtful Accounts is a
credit of $14,000.
Instructions
(a) Journalize and post the adjusting entry for bad debts at December 31, 2014. (a) Bad debt expense
(b) Journalize and post to the allowance account the following events and transactions in $40,250
the year 2015.
400 8 Accounting for Receivables

(1) March 1, a $1,900 customer balance originating in 2014 is judged uncollectible.

(2) May 1, a check for $1,900 is received from the customer whose account was writ-
ten off as uncollectible on March 1.
(c) Bad debt expense $45,700 (c) Journalize the adjusting entry for bad debts on December 31, 2015. Assume that the
unadjusted balance in Allowance for Doubtful Accounts is a debit of $3,400, and the
Journalize transactions
aging schedule indicates that total estimated bad debts will be $42,300.
related to bad debts. P8-4B The following represents selected information taken from a company’s aging
(LO 2, 3) schedule to estimate uncollectible accounts receivable at year-end.

[Link]
Home Insert Page Layout Formulas Data Review View

P18 fx

A B C D E F G
1 Number of Days Outstanding
2
3 Total 0–30 31–60 61–90 91–120 Over 120
4 Accounts receivable CHF383,000 CHF220,000 CHF90,000 CHF40,000 CHF18,000 CHF15,000
5 % uncollecble 1% 3% 5% 8% 10%
6 Esmated bad debts
7

Instructions
(a) Tot. est. (a) Calculate the total estimated bad debts based on the above information.
bad debts CHF9,840 (b) Prepare the year-end adjusting journal entry to record the bad debts using the allow-
ance method and the aged uncollectible accounts receivable determined in (a). Assume
the current balance in Allowance for Doubtful Accounts is a CHF1,600 credit.
(c) Of the above accounts, CHF1,100 is determined to be specifically uncollectible. Pre-
pare the journal entry to write off the uncollectible accounts.
(d) The company subsequently collects CHF700 on a specific account that had previously
been determined to be uncollectible in (c). Prepare the journal entry(ies) necessary to
restore the account and record the cash collection.
(e) Explain how establishing an allowance account satisfies the expense recognition
principle.
Journalize entries to record P8-5B At December 31, 2014, the trial balance of Mariette Company contained the following
transactions related to bad amounts before adjustment.
debts.
Debits Credits
(LO 3)
Accounts Receivable $250,000
Allowance for Doubtful Accounts $ 1,400
Sales Revenue 600,000

Instructions
(a) (2) $12,000 (a) Prepare the adjusting entry at December 31, 2014, to record bad debt expense under
each of the following independent assumptions.
(1) An aging schedule indicates that $13,800 of accounts receivable will be uncollectible.
(2) The company estimates that 2% of sales will be uncollectible.
(b) Repeat part (a) assuming that instead of a credit balance, there is a $1,400 debit bal-
ance in Allowance for Doubtful Accounts.
(c) During the next month, January 2015, a $3,200 account receivable is written off as
uncollectible. Prepare the journal entry to record the write-off.
(d) Repeat part (c) assuming that Mariette Company uses the direct write-off method
instead of the allowance method in accounting for uncollectible accounts receivable.
(e) What are the advantages of using the allowance method in accounting for
uncollectible accounts as compared to the direct write-off method?
Prepare entries for various P8-6B Gehrig Co. closes its books monthly. On June 30, selected ledger account balances are:
notes receivable transactions.
Notes Receivable €60,000
(LO 2, 4, 5, 8, 9)
Interest Receivable 435
 Comprehensive Problem 401

Notes Receivable include the following.

Date Maker Face Term Interest
May 16 Fulton Inc. €12,000 60 days 9%
May 25 Ascot Co. 30,000 60 days 10%
June 30 Trayer Corp. 18,000 6 months 12%
During July, the following transactions were completed.
July 5 Made sales of €7,200 on Gehrig Co. credit cards.
14 Made sales of €1,300 on Visa credit cards. The credit card service charge is 3%.
14 Added €510 to Gehrig Co. credit card customer balances for finance charges on
unpaid balances.
15 Received payment in full from Fulton Inc. on the amount due.
24 Received notice that the Ascot Co. note has been dishonored. (Assume that
Ascot Co. is expected to pay in the future.)
Instructions
(a) Journalize the July transactions and the July 31 adjusting entry for accrued interest
receivable. (Interest is computed using 360 days.)
(b) Enter the balances at July 1 in the receivable accounts. Post the entries to all of the (b) Accounts receivable
receivable accounts. €38,210
(c) Show the statement of financial position presentation of the receivable accounts at (c) Total receivables €56,390
July 31.
P8-7B On January 1, 2014, Valdez Company had Accounts Receivable $91,000 and Al- Prepare entries for various
lowance for Doubtful Accounts $8,100. Valdez Company prepares financial statements receivable transactions.
annually at December 31. During the year, the following selected transactions occurred. (LO 2, 4, 5, 6, 7, 8)
Jan. 5 Sold $8,400 of merchandise to Patrick Company, terms n/30.
Feb. 2 Accepted an $8,400, 4-month, 10% promissory note from Patrick Company for
the balance due.
12 Sold $13,500 of merchandise to Marguerite Company and accepted Margue-
rite’s $13,500, 2-month, 10% note for the balance due.
26 Sold $7,000 of merchandise to Felton Co., terms n/10.
Apr. 5 Accepted a $7,000, 3-month, 8% note from Felton Co. for the balance due.
12 Collected Marguerite Company note in full.
June 2 Collected Patrick Company note in full.
July 5 Felton Co. dishonors its note of April 5. It is expected that Felton will eventually
pay the amount owed.
15 Sold $14,000 of merchandise to Planke Co. and accepted Planke’s $14,000,
3-month, 12% note for the amount due.
Oct. 15 Planke Co.’s note was dishonored. Planke Co. is bankrupt, and there is no hope
of future settlement.
Instructions
Journalize the transactions.

COMPREHENSIVE PROBLEM

CP8 Victoria Company’s statement of financial position at December 31, 2013, is presented
below.
Victoria Company
Statement of Financial Position
December 31, 2013
Inventory $ 9,400 Share capital—ordinary $20,000
Accounts receivable 19,780 Retained earnings 12,730
Allowance for doubtful accounts (800) Accounts payable 8,750
Cash 13,100 $41,480
$41,480
 402 8 Accounting for Receivables

During January 2014, the following transactions occurred. Victoria uses the perpetual
inventory method.
Jan. 1 Victoria accepted a 4-month, 8% note from Leon Company in payment of Leon’s
$1,500 account.
3 Victoria wrote off as uncollectible the accounts of Barker Corporation ($450)
and Elmo Company ($330).
8 Victoria purchased $17,200 of inventory on account.
11 Victoria sold for $25,000 on account inventory that cost $17,500.
15 Victoria sold inventory that cost $780 to Joe Haribo for $1,200. Haribo charged
this amount on his Visa First Bank card. The service fee charged Victoria by
First Bank is 3%.
17 Victoria collected $22,900 from customers on account.
21 Victoria paid $16,300 on accounts payable.
24 Victoria received payment in full ($330) from Elmo Company on the account
written off on January 3.
27 Victoria purchased supplies for $1,400 cash.
31 Victoria paid other operating expenses, $3,218.
Adjustment data:
1. Interest is recorded for the month on the note from January 1.
2. Bad debts are expected to be 5% of the January 31, 2014, accounts receivable.
3. A count of supplies on January 31, 2014, reveals that $470 remains unused.
Instructions
(You may want to set up T-accounts to determine ending balances.)
(a) Prepare journal entries for the transactions listed above and adjusting entries.
(Include entries for cost of goods sold using the perpetual system.)
(b) Prepare an adjusted trial balance at January 31, 2014.
(c) Prepare an income statement and a retained earnings statement for the month ending
January 31, 2014, and a classified statement of financial position as of January 31, 2014.

CONTINUING COOKIE CHRONICLE

(Note: This is a continuation of the Cookie Chronicle from Chapters 1–7.)

CCC8 One of Natalie’s friends, Curtis Lesperance, runs a coffee shop where he sells specialty
coffees and prepares and sells muffins and cookies. He is eager to buy one of Natalie’s fine
European mixers, which would enable him to make larger batches of muffins and cookies.
However, Curtis cannot afford to pay for the mixer for at least 30 days. He asks Natalie if she
would be willing to sell him the mixer on credit. Natalie comes to you for advice.

Go to the book’s companion website, [Link]/college/weygandt, to see the completion of this

problem.

Broadening Your PERSPECTIVE

Financial Reporting and Analysis

Financial Reporting Problem: CAF Company

BYP8-1 CAF Company sells office equipment and supplies to many organizations in the city and
surrounding area on contract terms of 2/10, n/30. In the past, over 75% of the credit customers have
taken advantage of the discount by paying within 10 days of the invoice date.

Powered by TCPDF ([Link])

 SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 8-1

(a) Accounts receivable.

(b) Notes receivable.
(c) Other receivables.

BRIEF EXERCISE 8-2

(a) Accounts Receivable ........................................... 17,200

Sales Revenue .............................................. 17,200

(b) Sales Returns and Allowances ........................... 3,800

Accounts Receivable ................................... 3,800

(c) Cash ($13,400 – $268) .......................................... 13,132

Sales Discounts ($13,400 X 2%).......................... 268
Accounts Receivable ($17,200 – $3,800) ....... 13,400

BRIEF EXERCISE 8-3

(a) Bad Debt Expense ................................................ 31,000

Allowance for Doubtful Accounts ............... 31,000

(b) Current assets

Prepaid insurance ........................................ $ 7,500
Inventory ....................................................... 118,000
Accounts receivable..................................... $600,000
Less: Allowance for doubtful
Accounts ............................................ 31,000 569,000
Cash ............................................................... 90,000
Total current assets ................................. $784,500

8-8 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
BRIEF EXERCISE 8-4

(a) Allowance for Doubtful Accounts ............................. 6,200

Accounts Receivable—Marcello ........................ 6,200

(b) (1) Before Write-Off (2) After Write-Off

Accounts receivable £700,000 £693,800
Allowance for doubtful
accounts 54,000 47,800
Cash realizable value £646,000 £646,000

BRIEF EXERCISE 8-5

Accounts Receivable—Marcello ....................................... 6,200

Allowance for Doubtful Accounts ............................. 6,200

Cash ..................................................................................... 6,200

Accounts Receivable—Marcello ............................... 6,200

BRIEF EXERCISE 8-6

Bad Debt Expense [($800,000 – $38,000) X 2%] ............... 15,240
Allowance for Doubtful Accounts ............................. 15,240

BRIEF EXERCISE 8-7

(a) Bad Debt Expense [(£420,000 X 1%) – £1,500] ............ 2,700
Allowance for Doubtful Accounts ..................... 2,700

(b) Bad Debt Expense [(£420,000 X 1%) + £740] = £4,940

BRIEF EXERCISE 8-8

(a) Cash (€175 – €7).......................................................... 168

Service Charge Expense (€175 X 4%) ....................... 7
Sales Revenue ..................................................... 175

(b) Cash (€70,000 – €2,100) .............................................. 67,900

Service Charge Expense (€70,000 X 3%) .................. 2,100
Accounts Receivable .......................................... 70,000

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-9
BRIEF EXERCISE 8-9

Interest Maturity Date

(a) $800 August 9
(b) $1,120 October 12
(c) $200 July 11

BRIEF EXERCISE 8-10

Maturity Date Annual Interest Rate Total Interest

(a) May 31 5% $5,000
(b) August 1 8% $ 600
(c) September 7 10% $6,000

BRIEF EXERCISE 8-11

Jan. 10 Accounts Receivable ....................................... 11,600

Sales Revenue .......................................... 11,600

Feb. 9 Notes Receivable .............................................. 11,600

Accounts Receivable ................................ 11,600

BRIEF EXERCISE 8-12

Accounts Receivable Turnover Ratio:

$20B $20B
= = 7.3 times
($2.7B + $2.8B) ÷ 2 $2.75B

Average Collection Period for Accounts Receivable:

365 days
= 50 days
7.3 times

8-10 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
 SOLUTIONS FOR DO IT! REVIEW EXERCISES

DO IT! 8-1

The following entry should be prepared to increase the balance in the

Allowance for Doubtful Accounts from R$4,700 credit to R$15,500 credit
(5% X R$310,000):
Bad Debt Expense ..................................................... 10,800
Allowance for Doubtful Accounts ................... 10,800
(To record estimate of uncollectible
accounts)

DO IT! 8-2

To speed up the collection of cash, Paltrow could sell its accounts receivable
to a factor. Assuming the factor charges Paltrow a 3% service charge, it
would make the following entry:
Cash ............................................................................ 970,000
Service Charge Expense ........................................... 30,000
Accounts Receivable ....................................... 1,000,000
(To record sale of receivables to factor)

DO IT! 8-3

(a) The maturity date is September 30. When the life of a note is expressed
in terms of months, you find the date it matures by counting the months
from the date of issue. When a note is drawn on the last day of a month,
it matures on the last day of a subsequent month.

(b) The interest to be received at maturity is $186:

Face X Rate X Time = Interest
$6,200 X 9% X 4/12 = $186

The entry recorded by Karbon Wholesalers at the maturity date is:

Cash ..................................................................... 6,386
Notes Receivable .......................................... 6,200
Interest Revenue ........................................... 186
(To record collection of Bazaar note)

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-11
DO IT! 8-4

(a)
Average net Accounts receivable
Net credit sales ÷ =
accounts receivable turnover

$112,000 + $108,000
$1,480,000 ÷ = 13.5 times
2

(b)

Accounts receivable Average collection

Days in year ÷ =
turnover period in days

365 ÷ 13.5 times = 27 days

8-12 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
 SOLUTIONS TO EXERCISES

EXERCISE 8-1

March 1 Accounts Receivable—Lynda Company ..... 3,800

Sales Revenue ....................................... 3,800

3 Sales Returns and Allowances .................... 500

Accounts Receivable— Lynda
Company .............................................. 500

9 Cash................................................................ 3,234
Sales Discounts............................................. 66
Accounts Receivable— Lynda
Company .............................................. 3,300

15 Accounts Receivable .................................... 200

Sales Revenue ....................................... 200

31 Accounts Receivable .................................... 3

Interest Revenue .................................... 3

EXERCISE 8-2

(a) Jan. 6 Accounts Receivable—Jackie Inc ............... 7,000

Sales Revenue ....................................... 7,000

16 Cash ($7,000 – $140) ..................................... 6,860

Sales Discounts (2% X $7,000) ..................... 140
Accounts Receivable—Jackie Inc ........ 7,000

(b) Jan. 10 Accounts Receivable—C. Bybee ................. 9,000

Sales Revenue ....................................... 9,000

Feb. 12 Cash................................................................ 6,000

Accounts Receivable—C. Bybee.......... 6,000

Mar. 10 Accounts Receivable—C. Bybee ................. 60

Interest Revenue
[2% X ($9,000 – $6,000)] .................... 60

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-13
EXERCISE 8-3

(a) Dec. 31 Bad Debt Expense ............................... 1,400

Accounts Receivable—[Link] ...... 1,400

(b) (1) Dec. 31 Bad Debt Expense

[(€840,000 – €28,000) X 1%]............. 8,120
Allowance for Doubtful
Accounts ................................... 8,120

(2) Dec. 31 Bad Debt Expense ............................... 8,900

Allowance for Doubtful Accounts
[(€110,000 X 10%) – €2,100] ..... 8,900

(c) (1) Dec. 31 Bad Debt Expense

[(€840,000 – €28,000) X .75%].......... 6,090
Allowance for Doubtful
Accounts ................................... 6,090

(2) Dec. 31 Bad Debt Expense ............................... 6,800

Allowance for Doubtful Accounts
[(€110,000 X 6%) + €200] .......... 6,800

EXERCISE 8-4

(a) Accounts Receivable Amount % Estimated Uncollectible

1–30 days $65,000 2.0 $1,300
31–60 days 17,600 5.0 880
61–90 days 8,500 30.0 2,550
Over 90 days 7,000 50.0 3,500
$8,230

(b) Mar. 31 Bad Debt Expense ....................................... 7,330

Allowance for Doubtful Accounts
($8,230 – $900) .................................. 7,330

8-14 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
EXERCISE 8-5
Allowance for Doubtful Accounts .................................... 14,100
Accounts Receivable ................................................. 14,100
Accounts Receivable ........................................................ 1,800
Allowance for Doubtful Accounts ............................ 1,800
Cash .................................................................................... 1,800
Accounts Receivable ................................................. 1,800
Bad Debt Expense ............................................................. 16,300
Allowance for Doubtful Accounts
[£19,000 – (£15,000 – £14,100 + £1,800)] .............. 16,300

EXERCISE 8-6
December 31, 2013
Bad Debt Expense (2% X $360,000) ................................. 7,200
Allowance for Doubtful Accounts ............................ 7,200

May 11, 2014

Allowance for Doubtful Accounts .................................... 1,100
Accounts Receivable—Vetter ................................... 1,100

June 12, 2014

Accounts Receivable—Vetter........................................... 1,100
Allowance for Doubtful Accounts ............................ 1,100
Cash .................................................................................... 1,100
Accounts Receivable—Vetter ................................... 1,100

EXERCISE 8-7
(a) Mar. 3 Cash (W620,000,000 –
W18,600,000).................................... 601,400,000
Service Charge Expense
(3% X W620,000,000).................... 18,600,000
Accounts Receivable................... 620,000,000
(b) May 10 Cash (W3,500,000 – W175,000)........ 3,325,000
Service Charge Expense
(5% X W3,500,000)........................ 175,000
Sales Revenue........................... 3,500,000

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-15
EXERCISE 8-8

(a) Apr. 2 Accounts Receivable—J. Keiser ............. 1,500

Sales Revenue ................................... 1,500

May 3 Cash ........................................................... 900

Accounts Receivable—
J. Keiser ......................................... 900

June 1 Accounts Receivable—J. Keiser ............. 6

Interest Revenue
[($1,500 – $900) X 1%] ................... 6

(b) July 4 Cash ........................................................... 194

Service Charge Expense
(3% X $200) ............................................ 6
Sales Revenue ................................... 200

EXERCISE 8-9

(a) Jan. 15 Accounts Receivable ................................ 18,000

Sales Revenue ................................... 18,000

20 Cash (HK$4,800 – HK$96) ........................ 4,704

Service Charge Expense
(HK$4,800 X 2%) .................................... 96
Sales Revenue ................................... 4,800

Feb. 10 Cash ........................................................... 10,000

Accounts Receivable ........................ 10,000

15 Accounts Receivable (HK$8,000 X 1.5%) 120

Interest Revenue ............................... 120

(b) Interest Revenue is reported under other income and expense.

Service Charge Expense is a selling expense.

8-16 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
EXERCISE 8-10

(a) 2014
Nov. 1 Notes Receivable ............................................. 15,000
Cash .......................................................... 15,000

Dec. 11 Notes Receivable ............................................. 6,750

Sales Revenue .......................................... 6,750

16 Notes Receivable ............................................. 4,400

Accounts Receivable—Russo ................ 4,400

31 Interest Receivable .......................................... 277

Interest Revenue* ..................................... 277

*Calculation of interest revenue:

Jeanne’s note: $15,000 X 9% X 2/12 = $225
Sharbo’s note: 6,750 X 8% X 20/360 = 30
Russo’s note: 4,400 X 12% X 15/360 = 22
Total accrued interest $277

(b) 2015
Nov. 1 Cash .................................................................. 16,350
Interest Receivable .................................. 225
Interest Revenue* ..................................... 1,125
Notes Receivable ..................................... 15,000
*($15,000 X 9% X 10/12)

EXERCISE 8-11

2014
May 1 Notes Receivable ............................................. 7,500
Accounts Receivable—
Monroe .................................................. 7,500

Dec. 31 Interest Receivable .......................................... 450

Interest Revenue
(€7,500 X 9% X 8/12) ............................. 450

31 Interest Revenue .............................................. 450

Income Summary ..................................... 450

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-17
EXERCISE 8-11 (Continued)

2015
May 1 Cash .................................................................. 8,175
Notes Receivable ...................................... 7,500
Interest Receivable ................................... 450
Interest Revenue
(€7,500 X 9% X 4/12) ............................. 225

EXERCISE 8-12

5/1/14 Notes Receivable.............................................. 16,000

Accounts Receivable—Crane .................. 16,000

7/1/14 Notes Receivable.............................................. 25,000

Cash ........................................................... 25,000

12/31/14 Interest Receivable........................................... 1,280

Interest Revenue
($16,000 X 12% X 8/12) ......................... 1,280

Interest Receivable........................................... 1,250

Interest Revenue
($25,000 X 10% X 6/12) ......................... 1,250

4/1/15 Accounts Receivable—Howard ...................... 26,875

Notes Receivable ...................................... 25,000
Interest Receivable ................................... 1,250
Interest Revenue
($25,000 X 10% X 3/12 = $625) ............. 625

5/1/15 Cash .................................................................. 17,920

Notes Receivable ...................................... 16,000
Interest Receivable ................................... 1,280
Interest Revenue
($16,000 X 12% X 4/12 = $640) ............. 640

8-18 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
EXERCISE 8-13

(a) May 2 Notes Receivable.................................. 7,600,000

Cash................................................. 7,600,000

(b) Nov. 2 Accounts Receivable—Cortland

Inc....................................................... 7,904,000
Notes Receivable.......................... 7,600,000
Interest Revenue
(¥7,600,000 X 8% X 1/2).............. 304,000
(To record the dishonor of
Cortland Inc. note with
expectation of collection)

(c) Nov. 2 Allowance for Doubtful Accounts.......... 7,600,000

Notes Receivable............................. 7,600,000
(To record the dishonor of
Cortland Inc. note with no
expectation of collection)

EXERCISE 8-14

(a) Beginning accounts receivable ........................................ $ 100,000

Net credit sales .................................................................. 1,000,000
Cash collections ................................................................ (920,000)
Accounts written off .......................................................... (30,000)
Ending accounts receivable ............................................. $ 150,000

(b) $1,000,000/[($100,000 + $150,000)/2] = 8

(c) 365/8 = 45.6 days

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-19
 SOLUTIONS TO PROBLEMS
PROBLEM 8-1A

(a) 1. Accounts Receivable ................................. 3,315,000

Sales Revenue .................................... 3,315,000

2. Sales Returns and Allowances ................. 50,000

Accounts Receivable ......................... 50,000

3. Cash ............................................................ 2,810,000

Accounts Receivable ......................... 2,810,000

4. Allowance for Doubtful Accounts ............. 90,000

Accounts Receivable ......................... 90,000

5. Accounts Receivable ................................. 29,000

Allowance for Doubtful Accounts ....... 29,000

Cash ............................................................ 29,000

Accounts Receivable ......................... 29,000

(b)
Accounts Receivable Allowance for Doubtful Accounts
Bal. 960,000 (2) 50,000 (4) 90,000 Bal. 70,000
(1) 3,315,000 (3) 2,810,000 (5) 29,000
(5) 29,000 (4) 90,000
(5) 29,000
Bal. 1,325,000 Bal. 9,000

8-20 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
PROBLEM 8-1A (Continued)

(c) Balance before adjustment [see (b)] ..................................... R$ 9,000

Balance needed ...................................................................... 125,000
Adjustment required ............................................................... R$116,000

The journal entry would therefore be as follows:

Bad Debt Expense........................................... 116,000

Allowance for Doubtful Accounts .......... 116,000

R$3,315,000 – R$50,000 R$3,265,000

(d) = = 3.12 times
( R $ 890 ,000 + R $1,200 ,000) ÷ 2 R $ 1,045 ,0 00

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-21
 PROBLEM 8-2A

(a) £66,000.

(b) £75,000 (£2,500,000 X 3%).

(c) £64,900 [(£970,000 X 7%) – £3,000].

(d) £70,900 [(£970,000 X 7%) + £3,000].

(e) The weakness of the direct write-off method is two-fold. First, it does not
match expenses with revenues. Second, the accounts receivable are not
stated at cash realizable value at the statement of financial position
date.

8-22 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
 PROBLEM 8-3A

(a) Dec. 31 Bad Debt Expense.................................... 32,730

Allowance for Doubtful Accounts
($41,730 – $9,000) ......................... 32,730

(a) & (b)

Bad Debt Expense

Date Explanation Ref. Debit Credit Balance
2014
Dec. 31 Adjusting 32,730 32,730

Allowance for Doubtful Accounts

Date Explanation Ref. Debit Credit Balance
2014
Dec. 31 Balance 9,000
31 Adjusting 32,730 41,730
2015
Mar. 31 1,000 40,730
May 31 1,000 41,730

(b) 2015
(1)
Mar. 31 Allowance for Doubtful Accounts .......... 1,000
Accounts Receivable ....................... 1,000

(2)
May 31 Accounts Receivable ............................... 1,000
Allowance for Doubtful Accounts ..... 1,000

31 Cash .......................................................... 1,000

Accounts Receivable ....................... 1,000

(c) 2015
Dec. 31 Bad Debt Expense.................................... 32,400
Allowance for Doubtful Accounts
($31,600 + $800) ............................ 32,400

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-23
 PROBLEM 8-4A

(a) Total estimated bad debts

Number of Days Outstanding

Total 0–30 31–60 61–90 91–120 Over 120
Accounts
receivable HK$193,000 HK$70,000 HK$46,000 HK$39,000 HK$23,000 HK$15,000
% uncollectible 1% 3% 5% 8% 10%
Estimated
Bad debts HK$7,370 HK$700 HK$1,380 HK$1,950 HK$1,840 HK$1,500

(b) Bad Debt Expense ...................................................... 10,370

Allowance for Doubtful Accounts
[HK$7,370 + HK$3,000] ...................................... 10,370

(c) Allowance for Doubtful Accounts............................. 5,000

Accounts Receivable ............................................ 5,000

(d) Accounts Receivable ................................................. 5,000

Allowance for Doubtful Accounts ....................... 5,000

Cash ............................................................................ 5,000

Accounts Receivable ............................................ 5,000

(e) If Hú Inc. used 3% of total accounts receivable rather than aging the
individual accounts the bad debt expense adjustment would be
HK$8,790 [(HK$193,000 X 3%) + HK$3,000]. The rest of the entries would
be the same as they were when aging the accounts receivable.

Aging the individual accounts rather than applying a percentage to the

total accounts receivable should produce a more accurate allowance
account and bad debts expense.

8-24 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
 PROBLEM 8-5A

(a) The allowance method. Since the balance in the allowance for doubtful
accounts is given, they must be using this method because the account
would not exist if they were using the direct write-off method.

(b) (1) Dec. 31 Bad Debt Expense

($11,750 – $800) ............................. 10,950
Allowance for Doubtful
Accounts ................................ 10,950

(2) Dec. 31 Bad Debt Expense

($918,000 X 1%) ............................. 9,180
Allowance for Doubtful
Accounts ................................ 9,180

(c) (1) Dec. 31 Bad Debt Expense

($11,750 + $800) ............................. 12,550
Allowance for Doubtful
Accounts ................................ 12,550

(2) Dec. 31 Bad Debt Expense ............................. 9,180

Allowance for Doubtful
Accounts ................................ 9,180

(d) Allowance for Doubtful Accounts ............................. 3,000

Accounts Receivable .......................................... 3,000

Note: The entry is the same whether the amount of bad debt expense at
the end of 2014 was estimated using the percentage-of-receivables or the
percentage-of-sales method.

(e) Bad Debt Expense ...................................................... 3,000

Accounts Receivable .......................................... 3,000

(f) Allowance for Doubtful Accounts is a contra-asset account. It is subtracted

from the gross amount of accounts receivable so that accounts receivable
is reported at its cash realizable value.

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-25
 PROBLEM 8-6A

(a) Oct. 7 Accounts Receivable ................................... 6,300

Sales Revenue ...................................... 6,300

12 Cash ($1,200 – $36) ...................................... 1,164

Service Charge Expense
($1,200 X 3%) ............................................ 36
Sales Revenue ...................................... 1,200

15 Accounts Receivable ................................... 460

Interest Revenue .................................. 460

15 Cash .............................................................. 8,107

Notes Receivable ................................. 8,000
Interest Receivable
($8,000 X 8% X 45/360) ..................... 80
Interest Revenue
($8,000 X 8% X 15/360) ..................... 27

24 Accounts Receivable—Skinner .................. 9,150

Notes Receivable ................................. 9,000
Interest Receivable
($9,000 X 10% X 36/360) ................... 90
Interest Revenue
($9,000 X 10% X 24/360) ................... 60

31 Interest Receivable
($14,000 X 9% X 1/12) .............................. 105
Interest Revenue .................................. 105

(b)

Notes Receivable
Date Explanation Ref. Debit Credit Balance
Oct. 1 Balance 31,000
15 8,000 23,000
24 9,000 14,000

8-26 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
PROBLEM 8-6A (Continued)

Accounts Receivable
Date Explanation Ref. Debit Credit Balance
Oct. 7 6,300 6,300
15 460 6,760
24 9,150 15,910

Interest Receivable
Date Explanation Ref. Debit Credit Balance
Oct. 1 Balance 170
15 80 90
24 90 0
31 105 105

(c) Current assets

Notes receivable................................................................ $14,000
Accounts receivable ......................................................... 15,910
Interest receivable............................................................. 105
Total receivables ....................................................... $30,015

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-27
 PROBLEM 8-7A

Jan. 5 Accounts Receivable—Zwingle Company .......... 24,000

Sales Revenue ............................................. 24,000

20 Notes Receivable ................................................ 24,000

Accounts Receivable— Zwingle
Company .................................................. 24,000

Feb. 18 Notes Receivable ................................................ 8,000

Sales Revenue ............................................. 8,000

Apr. 20 Cash (€24,000 + €540) ......................................... 24,540

Notes Receivable......................................... 24,000
Interest Revenue
(€24,000 X 9% X 3/12) .............................. 540

30 Cash (€30,000 + €1,200) ...................................... 31,200

Notes Receivable......................................... 30,000
Interest Revenue
(€30,000 X 12% X 4/12) ............................ 1,200

May 25 Notes Receivable ................................................ 4,000

Accounts Receivable— Isabella Inc. ......... 4,000

Aug. 18 Cash (€8,000 + €320) ........................................... 8,320

Notes Receivable......................................... 8,000
Interest Revenue
(€8,000 X 8% X 6/12) ................................ 320

25 Accounts Receivable—Isabella Inc.

(€4,000 + €70) .................................................. 4,070
Notes Receivable......................................... 4,000
Interest Revenue
(€4,000 X 7% X 3/12) ................................ 70

Sept. 1 Notes Receivable ................................................ 12,000

Sales Revenue ............................................. 12,000

8-28 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
 PROBLEM 8-1B

(a) 1. Accounts Receivable .................................... 2,400,000

Sales Revenue ....................................... 2,400,000

2. Sales Returns and Allowances .................... 45,000

Accounts Receivable ............................ 45,000
3. Cash ............................................................... 2,250,000
Accounts Receivable ............................ 2,250,000
4. Allowance for Doubtful Accounts ............... 13,000
Accounts Receivable ............................ 13,000
5. Accounts Receivable .................................... 2,000
Allowance for Doubtful
Accounts ............................................ 2,000
Cash ............................................................... 2,000
Accounts Receivable ............................ 2,000

(b)
Accounts Receivable Allowance for Doubtful Accounts
Bal. 220,000 (2) 45,000 (4) 13,000 Bal. 15,000
(1) 2,400,000 (3) 2,250,000 (5) 2,000
(5) 2,000 (4) 13,000
(5) 2,000
Bal. 312,000 Bal. 4,000

(c) Balance before adjustment [see (b)] ..................................... $ 4,000

Balance needed ...................................................................... 22,000
Adjustment required ............................................................... $18,000

The journal entry would therefore be as follows:

Bad Debt Expense............................................. 18,000

Allowance for Doubtful Accounts ............ 18,000

$2,400,000 – $45,000 $2,355,000

(d) = = 9.52 times
($290,000 + $205,000) ÷ 2 $247, 500

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-29
 PROBLEM 8-2B

(a) $23,400.

(b) $27,600 ($920,000 X 3%).

(c) $21,830 [($369,000 X 7%) – $4,000].

(d) $27,830 [($369,000 X 7%) + $2,000].

(e) There are two major weaknesses with the direct write-off method. First,
it does not match expenses with the associated revenues. Second, the
accounts receivable are not stated at cash realizable value at the
statement of financial position date.

8-30 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
 PROBLEM 8-3B

(a) Dec. 31 Bad Debt Expense.................................... 40,250

Allowance for Doubtful Accounts
($54,250 – $14,000) ....................... 40,250

(a) & (b)

Bad Debt Expense

Date Explanation Ref. Debit Credit Balance
2014
Dec. 31 Adjusting 40,250 40,250

Allowance for Doubtful Accounts

Date Explanation Ref. Debit Credit Balance
2014
Dec. 31 Balance 14,000
31 Adjusting 40,250 54,250
2015
Mar. 1 1,900 52,350
May 1 1,900 54,250

(b) 2015
(1)
Mar. 1 Allowance for Doubtful Accounts ............ 1,900
Accounts Receivable ......................... 1,900

(2)
May 1 Accounts Receivable ................................. 1,900
Allowance for Doubtful Accounts ....... 1,900

1 Cash ............................................................ 1,900

Accounts Receivable ......................... 1,900

(c) 2015
Dec. 31 Bad Debt Expense...................................... 45,700
Allowance for Doubtful Accounts
($42,300 + $3,400) ........................... 45,700

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-31
 PROBLEM 8-4B

(a) Total estimated bad debts

Number of Days Outstanding

Total 0–30 31–60 61–90 91–120 Over 120
Accounts
receivable CHF383,000 CHF220,000 CHF90,000 CHF40,000 CHF18,000 CHF15,000
% uncollectible 1% 3% 5% 8% 10%
Estimated
Bad debts CHF9,840 CHF2,200 CHF2,700 CHF2,000 CHF1,440 CHF1,500

(b) Bad Debt Expense ...................................................... 8,240

Allowance for Doubtful Accounts
(CHF9,840 – CHF1,600) .................................... 8,240

(c) Allowance for Doubtful Accounts............................. 1,100

Accounts Receivable .......................................... 1,100

(d) Accounts Receivable ................................................. 700

Allowance for Doubtful Accounts ...................... 700

Cash ............................................................................ 700

Accounts Receivable .......................................... 700

(e) When an allowance account is used, an adjusting journal entry is made at

the end of each accounting period. This entry satisfies the expense
recognition principle by recording the bad debt expense in the period in
which the sales occur.

8-32 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
 PROBLEM 8-5B

(a) (1) Dec. 31 Bad Debt Expense

($13,800 – $1,400) .......................... 12,400
Allowance for Doubtful
Accounts ................................ 12,400

(2) Dec. 31 Bad Debt Expense

($600,000 X 2%) ............................. 12,000
Allowance for Doubtful
Accounts ................................ 12,000

(b) (1) Dec. 31 Bad Debt Expense

($13,800 + $1,400) .......................... 15,200
Allowance for Doubtful
Accounts ................................ 15,200

(2) Dec. 31 Bad Debt Expense ............................. 12,000

Allowance for Doubtful
Accounts ................................ 12,000

(c) Allowance for Doubtful Accounts ............................. 3,200

Accounts Receivable .......................................... 3,200

Note: The entry is the same whether the amount of bad debt expense at
the end of 2014 was estimated using the percentage-of-receivables or the
percentage-of-sales method.

(d) Bad Debt Expense ...................................................... 3,200

Accounts Receivable .......................................... 3,200

(e) The advantages of the allowance method over the direct write-off
method are:

(1) It attempts to match bad debt expense related to uncollectible

accounts receivable with sales revenues on the income statement.

(2) It attempts to show the cash realizable value of the accounts receiv-
able on the statement of financial position.

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-33
 PROBLEM 8-6B

(a) July 5 Accounts Receivable ................................. 7,200

Sales Revenue .................................... 7,200

14 Cash (€1,300 – €39) .................................... 1,261

Service Charge Expense
(€1,300 X 3%) .......................................... 39
Sales Revenue .................................... 1,300

14 Accounts Receivable ................................. 510

Interest Revenue ................................ 510

15 Cash ............................................................ 12,180

Notes Receivable ............................... 12,000
Interest Receivable
(€12,000 X 9% X 45/360) ................. 135
Interest Revenue
(€12,000 X 9% X 15/360) ................. 45

24 Accounts Receivable—Ascot Co. ............ 30,500

Notes Receivable ............................... 30,000
Interest Receivable
(€30,000 X 10% X 36/360) ............... 300
Interest Revenue
(€30,000 X 10% X 24/360) ............... 200

31 Interest Receivable
(€18,000 X 12% X 1/12) .......................... 180
Interest Revenue ................................ 180

(b)

Notes Receivable
Date Explanation Ref. Debit Credit Balance
July 1 Balance 60,000
15 12,000 48,000
24 30,000 18,000

8-34 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
PROBLEM 8-6B (Continued)

Accounts Receivable
Date Explanation Ref. Debit Credit Balance
July 5 7,200 7,200
14 510 7,710
24 30,500 38,210

Interest Receivable
Date Explanation Ref. Debit Credit Balance
July 1 Balance 435
15 135 300
24 300 0
31 Adjusting 180 180

(c) Current assets

Notes receivable................................................................ €18,000
Accounts receivable ......................................................... 38,210
Interest receivable............................................................. 180
Total receivables ....................................................... €56,390

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-35
 PROBLEM 8-7B

Jan. 5 Accounts Receivable—Patrick

Company......................................................... 8,400
Sales Revenue ............................................ 8,400

Feb. 2 Notes Receivable ............................................... 8,400

Accounts Receivable—Patrick
Company ................................................. 8,400

12 Notes Receivable ............................................... 13,500

Sales Revenue ............................................ 13,500

26 Accounts Receivable—Felton Co. .................... 7,000

Sales Revenue ............................................ 7,000

Apr. 5 Notes Receivable ............................................... 7,000

Accounts Receivable— Felton Co. ........... 7,000

12 Cash ($13,500 + $225) ........................................ 13,725

Notes Receivable........................................ 13,500
Interest Revenue
($13,500 X 10% X 2/12) ........................... 225

June 2 Cash ($8,400 + $280) .......................................... 8,680

Notes Receivable........................................ 8,400
Interest Revenue
($8,400 X 10% X 4/12) ............................. 280

July 5 Accounts Receivable—Felton Co.

($7,000 + $140)................................................ 7,140
Notes Receivable........................................ 7,000
Interest Revenue
($7,000 X 8% X 3/12) ............................... 140

15 Notes Receivable ............................................... 14,000

Sales Revenue ............................................ 14,000

Oct. 15 Allowance for Doubtful Accounts .................... 14,000

Notes Receivable ....................................... 14,000

8-36 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
 COMPREHENSIVE PROBLEM SOLUTION

(a) Jan. 1 Notes Receivable ........................................... 1,500

Accounts Receivable—
Leon Company..................................... 1,500

3 Allowance for Doubtful Accounts................. 780

Accounts Receivable ............................. 780

8 Inventory ......................................................... 17,200

Accounts Payable................................... 17,200

11 Accounts Receivable ..................................... 25,000

Sales Revenue ........................................ 25,000

Cost of Goods Sold ........................................ 17,500

Inventory ................................................. 17,500

15 Cash ................................................................ 1,164

Service Charge Expense ............................... 36
Sales Revenue ........................................ 1,200

Cost of Goods Sold ........................................ 780

Inventory ................................................. 780

17 Cash ................................................................ 22,900

Accounts Receivable ............................. 22,900

21 Accounts Payable .......................................... 16,300

Cash ......................................................... 16,300

24 Accounts Receivable ..................................... 330

Allowance for Doubtful Accounts ......... 330

Cash ................................................................ 330

Accounts Receivable ............................. 330

27 Supplies .......................................................... 1,400

Cash ......................................................... 1,400

31 Other Operating Expenses ............................ 3,218

Cash ......................................................... 3,218

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-37
COMPREHENSIVE PROBLEM SOLUTION (Continued)

Adjusting Entries
Jan. 31 Interest Receivable ........................................ 10
Interest Revenue ($1,500 X 8% X 1/12) ....... 10

31 Bad Debt Expense [($19,600 X 5%) –

($800 – $780 + $330)] .................................. 630
Allowance for Doubtful Accounts ......... 630

31 Supplies Expense .......................................... 930

Supplies ($1,400 – $470) ........................ 930

(b) VICTORIA COMPANY

Adjusted Trial Balance
January 31, 2014

Debit Credit
Cash............................................................. $16,576
Notes Receivable ........................................ 1,500
Accounts Receivable ................................. 19,600
Allowance for Doubtful Accounts............. 980
Interest Receivable ..................................... 10
Inventory ..................................................... 8,320
Supplies ...................................................... 470
Accounts Payable ...................................... 9,650
Share Capital—Ordinary ........................... 20,000
Retained Earnings ...................................... 12,730
Sales Revenue ............................................ 26,200
Cost of Goods Sold .................................... 18,280
Supplies Expense ....................................... 930
Bad Debt Expense ...................................... 630
Service Charge Expense ........................... 36
Other Operating Expenses ........................ 3,218
Interest Revenue ........................................ 10
$69,570 $69,570

8-38 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
COMPREHENSIVE PROBLEM SOLUTION (Continued)

(b) Optional T accounts for accounts with multiple transactions

Cash
1/1 Bal. 13,100 1/21 16,300 Supplies
1/15 1,164 1/27 1,400 1/27 1,400 1/31 930
1/17 22,900 1/31 3,218 1/31 Bal. 470
1/24 330
1/31 Bal. 16,576
Accounts Payable
1/21 16,300 1/1 Bal. 8,750
Accounts Receivable 1/8 17,200
1/1 Bal. 19,780 1/1 1,500 1/31 Bal. 9,650
1/11 25,000 1/3 780
1/24 330 1/17 22,900
1/24 330 Sales Revenue
1/11 25,000
1/31 Bal. 19,600
1/15 1,200
1/31 Bal. 26,200
Allowance for Doubtful Accounts
1/3 780 1/1 Bal. 800 Cost of Goods Sold
1/24 330 1/11 17,500
1/31 630 1/15 780
1/31 Bal. 980 1/31 Bal. 18,280

Inventory
1/1 Bal. 9,400 1/11 17,500
1/8 17,200 1/15 780
1/31 Bal. 8,320

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-39
COMPREHENSIVE PROBLEM SOLUTION (Continued)

(c) VICTORIA COMPANY

Income Statement
For the Month Ending January 31, 2014

Sales revenue .................................................. $26,200

Cost of goods sold .......................................... 18,280
Gross profit ...................................................... 7,920
Operating expenses ........................................
Other operating expenses....................... $3,218
Supplies expense..................................... 930
Bad debt expense .................................... 630
Service charge expense .......................... 36
Total operating expenses ............................... 4,814
Income from operations.................................. 3,106
Other income and expense.............................
Interest revenue ....................................... 10
Net Income ....................................................... $ 3,116

8-40 Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only)
COMPREHENSIVE PROBLEM SOLUTION (Continued)

VICTORIA COMPANY
Retained Earnings Statement
For the Month Ending January 31, 2014

Retained Earnings, January 1........................................... $12,730

Add: Net income ................................................................ 3,116
Retained Earnings, January 31......................................... $15,846

VICTORIA COMPANY
Statement of Financial Position
January 31, 2014

Assets

Current assets
Supplies ................................................... $ 470
Inventory .................................................. 8,320
Notes receivable...................................... 1,500
Accounts receivable................................ $19,600
Less: Allowance for doubtful
accounts ....................................... 980 18,620
Interest receivable ................................... 10
Cash .......................................................... 16,576
Total assets ..................................................... $45,496

Equity and Liabilities

Equity
Share capital—ordinary ......................... $20,000
Retained earnings ................................... 15,846 $ 35,846
Current liabilities
Accounts payable.................................... 9,650
Total equity and liabilities .............................. $45,496

Copyright © 2013 John Wiley & Sons, Inc. Weygandt Financial, IFRS, 2/e, Solution’s Manual (For Instructor Use Only) 8-41