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1. Delto, Inc. sells to wholesalers on terms of 2/15, net 30. Delta has no cash sales but 50% of
Delto’s customers take advantage of the discount. Delta uses the gross method of recording
sales and trade receivables. An analysis of Delta’s trade receivables balances at December
31, 2020, revealed the following:
Age Amount Collectible
0 - 15 days 100,000 100%
16 - 30 days 60,000 95%
31 - 60 days 5,000 90%
Over 60 days 2,500 P500
167,500
In its December 31, 2020
discounts?
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- McKinney Co. estimates its uncollectible accounts as a percentage of credit sales. McKinney made credit sales of 1,500,000 in 2019. McKinney estimates 2.5% of its sales will be uncollectible. Prepare the journal entry to record bad debt expense for McKinney at the end of 2019.Resin Milling issued a $390,500 note on January 1, 2018 to a customer in exchange for merchandise. The merchandise had a cost to Resin Milling of $170,000. The terms of the note are 24-month maturity date on December 31, 2019 at a 5% annual interest rate. The customer does not pay on its account and dishonors the note. Record the journal entries for Resin Milling for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on January 1, 2020, assuming interest has not been recognized before note maturityMichelle Company reports $345,000 in credit sales and $267,500 in accounts receivable at the end of 2019. Michelle currently uses the income statement method to record bad debt estimation at 4%. To manage earnings more efficiently, Michelle changes bed debt estimation to the balance sheet method at 4%. How much is the difference in net income between the income statement and balance sheet methods? A. $3,100 B. $13,800 C. $10,700 D. $77,500
- Aerospace Electronics reports $567,000 in credit sales for 2018 and $632,500 in 2019. They have a $499,000 accounts receivable balance at the end of 2018, and $600,000 at the end of 2019. Aerospace uses the income statement method to record bad debt estimation at 5% during 2018. To manage earnings more favorably, Aerospace changes bad debt estimation to the balance sheet method at 7% during 2019. A. Determine the bad debt estimation for 2018. B. Determine the bad debt estimation for 2019. C. Describe a benefit to Aerospace Electronics in 2019 as a result of its earnings management.Clovis Enterprises reports $845,500 in credit sales for 2018 and $933,000 in 2019. It has a $758,000 accounts receivable balance at the end of 2018 and $841,000 at the end of 2019. Clovis uses the income statement method to record bad debt estimation at 4% during 2018. To manage earnings more favorably, Clovis changes bad debt estimation to the balance sheet method at 5% during 2019. A. Determine the bad debt estimation for 2018. B. Determine the bad debt estimation for 2019. C. Describe a benefit to Clovis Enterprises in 2019 as a result of its earnings management.Dortmund Stockyard reports $896,000 in credit sales for 2018 and $802,670 in 2019. It has a $675,000 accounts receivable balance at the end of 2018, and $682,000 at the end of 2019. Dortmund uses the balance sheet method to record bad debt estimation at 8% during 2018. To manage earnings more favorably, Dortmund changes bad debt estimation to the income statement method at 6% during 2019. A. Determine the bad debt estimation for 2018. B. Determine the bad debt estimation for 2019. C. Describe a benefit to Dortmund Stockyard in 2019 as a result of its earnings management.
- Starlight Enterprises has net credit sales for 2019 in the amount of $2,600,325, beginning accounts receivable balance of $844,260, and an ending accounts receivable balance of $604,930. Compute the accounts receivable turnover ratio and the number of days sales in receivables ratio for 2019 (round answers to two decimal places). What do the outcomes tell a potential investor about Starlight Enterprises if the industry average is 1.5 times and the number of days sales ratio is 175 days?Element Surfboards issued a $210,800 note on January 1, 2018 to a customer, Leona Marland, in exchange for merchandise. Terms of the note are 9-month maturity date on October 1, 2018 at a 10.2% annual interest rate. Leona Marland does not pay on her account and dishonors the note. On December 2, 2018, Element Surfboards decides to sell the dishonored note to a collection agency for 30% of its value. Record the journal entries for Element Surfboards for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on October 1, 2018 C. Receivable sale on December 2, 2018Rain T-Shirts issued a $440,600 note on January 1, 2018 to a customer, Larry Potts, in exchange for merchandise. The merchandise had a cost to Rain T-Shirts of $220,300. The terms of the note are 24-month maturity date on December 31, 2019 at a 4.5% annual interest rate. Larry Potts does not pay on his account and dishonors the note. Record journal entries for Rain T-Shirts for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on January 1, 2020, assuming interest has not been recognized before note maturity
- Fortune Accounting reports $1,455,000 in credit sales for 2018 and $1,678,430 in 2019. It has an $825,000 accounts receivable balance at the end of 2018 and $756,000 at the end of 2019. Fortune uses the balance sheet method to record bad debt estimation at 7.5% during 2018. To manage earnings more favorably, Fortune changes bad debt estimation to the income statement method at 5.5% during 2019. A. Determine the bad debt estimation for 2018. B. Determine the bad debt estimation for 2019. C. Describe a benefit to Fortune in 2019 as a result of its earnings management.Receivables Issues Magrath Company has an operating cycle of less than one year and provides credit terms for all of its customers. On April 3, 2019, the company factored, without recourse, some of its accounts receivable. Magrath does not normally factor its receivables. On August 1, 2019, Magrath sold special order merchandise and received an interest-bearing note due April 30, 2020. Magrath uses the allowance method to account for uncollectible accounts. During 2019, some accounts were written off as uncollectible, and other accounts previously written off as uncollectible were collected. Required: 1. Explain how Magrath should account for and report the accounts receivable factored on April 3, 2019. Why is this accounting treatment appropriate? 2. Explain how Magrath should report the effects of the interest-bearing note on its income statement for the year ended December 31, 2019, and its December 31, 2019, balance sheet. 3. Explain how Magrath should account for the collection of the accounts previously written off as uncollectible. 4. What are the two basic approaches to estimating uncollectible accounts under the allowance method? What is the rationale for each approach?Inferring Accounts Receivable Amounts At the end of 2019, Karras Inc. had a debit balance of 141,120 in its accounts receivable. Additionally, Karras had a credit balance in its allowance for doubtful accounts of 4,350 and 9,420 at the beginning and end of the year, respectively. During the year, Karras made credit sales of 1,530,000, collected receivables in the amount of 1,445,700, and recorded bad debt expense of 83, 750. Required: Next Level Compute the amount of accounts receivable that Karras wrote off during the year and the amount of accounts receivable at the beginning of the year.
