Concept explainers
Accounts receivable refers to the amounts to be received within a short period from customers upon the sale of goods, and services on account. In other words, accounts receivable are amounts customers owe to the business. Accounts receivable is an asset of a business.
Note receivable:
Note receivable refers to a written promise for the amounts to be received within a stipulated period of time. This written promise is issued by a debtor or, borrower to the lender or creditor. Notes receivable is an asset of a business.
To prepare: The
Answer to Problem 8.6AP
Prepare journal entry in the books of Company H to record its sale of merchandise on January 5, 2017.
Date | Account Title and Explanation | Debit | Credit |
January 5, 2017 | Accounts receivable – Company R | $4,000 | |
Sales revenue | $4,000 | ||
(To record the sales on account, terms n/30) |
Explanation of Solution
$4,000 sale on account increases accounts receivable and sales revenue, as sale of merchandise were made under the term n/30. Hence,
- An increase in accounts receivable (asset account) is debited with $4,000 and;
- An increase in sales revenue (
stockholders’ equity account) is credited with $4,000.
To prepare: The journal entry in the books of Company H for the transaction made on February 2, 2017.
Answer to Problem 8.6AP
Prepare journal entry in the books of Company H to record the acceptance of note from Company R for the balance due on February 2, 2017.
Date | Account Title and Explanation | Debit | Credit |
February 2, 2017 | Notes receivable | $4,000 | |
Accounts receivable – Company R | $4,000 | ||
(To record the acceptance of note from Company R for balance due) |
Explanation of Solution
Company H accepted note for balance due of $4,000 from Company R. To record this acceptance of note, accounts receivable have to be replaced by notes receivable. So, notes receivable has to be increased and accounts receivable has to be decreased by $4,000. Hence,
- An increase in notes receivable (asset account) is debited with $4,000, and;
- A decrease in accounts receivable (asset account) is credited with $4,000.
To prepare: The journal entry in the books of Company H for the transaction made on February 12, 2017.
Answer to Problem 8.6AP
Prepare journal entry in the books of Company H to record its sale of merchandise on February 12, 2017.
Date | Account Title and Explanation | Debit | Credit |
February 12, 2017 | Notes receivable – Company C | $12,000 | |
Sales revenue | $12,000 | ||
(To record the sales of merchandise on note) |
Explanation of Solution
$12,000 sale of merchandise and acceptance of note from Company C increases notes receivable and sales revenue, as sale of merchandise were made by accepting promissory note. Hence,
- An increase in notes receivable (asset account) is debited with $12,000 and
- An increase in sales revenue (stockholders’ equity account) is credited with $12,000.
To prepare: The journal entry in the books of Company H for the transaction made on February 26, 2017.
Answer to Problem 8.6AP
Prepare journal entry in the books of Company H to record its sale of merchandise on February 26, 2017.
Date | Account Title and Explanation | Debit | Credit |
February 26, 2017 | Accounts receivable – Company M | $5,200 | |
Sales revenue | $5,200 | ||
(To record the sales on account, terms n/10) |
Explanation of Solution
$5,200 sale on account increases accounts receivable and sales revenue, as sale of merchandise were made under the term n/10. Hence,
- An increase in accounts receivable (asset account) is debited with $5,200 and
- An increase in sales revenue (stockholders’ equity account) is credited with $5,200.
To prepare: The journal entry in the books of Company H for the transaction made on April 5, 2017.
Answer to Problem 8.6AP
Prepare journal entry in the books of Company H to record the acceptance of note from Company M for the balance due on April 5, 2017.
Date | Account Title and Explanation | Debit | Credit |
April 5, 2017 | Notes receivable | $5,200 | |
Accounts receivable – Company M | $5,200 | ||
(To record the acceptance of note from Company M for balance due) |
Explanation of Solution
Company H accepted note for balance due of $5,200 from Company M. To record this acceptance of note, accounts receivable have to be replaced by notes receivable. So, notes receivable has to be increased and accounts receivable has to be decreased by $5,200. Hence,
- An increase in notes receivable (asset account) is debited with $5,200, and
- A decrease in accounts receivable (asset account) is credited with $5,200.
To prepare: The journal entry in the books of Company H for the transaction made on April 12, 2017.
Answer to Problem 8.6AP
Prepare journal entry in the books of Company H to record the collection of cash on note in full from Company C, on April 12, 2017.
Date | Account Title and Explanation | Debit | Credit |
April 12, 2017 | Cash | $12,200 | |
Notes receivable – Company C | $12,000 | ||
Interest revenue (1) | $200 | ||
(To record the collection of cash on note in full from Company C) |
Working note:
Calculate the amount of interest revenue.
Explanation of Solution
On April 12, 2017, Company H collected cash on note along with interest of $200 from Company C. Collection of cash and interest increases cash, interest revenue, and decreases notes receivable. Hence,
- An increase in cash (asset account) is debited with $12,200,
- A decrease in notes receivable (asset account) is credited with $12,000, and
- An increase in interest revenue (stockholders’ equity account) is credited with $200.
To prepare: The journal entry in the books of Company H for the transaction made on June 2, 2017.
Answer to Problem 8.6AP
Prepare journal entry in the books of Company H to record the collection of cash on note in full from Company R on June 2, 2017.
Date | Account Title and Explanation | Debit | Credit |
June 2, 2017 | Cash | $4,120 | |
Notes receivable – Company C | $4,000 | ||
Interest revenue (2) | $120 | ||
(To record the collection of cash on note in full from Company R) |
Working note:
Calculate the amount of interest revenue.
Explanation of Solution
On June 2, 2017, Company H collected cash on note along with interest of $200 from Company R. Collection of cash and interest increases cash, interest revenue and decreases notes receivable. Hence,
- An increase in cash (asset account) is debited with $4,120,
- A decrease in notes receivable (asset account) is credited with $4,000, and
- An increase in interest revenue (stockholders’ equity account) is credited with $120.
To prepare: The journal entry in the books of Company H for the transaction made on June 15, 2017.
Answer to Problem 8.6AP
Prepare journal entry in the books of Company H to record its sale of merchandise on February 12, 2017.
Date | Account Title and Explanation | Debit | Credit |
June 15, 2017 | Notes receivable – Incorporation G | $2,000 | |
Sales revenue | $2,000 | ||
(To record the sales of merchandise on note) |
Explanation of Solution
$2,000 sale of merchandise and acceptance of note from Incorporation G increases notes receivable and sales revenue, as sale of merchandise were made by accepting promissory note. Hence,
- An increase in notes receivable (asset account) is debited with $2,000 and;
- An increase in sales revenue (stockholders’ equity account) is credited with $2,000.
Want to see more full solutions like this?
Chapter 8 Solutions
FINANCIAL ACCT.:TOOLS...(LL)-W/ACCESS
- Casebolt Company wrote off the following accounts receivable as uncollectible for the first year of its operations ending December 31: a. Journalize the write-offs under the direct write-off method. b. Journalize the write-offs under the allowance method. Also, journalize the adjusting entry for uncollectible accounts. The company recorded 5,250,000 of credit sales during the year. Based on past history and industry averages, % of credit sales are expected to be uncollectible. c. How much higher (lower) would Casebolt Companys net income have been under the direct write-off method than under the allowance method?arrow_forwardOn September 30, 2013, the general ledger of Leons Golf Shop, which uses the calendar year as its accounting period, showed the following year-to-date account balances: The merchandise inventory account had a 48,000 balance on January 1, 2013. The historical gross profit percentage is 40%. Leon prepares quarterly financial statements and takes physical inventory once a yearat the end of the accounting period. In order to prepare the financial statements for the third quarter, the store needs to have an estimate of ending inventory. You have been asked to use the gross profit method to estimate the ending inventory. Review the worksheet called GP. Study it carefully because it may have a solution format somewhat different from the one shown in your textbook.arrow_forwardAllowance Method for Accounting for Bad Debts At the beginning of 2016, EZ Tech Companys Accounts Receivable balance was $140,000, and the balance in Allowance for Doubtful Accounts was $2,350 (Cr.). EZ Techs sales in 2016 were $1,050,000, 80% of which were on credit. Collections on account during the year were $670,000. The company wrote off $4,000 of uncollectible accounts during the year. Required Prepare summary journal entries related to the sale, collections, and write-offs of accounts receivable during 2016. Prepare journal entries to recognize bad debts assuming that (a) bad debts expense is 3% of credit sales and (b) amounts expected to be uncollectible are 6% of the year-end accounts receivable. What is the net realizable value of accounts receivable on December 31, 2016, under each assumption in part (2)? What effect does the recognition of bad debts expense have on the net realizable value? What effect does the write-off of accounts have on the net realizable value?arrow_forward
- At the end of 20-3, Martel Co. had 410,000 in Accounts Receivable and a credit balance of 300 in Allowance for Doubtful Accounts. Martel has now been in business for three years and wants to base its estimate of uncollectible accounts on its own experience. Assume that Martel Co.s adjusting entry for uncollectible accounts on December 31, 20-2, was a debit to Bad Debt Expense and a credit to Allowance for Doubtful Accounts of 25,000. (a) Estimate Martels uncollectible accounts percentage based on its actual bad debt experience during the past two years. (b) Prepare the adjusting entry on December 31, 20-3, for Martel Co.s uncollectible accounts.arrow_forwardOn December 1 of the current year, Jordan Inc. assigns 125,000 of its accounts receivable to McLaughlin Company for cash. McLaughlin Company charges a 750 service fee, advances 85% of Jordans accounts receivable, and charges an annual interest rate of 9% on any outstanding loan balance. Prepare the related journal entries for Jordan. Refer to RE6-10. On December 31, Jordan Inc. received 50,000 on assigned accounts. Prepare Jordans journal entries to record the cash receipt and the payment to McLaughlin.arrow_forwardAllowance Method for Accounting for Bad Debts At the beginning of 2016, Miyazaki Companys Accounts Receivable balance was $105,000, and the balance in Allowance for Doubtful Accounts was $1,950. Miyazakis sales in 2016 were $787,500, 80% of which were on credit. Collections on account during the year were $502,500. The company wrote off $3,000 of uncollectible accounts during the year. Required Prepare summary journal entries related to the sales, collections, and write-offs of accounts receivable during 2016. Prepare journal entries to recognize bad debts assuming that (a) bad debts expense is 3% of credit sales and (b) amounts expected to be uncollectible are 6% of the year-end accounts receivable. What is the net realizable value of accounts receivable on December 31, 2016, under each assumption in part (2)? What effect does the recognition of bad debts expense have on the net realizable value? What effect does the write-off of accounts have on the net realizable value?arrow_forward
- Jars Plus recorded $861,430 in credit sales for the year and $488,000 in accounts receivable. The uncollectible percentage is 2.3% for the income statement method, and 3.6% for the balance sheet method. A. Record the year-end adjusting entry for 2018 bad debt using the income statement method. B. Record the year-end adjusting entry for 2018 bad debt using the balance sheet method. C. Assume there was a previous debit balance in Allowance for Doubtful Accounts of $10,220, record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method. D. Assume there was a previous credit balance in Allowance for Doubtful Accounts of $5,470, record the year-end entry for bad debt using the income statement method, and then the entry using the balance sheet method.arrow_forwardOn December 1 of the current year, Jordan Inc. assigns 125,000 of its accounts receivable to McLaughlin Company for cash. McLaughlin Company charges a 750 service fee, advances 85% of Jordans accounts receivable, and charges an annual interest rate of 9% on any outstanding loan balance. Prepare the related journal entries for Jordan.arrow_forwardMillennial Manufacturing has net credit sales for 2018 in the amount of $1,433,630, beginning accounts receivable balance of $585,900, and an ending accounts receivable balance of $621,450. Compute the accounts receivable turnover ratio and the number of days sales in receivables ratio for 2018 (round answers to two decimal places). What do the outcomes tell a potential investor about Millennial Manufacturing if industry average is 2.6 times and number of days sales ratio is 180 days?arrow_forward
- Millennium Associates records bad debt using the allowance, balance sheet method. They recorded $299,420 in accounts receivable for the year, and $773,270 in credit sales. The uncollectible percentage is 3.2%. On November 22, Millennium Associates identifies one uncollectible account from Angels Hardware in the amount of $3,650. On December 18, Angels Hardware unexpectedly pays its account in full. Record journal entries for the following. A. Year-end adjusting entry for 2017 bad debt B. November 22, 2018 identification entry C. Entry for payment on December 18, 2018arrow_forwardOn March 24, MS Companys Accounts Receivable consisted of the following customer balances: S. Burton 310 A. Tangier 240 J. Holmes 504 F. Fullman 110 P. Molty 90 During the following week, MS made a sale of 104 to Molty and collected cash on account of 207 from Burton and 360 from Holmes. Prepare a schedule of accounts receivable for MS at March 31, 20--.arrow_forwardOlena Mirrors records bad debt using the allowance, income statement method. They recorded $343,160 in accounts receivable for the year and $577,930 in credit sales. The uncollectible percentage is 4.4%. On May 10, Olena Mirrors identifies one uncollectible account from Elsa Sweeney in the amount of $2,870. On August 12, Elsa Sweeney unexpectedly pays $1,441 toward her account. Record journal entries for the following. A. Year-end adjusting entry for 2017 bad debt B. May 10, 2018 identification entry C. Entry for payment on August 12, 2018arrow_forward
- College Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781305084087Author:Cathy J. ScottPublisher:Cengage LearningCollege Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College Pub