Chapter 7: Problem Set B

Problem 7-1B: Sales on Credit and Credit Cards 1. August 4 – Sold merchandise on credit to McKenzie Carpenter: o Debit Accounts Receivable – McKenzie Carpenter: $3,700 o Credit Sales: $3,700 o Debit Cost of Goods Sold: $2,000 o Credit Merchandise Inventory: $2,000 2. August 11 – Sold merchandise to customers using Commerce Bank credit cards (3% fee): o Debit Cash: $5,044 (net of 3% fee on $5,200) o Debit Credit Card Expense: $156 o Credit Sales: $5,200 o Debit Cost of Goods Sold: $2,800 o Credit Merchandise Inventory: $2,800 3. August 14 – Sold merchandise to customers using Goldman cards (2% fee): o Debit Cash: $1,225 (net of 2% fee on $1,250) o Debit Credit Card Expense: $25 o Credit Sales: $1,250 o Debit Cost of Goods Sold: $900 o Credit Merchandise Inventory: $900 4. August 15 – Received payment in full from McKenzie Carpenter: o Debit Cash: $3,700 o Credit Accounts Receivable – McKenzie Carpenter: $3,700 5. August 22 – Sold merchandise to customers using Goldman cards (2% fee): o Debit Cash: $3,185 (net of 2% fee on $3,250) o Debit Credit Card Expense: $65 o Credit Sales: $3,250 o Debit Cost of Goods Sold: $1,758 o Credit Merchandise Inventory: $1,758 6. August 30 – Wrote off Craw Co. account balance: o Debit Allowance for Doubtful Accounts: $498 o Credit Accounts Receivable – Craw Co.: $498 Problem 7-2B: Estimating and Reporting Bad Debts 1. December 31 Adjusting Entries: o 1a. 2.5% of Credit Sales:  Calculate Bad Debts Expense as 2.5% of Credit Sales (assume Credit Sales of $1,420,200).  Debit Bad Debts Expense: $35,505  Credit Allowance for Doubtful Accounts: $35,505 o 1b. 1.5% of Total Sales: Calculate Bad Debts Expense as 1.5% of Total Sales (assume Total Sales of $2,367,000).  Debit Bad Debts Expense: $35,505  Credit Allowance for Doubtful Accounts: $35,505 o 1c. 6% of Year-End Accounts Receivable:  Calculate Bad Debts Expense as 6% of Accounts Receivable (assume AR of $450,000).  Debit Bad Debts Expense: $27,000  Credit Allowance for Doubtful Accounts: $27,000 2. Balance Sheet Presentation: o 1a. Accounts Receivable (net) = Accounts Receivable - Allowance for Doubtful Accounts: $450,000 - $35,505. o 1c. Accounts Receivable (net) = Accounts Receivable - Allowance for Doubtful Accounts: $450,000 - $27,000.  Problem 7-3B: Aging Accounts Receivable and Accounting for Bad Debts 1. Calculate Required Allowance Balance: o Using the aging schedule, calculate the Allowance for Doubtful Accounts by multiplying each category of receivables by its uncollectible percentage and summing the results. 2. December 31 Adjusting Entry for Bad Debts Expense: o Debit Bad Debts Expense: Difference between required allowance balance and unadjusted debit balance of $3,400. o Credit Allowance for Doubtful Accounts: Calculated amount. 3. July 31 Write-Off: o No Impact on Net Income: The write-off reduces Accounts Receivable and Allowance for Doubtful Accounts but does not directly impact net income. Problem 7-4B: Accounts Receivable Transactions and Bad Debts Adjustments 1. Year 1 Journal Entries: o Sales on Credit:  Debit Accounts Receivable: $685,350  Credit Sales: $685,350  Debit Cost of Goods Sold: $500,000  Credit Merchandise Inventory: $500,000 o Cash Collections:  Debit Cash: $482,300  Credit Accounts Receivable: $482,300 o Write-Offs: Debit Allowance for Doubtful Accounts: $9,350  Credit Accounts Receivable: $9,350 o Bad Debts Adjustment (1% of Year-End Accounts Receivable):  Debit Bad Debts Expense: Based on 1% of the remaining AR balance after write-offs and collections.  Credit Allowance for Doubtful Accounts: Calculated amount. 2. Year 2 Journal Entries: o Similar to Year 1, updated with Year 2 data.  Problem 7-5B: Analyzing and Journalizing Notes Receivable Transactions 1. Year 1 Entries: o November 1 – Accepted Julian Note:  Debit Notes Receivable: $4,800  Credit Accounts Receivable: $4,800 o December 31 – Accrued Interest on Julian Note:  Interest = $4,800 × 8% × (60/360)  Debit Interest Receivable: Calculated interest  Credit Interest Revenue: Same amount 2. Year 2 Entries: o January 30 – Collection of Julian Note:  Debit Cash: Principal + Interest  Credit Notes Receivable: $4,800  Credit Interest Revenue: Calculated interest