Chapter 7: Problem Set A

Problem 7-1A: Sales on Credit and Credit Cards 1. June 4 – Sold merchandise on credit to Natara Morris. o Debit Accounts Receivable – Natara Morris: $650 o Credit Sales: $650 o Debit Cost of Goods Sold: $400 o Credit Merchandise Inventory: $400 2. June 5 – Sold merchandise to customers using Zisa cards with a 3% fee. o Debit Cash: $6,693 (net of 3% fee) o Debit Credit Card Expense: $207 o Credit Sales: $6,900 o Debit Cost of Goods Sold: $4,200 o Credit Merchandise Inventory: $4,200 3. June 8 – Sold merchandise on Access cards with a 2% fee. o Debit Cash: $5,733 (net of 2% fee) o Debit Credit Card Expense: $117 o Credit Sales: $5,850 o Debit Cost of Goods Sold: $3,800 o Credit Merchandise Inventory: $3,800 4. June 13 – Sold merchandise on Access cards with a 2% fee. o Debit Cash: $4,263 (net of 2% fee) o Debit Credit Card Expense: $87 o Credit Sales: $4,350 o Debit Cost of Goods Sold: $2,900 o Credit Merchandise Inventory: $2,900 5. June 15 – Wrote off the account of Abigail McKee. o Debit Allowance for Doubtful Accounts: $429 o Credit Accounts Receivable – Abigail McKee: $429 6. June 18 – Received payment from Natara Morris. o Debit Cash: $650 o Credit Accounts Receivable – Natara Morris: $650 Problem 7-2A: Estimating and Reporting Bad Debts 1. December 31 Adjusting Entries: o 1a. 1.5% of Credit Sales (Assume Credit Sales are $5,682,000):  Debit Bad Debts Expense: $85,230  Credit Allowance for Doubtful Accounts: $85,230 o 1b. 1% of Total Sales (Assume Total Sales are $8,008,500):  Debit Bad Debts Expense: $80,085  Credit Allowance for Doubtful Accounts: $80,085 o 1c. 5% of Accounts Receivable (Assume Year-End Accounts Receivable is $1,601,700): Debit Bad Debts Expense: $80,085  Credit Allowance for Doubtful Accounts: $80,085 2. Balance Sheet Presentation: o 1a. Accounts Receivable (net of allowance for doubtful accounts) on the balance sheet would be displayed as Accounts Receivable: $1,601,700 less Allowance for Doubtful Accounts: $85,230. o 1c. Accounts Receivable (net) after the aging analysis would also show Accounts Receivable: $1,601,700 less Allowance for Doubtful Accounts: $80,085.  Problem 7-3A: Aging Accounts Receivable and Bad Debts 1. Calculate Required Allowance Balance: o Based on the aging schedule, multiply each category of accounts receivable by its respective uncollectible percentage, then sum to find the required balance for Allowance for Doubtful Accounts. 2. Adjusting Entry for Bad Debts Expense: o Debit Bad Debts Expense: Difference between required balance and current credit balance in Allowance for Doubtful Accounts. o Credit Allowance for Doubtful Accounts: Adjusting amount needed. 3. June 30 Write-Off: o No Effect on Net Income: Write-offs only affect the balance sheet by reducing Accounts Receivable and Allowance for Doubtful Accounts, not impacting net income directly. Problem 7-4A: Accounts Receivable Transactions and Bad Debts Adjustments 1. Year 1 Journal Entries: o Sales on Credit:  Debit Accounts Receivable: $1,345,434  Credit Sales: $1,345,434  Debit Cost of Goods Sold: $975,000  Credit Merchandise Inventory: $975,000 o Write-Off Uncollectibles:  Debit Allowance for Doubtful Accounts: $18,300  Credit Accounts Receivable: $18,300 o Cash Collection:  Debit Cash: $669,200  Credit Accounts Receivable: $669,200 o Bad Debts Expense Adjustment: Debit Bad Debts Expense: 1.5% of Year-End Accounts Receivable Balance  Credit Allowance for Doubtful Accounts: Calculated amount 2. Year 2 Journal Entries: o Similar to Year 1, but with updated sales, write-offs, cash collections, and bad debts adjustments based on Year 2 data.  Problem 7-5A: Analyzing and Journalizing Notes Receivable Transactions 1. Year 1 Entries: o Accept Todd Note:  Debit Notes Receivable: $10,800  Credit Accounts Receivable: $10,800 o Accrued Interest on Todd Note:  Interest Calculation: $10,800 × 8% × (Remaining Days / 360)  Debit Interest Receivable  Credit Interest Revenue 2. Year 2 Entries: o Collection of Todd Note:  Debit Cash: Principal + Interest  Credit Notes Receivable  Credit Interest Revenue o Acceptance of Notes from Midnight Co. and Privet, and dishonored note adjustments:  Each note would have entries for acceptance, interest, dishonor, or payment based on completion or failure to pay by the customer.