Chapter 7: Quick Study

QS 7-1: Credit Card Sales 1. Journal entry for Mastercard sale: o Debit Cash: $19,000 (net of 5% fee on $20,000) o Debit Credit Card Expense: $1,000 o Credit Sales: $20,000 o Debit Cost of Goods Sold: $15,000 o Credit Merchandise Inventory: $15,000 2. Journal entry for assorted bank credit card sale: o Debit Cash: $4,800 (net of 4% fee on $5,000) o Debit Credit Card Expense: $200 o Credit Sales: $5,000 o Debit Cost of Goods Sold: $3,000 o Credit Merchandise Inventory: $3,000 QS 7-2: Direct Write-Off Method • • Debit Bad Debts Expense: $50,000 Credit Accounts Receivable - P. Moore: $50,000 QS 7-3: Recovering a Bad Debt 1. Reverse write-off entry: o Debit Accounts Receivable - P. Moore: $50,000 o Credit Bad Debts Expense: $50,000 2. Record cash collection: o Debit Cash: $50,000 o Credit Accounts Receivable - P. Moore: $50,000 QS 7-4: Distinguishing Allowance and Direct Write-Off Methods 1. Direct Write-Off: Does not predict bad debts expense. 2. Allowance: Accounts receivable on the balance sheet is reported at net realizable value. 3. Allowance: The write-off of a specific account does not affect net income. 4. Direct Write-Off: When an account is written off, the debit is to Bad Debts Expense. 5. Direct Write-Off: Usually does not best match sales and expenses as expense is recorded when the account becomes uncollectible. 6. Allowance: Estimates bad debts expense related to the sales recorded in that period. QS 7-5: Comparing Direct Write-Off and Allowance Methods 1. Direct Write-Off: o Debit Bad Debts Expense: $7,000 o Credit Accounts Receivable - MDC: $7,000 2. Allowance Method: o Debit Allowance for Doubtful Accounts: $7,000 o Credit Accounts Receivable - MDC: $7,000 QS 7-6: Allowance Method for Bad Debts 1. January 31 (Write-Off of C. Green’s Account): o Debit Allowance for Doubtful Accounts: $800 o Credit Accounts Receivable - C. Green: $800 2. March 9 (Partial Payment by C. Green): o Reinstate Account:  Debit Accounts Receivable - C. Green: $300  Credit Allowance for Doubtful Accounts: $300 o Record Cash Collection:  Debit Cash: $300  Credit Accounts Receivable - C. Green: $300 QS 7-7: Reporting Allowance for Doubtful Accounts 1. Realizable Value on December 31: o Accounts Receivable = $50,000 o Less: Allowance for Doubtful Accounts = $2,000 o Realizable Value: $48,000 2. Realizable Value on January 1 after $300 Write-Off: o Accounts Receivable = $49,700 o Less: Allowance for Doubtful Accounts = $1,700 o Realizable Value: $48,000 QS 7-8: Percent of Accounts Receivable Method 1. Uncollectibles at Year-End with Credit Balance: o Estimated Allowance = $99,000 × 1.5% = $1,485 o Required Adjustment = $1,485 - $600 = $885 o Adjusting Entry:  Debit Bad Debts Expense: $885  Credit Allowance for Doubtful Accounts: $885 2. Adjustment with Debit Balance: o Estimated Allowance = $1,485 o Required Adjustment = $1,485 + $300 = $1,785 o Adjusting Entry:  Debit Bad Debts Expense: $1,785  Credit Allowance for Doubtful Accounts: $1,785 QS 7-9: Percent of Sales Method • • Estimated Uncollectibles = $150,000 × 2% = $3,000 Adjusting Entry: o Debit Bad Debts Expense: $3,000 o Credit Allowance for Doubtful Accounts: $3,000 QS 7-10: Aging of Receivables Method 1. Allowance Estimate Using Aging Analysis: o Calculate based on the aging schedule (details would vary based on specific data provided in the problem). 2. Adjusting Entry (assuming $1,000 credit balance): o Required Adjustment = Estimated Allowance - Unadjusted Balance o Adjusting Entry:  Debit Bad Debts Expense: Amount required based on calculated estimate  Credit Allowance for Doubtful Accounts: Same amount QS 7-11 to QS 7-21 (Additional Exercises) For the remainder of exercises, specific calculations and journal entries would follow similar principles applied above, based on provided data for note interest, maturity date, receivables turnover, factoring fees, and financial statement preparation. Each entry would reflect the transaction’s impact on accounts and expenses in accordance with GAAP.