Chapter 5
Receivables and Sales
Record credit sale(LO1)
E5-1On May 7, Juanita Construction provides services on account to Michael Wolfe for $4,760. Michael pays for those services on May 13.
Required:
For Juanita Construction, record the service on account on May 7 and the collection of cash on May 13.
Record cash sales with a trade discount(LO2)
E5-2 Merry Maidens Cleaning generally charges $375 for a detailed cleaning of a normal-size home. However, to generate additional business, Merry Maidens is offering a new customer discount of 20%. On May 1, Ms. E. Pearson has Merry Maidens clean her house and pays cash equal to the discounted price.
Required:
Record the revenue earned by Merry Maidens Cleaning on May 1.
Record credit sale and cash collection with a sales discount(LO1, 2)
E5-3On March 12, Medical Waste Services provides services on account to GraceHospital for $25,800, terms 4/10, n/30. Grace pays for those services on March 20.
Required:
For Medical Waste Services, record the service on account on March 12 and the collection of cash on March 20.
Record credit sale and cash collection(LO1, 2)
E5-4Refer to the information in E5–3, but now assume that Grace does not pay for services until March 31, missing the 4% sales discount.
Required:
For Medical Waste Services, record the service on account on March 12 and the collection of cash on March 31.
Record credit purchase and cash payment (LO1, 2)
E5-5Refer to the information in E5–4.
Required:
For GraceHospital, record the purchase of services on account on March 12 and the payment of cash on March 31.
Record credit sales with a sales allowance(LO1, 2)
E5-6On April 25, Foreman Electric installs wiring in a new home for $3,200 on account. However, on April 27, Foreman’s electrical work does not pass inspection, and Foreman grants the customer an allowance of $700 because of the problem. The customer makes full payment of the balance owed, excluding the allowance, on April 30.
Required:
1. Record the credit sale on April 25.
2. Record the sales allowance on April 27.
3. Record the cash collection on April 30.
4. Calculate net sales associated with these transactions.
Record the adjustment for uncollectible accounts and calculate net realizable value(LO3)
E5-7During 2012, its first year of operations, Pave Construction provides services on account of $250,600. By the end of 2012, cash collections on these accounts total $144,700. Pave estimates that 45% of the uncollected accounts will be bad debts.
Required:
1. Record the adjustment for uncollectible accounts on December 31, 2012.
2. Calculate the net realizable value of accounts receivable.
Record the adjustment for uncollectible accounts and calculate net realizable value(LO3)
E5-8Physicians’ Hospital has the following balances on December 31, 2012, before any adjustments: accounts receivable = $88,000; allowance for uncollectible accounts = $2,500 (credit). On December 31, 2012, Physicians’ estimates uncollectible accounts to be 25% of accounts receivable.
Required:
1. Record the adjustment for uncollectible accounts on December 31, 2012.
2. Calculate the net realizable value of accounts receivable.
Record the adjustment for uncollectible accounts and calculate net realizable value(LO3)
E5-9Southwest Pediatrics has the following balances on December 31, 2012, before any adjustments: accounts receivable = $112,000; allowance for uncollectible accounts = $1,800 (debit). On December 31, 2012, Southwest estimates uncollectible accounts to be 15% of accounts receivable.
Required:
1. Record the adjustment for uncollectible accounts on December 31, 2012.
2. Calculate the net realizable value of accounts receivable.
Identify the financial statement effects of transactions related to accounts receivable and allowance for uncollectible accounts(LO3, 4)
E5-10Consider the following transactions associated with accounts receivable and the allowance for uncollectible accounts.
Credit Sales Transaction Cycle / Assets / Liabilities / Stockholders’ Equity / Revenues / Expenses1. Provide services on account
2. Estimate uncollectible accounts
3. Write off accounts as uncollectible
4. Collect on account previously written off
Required:
For each transaction, indicate whether it would increase (I), decrease (D), or have no effect (NE) on the account totals. (Hint: Make sure the accounting equation, Assets = Liabilities + Stockholders’ Equity, remains in balance after each transaction.)
Record the adjustment for uncollectible accounts using the aging method(LO5)
E5-11MercyHospital has the following balances on December 31, 2012, before any adjustments: accounts receivable = $104,000; allowance for uncollectible accounts = $3,600 (credit). Mercy estimates uncollectible accounts based on an aging of accounts receivable as shown below.
Age Group / Amount Receivable / Estimated Percent UncollectibleNot yet due / $53,000 / 15%
0–30 days past due / 27,000 / 20%
31–90 days past due / 15,000 / 60%
More than 90 days past due / 9,000 / 75%
Total / $104,000
Required:
1. Estimate the amount of uncollectible receivables.
2. Record the adjustment for uncollectible accounts on December 31, 2012.
3. Calculate the net realizable value of accounts receivable.
Record the adjustment for uncollectible accounts using the aging method(LO5)
E5-12The PhysicalTherapyCenter specializes in helping patients regain motor skills after serious accidents. The center has the following balances on December 31, 2012, before any adjustments: accounts receivable = $173,700; allowance for uncollectible accounts = $2,250 (debit). The center estimates uncollectible accounts based on an aging of accounts receivable as shown below.
Age Group / Amount Receivable / Estimated Percent UncollectibleNot yet due / $69,500 / 10%
0–60 days past due / 56,700 / 20%
61–120 days past due / 32,400 / 45%
More than 120 days past due / 15,100 / 80%
Total / $173,700
Required:
1.Estimate the amount of uncollectible receivables.
2.Record the adjustment for uncollectible accounts on December 31, 2012.
3.Calculate the net realizable value of accounts receivable.
Compare the allowance method and the direct write-off method(LO6)
E5-13At the beginning of 2012, Brad’s Heating & Air (BHA) has a balance of $25,000 in accounts receivable. Because BHA is a privately owned company, the company has used only the direct write-off method to account for uncollectible accounts. However, at the end of 2012, BHA wishes to obtain a loan at the local bank, which requires the preparation of proper financial statements. This means that BHA now will need to use the allowance method. The following transactions occur during 2012 and 2013.
a.During 2012, install air conditioning systems on account, $270,700.
b.During 2012, collect $140,200 from customers on account.
c.At the end of 2012, estimate that uncollectible accounts total 25% of ending accounts receivable.
d.In 2013, customers’ accounts totaling $15,075 are written off as uncollectible.
Required:
1. Record each transaction using the allowance method.
2. Record each transaction using the direct write-off method.
3. Calculate the difference in net income (before taxes) in 2012 and 2013 between the two methods.
Record notes receivable(LO7)
E5-14During 2012, LeBron Corporation accepts the following notes receivable.
a.On April 1, LeBron provides services to a customer on account. The customer signs a four-month, 8% note for $8,000.
b.On June 1, LeBron lends cash to one of the company’s executives by accepting a six-month, 12% note for $15,000.
c.On November 1, LeBron accepts payment for prior services by having a customer with a past due account receivable sign a three-month, 9% note for $4,000.
Required:
Record the acceptance of each of the notes receivable.
Record notes receivable and interest revenue(LO7)
E5-15On March 1, Terrell & Associates provides legal services to Whole Grain Bakery regarding some recent food poisoning complaints. Legal services total $18,600. In payment for the services, Whole Grain Bakery signs a 12% note requiring the payment of the face amount and interest to Terrell & Associates on September 1.
Required:
For Terrell & Associates, record the acceptance of the note receivable on March 1 and the cash collection on September 1.
Record notes payable and interest expense(LO7)
E5-16Refer to the information in E5–15.
Required:
For Whole Grain Bakery, record the issuance of the note payable on March 1 and the cash payment on September 1.
Record notes receivable and interest revenue(LO7)
E5-17On April 1, 2012, Shoemaker Corporation realizes that one of its main suppliers is having difficulty meeting delivery schedules, which is hurting Shoemaker’s business. The supplier explains that it has a temporary lack of funds that is slowing its production cycle. Shoemaker agrees to lend $450,000 to its supplier using a 12-month, 8% note.
Required:
Record the following transactions for Shoemaker Corporation.
1. The loan of $450,000 and acceptance of the note receivable on April 1, 2012.
2. The adjustment for accrued interest on December 31, 2012.
3. Cash collection of the note and interest on April 1, 2013.
Calculate receivables ratios(LO8)
E5-18Below are amounts (in millions) reported in each of these companies’ annual reports.
Beginning AccountsReceivable (net) / Ending Accounts
Receivable (net) / Net
Sales
Walmart / $1,825 / $3,575 / $337,500
Target / $5,200 / $10,400 / $93,600
Costco Wholesale / $900 / $2,100 / $115,500
Required:
For each company, calculate the receivables turnover ratio and the average collection period. Which company appears most efficient in collecting cash from sales?
Compare the percentage-of-receivables method and the percentage-of-credit-sales method(LO9)
E5-19Suzuki Supply reports the following amounts at the end of 2012 (before adjustments).
Credit sales for 2012 / $190,000Accounts receivable, December 31, 2012 / 50,000
Allowance for uncollectible accounts, December 31, 2012 / 1,500 / (credit)
Required:
1. Record the adjustment for uncollectible accounts using the percentage-of-receivables method. Suzuki estimates 12% of receivables will not be collected.
2. Record the adjustment for uncollectible accounts using the percentage-of-credit-sales method. Suzuki estimates 3% of credit sales will not be collected.
3.Calculate the effect on net income (before taxes) and total assets in 2012 for each method.
Compare the percentage-of-receivables method and the percentage-of-credit-sales method(LO9)
E5-20Refer to the information in E5–19 but now assume that the balance of the allowance for uncollectible accounts on December 31, 2012, is $1,500 (debit) (before adjustments).
Required:
1. Record the adjustment for uncollectible accounts using the percentage-of-receivables method. Suzuki estimates 12% of receivables will not be collected.
2. Record the adjustment for uncollectible accounts using the percentage-of-credit-sales method. Suzuki estimates 3% of credit sales will not be collected.
3. Calculate the effect on net income (before taxes) and total assets in 2012 for each method.