| 1. | |
$9,100
– $2,300 = $6,800 |
| 2. | |
$9,100 |
| 3. | |
$9,100 +
$2,300 = $11,400 |
| 4. | |
$9,100 |
| 5. | |
$11,500
+ $44,000 – $39,800 – $1,000 = $14,700. The uncollectible
accounts expense adjusting
entry does not affect the balance in Accounts Receivable—only
an expense and an allowance
account are affected. You can also use a T account
to visualize the answer to the problem: | | | |
| | |
| Accounts
Receivable | | bal.
11,500 | 39,800 |
| 44,000 |
1,000 | | bal.
14,700 | |
| | | |
| 6. | |
The
net realizable value is the difference between the balance in
Accounts Receivable and the
adjusted balance in Allowance for Uncollectible Accounts. Using the
percent of sales method,
the adjusted balance in Allowance for Uncollectible
Accounts is $200 + ($44,000 × .01) = $640.
Therefore, $14,700 –
$640 = $14,060. | | 7. | |
Because
both the accounts receivable account and the allowance account,
which is an offset, are reduced
by the same amount. For example, assume that a $200 receivable
is written off. The table below shows
account balances before and after the
write-off. The net realizable amount is unchanged. |
| | |
| Account | Balance
Before | Balance
After |
| Accounts
Receivable |
$20,000 | $19,800 |
| Less: Allowance
for Uncollectible Accts. |
1,500 | 1,300 |
| Net
realizable amount |
$18,500 | $18,500 |
| |  | |
| | 8. | |
Maturity
value is the amount of principal and interest owing at the maturity
date. The interest for the
90 days is ($4,500 × .06 × 90)/360 = $67.50.
The maturity value is $4,500 + $67.50 = $4,567.50. |
| 9. | |
August
5. (24 days in May + 30 days in June + 31 days in July + 5 days
in August = 90 days) |
| 10. | |
An
account receivable usually is created by a sale of products
or services and is typically due in
30–60 days. It does not accumulate interest except
as a penalty for late payment. No formal
promise to pay (a note) is signed.
A note receivable arises for various reasons, including loaning
money or
making a sale. The note is a formal written promise to repay principal plus interest
in
a specified way by a specified date. |
| 11. | |
The allowance
method is used to satisfy the GAAP requirement of showing accounts
receivable
at their net realizable value. This prevents overstating the value of accounts
receivable on the
balance sheet and also results in better matching of uncollectible
accounts expense to the
revenue that created the receivables. With this method,
uncollectible receivables are estimated
and an uncollectible accounts expense
is recorded in the same period as the sales that created
the bad receivables.
The realizable amount of accounts receivable is reduced by use of an
offsetting
allowance account. In contrast, the direct write-off method simply records an
uncollectible accounts expense in the period that a receivable is written
off, and no effort is
made to estimate bad receivables. This method overstates
the accounts receivable value on the
balance sheet and mismatches expenses
to revenues. | |
