ACC1002X Financial Accounting

Semester 2 of Academic Year 2015-2016

SOLUTIONS to Optional Questions
CHAPTER 6: 6-39, 6-53, 6-65, 6-68

6-39
1.

(a)

There would be no entry on July 17. The criteria for revenue recognition were not
yet met.

(b)

August 12Delivery
Dr. Accounts receivable
50,000
Cr. Sales revenue
To record sales of 1,000 books @ $50 each.

(c)

50,000

September 10Payment
The cash discount was 2% $50,000 = $1,000.
Dr. Cash
Dr. Cash discount on sales
Cr. Accounts receivable
To record cash payments received.

(d)

49,000
1,000
50,000

December 18Returns
This entry differs slightly from the one in the text because payment has already
been made. Instead of decreasing accounts receivable for the merchandise
returned, a cash refund equal to the amount actually paid for the books, $3,000
(2% $3,000) = $2,940, is made.
Dr. Sales returns and allowances
2,940
Cr. Cash
2,940
To record the cash refund on the return of 60 books @ $50 each, net of discounts.

2.

Gross sales
Deduct:
Sales returns and allowances
Cash discount on sales
Net sales

$50,000
$2,940
1,000
$46,060

6-53
Dr. Allowance for uncollectible accounts
Cr. Accounts receivable

31,000
31,000

Dr. Accounts receivable

Cr. Allowance for uncollectible accounts

8,000

Dr. Cash
Cr. Accounts receivable

8,000

8,000

8,000

Note: Although the last two entries could be summarized in a single entry debiting Cash for
$8,000 and crediting the allowance account, two entries would usually be made. The debit and
credit to Accounts Receivable would be posted also to the customers account, which would then
contain useful information for possible credit decisions in the future.
6-65

Name
Huang
Michaels
Shoven
Loring
Hjortshoj
Other accounts
Totals
Bad debt percentages
Bad debt allowance
to be provided

Total
$ 20,000
8,000
20,000
4,000
80,000
$144,000

$ 11,578

1-30
days

31-60
days

2,000
12,000
20,000
3,000
40,000
$65,000
.2%

$ 6,000

130

61-90
days
$15,000

Over
90 days
$5,000

4,800

7,200

24,000
$34,800
.8%

1,000
12,000
$35,200
10%

4,000
$9,000
85%

$ 3,520

$7,650

278

The ending balance in the allowance account should be $11,578, which happens to be 8.0% of
the total balance in accounts receivable. In all likelihood, this is an alarming figure. The Huang
and Shoven accounts deserve concentrated attention.

6-68
1.

The bad debt expense is (.012 $7,000,000) = $84,000.

Accounts receivable
Less: Allowance for bad debts
(84,000 1,200)
Net accounts receivable

$480,000
82,800
$397,200

Journal entry:
Dr. Bad debt expense
Cr. Allowance for bad debts
To recognize bad debt expenses for 20X0.

2.

84,000
84,000

The ending balance in the allowance for bad debts account should be (.18 $480,000) =
$86,400.
Accounts receivable
Less: Allowance for bad debts
Net accounts receivable

$480,000
86,400
$393,600

Journal entry:
Dr. Bad debt expense
Cr. Allowance for bad debts
To recognize bad debt expenses for 20X0.

87,600
87,600

The entry of $87,600 is to create a balance of $86,400. It must also offset the existing
$1,200 debit balance. Therefore, $86,400 + $1,200 = $87,600.
3.

The percentage of ending accounts receivable is usually more accurate. It focuses

specifically on accounts that are still outstanding at the end of the year. (The aging
method would go a step further by looking at the length of time each ending account
receivable has been outstanding.)
It appears that the collection experience on Flagstaffs sales early in 20X0 has been
slightly worse than usual. The balance in the allowance account based on ending accounts
receivable is more than that based on a percentage of sales.