Exercise 7-9

Dr Cr
A/R 90,000
Allowance for Doubtful Accounts 1,750
Sales (all credit) 680,000

Entry Journal
1 Based on 4% of gross accounts receivable

4% x 90,000 = 3,600

Allowance for Doubtful Accounts

1,750 5,350

3,600

Bad debt expense 5,350

Allowance for doubtful accounts 5,350

2 Based on 1% of net sales

1% x 680,000 = 6,800

Bad debt expense 6,800

Allowance for doubtful accounts 6,800
Problem 7-3

Days Account Outstanding Amount Probability of Collection

Less than 16 days 300,000 0.98
Between 16 and 30 days 100,000 0.90
Between 31 and 450 days 80,000 0.85
Between 46 and 60 days 40,000 0.75
Between 61 and 75 days 20,000 0.40
Over 75 days 15,000 0.00

Balances Dr Cr
A/R 555,000
Allowance for doubtful account 35,000

1 The appropiate balance for doubtful account at year end if the

accounting treatment use aging schedule
Probability Probability Estimated
Days Account Outstanding Amount of Collecti of uncollected Allowance
Less than 16 days 300,000 0.98 0.02 6,000
Between 16 and 30 days 100,000 0.90 0.10 10,000
Between 31 and 450 days 80,000 0.85 0.15 12,000
Between 46 and 60 days 40,000 0.75 0.25 10,000
Between 61 and 75 days 20,000 0.40 0.60 12,000
Over 75 days 15,000 0.00 1.00 15,000
Estimated A/R that cannot be collected 65,000

The appropriate balance for doubtfull account at year end should be = 65,000

2 The presentation of Account Receivables in the balance sheet

Account Receivable 555,000

Allowance for doubtful account ( 65000 )
Account Receivable (net) 490,000

3 Before we can answer these question, we have to know the journal entry would be:

Allowance for Doubtful Accounts

35,000

30,000

65,000

Bad debt expense 30,000

Allowance for doubtful accounts 30,000
It means that the income will be decreased by 30,000 in effect of the bad debt expense
Problem 7-8

Oct 1 08 Sold a machine in notes receivable

Face ValueMarket rate = Coupon rate
100,000 8%

Note Receivable 100,000

Sales 100,000

Dec 1 08 Recognition of interest revenue (adjustment entry)

Interest receivable 2000

Interest revenue 2000
(100,000 x 8% x 3/12)

Oct 1 08 Payment of interest

Cash 8000
Interest receivable 2000
Interest revenue 6000
(Interest revenue = 100,000 x 8% x 9/12
Cash = 100,000 x 8%)

Dec 1 09 Recognition of interest revenue (adjustment entry)

Interest receivable 2000

Interest revenue 2000
(100,000 x 8% x 3/12)

Oct 1 09 Notes receivable paid

Payment of principal
Cash 100,000
Note receivable 100,000

Payment of Interest
Cash 8000
Interest receivable 2000
Interest revenue 6000
Aguilar Co.
Bank Reconciliation
June 30, 2010

Bank bal. 4,150.00 Aguilar bal. 3,969.85

+ 3 Deposit in transit 3,390.00 + 2 Note receivable collected 1,200.00

2 Note receivable interest 36.00
6 Error correction 30.00
7 Error correction 451.80 1,717.80

- 4 Outstanding check -2,136.05 - 1 Bank service charges 25.00

2 Note collection charge 5.50
5 NSF Check 253.20 -283.70

Correct Cash Balance 5,403.95 Correct Cash Balance 5,403.95