Tutorial 7 Questions

S9-3 Applying the direct write-off method to account for uncollectibles

Susan Knoll is an attorney in Los Angeles. Knoll uses the direct write-off method to account for
uncollectible receivables.

At January 31, 2016, Knoll’s accounts receivable totaled $18,000. During February, she earned
revenue of $21,000 on account and collected $23,000 on account. She also wrote off
uncollectible receivables of $1,050 on February 29, 2016.

Requirements
1. Use the direct write-off method to journalize Knoll’s write-off of the uncollectible
receivables.
2. What is Knoll’s balance of Accounts Receivable at February 29, 2016?

S9-4 Collecting a receivable previously written off—direct write-off method

Gate City Cycles had trouble collecting its account receivable from Shawna Brown. On June 19,
2016, Gate City finally wrote off Brown’s $700 account receivable. On December 31, Brown
sent a $700 cheque to Gate City.

Journalize the entries required for Gate City Cycles, assuming Gate City uses the direct write-off
method.

S9-5 Applying the allowance method to account for uncollectibles

The Accounts Receivable balance and Allowance for Bad Debts for Turning Leaves Furniture
Restoration at December 31, 2015, was $10,800 and $2,000 (credit balance). During 2016,
Turning Leaves completed the following transactions:
a. Sales revenue on account, $265,800 (ignore Cost of Goods Sold).
b. Collections on account, $220,000.
c. Write-offs of uncollectibles, $6,100.
d. Bad debts expense of $5,000 was recorded.

Requirements
1. Journalize Turning Leaves’s transactions for 2016 assuming Turning Leaves uses the
allowance method.
2. Post the transactions to the Accounts Receivable, Allowance for Bad Debts, and Bad Debts
Expense T-accounts, and determine the ending balance of each account.
3. Show how accounts receivable would be reported on the balance sheet at December 31,
2016.
S9-6 Applying the allowance method (percent-of-sales) to account for uncollectibles
Learning Objective 3

During its first year of operations, Signature Lamp Company earned net credit sales of
$314,000. Industry experience suggests that bad debts will amount to 4% of net credit sales. At
December 31, 2016, accounts receivable total $45,000. The company uses the allowance
method to account for uncollectibles.

Requirements
1. Journalize Signature’s Bad Debts Expense using the percent-of-sales method.
2. Show how to report accounts receivable on the balance sheet at December 31, 2016.

S9-7 Applying the allowance method (percent-of-receivables) to account for uncollectibles

The Accounts Receivable balance for Field, Inc. at December 31, 2015, was $25,000. During
2016, Field earned revenue of $457,000 on account and collected $326,000 on account. Field
wrote off $5,900 receivables as uncollectible. Industry experience suggests that uncollectible
accounts will amount to 4% of accounts receivable.

Requirements
1. Assume Field had an unadjusted $2,300 credit balance in Allowance for Bad Debts at
December 31, 2016. Journalize Field’s December 31, 2016, adjustment to record bad debts
expense using the percent-of-receivables method.
2. Assume Field had an unadjusted $1,900 debit balance in Allowance for Bad Debts at
December 31, 2016. Journalize Field’s December 31, 2016, adjustment to record bad debts
expense using the percent-of-receivables method.

S9-8 Applying the allowan9ce method (aging-of-receivables) to account for uncollectibles

World Class Work Shoes had the following balances at December 31, 2016, before the year-end
adjustments:

The aging of accounts receivable yields the following data:

Requirements
1. Journalize World Class’s entry to record bad debts expense for 2016 using the aging-of-
receivables method.
2. Prepare a T-account to compute the ending balance of Allowance for Bad Debts.

E9-16 Journalizing transactions using the direct write-off method

On June 1, High Performance Cell Phones sold $19,000 of merchandise to Andrew Trucking
Company on account. Andrew fell on hard times and on July 15 paid only $7,000 of the account
receivable. After repeated attempts to collect, High Performance finally wrote off its accounts
receivable from Andrew on September 5. Six months later, March 5, High Performance received
Andrew’s check for $12,000 with a note apologizing for the late payment.

Requirements
1. Journalize the transactions for High Performance Cell Phones using the direct write-off
method. Ignore Cost of Goods Sold.
2. What are some limitations that High Performance will encounter when using the direct write-
off method?

E9-17 Accounting for uncollectible accounts using the allowance method (percent-of-sales)
and reporting receivables on the balance sheet
Learning Objectives 1, 3
2. AR, Dec. 31 $54,800

Requirements
1. Journalize Hilly’s transactions that occurred during 2016. The company uses the allowance
method.
2. Post Hilly’s transactions to the Accounts Receivable and Allowance for Bad Debts T-
accounts.
3. Journalize Hilly’s adjustment to record bad debts expense assuming Hilly estimates bad debts
as 4% of credit sales. Post the adjustment to the appropriate T-accounts.
4. Show how Hilly Mountain Flagpoles will report net accounts receivable on its December 31,
2016, balance sheet.

E9-18 Accounting for uncollectible accounts using the allowance method (percent-of-
receivables) and reporting receivables on the balance sheet
Learning Objectives 1, 3
3. Bad Debts Expense $844

Requirements
1. Journalize Hilly’s transactions that occurred during 2016. The company uses the allowance
method.
2. Post Hilly’s transactions to the Accounts Receivable and Allowance for Bad Debts T-
accounts.
3. Journalize Hilly’s adjustment to record bad debts expense assuming Hilly estimates bad debts
as 3% of accounts receivable. Post the adjustment to the appropriate T-accounts.
4. Show how Hilly Mountain Flagpoles will report net accounts receivable on its December 31,
2016, balance sheet.
E9-20 Journalizing transactions using the direct write-off method versus the allowance
method
Learning Objectives 1, 2, 3

During August 2016, Ritter Company recorded the following:

Requirements
1. Journalize Ritter’s transactions during August 2016, assuming Ritter uses the direct write-off
method.
2. Journalize Ritter’s transactions during August 2016, assuming Ritter uses the allowance
method.

P9-27A Accounting for uncollectible accounts using the allowance (percent-of-sales) and
direct write-off methods and reporting receivables on the balance sheet
Learning Objectives 1, 2, 3
1. Bad Debts Expense $5,400

On August 31, 2016, Lily Floral Supply had a $145,000 debit balance in Accounts Receivable
and a $5,800 credit balance in Allowance for Bad Debts. During September, Lily made
 Sales on account, $540,000. Ignore Cost of Goods Sold.
 Collections on account, $581,000.
 Write-offs of uncollectible receivables, $5,000.

Requirements
1. Journalize all September entries using the allowance method. Bad debts expense was
estimated at 1% of credit sales. Show all September activity in Accounts Receivable,
Allowance for Bad Debts, and Bad Debts Expense (post to these T-accounts).
2. Using the same facts, assume that Lily used the direct write-off method to account for
uncollectible receivables. Journalize all September entries using the direct write-off method.
Post to Accounts Receivable and Bad Debts Expense, and show their balances at September
30, 2016.
3. What amount of Bad Debts Expense would Lily report on its September income statement
under each of the two methods? Which amount better matches expense with revenue? Give
your reason.
4. What amount of net accounts receivable would Lily report on its September 30, 2016,
balance sheet under each of the two methods? Which amount is more realistic? Give your
reason.