Chapter 9 Solutions

CHAPTER 9
RECEIVABLES
QUESTION INFORMATION
Number
EO9-1
EO9-2
EO9-3
EO9-4
EO9-5
EO9-6
EO9-7
EO9-8
EO9-9
EO9-10
EO9-11
EO9-12
EO9-13
EO9-14
EO9-15
EO9-16
PE9-1A
Objective
9-1
9-1
9-1
9-1
9-2
9-2
9-4
9-7
9-4
9-5
9-6
9-6
9-6
9-6
9-6
9-7
9-3
PE9-1B
9-3
PE9-2A
9-3
PE9-2B
9-3
PE9-3A
9-4
PE9-3B
9-4
PE9-4A
9-4
PE9-4B
9-4
PE9-5A
9-6
PE9-5B
9-6
Ex9-1
9-1
Description
Entries for
uncollectible accounts
using the direct writeoff method
Entries for
using the direct writeoff method
Entries for
using the allowance
method
Entries for
using the allowance
method
Percent of sales
method of estimating
Percent of sales
method of estimating
Aging method of
estimating
Aging method of
estimating
Notes receivable due
date, maturity value,
and entry
Notes receivable due
date, maturity value,
and entry
Classification of
Difficulty
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Easy
Time
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
5 min
AACSB
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
Analytic
AICPA
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
FN-Measurement
Easy
5 min
Analytic
FN-Measurement
Easy
5 min
Analytic
FN-Measurement
Easy
5 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Easy
5 min
Analytic
FN-Measurement
33
SS
GL
Number
Objective
Ex9-2
9-2
Ex9-3
9-3
Ex9-4
9-3
Ex9-5
9-3, 9-4
Ex9-6
9-4
Ex9-7
9-4
Ex9-8
9-4
Ex9-9
9-4
Ex9-10
9-4
Ex9-11
9-4
Ex9-12
9-4
Ex9-13
9-5
Ex9-14
9-5
Ex9-15
9-5
Ex9-16
9-5
Ex9-17
9-5
Ex9-18
9-5
Ex9-19
9-6
Ex9-20
9-6
Ex9-21
9-6
Ex9-22
9-6
Ex9-23
9-6
Description
receivables
Difficulty
Time
AACSB
AICPA
Nature of uncollectible
accounts
Entries for
uncollectible
accounts, using direct
write-off method
Entries for
uncollectible
accounts, using
allowance method
Entries to write off
accounts receivable
Providing for doubtful
accounts
Number of days past
due
Aging-of-receivable
schedule
Estimating allowance
for doubtful accounts
Adjustment for
Estimating doubtful
accounts
Entry for uncollectible
accounts
Entries for bad debt
expense under the
direct write-off and
allowance methods
expense under the
direct write-off and
allowance methods
Effect of doubtful
accounts on net
income
Effect of doubtful
accounts on net
income
expense under direct
write-off and
allowance methods
expense under direct
write-off and
allowance methods
Determine due date
and interest on notes
Entries for notes
receivable
Entries for notes
receivable
Entries for notes
receivable, including
year-end entries
Entries for receipt and
Easy
10 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Easy
15 min
Analytic
FN-Measurement
Moderate
20 min
Analytic
FN-Measurement
Exl
Moderate
20 min
Analytic
FN-Measurement
Exl
Easy
5 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Easy
5 min
Analytic
FN-Measurement
Moderate
30 min
Analytic
FN-Measurement
Moderate
30 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Moderate
30 min
Analytic
FN-Measurement
Moderate
30 min
Analytic
FN-Measurement
Easy
15 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
Easy
10 min
Analytic
FN-Measurement
34
SS
Exl
GL
Number
Objective
Ex9-24
9-4, 9-6
Ex9-25
9-7
Ex9-26
FAI
Ex9-27
FAI
Ex9-28
FAI
Ex9-29
FAI
Ex9-30
Appendix
Ex9-31
Appendix
Pr9-1A
9-4
Pr9-2A
9-4
Pr9-3A
9-3, 9-4,
9-5
Pr9-4A
9-6
Pr9-5A
9-6
Pr9-6A
9-6
Pr9-1B
9-4
Pr9-2B
9-4
Pr9-3B
9-3, 9-4,
9-5
Pr9-4B
9-6
Pr9-5B
9-6
Pr9-6B
9-6
Description
dishonor of note
receivable
Entries for receipt and
dishonor of note
receivable
Difficulty
Time
AACSB
AICPA
Moderate
15 min
Analytic
FN-Measurement
Receivable on the
balance sheet
Accounts receivable
turnover and days'
sales in receivable
Accounts receivable
turnover and days'
sales in receivable
Accounts receivable
turnover and days'
sales in receivable
Accounts receivable
turnover
Discounting notes
receivable
Entries for discounting
of note receivable and
dishonored notes
Entries related to
Aging of receivables;
estimating allowance
Compare two
methods of
accounting for
uncollectible
receivables
Details of notes
receivable and related
entries
Notes receivable
entries
Sales and notes
receivable
transactions
Entries related to
Aging of receivables;
estimating allowance
Compare two
methods of
accounting for
uncollectible
receivables
Details of notes
receivable and related
entries
Notes receivable
entries
Sales and notes
receivable
transactions
Easy
5 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Moderate
15 min
Analytic
FN-Measurement
Difficult
1 hr
Analytic
FN-Measurement
Difficult
1 hr
Analytic
FN-Measurement
Difficult
1 hr
Analytic
FN-Measurement
Moderate
30 min
Analytic
FN-Measurement
Moderate
1 hr
Analytic
FN-Measurement
Moderate
1 hr
Analytic
FN-Measurement
KA
Difficult
1 hr
Analytic
FN-Measurement
KA
Difficult
1 hr
Analytic
FN-Measurement
Difficult
1 hr
Analytic
FN-Measurement
Moderate
30 min
Analytic
FN-Measurement
Moderate
1 hr
Analytic
FN-Measurement
Moderate
1 hr
Analytic
FN-Measurement
35
SS
GL
KA
Exl
Exl
KA
Number
SA9-1
Objective
9-6
SA9-2
9-4
SA9-3
FAI
SA9-4
FAI
SA9-5
FAI
SA9-6
FAI
Description
Ethics and
professional conduct
in business
Estimate uncollectible
accounts
Accounts receivable
turnover and days'
sales in receivables
Difficulty
Easy
Time
5 min
AACSB
Ethics
AICPA
BB-Industry
Moderate
30 min
Analytic
FN-Measurement
Difficult
30 min
Reflective
Thinking
BB-Critical
Thinking
Accounts receivable
turnover and days'
Accounts receivable
turnover and days'
Accounts receivable
turnover
Difficult
1 hr
Reflective
Thinking
BB-Critical
Thinking
Moderate
30 min
Reflective
Thinking
BB-Critical
Thinking
Difficult
1 hr
Reflective
Thinking
BB-Critical
Thinking
36
SS
GL
EYE OPENERS
1. Receivables are normally classified as (1)
accounts receivable, (2) notes receivable, or
(3) other receivables.
2. Transactions in which merchandise is sold
or services are provided on credit generate
accounts receivable.
3. a. Current Assets
b. Investments
4. Examples of other receivables include
interest receivable, taxes receivable, and
receivables from officers or employees.
5. Wilsons should use the direct write-off
method because it is a small business that
has a relatively small number and volume of
accounts receivable.
6. The allowance method
7. Contra asset, credit balance
8. The accounts receivable and allowance for
doubtful accounts may be reported at a net
amount of $741,456 ($783,150 $41,694) in
the Current Assets section of the balance
sheet. In this case, the amount of the
allowance for doubtful accounts should be
shown separately in a note to the financial
statements or in parentheses on the balance
sheet. Alternatively, the accounts receivable
may be shown at the gross amount of
$783,150 less the amount of the allowance
for doubtful accounts of $41,694, thus
yielding net accounts receivable of
$741,456.
9. (1) The percentage rate used is excessive
in relationship to the volume of accounts
written off as uncollectible; hence, the

balance in the allowance is excessive.
(2) A substantial volume of old uncollectible
accounts is still being carried in the
accounts receivable account.
10. An estimate based on analysis of
receivables provides the most accurate
estimate of the current net realizable value.
11. The advantages of a claim evidenced by a
note are that (1) the debt is acknowledged,
(2) the payment terms are specified, (3) it is
a stronger claim in the event of court action,
and (4) it is usually more readily transferable
to a creditor in settlement of a debt or to a
bank for cash.
12. a. Bauer Company
b. Notes Receivable
13. The interest will amount to $6,000 only if the
note is payable one year from the date it
was created. The usual practice is to state
the interest rate in terms of an annual rate,
rather than in terms of the period covered by
the note.
14. Debit Accounts Receivable
Credit Notes Receivable
Credit Interest Revenue
15. Cash.................................6,246.50
Accounts Receivable...
6,200.00
Interest Revenue.........
46.50
($6,200 30/360 9% = $46.50)
16. Current Assets
37
PRACTICE EXERCISES
PE 91A
Feb.
June
12 Cash......................................................................
Bad Debt Expense...............................................
Accounts ReceivableManning Wingard. .
750
2,000
30 Accounts ReceivableManning Wingard........

Bad Debt Expense.........................................
2,000
30 Cash......................................................................
2,000
2,750
2,000
2,000
PE 91B
Aug.
Nov.
7 Cash......................................................................
Bad Debt Expense...............................................
Accounts ReceivableRoosevelt McLair...
175
400
23 Accounts ReceivableRoosevelt McLair........

Bad Debt Expense.........................................
400
23 Cash......................................................................
400
575
400
400
PE 92A
Feb.
June
12 Cash......................................................................
Allowance for Doubtful Accounts.....................
750
2,000
30 Accounts ReceivableManning Wingard........

Allowance for Doubtful Accounts................
2,000
30 Cash......................................................................
2,000
2,750
2,000
2,000
PE 92B
Aug.
Nov.
7 Cash......................................................................
175
400
23 Accounts ReceivableRoosevelt McLair........

400
23 Cash......................................................................
400
575
400
400
PE 93A
1.
$7,000 ($2,800,000 0.0025)
2.
Accounts Receivable......................................................
Allowance for Doubtful Accounts ($4,000 + $7,000)....
Bad Debt Expense...........................................................
3.
Net realizable value ($500,000 $11,000)......................
Adjusted Balance
$500,000
11,000
7,000
$489,000
PE 93B
1.
$31,000 ($6,200,000 0.005)
2.
Allowance for Doubtful Accounts ($31,000 $5,000)
Bad Debt Expense...........................................................
3.
Net realizable value ($1,200,000 $26,000)..................
Adjusted Balance
$1,200,000
26,000
31,000
$1,174,000
PE 94A
1.
$12,000 ($16,000 $4,000)
2.
Allowance for Doubtful Accounts..................................
Bad Debt Expense...........................................................
3.
Net realizable value ($500,000 $16,000).....................
Adjusted Balance
$500,000
16,000
12,000
$484,000
PE 94B
1.
$39,500 ($34,500 + $5,000)
2.
Allowance for Doubtful Accounts..................................
Bad Debt Expense...........................................................
3.
Net realizable value ($1,200,000 $34,500)..................
Adjusted Balance
$1,200,000
34,500
39,500
$1,165,500
PE 95A
1.
The due date for the note is November 8, determined as follows:

August...............................................................
21 days (31 10)
September.........................................................
30 days
October..............................................................
31 days
November..........................................................
8 days
Total...............................................................
90 days
2.
$25,500 [$25,000 + ($25,000 8% 90/360)]
3.
Nov. 8 Cash...................................................................
Note Receivable..........................................
Interest Revenue.........................................
25,500
25,000
500
PE 95B
1.
The due date for the note is June 1, determined as follows:

April....................................................................
28 days (30 2)
May.....................................................................
31 days
June...................................................................
1 days
Total...............................................................
60 days
2.
$121,400 [$120,000 + ($120,000 7% 60/360)]
3.
June 1 Cash...................................................................
Note Receivable..........................................
121,400
120,000
1,400
EXERCISES
Ex. 91
Accounts receivable from the U.S. government are significantly different from
receivables from commercial aircraft carriers such as Delta and United. Thus,
Boeing should report each type of receivable separately. In the December 31,
2005, filing with the Securities and Exchange Commission, Boeing reports the
receivables together on the balance sheet, but discloses each receivable
separately in a note to the financial statements.
Ex. 92
a.
Hotel accounts and notes receivable: $1,699/$31,724 = 5.4%
b. Casino accounts receivable: $12,300/$44,139 = 27.9%

c.
Casino operations experience greater bad debt risk than do hotel operations,
since it is difficult to control the creditworthiness of customers entering the
casino. In addition, individuals who may have adequate creditworthiness
could overextend themselves and lose more than they can afford if they get
caught up in the excitement of gambling.
Ex. 93
Feb.
July
Oct.
10 Accounts ReceivableDr. Pete Baker..............

Sales................................................................
21,400
10 Cost of Merchandise Sold..................................

Merchandise Inventory..................................
12,600
9 Cash......................................................................
Bad Debt Expense...............................................
Accounts ReceivableDr. Pete Baker........
13,000
8,400
27 Accounts ReceivableDr. Pete Baker..............

Bad Debt Expense.........................................
8,400
27 Cash......................................................................
Accounts ReceivableDr. Pete Baker........
8,400
21,400
12,600
21,400
8,400
8,400
Ex. 94
June
Oct.
Dec.
2 Accounts ReceivableLynn Berry...................

Sales................................................................
16,000

9,400
15 Cash......................................................................
Accounts ReceivableLynn Berry..............
4,000
12,000
30 Accounts ReceivableLynn Berry...................

12,000
30 Cash......................................................................
Accounts ReceivableLynn Berry..............
12,000
16,000
9,400
16,000
12,000
12,000
Ex. 95
a.
Bad Debt Expense...........................................................

Accounts ReceivableJadelis Resources.............
12,500
b. Allowance for Doubtful Accounts..................................

Accounts ReceivableJadelis Resources.............
12,500
12,500
12,500
Ex. 96
a. $13,750 ($5,500,000 0.0025)
b. $12,900 ($17,500 $4,600)
c. $27,500 ($5,500,000 0.005)

d. $32,750 ($24,650 + $8,100)
Ex. 97
Account
Bens Pickup Shop
Bumper Auto
Downtown Repair
Jakes Auto Repair
Like New
Sallys
Uptown Auto
Yellowstone Repair & Tow
Due Date
Number of Days Past Due
June 9
July 10
March 18
May 19
June 18
April 12
May 8
April 15
52 (21 + 31)
21
135 (13 + 30 + 31 + 30 + 31)
73 (12 + 30 + 31)
43 (12 + 31)
110 (18 + 31 + 30 + 31)
84 (23 + 30 + 31)
107 (15 + 31 + 30 + 31)
Ex. 98
a.
Customer
Tamika Industries
Ruppert Company
Welborne Inc.
Kristi Company
Simrill Company
Due Date
August 24
September 3
October 17
November 5
December 3

98 days (7 + 30 + 31 + 30)
88 days (27 + 31 + 30)
44 days (14 + 30)
25 days
Not past due
b.
A
Aging-of-Receivables Schedule
November 30
Days Past Due
Customer
1 Aaron Brothers Inc.
2 Abell Company
Not Past
Balance
Due
2,000
2,000
1,500
21 Zollo Company
22 Subtotals
23 Tamika Industries
24 Ruppert Company
25 Welborne Inc.
26 Kristi Company
27 Simrill Company
28 Totals
130
Over
90
6190
1
2
1,500
5,000
772,500
25,000
8,500
35,000
6,500
12,000
859,500
3160
5,000
440,000 180,000
78,500
21
42,300
8,500
35,000
6,500
12,000
452,000 186,500 113,500
50,800
31,700 22
25,000 23
24
25
26
27
56,700 28
Ex. 99
Days Past Due
Total receivables
Percentage
uncollectible
Allowance for
Doubtful Accounts
Balance
Not Past
Due
130
3160
6190
Over
90
859,500
452,000
186,500
113,500
50,800
56,700
3%
5%
15%
25%
40%
13,560
9,325
17,025
12,700
22,680
75,290
Ex. 910
Nov.
30 Bad Debt Expense...............................................

Uncollectible accounts estimate.
($75,290 $6,150)
69,140
69,140
Ex. 911
Age Interval
Not past due................................................
130 days past due.....................................
3160 days past due...................................
6190 days past due...................................
91180 days past due.................................
Over 180 days past due..............................
Total.........................................................
Estimated Uncollectible Accounts

Balance
Percent
Amount
$400,000
80,000
18,000
12,500
6,000
2,500
$519,000
1%
2
5
10
70
90
$ 4,000
1,600
900
1,250
4,200
2,250
$14,200
Ex. 912
2008
Dec. 31
Bad Debt Expense...............................................

($14,200 + $3,500)
17,700
17,700
Ex. 913
a.
Jan.
Mar.
July
Oct.
31 Bad Debt Expense.................................................

Accounts ReceivableB. Roberts.................
2,400
26 Cash........................................................................
Bad Debt Expense.................................................
Accounts ReceivableCarol Castellino........
1,500
2,000
7 Accounts ReceivableB. Roberts.......................

Bad Debt Expense............................................
2,400
7 Cash........................................................................
2,400
12 Bad Debt Expense.................................................

Accounts ReceivableJulie Lindley..............
Accounts ReceivableMark Black................
Accounts ReceivableJennifer Kerlin..........
Accounts ReceivableBeth Chalhoub..........
Accounts ReceivableAllison Fain...............
4,675
2,400
3,500
2,400
2,400
1,350
950
525
1,125
725
Dec. 31 No entry
b. Jan.
Mar.
July
Oct.
31 Allowance for Doubtful Accounts........................

2,400
26 Cash........................................................................
Allowance for Doubtful Accounts........................
Accounts ReceivableCarol Castellino........
1,500
2,000
7 Accounts ReceivableB. Roberts.......................

Allowance for Doubtful Accounts...................
2,400
7 Cash........................................................................
2,400

Accounts ReceivableJulie Lindley..............
Accounts ReceivableMark Black................
Accounts ReceivableJennifer Kerlin..........
Accounts ReceivableBeth Chalhoub..........
Accounts ReceivableAllison Fain...............
4,675
2,400
3,500
2,400
2,400
Dec. 31 Bad Debt Expense................................................. 15,000

($750,000 2% = $15,000)
1,350
950
525
1,125
725
15,000
Ex. 913
c.
Concluded
Bad debt expense under:

Allowance method...........................................................................
Direct write-off method ($2,400 + $2,000 $2,400 + $4,675).......
Difference ($15,000 $6,675)..........................................................
15,000
$ 6,675
$ 8,325
Shaws income would be $8,325 higher under the direct write-off method than
under the allowance method.
Ex. 914
a.
Feb.
2 Bad Debt Expense.........................................

Accounts ReceivableL. Armstrong.....
7,250
10 Cash................................................................
Bad Debt Expense.........................................
Accounts ReceivableJill Knapp..........
4,150
4,350
Aug. 12 Accounts ReceivableL. Armstrong..........

Bad Debts Expense..................................
7,250
12 Cash................................................................
7,250
May
Sept. 27 Bad Debt Expense.........................................

Accounts ReceivableKim Whalen.......
Accounts ReceivableBrad Johnson...
Accounts ReceivableAngelina Quan
Accounts ReceivableTammy Newsome
Accounts ReceivableDonna Short......
Dec. 31 No entry
7,250
8,500
7,250
7,250
12,525
4,400
2,210
1,375
2,850
1,690
Ex. 914
b. Feb.
Continued
2 Allowance for Doubtful Accounts................
7,250
10 Cash................................................................
Accounts ReceivableJill Knapp..........
4,150
4,350
Aug. 12 Accounts ReceivableL. Armstrong..........

Allowance for Doubtful Accounts..........
7,250
12 Cash................................................................
7,250
May
7,250
8,500
7,250
7,250
Sept. 27 Allowance for Doubtful Accounts................

Accounts ReceivableKim Whalen.......
Accounts ReceivableBrad Johnson...
Accounts ReceivableAngelina Quan
Accounts ReceivableTammy Newsome
Accounts ReceivableDonna Short......
12,525
Dec. 31 Bad Debt Expense.........................................

Allowance for Doubtful Accounts..........
($21,675 $1,125)
20,550
4,400
2,210
1,375
2,850
1,690
20,550
Computations
Aging Class
(Number of Days
Past Due)
030 days
3160 days
6190 days
91120 days
More than 120 days
Total receivables
Receivables
Balance on
December 31
$160,000
40,000
18,000
11,000
6,500
$235,500
Estimated Doubtful Accounts

Percent
3%
10
20
40
75
Estimated balance of allowance account from aging schedule......

Unadjusted credit balance of allowance account..............................
Adjustment.............................................................................................
*$18,000 $7,250 $4,350 + $7,250 $12,525 = $1,125
Amount
$ 4,800
4,000
3,600
4,400
4,875
$21,675
$21,675
1,125*
$20,550
Ex. 914
c.
Concluded
Bad debt expense under:

Allowance method...........................................................................
Direct write-off method ($7,250 + $4,350 $7,250 + $12,525).....
Difference ($20,550 $16,875)........................................................
$20,550
16,875
$ 3,675
Kempers income would be $3,675 higher under the direct method than under
the allowance method.
Ex. 915
$122,000 [$125,000 + $51,000 ($1,800,000 3%)]
Ex. 916
a.
$139,000 [$143,500 + $61,500 ($2,200,000 3%)]
b. $7,500 [($54,000 $51,000) + ($66,000 $61,500)]
Ex. 917
a.
Bad Debt Expense...........................................................

Accounts ReceivableSkip Simon.........................
Accounts ReceivableClarence Watson................
Accounts ReceivableBill Jacks............................
Accounts ReceivableMatt Putnam.......................
45,000

Accounts ReceivableSkip Simon.........................
Accounts ReceivableClarence Watson................
Accounts ReceivableBill Jacks............................
Accounts ReceivableMatt Putnam.......................
45,000
Bad Debt Expense...........................................................

Allowance for Doubtful Accounts............................
($2,000,000 3% = $60,000)
60,000
c.
20,000
13,500
7,300
4,200
20,000
13,500
7,300
4,200
60,000
Net income would have been $15,000 higher in 2008 under the direct write-off
method, because bad debt expense would have been $15,000 higher under
the allowance method ($60,000 expense under the allowance method vs.
$45,000 expense under the direct write-off method).
Ex. 918
a.
Bad Debt Expense...........................................................

Accounts ReceivableBoss Hogg..........................
Accounts ReceivableDaisy Duke..........................
Accounts ReceivableBo Duke..............................
Accounts ReceivableLuke Duke...........................
19,000

Accounts ReceivableBoss Hogg..........................
Accounts ReceivableDaisy Duke..........................
Accounts ReceivableBo Duke..............................
Accounts ReceivableLuke Duke...........................
19,000
Bad Debt Expense...........................................................

($26,850 + $1,000)
27,850
5,000
3,500
6,300
4,200
5,000
3,500
6,300
4,200
27,850
Computations
Aging Class
(Number of Days
Past Due)
030 days
3160 days
6190 days
91120 days
More than 120 days
Total receivables
Receivables
Balance on
December 31
$380,000
70,000
30,000
25,000
10,000
$515,000
Estimated Doubtful Accounts

Percent
2%
5
15
25
50
Unadjusted debit balance of Allowance for Doubtful

Accounts ($18,000 $19,000)....................................
Estimated balance of Allowance for Doubtful
Accounts from aging schedule..................................
Adjustment.......................................................................
Amount
$ 7,600
3,500
4,500
6,250
5,000
$26,850
$ 1,000
26,850
$27,850
Ex. 919
Due Date
a. May 5
b. July 19
c. Aug. 31
d. Dec. 28
e. Nov. 30
Interest
$225.00
133.33
150.00
600.00
210.00
[$15,000 0.09 (60/360)]

[$8,000 0.10 (60/360)]
[$5,000 0.12 (90/360)]
[$18,000 0.10 (120/360)]
[$10,500 0.12 (60/360)]
Ex. 920
a.
August 18 (11 + 30 + 31 + 18)
b. $30,675 [($30,000 0.09% 90/360) + $30,000]

c.
(1) Notes Receivable......................................................

Accounts Rec.Holsten Interior Decorators...
30,000
(2) Cash...........................................................................
Notes Receivable................................................
Interest Revenue.................................................
30,675
30,000
30,000
675
Ex. 921
1.
Sale on account.
2.
Cost of merchandise sold for the sale on account.
3.
A sale return or allowance.
4.
Cost of merchandise returned.
5.
Note received from customer on account.
6.
Note dishonored and charged maturity value of note to customers account

receivable.
7.
Payment received from customer for dishonored note plus interest earned
after due date.
Ex. 922
2007
Dec.
2008
Mar.
13 Notes Receivable................................................
Accounts ReceivableLady Anns Co........
60,000
31 Interest Receivable.............................................
Interest Revenue............................................
Accrued interest
($60,000 0.09 18/360 = $270).
270
31 Interest Revenue.................................................
Income Summary...........................................
270
12 Cash......................................................................
Notes Receivable...........................................
Interest Receivable........................................
61,350
60,000
270
270
60,000
270
1,080*
*$60,000 0.09 72/360
Ex. 923
May
Aug.
3 Notes Receivable..............................................
Accounts ReceivableXpedx Company
150,000
1 Accounts ReceivableXpedx Company.......

Notes Receivable........................................
153,000
31 Cash...................................................................
Accounts ReceivableXpedx Company
154,275
*$153,000 0.10 30/360 = $1,275
150,000
150,000
3,000
153,000
1,275*
Ex. 924
Mar.
Apr.
May
July
Aug.
Accounts ReceivablePynn Co. ................
45,000
Accounts ReceivableAbode Co. ..............
24,000
30 Accounts ReceivablePynn Co. ......................

*($45,000 6% 60/360)
45,450
17 Accounts ReceivableAbode Co. ...................

*($24,000 9% 60/360)
24,360
29 Cash......................................................................
Accounts ReceivablePynn Co. ................
*45,450 0.08 90/360 = $909
46,359
23 Allowance for Doubtful Accounts.....................

Accounts ReceivableAbode Co. ..............
24,360
45,000
24,000
45,000
450*
24,000
360*
45,450
909*
24,360
Ex. 925
1.
The interest receivable should be reported separately as a current asset. It

should not be deducted from notes receivable.
2.
The allowance for doubtful accounts should be deducted from accounts

receivable.
A corrected partial balance sheet would be as follows:
MISHKIE COMPANY
Balance Sheet
December 31, 2008
Assets
Current assets:
Cash..............................................................................
Notes receivable..........................................................
Accounts receivable...................................................
Less allowance for doubtful accounts................
Interest receivable.......................................................
$127,500
400,000
$529,200
42,000
487,200
24,000
Ex. 926
a. and b.
Net sales
Accounts receivable
Average accounts receivable
Accounts receivable turnover
Average daily sales
Days sales in receivables
c.
2005
$3,305,415
$530,503
$496,896
6.7
$9,055.9
54.9
2004
$2,649,654
$463,289
[($530,503 + $463,289)/2] $427,423.5
($3,305,415/$496,896)
6.2
($3,305,415/365)
7,259.3
($496,896/$9,055.9)
58.9
[($463,289 + $391,558)/2]
($2,649,654/$427,423.5)
($2,649,654/365)
($427,423.5/$7,259.3)
The accounts receivable turnover indicates an increase in the efficiency of collecting accounts receivable by
increasing from 6.2 to 6.7, a favorable trend. The days sales in receivables also indicates an increase in the
efficiency of collecting accounts receivable by decreasing from 58.9 to 54.9, also indicating a favorable trend.
Before reaching a definitive conclusion, the ratios should be compared with industry averages and similar
firms.
Ex. 927
a.
2005:
2004:
b. 2005:
2004:
c.
8.2 {$8,912,297/[($1,093,155 + $1,092,394)/2]}

7.5 {$8,414,538/[($1,093,155 + $1,165,460)/2]}
44.8 days [($1,093,155 + $1,092,394)/2] = $1,092,774.5; [$1,092,774.5/($8,912,297/365)] = 44.8 days
49.0 days [($1,093,155 + $1,165,460)/2] = $1,129,308; [$1,129,308/($8,414,538/365)] = 49.0 days
The accounts receivable turnover indicates an increase in the efficiency of collecting accounts receivable by
increasing from 7.5 to 8.2, a favorable trend. The number of days sales in receivables decreased from 49.0 to
44.8 days, also indicating a favorable trend in collections of receivables. Before reaching a more definitive
conclusion, both ratios should be compared with those of past years, industry averages, and similar firms.
Ex. 928
a. and b.
For the Period Ending
Net sales
Accounts receivable
Average daily sales
c.
Jan. 31,
2006
$9,699
$182
$155
62.6
$26.6
5.8
[($182 + $128)/2]
($9,699/$155)
($9,699/365)
($155/$26.6)
Jan. 29,
2005
$9,408
$128
$119
79.1
$25.8
4.6
[($128 + $110)/2]
($9,408/$119)
($9,408/365)
($119/$25.8)
The accounts receivable turnover indicates a decrease in the efficiency of collecting accounts receivable by
decreasing from 79.1 to 62.6, an unfavorable trend. The days sales in receivables indicates a decrease in the
efficiency of collecting accounts receivable by increasing from 4.6 to 5.8, also indicating an unfavorable
trend. Before reaching a definitive conclusion, the ratios should be compared with industry averages and
similar firms.
Ex. 929
a.
The average accounts receivable turnover ratios are as follows:

The Limited, Inc.: 70.9 [(79.1 + 62.6)/2]
H.J. Heinz Company: 7.9 [(8.2 + 7.5)/2]
Note: For computations of the individual ratios, see Ex. 927 and Ex. 928.
b. The Limited has the higher average accounts receivable turnover ratio.
c.
The Limited operates a specialty retail chain of stores that sell directly to
individual consumers. Many of these consumers (retail customers) pay with
MasterCards or VISAs that are recorded as cash sales. In contrast, H.J. Heinz
manufactures processed foods that are sold to food wholesalers, grocery
store chains, and other food distributors who eventually sell Heinz products
to individual consumers. Accordingly, because of the extended distribution
chain we would expect Heinzs business customers to take a longer period to
pay their receivables. Accordingly, we would expect Heinzs average accounts
receivable turnover ratio to be lower than The Limited as shown in (a).
Appendix Ex. 930

a.
$82,400 [$80,000 + ($80,000 9% 120/360)]
b. 60 days (8 + 31 + 21)
c.
$1,648 ($82,400 12% 60/360)
d. $80,752 ($82,400 $1,648)

e. Cash..............................................................................
Interest Revenue....................................................
Notes Receivable...................................................
80,752
752
80,000
Appendix Ex. 931

Aug. 1
Sept. 1
Notes Receivable................................................
Accounts ReceivableElk Horn Co. ..........
100,000
Cash......................................................................
100,300*
*Computations
Maturity value
$100,000 + ($100,000 8% 90/360)............
Discount ($102,000 10% 60/360)................
Proceeds.............................................................
Oct. 30
Nov. 29
100,000
100,000
300
$102,000
1,700
$100,300
Accounts ReceivableElk Horn.......................

Cash................................................................
102,500
Cash......................................................................
Accounts ReceivableElk Horn..................
103,525*
*$102,500 + ($102,500 0.12 30/360) = $103,525
102,500
102,500
1,025
PROBLEMS
Prob. 91A
2.
20
July
5 Cash........................................................................
Accounts ReceivableDockins Co. ..............
14,700
6,300
Sept. 21 Accounts ReceivableBart Tiffany.....................

4,875
21 Cash........................................................................
Accounts ReceivableBart Tiffany...............
4,875

Accounts ReceivableSki Time Co. .............
6,275
6 Accounts ReceivableKirby Co. ........................

4,750
6 Cash........................................................................
Accounts ReceivableKirby Co. ..................
4,750
Dec. 31 Allowance for Doubtful Accounts........................

Accounts ReceivableMaxie Co. ..................
Accounts ReceivableKommers Co. ...........
Accounts ReceivableHelena Distributors. .
Accounts ReceivableEd Ballantyne............
13,000
31 Bad Debt Expense.................................................

($16,750 + $3,400)
20,150
Oct.
Nov.
21,000
4,875
4,875
6,275
4,750
4,750
2,150
3,600
5,500
1,750
20,150
Prob. 91A
Concluded
1. and 2.
Allowance for Doubtful Accounts
July
5
6,300 Jan.
1 Balance
Oct. 19
6,275 Sept. 21
Dec. 31
13,000 Nov. 6
Dec. 31 Unadjusted Balance 3,400
Dec. 31 Adjusting Entry
Dec. 31 Adj. Balance
Bad Debt Expense

20,150
3.
$798,490 ($815,240 $16,750)
4.
a. $17,815 ($7,126,000 0.0025)

b. $14,415 ($17,815 $3,400)
c. $800,825 ($815,240 $14,415)
12,550
4,875
4,750
20,150
16,750
Prob. 92A
1.
Customer
Baitfish Sports & Flies
Kiwi Flies
Adams Co.
Bailey Sports
Prince Sports
Cahill Co.
Wintson Company
Goofus Bug Sports
Due Date
June 21, 2007
Sept. 9, 2007
Sept. 30, 2007
Oct. 17, 2007
Nov. 18, 2007
Nov. 28, 2007
Dec. 1, 2007
Jan. 6, 2008

193 days (9 + 31 + 31 + 30 + 31 + 30 + 31)
113 days (21 + 31 + 30 + 31)
92 days (31 + 30 + 31)
75 days (14 + 30 + 31)
43 days (12 + 31)
33 days (2 + 31)
30 days
Not past due
Prob. 92A
Concluded
2. and 3.
A
91120
Over
120
December 31, 2007
Days Past Due
Customer
1 Alexandra Fishery
2 Cutthroat Sports
30 Yellowstone Sports
31 Subtotals
32 Baitfish Sports & Flies
33 Kiwi Flies
34 Adams Co.
35 Bailey Sports
36 Prince Sports
37 Cahill Co.
38 Wintson Company
39 Goofus Bug Sports
40 Totals
41 Percent uncollectible
Estimate of doubtful
42 accounts
4.
Not Past
Balance
Due
15,000
15,000
5,500
2,900
880,000
1,750
650
1,500
600
950
2,000
2,250
6,200
895,900
76,171
130
3160
6190
1
2
5,500
6,200
454,800
2%
249,500
5%
101,700
10%
33,900
25%
32,100
45%
30
22,150 31
1,750 32
33
34
35
36
37
38
39
23,900 40
90% 41
9,096
12,475
10,170
8,475
14,445
21,510 42
448,600
2,900
247,250
98,750
33,300
29,950
650
1,500
600
950
2,000
2,250
Bad Debt Expense...........................................................

79,370
Uncollectible accounts estimate. ($76,171 + $3,199)
79,370
Prob. 93A
1.
2.
Bad Debt Expense
Year
Expense
Actually
Reported
Expense
Based on
Estimate
Increase
(Decrease)
in Amount
of Expense
Balance of
Allowance
Account,
End of Year
1st
2nd
3rd
4th
$ 3,500
4,130
7,980
10,920
$ 6,825
7,980
9,975
18,900
$3,325
3,850
1,995
7,980
$ 3,325
7,175
9,170
17,150
Yes. The actual write-offs of accounts originating in the first two years are
reasonably close to the expense that would have been charged to those years
on the basis of 3/4% of sales. The total write-off of receivables originating in
the first year amounted to $7,140 ($3,500 + $2,660 + $980), as compared with
bad debt expense, based on the percentage of sales, of $6,825. For the
second year, the comparable amounts were $8,750 ($1,470 + $5,600 + $1,680)
and $7,980.
Prob. 94A
1.
2.
3.
Note
(a)
Due Date
1.
2.
3.
4.
5.
6.
May 2
July 15
Dec. 18
Dec. 30
Jan. 22
Jan. 26
(b)
Interest Due at Maturity
$360 ($27,000 60/360 8%)
190 ($19,000 30/360 12%)
216 ($10,800 120/360 6%)
540 ($36,000 60/360 9%)
150 ($15,000 60/360 6%)
270 ($27,000 30/360 12%)
Dec. 18 Accounts Receivable.....................................

Notes Receivable......................................
Interest Revenue......................................
11,016
Dec. 31 Interest Receivable........................................

Accrued interest.
131
10,800
216
131
$15,000 0.06 38/360 = $ 95

$27,000 0.12 4/360 =
36
Total
$131
4.
Jan.
22 Cash................................................................
Interest Receivable...................................
15,150
15,000
95
55*
*$15,000 0.06 22/360

26 Cash................................................................
**$27,000 0.12 26/360
27,270
27,000
36
234**
Prob. 95A
June
July
Aug.
Sept.
Nov.
Dec.
Accounts Receivable.....................................
20,000
36,000
11 Cash......................................................................
20,300
15,000
3 Cash......................................................................
15,225
24,000
10 Cash......................................................................
37,200
15,000
5 Cash......................................................................
24,140
30 Cash......................................................................
15,125
20,000
36,000
20,000
300
15,000
15,000
225
24,000
36,000
1,200
15,000
24,000
140
15,000
125
Prob. 96A
Jan.
Feb.
Mar.
Apr.
May
June
July
Cash................................................................
6,000
6 Accounts ReceivableKent and Son...............

Sales................................................................
16,000

9,000
13 Accounts ReceivableCentennial Co. ............

Sales................................................................
30,000

15,750
Accounts ReceivableKent and Son.........
16,000
Accounts ReceivableCentennial Co. ......
30,000
Cash......................................................................
*($6,000 8% 90/360)
6,000
120
4 Cash......................................................................
*($16,000 6% 60/360)
16,160
13 Accounts ReceivableCentennial Co. ............

*($30,000 12% 60/360)
30,600
12 Cash......................................................................
Accounts ReceivableCentennial Co. ......
*($30,600 12% 30/360 = $306)
30,906
14 Cash......................................................................
*($6,000 10% 90/360)
6,150
6,000
16,000
9,000
30,000
15,750
16,000
30,000
6,000
120*
16,000
160*
30,000
600*
30,600
306*
6,000
150*
Prob. 96A
Aug.
Concluded
10 Accounts ReceivableConover Co. .....................

Sales.....................................................................
10,000
10 Cost of Merchandise Sold.......................................

Merchandise Inventory.......................................
6,500
20 Cash...........................................................................
Sales Discounts........................................................
Accounts ReceivableConover Co. ................
9,900
100
10,000
6,500
10,000
Prob. 91B
2.
20
Mar. 21 Accounts ReceivableTony Marshal..................
4,050
4,050
21 Cash........................................................................
Accounts ReceivableTony Marshal............
4,050

Accounts ReceivableCrossroads Co. ........
5,500
Aug. 17 Cash........................................................................
Accounts ReceivableRaven Co. .................
2,500
7,500
Oct.
10 Accounts ReceivableElden Hickman...............

2,400
10 Cash........................................................................
Accounts ReceivableElden Hickman..........
2,400
Dec. 31 Allowance for Doubtful Accounts........................

Accounts ReceivableBuffalo Co. ...............
Accounts ReceivableCombs Co. ...............
Accounts ReceivableNash Furniture..........
Accounts ReceivableTony DePuy...............
25,145
31 Bad Debt Expense.................................................

48,195
Apr.
($58,000 $9,805)
4,050
5,500
10,000
2,400
2,400
13,275
4,000
6,150
1,720
48,195
Prob. 91B
Concluded
1. and 2.
Apr. 18
Aug. 17
Dec. 31
Allowance for Doubtful Accounts

5,500 Jan.
1 Balance
7,500 Mar. 21
25,145 Oct. 10
Dec. 31 Unadjusted Balance
Dec. 31 Adjusted Balance
Bad Debt Expense

48,195
3.
$842,750 ($900,750 $58,000)
4.
a. $51,900 ($10,380,000 0.005)

b. $61,705 ($51,900 + $9,805)
c. $839,045 ($900,750 $61,705)
41,500
4,050
2,400
9,805
48,195
58,000
Prob. 92B
1.
Customer
Uniquely Yours
Paradise Beauty Store
Morgans Hair Products
Hairys Hair Care
Superior Images
Oh The Hair
Mountain Coatings
Theatrical Images
Due Date
July 1, 2007
Sept. 29, 2007
Oct. 17, 2007
Oct. 31, 2007
Nov. 18, 2007
Nov. 30, 2007
Dec. 1, 2007
Jan. 3, 2008

183 days (30 + 31 + 30 + 31 + 30 + 31)
93 days (1 + 31 + 30 + 31)
75 days (14 + 30 + 31)
61 days (30 + 31)
43 days (12 + 31)
31 days
30 days
Not past due
Prob. 92B
Concluded
2. and 3.
A
91120
Over
120
December 31, 2007
Days Past Due
Customer
1 Daytime Beauty
2 Blount Wigs
30 Zabkas
31 Subtotals
32 Uniquely Yours
33 Paradise Beauty Store
34 Morgans Hair Products
35 Hairys Hair Care
36 Superior Images
37 Oh The Hair
38 Mountain Coatings
39 Theatrical Images
40 Totals
41 Percent uncollectible
Estimate of doubtful
42 accounts
4.
Balance
20,000
11,000
2,900
780,000
1,200
1,050
800
2,000
700
3,500
1,000
6,200
796,450
61,266
Not Past
Due
20,000
130
3160
6190
1
2
11,000
398,600
2,900
197,250
98,750
33,300
29,950
22,150
1,200
1,050
800
2,000
700
3,500
1,000
30
31
32
33
34
35
36
37
38
39
40
41
6,200
404,800
2%
198,250
4%
102,950
10%
36,100
15%
31,000
35%
23,350
80%
8,096
7,930
10,295
5,415
10,850
18,680 42
Bad Debt Expense...........................................................

($61,266 $9,550)
51,716
51,716
Prob. 93B
1.
2.
Bad Debt Expense
Year
Expense
Actually
Reported
Expense
Based on
Estimate
1st
2nd
3rd
4th
$ 600
1,500
6,500
8,850
$ 2,500
3,750
5,750
10,500
Increase
(Decrease)
in Amount
of Expense
Balance of
Allowance
Account,
End of Year
$1,900
2,250
(750)
1,650
$1,900
4,150
3,400
5,050
Yes. The actual write-offs of accounts originating in the first two years are
reasonably close to the expense that would have been charged to those years
on the basis of 1/2% of sales. The total write-off of receivables originating in
the first year amounted to $3,200 ($600 + $700 + $1,900), as compared with
bad debt expense, based on the percentage of sales, of $2,500. For the
second year, the comparable amounts were $4,300 ($800 + $1,500 + $2,000)
and $3,750.
Prob. 94B
1.
2.
3.
Note
(a)
Due Date
1.
2.
3.
4.
5.
6.
July 1
Sept. 7
Oct. 30
Dec. 3
Jan. 25
Feb. 14
Oct.
$135 ($12,000 45/360 9%)

200 ($15,000 60/360 8%)
315 ($18,000 90/360 7%)
300 ($20,000 90/360 6%)
720 ($54,000 60/360 8%)
780 ($36,000 60/360 13%)
30 Accounts Receivable.....................................
18,315
Dec. 31 Interest Receivable........................................

Accrued interest.
615
$54,000 0.08 35/360 =

$36,000 0.13 15/360 =
Total
4.
(b)
Interest Due at Maturity
Jan.
18,000
315
615
$420
195
$615
25 Cash................................................................
54,720
54,000
420
300*
*$54,000 0.08 25/360

Feb. 14 Cash................................................................
**$36,000 0.13 45/360
36,780
36,000
195
585**
Prob. 95B
Mar.
May
June
July
Aug.
18,000
10,000
5 Cash......................................................................
18,270
40,000
12,000
23 Cash......................................................................
10,200
30 Cash......................................................................
12,080
5,000
31 Cash......................................................................
5,050
14 Cash......................................................................
40,700
18,000
10,000
18,000
270
40,000
12,000
10,000
200
12,000
80
5,000
5,000
50
40,000
700
Prob. 96B
20
Jan.
Mar.
May
June
July
Sept.
12 Accounts ReceivableDewit Co. .....................

Sales................................................................
12,300.00

6,800.00
Accounts ReceivableDewit Co. ...............
12,300.00
11 Cash......................................................................
12,464.00
3 Accounts ReceivableKihls.............................
Sales................................................................
15,000.00

10,750.00
Cash................................................................
18,000.00
13 Cash......................................................................
Sales Discounts...................................................
Accounts ReceivableKihls.......................
14,700.00
300.00
Cash......................................................................
18,000.00
90.00
3 Cash......................................................................
18,270.00
17 Accounts ReceivableWood Co. ....................

Sales................................................................
9,000.00

6,250.00
12,300.00
6,800.00
12,300.00
12,300.00
164.00
15,000.00
10,750.00
18,000.00
15,000.00
18,000.00
90.00
18,000.00
270.00
9,000.00
6,250.00
Prob. 96B
Oct.
Dec.
Concluded
Accounts ReceivableWood Co. ...............
9,000.00
3 Accounts ReceivableWood Co. ....................

9,090.00
29 Cash......................................................................
Accounts ReceivableWood Co. ...............
($9,090 0.06 26/360 = $39.39).
9,129.39
9,000.00
9,000.00
90.00
9,090.00
39.39
SPECIAL ACTIVITIES
SA 91
By computing interest using a 365-day year for depository accounts (payables),
Neka is minimizing interest expense to the bank. By computing interest using a
360-day year for loans (receivables), Neka is maximizing interest revenue to the
bank. However, federal legislation (Truth in Lending Act) requires banks to
compute interest on a 365-day year. Hence, Neka is behaving in an
unprofessional manner.
SA 92
1.
Year
2005
2006
2007
2008
2.
a.
a.
Addition to Allowance
for Doubtful Accounts
$20,400
21,000
21,300
21,750
b.
Accounts Written
Off During Year
$11,880
13,680
14,460
11,610
($20,400 $8,520)
($8,520 + $21,000 $15,840)
($15,840 + $21,300 $22,680)
($22,680 + $21,750 $32,820)
The estimate of 1/4 of 1% of credit sales may be too large, since the
allowance for doubtful accounts has steadily increased each year. The
increasing balance of the allowance for doubtful accounts may also be
due to the failure to write off a large number of uncollectible accounts.
These possibilities could be evaluated by examining the accounts in the
subsidiary ledger for collectibility and comparing the result with the
balance in the allowance for doubtful accounts.
Note to Instructors: Since the amount of credit sales has been fairly uniform over
the years, the increase cannot be explained by an expanding volume of sales.
b. The balance of Allowance for Doubtful Accounts that should exist at
December 31, 2008, can only be determined after all attempts have been
made to collect the receivables on hand at December 31, 2008. However,
the account balances at December 31, 2008, could be analyzed, perhaps
using an aging schedule, to determine a reasonable amount of allowance
and to determine accounts that should be written off. Also, past write-offs
of uncollectible accounts could be analyzed in depth in order to develop a
reasonable percentage for future adjusting entries, based on past history.
Caution, however, must be exercised in using historical percentages.
Specifically, inquiries should be made to determine whether any
significant changes between prior years and the current year may have
occurred, which might reduce the accuracy of the historical data. For
example, a recent change in credit-granting policies or changes in the
general economy (entering a recessionary period, for example) could
reduce the usefulness of analyzing historical data.
Based on the preceding analyses, a recommendation to decrease the
annual rate charged as an expense may be in order (perhaps Litespeed
Co. is experiencing a lower rate of uncollectibles than is the industry
average), or perhaps a change to the estimate based on analysis of
receivables method may be appropriate.
SA 93
1. and 2.
2005
Net sales
Accounts receivable
Average daily sales
$27,433
$375
$359
76.4
$75.2
4.8
$24,548
$343
[($375 + $343)/2] $327.5
($27,433/$359)
75.0
($27,433/365)
$67.3
($359/$75.2)
4.9
2004
[($343 + $312)/2]
($24,548/$327.5)
($24,548/365)
($327.5/$67.3)
3.
The accounts receivable turnover indicates a slight increase in the efficiency

of collecting accounts receivable by increasing from 75.0 to 76.4, a favorable
trend. The days sales in receivables decreased from 4.9 days to 4.8, a
favorable trend. Thus, based upon (1) and (2), Best Buy has slightly improved
its efficiency in the collection of receivables.
4.
Based upon accounts receivable turnover ratios, Best Buy is more efficient in
collection of receivables than is Circuit City during 2005 and 2004. Comparing
2005 and 2004 ratios also reveals favorable trends for Best Buy in contrast to
unfavorable trends for Circuit City.
5.
We assumed that the percentage of credit sales to total sales remains

constant from one period to the next and is similar for both companies. For
example, if the percentage of credit sales to total sales is not similar or if the
percentage changes between periods, then the ratios would be distorted and,
thus, not comparable.
SA 94
1.
2005: 16.7 {$13,931/ [($895 + $774)/2]}

2004: 10.8 {$8,279/[($774 + $766)/2]}
2.
2005: 21.9 days [($895 + $774)/2] = $834.5; [$834.5/(13,931/365)] = 21.9 days

2004: 33.9 days [($774 + $766)/2] = $770; [$770/($8,279/365)] = 33.9 days
3.
The accounts receivable turnover indicates an increase in the efficiency of

collecting accounts receivable by increasing from 10.8 to 16.7, a favorable
trend. The days sales in receivables decreased from 33.9 days to 21.9, a
favorable trend. Before reaching a more definitive conclusion, the ratios
should be compared with industry averages and similar firms.
4.
The company with receivables is Ingram Micro, Inc., as described in Apples

10-K filing.
SA 95
1. and 2.
2005
Net sales
Accounts receivable
Average accounts
receivable
Accounts receivable
turnover
Average daily sales
Days sales in
receivables
$1,290,072
$36,033
2004
$1,382,202
$30,733
$33,383 [($36,033 + $30,733)/2]
$33,159 [($30,733 + $35,585)/2]
38.6 ($1,290,072/$33,383)
$3,534.4 ($1,290,072/365)
41.7 ($1,382,202/$33,159)
$3,786.9 ($1,382,202/365)
9.4 ($33,383/$3,534.4)
8.8 ($33,159/$3,786.9)
3.
The accounts receivable turnover indicates a decrease in the efficiency of

collecting accounts receivable by decreasing from 41.7 to 38.6, an
unfavorable trend. The days sales in receivables increased from 8.8 days to
9.4 days, an unfavorable trend. Before reaching a more definitive conclusion,
the ratios should be compared with industry averages and similar firms.
4.
EarthLinks accounts receivable turnover would normally be higher than that

of a typical manufacturing company such as Boeing or Kellogg Company.
This is because most of EarthLinks customers usually charge their monthly
bill to MasterCards or VISAs. In contrast, the customers of Boeing and
Kellogg are other businesses who pay their accounts receivable on a less
timely basis. For a recent year, the accounts receivable turnover ratio for H.J.
Heinz was 8.2 (see Exercise 927).
SA 96
1.
Note to Instructors: The turnover ratios will vary over time. As of April 2005,
the various turnover ratios (rounded to one decimal place) were as follows:
Alcoa Inc.
AutoZone, Inc.
Barnes & Noble, Inc.
Caterpillar
The Coca-Cola Company
Delta Air Lines
The Home Depot
IBM
Kroger
Procter & Gamble
Wal-Mart
Whirlpool Corporation
2.
7.99
100.6
65.1
6.2
10.1
20.9
59.8
3.2
76
13.6
153.0
6.6
Based upon (1), the companies can be categorized as follows:

Accounts Receivable Turnover Ratio
Below 15
Above 15
Alcoa Inc.
AutoZone, Inc.
Caterpillar
Barnes & Noble, Inc.
The Coca-Cola Company
Delta Air Lines
IBM
The Home Depot
Procter & Gamble
Kroger
Whirlpool Corporation
Wal-Mart
3.
The companies with accounts receivable turnover ratios above 15 are all
companies selling directly to individual consumers. In contrast, companies
with turnover ratios below 15 all sell to other businesses. Generally, we would
expect companies selling directly to consumers to have higher turnover
ratios since many customers will charge their purchases on credit cards. In
contrast, companies selling to other businesses normally allow a credit
period of at least 30 days or longer.

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CHAPTER 9

written off as uncollectible; hence, the

30 Accounts ReceivableManning Wingard........

23 Accounts ReceivableRoosevelt McLair........

30 Accounts ReceivableManning Wingard........

23 Accounts ReceivableRoosevelt McLair........

$7,000 ($2,800,000 0.0025)

Net realizable value ($500,000 $11,000)......................

$31,000 ($6,200,000 0.005)

Net realizable value ($1,200,000 $26,000)..................

$12,000 ($16,000 $4,000)

Net realizable value ($500,000 $16,000).....................

$39,500 ($34,500 + $5,000)

Net realizable value ($1,200,000 $34,500)..................

The due date for the note is November 8, determined as follows:

$25,500 [$25,000 + ($25,000 8% 90/360)]

The due date for the note is June 1, determined as follows:

$121,400 [$120,000 + ($120,000 7% 60/360)]

Hotel accounts and notes receivable: $1,699/$31,724 = 5.4%

b. Casino accounts receivable: $12,300/$44,139 = 27.9%

10 Accounts ReceivableDr. Pete Baker..............

10 Cost of Merchandise Sold..................................

27 Accounts ReceivableDr. Pete Baker..............

2 Accounts ReceivableLynn Berry...................

2 Cost of Merchandise Sold..................................

30 Accounts ReceivableLynn Berry...................

Bad Debt Expense...........................................................

b. Allowance for Doubtful Accounts..................................

c. $27,500 ($5,500,000 0.005)

Number of Days Past Due

Number of Days Past Due

30 Bad Debt Expense...............................................

Estimated Uncollectible Accounts

Bad Debt Expense...............................................

31 Bad Debt Expense.................................................

7 Accounts ReceivableB. Roberts.......................

12 Bad Debt Expense.................................................

31 Allowance for Doubtful Accounts........................

7 Accounts ReceivableB. Roberts.......................

12 Allowance for Doubtful Accounts........................

Dec. 31 Bad Debt Expense................................................. 15,000

Bad debt expense under:

2 Bad Debt Expense.........................................

Aug. 12 Accounts ReceivableL. Armstrong..........

Sept. 27 Bad Debt Expense.........................................

Aug. 12 Accounts ReceivableL. Armstrong..........

Sept. 27 Allowance for Doubtful Accounts................

Dec. 31 Bad Debt Expense.........................................

Estimated Doubtful Accounts

Estimated balance of allowance account from aging schedule......

Bad debt expense under:

$139,000 [$143,500 + $61,500 ($2,200,000 3%)]

b. $7,500 [($54,000 $51,000) + ($66,000 $61,500)]

Bad Debt Expense...........................................................

b. Allowance for Doubtful Accounts..................................

Bad Debt Expense...........................................................

Bad Debt Expense...........................................................

b. Allowance for Doubtful Accounts..................................

Bad Debt Expense...........................................................

Estimated Doubtful Accounts

Unadjusted debit balance of Allowance for Doubtful

[$15,000 0.09 (60/360)]

August 18 (11 + 30 + 31 + 18)

b. $30,675 [($30,000 0.09% 90/360) + $30,000]