financial accounting tools for business decision making 6e solution manual chapter 8

Kimmel, Weygandt, Kieso, Trenholm, Irvine

Financial Accounting, Sixth Canadian Edition

CHAPTER 8
Reporting and Analyzing Receivables
ASSIGNMENT CLASSIFICATION TABLE

Study Objectives

Questions

Brief
Exercises Exercises

A
Problems

B
Problems

BYP

1.

Identify the types
of receivables
and record
accounts
receivable
transactions.

1, 2, 3, 4,
5, 11, 12

1, 2, 3, 4, 1, 2
10

1A, 2A,
6A

1B, 2B,
6B

1, 5, 6

2.

Account for bad
debts.

6, 7, 8, 9,
10

5, 6, 7, 8

1A, 2A,
3A, 4A,
5A, 8A

1B, 2B,

3B, 4B,
5B, 8B

3, 4

3.

Account for notes 11, 12,
receivable.
13, 14,
15, 16

4.

Explain the
statement
presentation of
receivables.

17, 18, 19 14

5.

Apply the
principles of
sound accounts
receivable
management.

20, 21,

22, 23

3, 4, 5, 6

9, 10, 11, 7, 8, 9
12, 13

15

6A, 7A, 8A 6B, 7B,
8B

4

10, 11

1A, 2A,
8A, 9A

1B, 2B,
8B, 9B

3

12, 13

10A, 11A

10B, 11B

1, 2, 4,
6, 7

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Financial Accounting, Sixth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number

Description

Difficulty
Level

Time
Allotted (min.)

1A

Record receivables and bad debts transactions;
show statement presentation.

Moderate

25-35

2A

Record receivables and bad debts; show statement
presentation.

Moderate

25-35

3A

Determine missing amounts.

Complex

15-20

4A

Prepare aging schedule and record bad debts.

Moderate

20-30

5A

Prepare aging schedule; record bad debts for two
years.

Moderate

25-35

6A

Record receivables transactions.

Moderate

20-30

7A

Record notes receivable and payable transactions.

Moderate

20-30

8A

Record notes receivable transactions; show
statement presentation.

Moderate

30-35

9A

Prepare assets section.

Moderate

20-30

10A

Calculate and evaluate ratios.

Moderate

15-20

11A

Evaluate liquidity.

Moderate

15-20

1B

Record receivables and bad debts; show statement

presentation.

Moderate

25-35

2B

Record receivables and bad debts; show statement
presentation.

Moderate

25-35

3B

Determine missing amounts.

Complex

15-20

4B

Prepare aging schedule and record bad debts.

Moderate

20-30

5B

Prepare aging schedule, record bad debts for two
years.

Moderate

25-35

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Financial Accounting, Sixth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE (Continued)
Problem
Number

Description

Difficulty
Level

Time

Allotted (min.)

6B

Record receivables transactions.

Moderate

20-30

7B

Record notes receivable and payable transactions.

Moderate

20-30

8B

Record notes receivable transactions; show
statement presentation.

Moderate

30-35

9B

Prepare assets section.

Moderate

20-30

10B

Calculate and evaluate ratios.

Moderate

15-20

11B

Evaluate liquidity.

Moderate

15-20

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Financial Accounting, Sixth Canadian Edition

ANSWERS TO QUESTIONS
1. Three types of receivables along with examples follows:
(1)

(a) Type
Accounts receivable

(b) Examples
Accounts receivable from trade customers

(2)

Notes receivable

Notes receivables from trade customers
Notes receivable obtained when selling property

(3)

Other receivables

Interest receivable, loans to company officers, advances to
employees, sales tax recoverable, and income tax
receivable

2. Trade receivables are the result of sales transactions while nontrade receivables are the
result of transactions other than sales transactions of the business, such as interest
receivable, income tax receivable, and similar types of receivables.
3.

(a) For a service company, a receivable is recorded when service is provided on
account as required by the revenue recognition criteria. For a merchandising
company, a receivable is recorded at the point of sale of merchandise on account as
required by the revenue recognition criteria.
(b) Revenue should be recognized when the performance or sales effort is substantially
complete. This normally occurs when the service is performed, or when goods are
delivered at the point of sale, but not necessarily when cash is received. In addition,
collection must be reasonably assured.

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Financial Accounting, Sixth Canadian Edition

Answers to Questions (Continued)
4.

(a) Nonbank credit cards: From its own company credit card, Canadian Tire realizes
interest revenue from customers who do not pay the balance due within a specified
grace period.
Bank credit cards: Bank credit cards offer the following advantages:
(1) The credit card issuer makes the credit card investigation of the customer.
(2) The issuer maintains individual customer accounts.
(3) The issuer undertakes the collection process and absorbs any losses from

uncollectible accounts.
(4) The retailer receives cash more quickly from the credit card issuer than it would
from individual customers.
Debit cards: The advantage of the debit card is that the cash is deducted
immediately from the customer’s account. There are no credit checks or collection
concerns so the service charges are normally lower than for a bank credit card.
By using its own credit cards, bank credit cards and debit cards, Canadian Tire
provides more options to its customers, increases its revenue, and reduces its risk.

4. (b)

Nonbank credit cards: To record a company credit card transaction, the seller
records a debit to Accounts Receivable and a credit to Sales.
Bank credit cards: To record a bank credit card transaction, the seller records a debit
to Cash and a credit to Sales.
Debit cards: To record a debit card transaction, the seller records a debit to Cash
and a credit to Sales.
Bank charges expense for debit card and bank credit card fees must also be
recorded, usually as part of the bank reconciliation process.

5. (a) Using an accounts receivable subsidiary ledger makes it possible to determine the
balance owed by an individual customer at any point in time. This makes it easier to
manage receivables, answer customer inquiries, follow up on payments and decide if
additional credit should be granted.
(b) The general ledger control account should agree with the total of the individual
accounts in the subsidiary ledger.

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Financial Accounting, Sixth Canadian Edition

Answers to Questions (Continued)
6. (a)

An aging schedule shows the receivables in various stages outstanding 0–30 days,
31–60 days, 61–90 days, and so on as long as required.

(b) The aging schedule is used to apply percentages to outstanding receivables in each
age category to determine the total estimated uncollectible accounts.
7. (a) The purpose of the account Allowance for Doubtful Accounts is to show an estimate
of the accounts receivable expected to become uncollectible. The allowance account
is used because the amount is only an estimate and we do not know for certain which
customers will not pay, so we cannot reduce specific customer accounts in the
subsidiary ledger or the related accounts receivable control account in the general
ledger. Instead we increase the allowance account balance.
(b) The account can be in a debit balance if the amount of actual write offs exceeds
previous provisions for bad debts. A debit balance will arise during the period when
these write offs are recorded, but by the end of the reporting period adjusting entries
will be made that will bring the balance in the allowance account back into a credit
position. The credit entry to this account is offset with a debit to Bad Debts Expense.
8. The Bad Debts Expense account reflects only the current year’s estimates while the
Allowance for Doubtful Accounts is a cumulative result of estimates, write offs, and
subsequent recoveries from the current and prior periods.
9. The write off of an uncollectible account reduces both Accounts Receivable and the

Allowance for Doubtful Accounts by the same amount. Thus, net realizable value (which
is the difference between accounts receivable and allowance for doubtful accounts) does
not change. Net realizable value will change, however, when an adjusting entry is made
to record the estimate of uncollectible accounts because only the Allowance account is
affected in this entry.
10. Two journal entries are required because the first journal entry has to restore the
previously written off accounts receivable and the second journal entry records the actual
receipt of payment on the account. This way, there is a record that the person did
eventually pay, and that may affect future credit decisions. Furthermore, the date on
which the determination that the receivable is actually collectible and the date it is
actually collected may be different and this would necessitate the separate recording of
these events.

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Financial Accounting, Sixth Canadian Edition

Answers to Questions (Continued)
11. (a) The similarities between accounts receivable and notes receivable are that they are
both credit instruments, both can be sold, and both are valued at their net realizable
value.
(b)

Differences between accounts receivable and notes receivable include the following.

An accounts receivable is an informal promise to pay, while a note receivable is a
written promise giving the payee a stronger legal claim. A note receivable is a
negotiated instrument that can be transferred to another party. An account receivable
arises from credit sales, while a note receivable can arise for a number of reasons
such as the financing of a purchase, lending money, or extending the terms of an
account receivable. An account receivable is usually due within a short period of time,
while a note receivable can extend for longer periods of time (which is why it bears
interest). An account receivable does not incur interest unless the account is overdue
while a note usually bears interest for an entire period.

12. (a) (1) Interest is normally recorded for an account receivable if a customer does not
pay in full within a specified period of time (usually 30 days). The invoice will
specifically state the amount or percentage of interest due on overdue accounts.
(2) In the case of notes receivable, the amount of interest accrues starting from the
date of the issuance of the note and continues to the maturity date of the note.
Interest earned is recorded when accrued at the end of each accounting period
or when collected, whichever comes first.
12. (b) (1) Accounts Receivable is normally debited for interest on overdue balances. This
accomplishes two goals: updating a particular customer’s balance in the
subsidiary ledger to allow management to decide if additional credit should be
granted if overdue balances are not yet paid; it also allows the company to
easily send a statement of transactions to the customer that includes interest
charges so that the customer will be aware of them.
(2) In the case of notes receivable when interest revenue is accrued, Interest
Receivable is debited. The Note Receivable account is for the amount of the
principal balance of the loan, whereas the interest is recorded and reported
separately.
13. Notes are not recorded at their maturity value (which would include interest) because the
interest on the note is not receivable when the note is first recorded. The interest is
earned over time and is recorded when earned.

14. Cobden Inc., as the party making the promise to pay, is the maker of the note. It would
record a note payable. Scotiabank, as the party who will be paid, is the payee. It would
record a note receivable.

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Financial Accounting, Sixth Canadian Edition

Answers to Questions (Continued)
15. When a note receivable is honoured at maturity it is paid in full, while a dishonoured note
is not paid in full at maturity. A dishonoured note receivable is no longer negotiable. The
payee still has a claim against the maker of the note and if eventual collection is
expected, an accounts receivable is recorded.
16. These notes should be recorded at their net realizable value. An entry should be made to
debit Bad Debts Expense for the 10% expected to be uncollectible and to credit
Allowance for Doubtful Notes for the same amount.
17. Both the gross amount of receivables and the allowance for doubtful accounts must be
reported either in the statement of financial position or in the notes to the financial
statements. It is usual to report the receivables on the statement of financial position at
their net realizable value and to provide additional information about the allowance in the
notes to the statements.
18. Current assets
Accounts receivable
Less: Allowance for doubtful accounts

Net realizable value of accounts receivable
Notes receivable (due in three months)
Less: Allowance for doubtful notes
Net realizable value of short-term notes
Sales tax recoverable
Income tax receivable
Non-current assets
Notes receivable (due in two years)
19.

(a) Account
(1) Sales or Service Revenue
(2) Bad Debt Expense
(3) Interest Revenue

$xxx
xxx
$xxx
$xxx
xxx
xxx
xxx
xxx

$xxx
(b) Classification
Revenues
Operating expenses
Other revenues and expenses

20. The steps involved in receivables management are:
(1) Determine who to extend credit to.
(2) Establish a payment period.
(3) Monitor collections.
(4) Evaluate the liquidity of receivables.

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Financial Accounting, Sixth Canadian Edition

Answers to Questions (Continued)
21. To help in determining whether Canam Group’s receivables management has improved
or worsened the average collection period should be determined.

Average collection period

2012
365 = 118 days
3.1

2011
365 = 111 days
3.3

Canam’s receivable management has worsened. The receivables turnover has
decreased from 3.3 times to 3.1 times, indicating a slower collection of receivables. The
average collection period shows this more clearly; the average time it takes to collect a
receivable has risen from 111 days to 118 days.
22. (a) An increase in the current ratio does not necessarily mean that the liquidity of a
company has improved. In order to determine if liquidity has improved, we need to
understand why the current ratio rose. If it rose because the company has more cash,
then the company is more liquid. On the other hand if the cash has fallen but
inventory has risen by a larger amount because of declining sales, the current ratio
will rise but this does not mean that the company is more liquid. It simply means that
the company has some inventory that it cannot sell and the company has less
liquidity. The same is true if net accounts receivable increase because of a slowdown
in collections not fully adjusted for in the estimate of uncollectible accounts.
(b)

Other ratios that focus on specific current assets rather than current assets in total
(as the current ratio does) give us insight into the components of working capital and
allow us to understand liquidity in more detail. Examples include the receivables
turnover ratio and the inventory turnover ratio. In general, if these ratios are rising,
liquidity is improving because cash is being received more quickly.

23. If the receivables turnover is significantly higher than its competitors, it means the
company is collecting its receivables faster, indicating it may have an earlier payment
due date. Customers may move to a competitor that does not collect its receivables as
quickly to better manage their cash flow.
If a company has a receivables turnover that is significantly lower than its competitors, it
may be at a competitive disadvantage because it is financing its customers’ purchases
for a longer time and delaying the time it takes to receive cash.

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Financial Accounting, Sixth Canadian Edition

SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 8-1
(a)
(b)
(c)
(d)
(e)
(f)
(g)

Other receivables
Other receivables
Notes receivable
Accounts receivable
Accounts receivable
Other receivables
Notes receivable

BRIEF EXERCISE 8-2
(a)

(b)

(c)

(d)

July 1

July 8

July 9

Accounts Receivable .................................................
Sales ....................................................................

42,000

Cost of Goods Sold ...................................................
Merchandise Inventory.........................................

30,000

Sales Returns and Allowances ..................................
Accounts Receivable ...........................................

7,200

Merchandise Inventory ..............................................
Cost of Goods Sold ..............................................

4,320

Cash ($34,800 – $696)..............................................
Sales Discounts ($34,800 × 2%) ...............................
Accounts Receivable ($42,000 – $7,200) ............

34,104
696

Aug. 31 Accounts Receivable .................................................
Interest Revenue [($42,000 – $7,200) × 24% × 1/12]

42,000

30,000

7,200

4,320

34,800
696
696

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Financial Accounting, Sixth Canadian Edition

BRIEF EXERCISE 8-3
(a)
Visa card
Cash ........................................................................................
Sales ...............................................................................

100
100

Bank Charges Expense ............................................................
Cash ................................................................................
(b)
Nonbank credit card
Accounts Receivable ................................................................
Sales ...............................................................................

2
2

100
100

Because VISA is sponsored by a bank, it is appropriate to record a debit to cash in the first
entry. In the second entry, because a nonbank credit card is used, the company bears the
entire risk of collecting the amount, so it is recorded in accounts receivable. In addition, there
are normally no bank charges incurred with respect to the use of a company credit card.

BRIEF EXERCISE 8-4
Accounts Receivable Subsidiary Ledger
Chiu Corp.
Jan. 7
1,800 Jan. 17
Jan. 31 Bal. 1,100
Lewis Corp.
Jan. 23
3,700 Jan. 29
Jan. 31 Bal.
0

700

Elbaz Inc.
Jan. 15
6,000 Jan. 24
Jan. 31 Bal. 4,000

2,000

3,700

General Ledger Control Account
Accounts Receivable
Jan. 31
11,500 Jan. 31
Jan. 31Bal. 5,100

6,400

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BRIEF EXERCISE 8-5
(a)

(b)

Bad Debts Expense .................................................................
Allowance for Doubtful Accounts ....................................
[($600,000 × 4%) – $3,600]

20,400
20,400

The amount to be reported as bad debts expense would be
[($600,000 × 4%) + $4,000] = $28,000
Bad Debts Expense .................................................................
Allowance for Doubtful Accounts ....................................

28,000

28,000

BRIEF EXERCISE 8-6
(a)
Number of Days
Outstanding
0-30 days
31-60 days
61-90 days
Over 90 days
Total
(b)
Dec. 31

Accounts
Receivable
$368,000
120,000
72,000
40,000
$600,000

Estimated %
Uncollectible
1%
4%
10%
20%

Total Estimated

Uncollected Accounts
$ 3,680
4,800
7,200
8,000
$23,680

Bad Debts Expense ($23,680 – $3,600)..........................
Allowance for Doubtful Accounts...........................

20,080
20,080

BRIEF EXERCISE 8-7
(a)

Jan. 24

Allowance for Doubtful Accounts...........................
Accounts Receivable.....................................

(b)

(1)
Accounts receivable
Allowance for doubtful accounts
Net realizable value

Before Write Off
$600,000

36,000
$564,000

8,000
8,000
(2)

After Write Off
$592,000
28,000
$564,000

BRIEF EXERCISE 8-8
Mar. 4

4

Accounts Receivable .......................................................
Allowance for Doubtful Accounts...........................

8,000

Cash ................................................................................
Accounts Receivable .............................................

8,000

8,000

8,000

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Financial Accounting, Sixth Canadian Edition

BRIEF EXERCISE 8-9
(a)
Interest
Revenue
2014

(b)
Interest
Revenue
2015

(c)
Interest
Revenue
Total

Note #1

$81,000

(1)

$54,000

(2)

$135,000

Note #2

4,200

(3)

2,100

(4)

6,300

Note #3

002,800

(5)

14,000

(6)

16,800

Totals

$88,000

(1)
(2)
(3)
(4)
(5)
(6)

$70,100

$158,100

$1,800,000 × 6% × 9/12 (April 1 to Dec. 31) = $81,000
$1,800,000 × 6% × 6/12 (Jan. 1 to June 30) = $54,000
$168,000 × 5% × 6/12 (July 2 to Dec. 31) = $4,200
$168,000 × 5% × 3/12 (Jan. 1 to maturity) = $2,100
$420,000 × 4% × 2/12 (Nov. 1 to Dec. 31) = $2,800
$420,000 × 4% × 10/12 (Jan. 1 to Oct. 30) = $14,000

BRIEF EXERCISE 8-10
Jan.

Feb.

2

1

April 30

July

1

Accounts Receivable ......................................................
Sales ......................................................................

48,000

Cost of Goods Sold ........................................................
Merchandise Inventory ...........................................

32,000

Notes Receivable ...........................................................
Accounts Receivable ..............................................

48,000

Interest Receivable ($48,000 × 7% × 3/12) ....................
Interest Revenue ....................................................

840

Cash ...............................................................................
Interest Receivable .................................................
Notes Receivable ...................................................
Interest Revenue ($48,000 ì 7% ì 2/12)................

49,400

48,000

32,000

48,000

840

840
48,000
560

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Financial Accounting, Sixth Canadian Edition

BRIEF EXERCISE 8-11

2014
April 1

Dec. 31

2015
Mar 31

Notes Receivable ...........................................................
Sales ......................................................................

10,000

Cost of Goods Sold ........................................................
Merchandise Inventory ...........................................

6,000

Interest Receivable ($10,000 × 9% × 9/12) ....................
Interest Revenue ....................................................

675

Cash ...............................................................................
Interest Receivable .................................................
Notes Receivable ...................................................
Interest Revenue ($10,000 × 9% × 3/12)................

10,900

10,000

6,000

675

675
10,000
225

BRIEF EXERCISE 8-12
2014
Apr.

1

Sept 30
2015
Mar. 31

Merchandise Inventory.................................................
Notes Payable.....................................................

10,000

Interest Expense ($10,000 × 9% × 6/12) .....................
Interest Payable ..................................................

450

Interest Expense ($10,000 × 9% × 6/12) ....................
Interest Payable ...........................................................
Notes Payable..............................................................
Cash ...................................................................

450
450
10,000

10,000
450

10,900

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Financial Accounting, Sixth Canadian Edition

BRIEF EXERCISE 8-13
(a)
Apr. 1 Notes Receivable .........................................................
Accounts Receivable ..........................................

40,000

July 1 Cash ............................................................................
Notes Receivable ................................................
Interest Revenue ($40,000 × 6% × 3/12) ............

40,600

Apr. 1 Notes Receivable .........................................................
Accounts Receivable ..........................................

40,000

July 1 Accounts Receivable ...................................................
Notes Receivable ................................................
Interest Revenue ($40,000 × 6% × 3/12) ............

40,600

Apr. 1 Notes Receivable .........................................................
Accounts Receivable ..........................................

40,000

July 1 Allowance for Doubtful Notes.......................................
Notes Receivable ................................................

40,000

40,000
40,000

600

(b)
40,000
40,000
600

(c)
40,000
40,000

Note that no interest revenue is recorded in (c) because it is unlikely that it will be
collected.

BRIEF EXERCISE 8-14
NIAS CORPORATION
Statement of Financial Position (Partial)
February 28, 2015
Assets
Current assets
Cash ........................................................................
Trading investments.................................................
Accounts receivable .................................................
Less: Allowance for doubtful accounts .....................
Notes receivable (due Nov. 1, 2015)........................
Sales tax recoverable ..............................................
Merchandise inventory .............................................
Prepaid rent .............................................................
Total current assets .................................................

$ 150,000
330,000
$470,000
30,000

440,000
300,000
38,000
380,000
8,000
$1,646,000

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Financial Accounting, Sixth Canadian Edition

BRIEF EXERCISE 8-15
(a)
($ in thousands)
Receivables
turnover
Average
collection period

2012
$4,864,779
70.8
=
times
$55,954 + $81,477
2
365
= 5 days
70.8

2011
$4,893,624
=
$81,477 + $65,084
2
365
=
66.8

66.8
times

5 days

(b)
The receivables turnover is better in 2012 and the average collection period is generally
unchanged in 2012 (when rounded to the nearest day).

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SOLUTIONS TO EXERCISES
EXERCISE 8-1
(a)

Compton Limited

Jan.

6

15

Accounts Receivable. .....................................................
Sales ......................................................................

24,000

Cost of Goods Sold ........................................................
Merchandise Inventory ...........................................

16,000

Cash ($24,000 – $480) ...................................................
Sales Discounts (2% × $24,000) ....................................
Accounts Receivable. .............................................

23,520
480

(b)

Singh Inc.

Jan.

6

15

24,000

16,000

24,000

Merchandise Inventory ...................................................
Accounts Payable ...................................................

24,000

Accounts Payable ...........................................................

Merchandise Inventory ...........................................
Cash .......................................................................

24,000

24,000

480
23,520

EXERCISE 8-2
(a)
Feb.

2
4
5
8
10

Accounts Receivable (Andrew Noren) ............................
Sales ......................................................................

1,140

Sales Returns and Allowances .......................................
Accounts Receivable (Andrew Noren) ....................

140

Accounts Receivable (Dong Corporation) ......................
Sales ......................................................................

760

Cash ...............................................................................
Sales ......................................................................

842

Accounts Receivable (Discovery Sports) ........................
Sales ......................................................................

920

1,140
140
760
842
920

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Financial Accounting, Sixth Canadian Edition

EXERCISE 8-2 (Continued)
(a) (Continued)
Feb.

14

17
22
28
(b)

Cash ($760 – $15) ................................................
Sales Discount ($760 × 2%) .................................
Accounts Receivable (Dong Corporation) ....

745
15

Accounts Receivable (Andrew Noren) .................
Sales ............................................................

696

Accounts Receivable (Batstone Corporation) .......
Sales ............................................................

1,738

Cash .....................................................................

Accounts Receivable (Andrew Noren) .........

1,000

760
696
1,738
1,000

Accounts Receivable Subsidiary Ledger

Andrew Noren
Feb. 2
1,140 Feb. 4
17
696
28
Feb. 28 Bal. 696

140
1,000

Batstone Corporation
Feb. 22
1,738
Feb. 28 Bal. 1,738

Dong Corporation
Feb. 5
760 Feb. 14

Feb. 28 Bal.
0

760

Discovery Sports (Company Credit Card)
Feb. 10
920
Feb. 28 Bal. 920

General Ledger Control Account
Accounts Receivable
Feb. 2
1,140 Feb. 4
5
760
14
10
920
28
17
696
22
1,738
Feb. 28 Bal. 3,354
(c)

140
760
1,000

Subledger listing
Andrew Noren ...............................................................................
Dong Corporation ..........................................................................
Batstone Corporation ....................................................................
Discovery Sports (Company credit card) .......................................
Total ..............................................................................................

$ 696
0
1,738
920
$3,354

Balance per general ledger control account ..................................

$3,354

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Financial Accounting, Sixth Canadian Edition

EXERCISE 8-3
(a)

(b)

(c)

Dec. 31

Dec. 31

Dec. 31

Bad Debts Expense ($36,000 – $4,400) ..............
Allowance for Doubtful Accounts .................
Bad Debts Expense
($360,000 × 9% – $4,400) .................................
Allowance for Doubtful Accounts .................
Bad Debts Expense ($36,000 + $2,400) ..............
Allowance for Doubtful Accounts .................

31,600
31,600

28,000
28,000
38,400
38,400

EXERCISE 8-4
(a)

Age of Accounts
0-30 days
31-60 days
61-90 days
Over 90 days

(b)

Mar. 31

(c)

Amount
$260,000
50,400
34,000
25,600

%
2
10
30
50

Estimated Uncollectible
$ 5,200
5,040
10,200
12,800
$33,240

Bad Debts Expense .............................................
Allowance for Doubtful Accounts .................
($33,240 – $8,800)

24,440
24,440

The net realizable value of the accounts receivable at March 31 is as follows:
Accounts receivable ...............................................................
Less: Allowance for doubtful accounts ...................................
Net realizable value ................................................................

$370,000
33,240
$336,760

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Financial Accounting, Sixth Canadian Edition

EXERCISE 8-5
(a)
2014

Dec. 31

Bad Debts Expense ........................................................
Allowance for Doubtful Accounts .............................
($16,800 + $2,000)

18,800

Allowance for Doubtful Accounts ....................................
Accounts Receivable ...............................................

1,900

Accounts Receivable ......................................................
Allowance for Doubtful Accounts .............................

1,900

Cash ...............................................................................
Accounts Receivable ...............................................

1,900

18,800

2015
May 11

Nov. 12

1,900

1,900

1,900

(b)

Accounts receivable
Less: Allowance for doubtful accounts
Net realizable value

Dec. 31
2014

May 11
2015

Nov.12
2015

$300,000
16,800
$283,200

$298,100
14,900
$283,200

$298,100

16,800
$281,300

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Financial Accounting, Sixth Canadian Edition

EXERCISE 8-6
(a)
March 1 Balance
Sales
March 31 Balance

Accounts Receivable
30,000
40,000
Collections
Write offs
32,000

35,000
(1)

(1) Write offs: $30,000 + $40,000 – $35,000 – $32,000 = $3,000

Write offs

Allowance for Doubtful Accounts
March 1 Balance
Bad debts
(1)
March 31 Balance

5,000
(2)
4,500

(1) Write offs: $30,000 + $40,000 – $35,000 – $32,000 = $3,000
(2) Bad debts: $4,500 – [$5,000 – $3,000 (from (1) above)] = $2,500
(b) To record write offs:
Allowance for Doubtful Accounts .......................................
Accounts Receivable ...................................

3,000
3,000

(c) To record bad debts expense:
Bad Debts Expense ...........................................................
Allowance for Doubtful Accounts ..........................

2,500
2,500

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Financial Accounting, Sixth Canadian Edition

EXERCISE 8-7
Nov.

Dec.

1

1

15

Feb.

1

28

Notes Receivable ...........................................................
Cash .......................................................................

48,000

Notes Receivable ...........................................................
Sales ......................................................................

8,400

Cost of Goods Sold ........................................................
Merchandise Inventory ...........................................

5,000

Notes Receivable ...........................................................
Accounts Receivable ..............................................

16,000

Cash ...............................................................................
Notes Receivable ...................................................
Interest Revenue ($8,400 × 6% × 2/12)..................

8,484

Interest Receivable .........................................................
Interest Revenue ....................................................

1,513

Calculation of interest revenue on February 28:
Bouchard note:
$48,000 × 8% × 4/12

Aqualina note:
$16,000 × 7% × 2.5/12
Total accrued interest

28

48,000

8,400

5,000

16,000

8,400
84

1,513

= $1,280
=.
233
$1,513

Bad Debt Expense..........................................................
Allowance for Doubtful Notes .................................

16,000
16,000

EXERCISE 8-8
Dec.

1

31

Feb.

1

Merchandise Inventory ...................................................
Notes Payable ........................................................

8,400

Interest Expense ($8,400 × 6% × 1/12) ..........................
Interest Payable......................................................

42

Notes Payable ................................................................
Interest Payable .............................................................
Interest Expense.............................................................
Cash .......................................................................

8,400
42
42

8,400

42

8,484

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Financial Accounting, Sixth Canadian Edition

EXERCISE 8-9
May

1

June 30

July

31

Aug. 31

Sept. 30

Oct.

Nov.

31

1

Notes Receivable ...........................................................
Accounts Receivable ..............................................

12,000

Interest Receivable ($12,000 × 5% × 2/12) ....................
Interest Revenue ....................................................

100

Notes Receivable ...........................................................
Cash .......................................................................

10,000

Cash ...............................................................................
Interest Revenue ($10,000 × 7% × 1/12)................

58

Cash ...............................................................................

Interest Revenue ....................................................

58

Cash ...............................................................................
Notes Receivable ...................................................
Interest Revenue ....................................................

10,058

Allowance for Doubtful Accounts ....................................
Note Receivable .....................................................
Interest Receivable .................................................

12,100

12,000

100

10,000

58

58

10,000
58

12,000

100

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Financial Accounting, Sixth Canadian Edition

EXERCISE 8-10
DEERE & COMPANY
Statement of Financial Position (partial)
October 31, 2012
(in U.S. millions)
Assets
Current assets
Receivables
Trade accounts and notes receivable.............................
$3,799.1
Less: Allowance for doubtful trade and notes receivables
66.0
Financing receivables ....................................................
$22,159.1
Less: Allowance for doubtful financing receivables ........
177.0
Other receivables ..............................................................................
Total receivables ...............................................................................

$ 3,733.1
21,982.1
1,790.9
$27,506.1

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Financial Accounting, Sixth Canadian Edition

EXERCISE 8-11

Accounts payable
Accounts receivable
Advances to employees
Allowance for doubtful accounts
Allowance for doubtful notes (current)
Bad debts expense
Cash
Interest expense
Interest revenue
Merchandise inventory
Notes receivable (current)
Notes receivable (non-current)

Prepaid insurance
Sales
Sales discounts
Sales tax recoverable

$22,600
18,200
2,900
1,300
5,000
2,000
7,500
2,400
6,000
26,400
25,000
75,000
1,500
370,000
12,000
3,150

(a)
SFP or
IS
SFP
SFP
SFP
SFP
SFP

IS
SFP
IS
IS
SFP
SFP
SFP
SFP
IS
IS
SFP

(b)
Classification

Operating expense
Non-operating expense
Non-operating revenue

Operating revenue
Contra operating revenue

(c)
APOLLO CORPORATION
Statement of Financial Position (partial)
November 30, 2015
Assets
Current assets
Cash ..............................................................................
Accounts receivable .......................................................

$18,200
Less: Allowance for doubtful accounts ...........................
1,300
Notes receivable ...........................................................
$25,000
Less: Allowance for doubtful notes .................................
5,000
Advances to employees .......................................................................
Sales tax recoverable ...........................................................................
Merchandise inventory .........................................................................
Prepaid insurance ................................................................................
Total current assets ...................................................................

$ 7,500
16,900
20,000
2,900
3,150
26,400
1,500
$78,350

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