Question

Tony and Suzie are ready to expand Great Adventures even further in 2022. Tony believes that many groups in the community (for example, Boy Scouts, church groups, civic groups, and local businesses) would like to hold one-day outings for their members. Groups would engage in outdoor activities such as rock climbing, fishing, capture the flag, paintball, treasure hunts, scavenger hunts, nature hikes, and so on. The purpose of these one-day events would be for each member of the group to learn the importance of TEAM (Together Everyone Achieves More).

Tony knows that most people are not familiar with these types of activities, so to encourage business he allows groups to participate in the event before paying. He offers a 5% quick-payment discount to those that pay within 10 days after the event. He also guarantees that at least eight hours of outdoor activities will be provided or the customer will receive a 20% discount. For the first six months of the year, the following activities occur for TEAM operations.

Jan.		24		Great Adventures purchases outdoor gear such as ropes, helmets, harnesses, compasses, and other miscellaneous equipment for $5,000 cash.
Feb.		25		Mr. Kendall’s Boy Scout troop participates in a one-day TEAM adventure. Normally, Tony would charge a group of this size $3,500, but he wants to encourage kids to exercise more and enjoy the outdoors so he charges the group only $3,000. Great Adventures provides these services on account.
Feb.		28		The Boy Scout troop pays the full amount owed, less the 5% quick-payment discount.
Mar.		19		Reynold’s Management has its employees participate in a one-day TEAM adventure. Great Adventures provides services on account for $4,000, and Reynold’s agrees to pay within 30 days.
Mar.		27		Reynold’s pays the full amount owed, less the 5% quick-payment discount.
Apr.		7		Several men from the Elks Lodge decide to participate in a TEAM adventure. They pay $7,500, and the event is scheduled for the following week.
Apr.		14		The TEAM adventure is held for members of the Elks Lodge.
Apr.		30		Myers Manufacturing participates in a TEAM adventure. Great Adventures provides services on account for $6,000, and Myers agrees to pay within 30 days.
May		31		Myers Manufacturing fails to pay the amount owed within the specified period and agrees to sign a three-month, 8% note receivable to replace the existing account receivable.
Jun.		15		Several MBA groups participate in TEAM adventures. Great Adventures provides services on account for $24,000 to these groups, with payment due in July.

2. Consider the following information as of June 30, 2022.

1. Suzie estimates uncollectible accounts to be 10% of accounts receivable (which does not include the $6,000 note receivable from Myers Manufacturing). Prepare the adjusting entry for uncollectible accounts.
2. Accrue one month of interest on the note receivable from Myers Manufacturing. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.
3. Prepare a partial balance sheet showing the net accounts receivable section. (Amounts to be deducted should be indicated by a minus sign.)

Answer 1

Ans 2a Credit Adjustment for uncollectible accounts on June 30, 2019 Accounts Receivable Balance on June 30 is $24000 Estimated uncollectible accounts to be 10% Estimated uncollectible accounts = $24000 x 10% = $2400 $5,000 Debit $2,400 Credit $3,000 Date Particulars 30-06-2022 Bad Debt Allowance for Doubtful Accounts (To record bad debt) $2,400 [$3000 x 5%] $3,000 Ans 2b $4,000 Notes receivable $6,000 Rate 8% Interest for one month [($6000 x 8%)/12 x 1] $40.00 Date Particulars Debit 30-06-2022 Interest Receivable Interest Income (To record accrual of interest income) Credit $40 $40 Journal Entry Sr. No. Date Particulars Debit | 24-01-2022 Equipment $5,000 Cash (To record purchase for equipment) 25-02-2022 Accounts Receivable $3,000 Service Revenue (To record service revenue) 28-02-2022 Cash $2,850 Discount on service revenue $150 Accounts Receivable (To record payment received) 4 19-03-2022 Accounts Receivable $4,000 Service Revenue (To record service revenue) 5 27-03-2022 Cash $3,800 Discount on service revenue $200 Accounts Receivable (To record payment received) 6 07-04-2022 Cash $7,500 Unearned Service Revenue (To record payment received in advance) 14-04-2022 Unearned Service Revenue $7,500 Service Revenue (To record service revenue) 8 30-04-2022 Accounts Receivable $6,000 Service Revenue (To record service revenue) 31-05-2022 Notes Receivable $6,000 Accounts Receivable (To record notes receivable) 10 15-06-2022 Accounts Receivable $24,000 Service Revenue (To record service revenue) [$4000 x 5%] $4,000 $7,500 Ans 2c $7,500 Amount Amount Great Adventures Balance Sheet (Partial) June 30 2022 Particulars Current Assets Accounts Receivable Less: Allowance for doubtful accounts Accounts Receivable (Net) $6,000 $24,000 ($2,400) $21,600 $6,000 $24,000