Question

Exercise 7-16

The trial balance before adjustment for Teal Company shows the following balances.

		Dr.		Cr.
Accounts Receivable		$84,800
Allowance for Doubtful Accounts		2,420
Sales Revenue				$434,200

Using the data above, give the journal entries required to record each of the following cases. (Each situation is independent.)

1.		To obtain additional cash, Teal factors without recourse $29,700 of accounts receivable with Stills Finance. The finance charge is 11% of the amount factored.
2.		To obtain a 1-year loan of $57,600, Teal assigns $72,000 of specific receivable accounts to Crosby Financial. The finance charge is 8% of the loan; the cash is received and the accounts turned over to Crosby Financial.
3.		The company wants to maintain the Allowance for Doubtful Accounts at 6% of gross accounts receivable.
4.		Based on an aging analysis, an allowance of $5,733 should be reported. Assume the allowance has a credit balance of $1,071.

(If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

No.	Account Titles and Explanation	Debit	Credit
1.
2.
3.
4.

SHOW LIST OF ACCOUNTS Accounts Payable Accounts Receivable Advertising Expense Allowance for Doubtful Accounts Bad Debt Expense Cash Cash Over and Short Due from Factor Due to Customer Discount on Notes Payable Discount on Notes Receivable Freight-In Freight-Out Gain on Disposal of Land Interest Expense Interest Payable Interest Receivable Interest Revenue Inventory Land Loss on Sale of Receivables Miscellaneous Expenses No Entry Notes Payable Notes Receivable Office Expense Owner's Drawings Petty Cash Postage Expense Purchase Discounts Recourse Liability Sales Discounts Sales Discounts Forfeited Sales Revenue Service Revenue Supplies Supplies Expenses Unearned Sales Revenue

Answer 1

		Debit	Credit
1	Cash	26433
	Loss on Sale of Receivables	3267		=29700*11%
	Accounts Receivable		29700
2	Cash	52992
	Interest Expense	4608		=57600*8%
	Notes Payable		57600
3	Bad Debt Expense	7508		=(84800*6%)+2420
	Allowance for Doubtful Accounts		7508
4	Bad Debt Expense	4662		=5733-1071
	Allowance for Doubtful Accounts		4662