Question

QUESTION 3 – Receivables

At the end of 2017 fiscal year, L&Z Co. has the following information:

Balance Sheets

Current Assets

Accounts receivable, net of allowance of $1,076                                 $16,194
  

a)   During 2018, the company wrote off $200 of specific accounts that were deemed uncollectable.   Prepare the journal entry to record the write-off of these accounts receivable. (4 pts)

b) At the end of 2018 (12/31/2018), management estimate 8% of account receivables balance will likely be difficult to collect. The company’s Accounts Receivable has a gross ending balance of $17,600 . Prepare the journal entry to record bad debt expense for 2018 using the percentage of receivables method (the balance sheet approach).

                                    

c)   If credit sales for 2018 were $118,000, compute the amount of cash collected from customers in 2018 (note: take into account the event in part a).

d)         On Oct 1^st , 2018, the company sold coal to Beta Electric, receiving a 6-month, noninterest-bearing note for $100,000. The effective interest rate on the note is 8%. The company has a fiscal year-end of 12/31.

1. Prepare the journal entry to record the sale.

ii. Prepare adjusting journal entries regarding the note receivable on 12/31/2018.

Answer 1

	Account Titles	Debit	Credit
a	Allowance for Doubtful accounts	$                   200
	Accounts Receivable		$                   200
	(Accounts written off)
b	Bad Debt Expense	$                   532		=17600*8%-(1076-200)
	Allowance for Doubtful accounts		$                   532
	(Bad debt expense)

c.

Accounts Receivable
Beg Balance	$             17,270
Sales	$           118,000	$                   200	Allowance
		$           117,470	Cash
	$             17,600

Cash Collected = $117470

d.

	Account Titles	Debit	Credit
Oct-01	Notes Receivable	$             96,150
	Sales Revenue		$             96,150
	(Sales made)
Dec-31	Interest Receivable	$                1,925
	Interest Revenue		$                1,925
	(Interest accrued for 3 months)

PV fatcor has been taken as 0.9615 to calculate.