Question

Selected account balances as at September 30, 20 J 7 for Glendale Inc., are shown below:
Debit Credit
Accounts receivable $119,000
Allowance for doubtful accounts $3,000
During October 2017, the following transactions occurred:

1.The company sold merchandise on account to various retailers for a total amount of $76,000, terms 2/10,
n/30. A few retailers who purchased merchandise for a gross amount of $40,000 paid the amount due
within 10 days. A total of$16,000 ofthe October sales remained unpaid at October 31, 2017.
2. Customers paid the company $50,000 for merchandise they purchased prior to September 30, 2017. These
customers did not pay within the discount period.
3. Two of Glendale's customers owed the company a total of$5,000 and were facing financial difficulties
during October due to increased competition. They were forced to close their businesses before the end of
October 2017. Glendale does not expect to receive any money from these two customers and considers
their accounts uncollectible.
4. The company received new kitchenware from a supplier for $40,000. The invoice indicated that the
supplier would allow a cash discount of 1 percent if the invoice were paid before the end of October 2017.
Glendale paid the supplier on November 10, 2017.
Glendale estimates that 4 percent of its accounts receivable at October 31, 2017, will not be collected in the future.
Required:
I. Prepare the journal entries to record the transactions that occurred in October 2017, and any related
adjusting journal entries at October 31, 2017, the end of Glendale's fiscal year.
2. Show how the information related to accounts receivable is presented on the company's statement of
financial position at October 31, 2017.
3. The major shareholder of Glendale, Billy Beau, was reading through the company's statement of financial
position and noticed the account allowance for doubtful accounts. He called Carol Jones, Glendale's
accountant, and made the following statement: "Carol, I don't think we need to make a provision for
doubtful accounts as it will reduce the amount of accounts receivable unnecessarily. I think we should wait
until we are certain that we cannot collect from our customers before showing a reduction in the accounts
receivable on the statement of financial position. This way, the accounts receivable balance will be more
accurate. I would like you to make the necessary change to the financial statements before they are
distributed to the other shareholders." Assume the role of Carol and prepare a response to Billy

Answer 1

Solution for the question is shown below:

4 Oct, 2017 - soooo Cash Ale Dr. To Retailers All / Ale recewable the (Being payment made afte ascunt period) is Oct, 2017 5000 Allowances for doubtful debts All Dr To Ales recewable All CBeing customers Oecours are uncollectable 40000 Oct, 2017 ų0000 Kitchenware All for To supplier All (Being witchenware purchased) 17 31shoct. 2017 3200 Allowances for Ale, Receivable Dr 3200 To Ales Receivable the (Being ul. Ale receirable unconect able) w.notet WiNote - All receivable balance as on 31st Oct : Opening Ale Receivable & $ 119000 (t) sales made auring out. & 76000 6 Amt paid by Ale Receivable y $ 110000 cyoooo + Qootor sooro ) (- Allowances for doubtfuldebby & 5000 Balance Sloooo Allowance for pees Recewable s3200 ( ss006nd4402

2. Financial position as on e al position as on 31st Oct, 2017 3 76800 Ale's Reciable Balance severiores Clinolé -1) Cs foou 0-3200 Allowances for All Receivable s 11200 C33000 + $5000 + 53200) Sales discount to be charged in ree 1800 cash Ale Balance $109200 (39200 + 20000 + soovo + Supplie's Balance cer) — 340000 Kitchenwar Bal y $ 40000. LIETIES m my opinion, the contention of shareholders Å wrong as allowances for Auounts receivables shows real pichine of our accounts receivable. And As per the principle of " conservatism" of accounting, and the possible losses should be account for as and when they come to know and not when they really occur. LEM

Solution : Balances as on sept 30, 2017 : Account receivable y $119000 slowance for doubtful debls → 53000 Cedir rums for retailers of paia within odays then discount @ ay are wise they have to pay with in godays. Journal Entries (for the mouth of Oct, 2017) (Amt in 8) S.NO. Dare Particular Amt cor) Amt (cr.) 1 Oct, 2017 Retaile's All or 76000 To sales All (Beesy sales made) 76000 39200 4oooo cash ale Dr Sales Discount All m To Retailers are (Being amr paid by etaulers within 10 days) [$40000 x 24 = 800 ] 20000 Cash Ale r Тъ кнім ш , Being amt paid by retaulers afra codays within Oct, 2017)