Question

Tony and Suzie are ready to expand Great Adventures even further in 2019. 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 6% 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 $4,000 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 $2,500, but he wants to encourage kids to exercise more and enjoy the outdoors so he charges the group only $2,000. Great Adventures provides these services on account.
Feb. 28   The Boy Scout troop pays the full amount owed, less the 6% 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 $3,000, and Reynold’s agrees to pay within 30 days
Mar. 27   Reynold’s pays the full amount owed, less the 6% quick-payment discount.
Apr. 7   Several men from the Elks Lodge decide to participate in a TEAM adventure. They pay $6,500, and the event is scheduled for the following week.
Apr. 14   The TEAM adventure is held for members of the Elks Lodge.
May. 9   Myers Manufacturing participates in a TEAM adventure. Great Adventures provides services on account for $5,000, and Myers agrees to pay within 30 days.
Jun. 1−30   Several MBA groups participate in TEAM adventures during June. Great Adventures provides services on account for $19,000 to these groups, with payment due in July.
Jun. 30   Myers Manufacturing fails to pay the amount owed within the specified period and agrees to sign a three-month, 9% note receivable to replace the existing account receivable.

1. Record TEAM adventure transactions occurring during the first six months of 2019. (

2. As of June 30, 2019, Great Adventures finishes its first 12 months of operations. If Suzie wants to prepare financial statements, part of the process would involve allowing for uncollectible accounts receivable.

a. Suppose Suzie estimates uncollectible accounts to be 5% of accounts receivable (which does not include the $5,000 note receivable from Myers Manufacturing). Record the adjustment for uncollectible accounts on June 30, 2019.

b. Prepare a partial balance sheet showing the net accounts receivable section.

Answer 1

Solution:

1.)
date	account title	debit	credit
Jan-24	equipment	4000
	cash		4000
Feb-25	accounts receivable	2000
	service revenue		2000
Feb-28	cash	1880
	sales discount (2000*0.06)	120
	accounts receivable		2000
Mar-19	accounts receivable	3000
	service revenue		3000
Mar-27	cash	2820
	sales discount (3000*0.06)	180
	accounts receivable		3000
Apr-07	cash	6500
	unearned revenue		6500
Apr-14	unearned revenue	6500
	service revenue		6500
May-09	accounts receivable	5000
	service revenue		5000
Jun-01	accounts receivable	19000
	service revenue		19000
Jun-30	notes receivable	5000
	accounts receivable		5000
2a)		debit	credit
Jun-30	bad debts expense	950
	allowance for uncollectible accounts		950
	(19000*0.05)
2b)	partial balance sheet
	assets
	current asset
	account receivable	19000
	Less :allowance for uncollectible accounts	-950
	net account receivable	18050