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ACC1002X Financial Accounting

Semester 2 of Academic Year 2015-2016
SOLUTIONS to Optional Questions
CHAPTER 6: 6-39, 6-53, 6-65, 6-68

6-39
1.

(a)

There would be no entry on July 17. The criteria for revenue recognition were not
yet met.

(b)

August 12—Delivery
Dr. Accounts receivable
50,000
Cr. Sales revenue
To record sales of 1,000 books @ $50 each.

(c)

50,000

September 10—Payment
The cash discount was 2% × $50,000 = $1,000.
Dr. Cash
Dr. Cash discount on sales
Cr. Accounts receivable
To record cash payments received.

(d)

49,000
1,000
50,000

December 18—Returns
This entry differs slightly from the one in the text because payment has already
been made. Instead of decreasing accounts receivable for the merchandise
returned, a cash refund equal to the amount actually paid for the books, $3,000 –
(2% × $3,000) = $2,940, is made.
Dr. Sales returns and allowances
2,940
Cr. Cash
2,940
To record the cash refund on the return of 60 books @ $50 each, net of discounts.

2.

Gross sales
Deduct:
Sales returns and allowances
Cash discount on sales
Net sales

$50,000
$2,940
1,000
$46,060

000 3.000 8.000 $9.000 and crediting the allowance account. Accounts receivable 8.650 278 The ending balance in the allowance account should be $11. Allowance for uncollectible accounts 8.200 24.000 $65.200 10% 4.000 $ 130 61-90 days $15.000 8. which would then contain useful information for possible credit decisions in the future.000 40. The debit and credit to Accounts Receivable would be posted also to the customer’s account.520 $7. Accounts receivable Cr.000 $34.8% 1.000 8.578.800 7.000 Dr.000 Over 90 days $5.000 31. . In all likelihood. Accounts receivable 31. two entries would usually be made.000 20. 6-65 Name Huang Michael’s Shoven Loring Hjortshoj Other accounts Totals Bad debt percentages Bad debt allowance to be provided Total $ 20.000 Note: Although the last two entries could be summarized in a single entry debiting Cash for $8.000 Dr.578 $ 1-30 days 31-60 days 2.000 4.000 $144.000 80.000 85% $ $ 3.000 $ 11.000 4.000 20.000 $35. this is an alarming figure.000 .6-53 Dr.800 .000 12.000 12.0% of the total balance in accounts receivable. The Huang and Shoven accounts deserve concentrated attention. which happens to be 8.2% $ 6. Allowance for uncollectible accounts Cr. Cash Cr.

84. The balance in the allowance account based on ending accounts receivable is more than that based on a percentage of sales. .000) = $86.000 82. The percentage of ending accounts receivable is usually more accurate.200 = $87.600 Journal entry: Dr.200 debit balance.000 The ending balance in the allowance for bad debts account should be (.400 $393. Accounts receivable Less: Allowance for bad debts Net accounts receivable $480. Allowance for bad debts To recognize bad debt expenses for 20X0.400. 2.600 is to create a balance of $86.000 86. 87. Bad debt expense Cr.000 84. Therefore.18 × $480.6-68 1. Accounts receivable Less: Allowance for bad debts (84. Bad debt expense Cr.400 + $1.600 87.000.000) = $84.200 Journal entry: Dr. 3. Allowance for bad debts To recognize bad debt expenses for 20X0.000 – 1. $86.200) Net accounts receivable $480. It focuses specifically on accounts that are still outstanding at the end of the year. It must also offset the existing $1.012 × $7.600.) It appears that the collection experience on Flagstaff’s sales early in 20X0 has been slightly worse than usual.600 The entry of $87. (The aging method would go a step further by looking at the length of time each ending account receivable has been outstanding. The bad debt expense is (.400.000.800 $397.