CHAPTER 7

1. Acme Company has an agreement with a credit card company which calls for cash to be received immediately
upon deposit of Acme customers’ credit card sales receipts. The credit card company receives 3.5% of card
sales as its fee. If Acme has $2,000 in credit card sales on January 3, prepare the journal entry to record sales.

2. A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for
uncollectible accounts. Experience suggests that 5% of outstanding receivables are uncollectible. The current
credit balance (before adjustments) in the allowance for doubtful accounts is $600. Prepare the journal entry
to record the adjustment to the allowance.

3. Newton Company uses the allowance method of accounting for uncollectible accounts. On May 3, the Newton
Company wrote off the $3,000 uncollectible account of its customer, P. Best. On July 10, Newton received a
check for the full amount of $3,000 from Best.

 Prepare the required journal entries for on May 3 and on July 10.
 Prepare the required journal entries for on May 3 and on July 10 if Newton uses the direct write-off
method of accounting for uncollectible accounts/

4. A company has the following unadjusted account balances at December 31, of the current year: Accounts
Receivable of $185,700 and Allowance for Doubtful Accounts of $1,600 (credit balance). This company uses
the aging of accounts receivable to estimate its bad debts. The following aging schedule reflects its accounts
receivable at the current year-end:

Estimated
Uncollectible
Account Age Balance Percentage
Current (not yet due)......... $96,000 1.0%
1-30 days past due............. 64,000 3.5
31-60 days past due........... 16,000 12.0
61-90 days past due........... 6,500 42.0
Over 90 days past due....... 3,200 67.0
Total.................................. $185,700

1. Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December
31, of the current year, balance sheet.
2. Prepare the adjusting journal entry to record bad debts expense for the current year.

5. On January 1 a company receives a 10%, 90-day note for $1,500. Calculate the total interest due on the
maturity date. Prepare all required entries on January 1 and on maturity day.

6. Teller purchased merchandise from TechCom on October 17 of the current year. TechCom accepted Teller's
$4,800, 90-day, 10% note as payment. What entry should TechCom make on October 17, on December 31,
and on January 15 of the next year when the note is paid?

7. Western Company sold $700,000 of its accounts receivable and was charged a 3%
factoring fee. How should Western Company record this transaction in the journal?

8. Prepare the company's following transactions for June.

Jun e 2 S o ld m e r c h a n d is e o n a c c o u n t, $ 1 4 ,0 0 0
Jun e 8 S o ld $ 1 5 ,0 0 0 w o r th o f a c c o u n ts r e c e iv a b le to F ir s t B a n k . F ir s t B a n k
c h a rg e d a 3 % fa c to rin g fe e .
Jun e 20 B o r ro w e d $ 3 0 ,0 0 0 c a s h fr o m F ir s t B a n k , p le d g in g $ 3 1 ,5 0 0 w o rth o f
a c c o u n ts re c e iv a b le a s c o lla te ra l fo r th e lo a n .