Brief Exercise 7-07

Your answer is correct.

   

Battle Tank Limited had net sales in 2020 of $2.3 million. At December 31, 2020, before adjusting
entries, the balances in selected accounts were as follows: Accounts Receivable $350,000 debit;
Allowance for Doubtful Accounts $4,600 credit. Assume Battle Tank has examined the aging of the
accounts receivable and has determined the Allowance for Doubtful Accounts should have a balance of
$42,000, prepare the December 31, 2020 journal entry to record the adjustment to Allowance for
Doubtful Accounts. (Credit account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.)

Account Titles and

Debit Credit
Explanation

Bad Debt Expe

37400

Allow ance for

37400

Solution
CLOSE

Brief Exercise 7-07

Allowance for Doubtful Accounts ($42,000 – $4,600) = $37,400

Brief Exercise 7-14

Your answer is correct.

   

On October 1, 2020, Alpha Inc. assigns $3 million of its accounts receivable to Alberta Provincial Bank
as collateral for a $2.6-million loan evidenced by a note. The bank's charges are as follows: a finance
charge of 4% of the assigned receivables and an interest charge of 10% on the loan.

Prepare the October 1 journal entries for both Alpha and Alberta Provincial Bank. (Credit account
titles are automatically indented when amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date Account Titles and Explanation Debit Credit

Alpha Inc.

Oct. Cash
1 2480000

Finance Expen
120000
 Notes Payable
2600000

Alberta Provincial Bank

Oct. Notes Receiva

1 2600000

Cash
2480000

Finance Reven
120000

Solution
CLOSE

Brief Exercise 7-14

Finance Expense ($3,000,000 x 4%) = $120,000

Exercise 7-05 a

Your answer is correct.

   

Information on Janut Corp., which reports under ASPE, follows:

July Janut Corp. sold to Harding Ltd. merchandise having a sales price of $9,000, terms 2/10, n/60.
1 Ignore cost of goods sold entry.
3 Harding Ltd. returned defective merchandise having a sales price of $700. The merchandise
was not saleable and was scrapped.
5 Accounts receivable of $19,000 are factored with Jackson Credit Corp. without recourse at a
financing charge of 9%. Cash is received for the proceeds and collections are handled by the
finance company.
9 Specific accounts receivable of $15,000 (gross) are pledged to Landon Credit Corp. as security
for a loan of $11,000 at a finance charge of 3% of the loan amount plus 9% interest on the
outstanding balance. Janut will continue to make the collections. All the accounts receivable
pledged are past the discount period and were originally subject to a 2% discount.
Dec. Harding Ltd. notifies Janut that it is bankrupt and will be able to pay only 10% of its account.
29 Give the entry to write off the uncollectible balance using the allowance method.

(a)

Prepare all necessary journal entries on Janut Corp.’s books. (Credit account titles are
automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts. Record
journal entries in the order presented in the problem.)

Date Account Titles and Explanation Debit Credit

 7/1 Accounts Rec
9000

Sales Revenu
9000

7/3 Sales Returns

700

Accounts Rec
700

Cash
7/5 17290

Loss on Dispo
1710

Accounts Rec
19000

Cash
7/9 10670

Finance Expen
330

Notes Payable
11000

12/29 Allow ance for

7470

Accounts Rec
7470

Solution
CLOSE

Exercise 7-05 a

7/5 Cash $19,000 × 91% = $17,290

Accounts
7/5 $19,000 - $17,290 = $1,710
Receivable
7/9 Finance Expense $11,000 × 3% = $330
Accounts ($9,000 – $700) =
12/29
Receivable $8,300
$8,300 – (10% × $8,300) = $7,470
 Brief Exercise 7-12

On January 1, Aitocs Inc. sold used equipment with a cost of $15,000 and a carrying amount of
$2,500 to Disc Corp. in exchange for a $5,000, three-year non–interest-bearing note receivable.
Although no interest was specified, the market rate for a loan of that risk would be 9%. Assume
that Aitocs follows IFRS.

Your answer is correct.

   
Prepare the entry to record the sale of Aitocs’s equipment and receipt of the note. (Round
answers to 0 decimal places, e.g. 5,275. Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no entry is required,
select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and

Debit Credit
Explanation

Notes Receiva
3861

Accumulated D
12500

Equipment
15000

Gain on Dispo
1361

Solution
CLOSE

Brief Exercise 7-12

Accumulated Depreciation ($15,000 – $2,500) = $12,500

Using a financial calculator:

PV ? Yield $(3,861)
I 9%
N 3
PMT 0
FV $5,000
Typ
0
e

Excel formula: = PV (rate,nper,pmt,fv,type)

*Present value of the note:

$5,000 × PVF3, 9% = $5,000 × 0.77218 = $3,861
Discount on Note Receivable = $5,000 - $3,861 = $1,139

Fair Value of Equipment (present value of

$3,861
note)
Carrying Amount 2,500
Gain on Disposal of Equipment $1,361

Prepare the entries to record the recognition of interest each year. (Round answers to 0 decimal
places, e.g. 5,275. Credit account titles are automatically indented when amount is entered. Do
not indent manually. If no entry is required, select "No Entry" for the account titles and enter
0 for the amounts.)

Account Titles and Explanation Debit Credit

Notes Receiva
347

Interest Incom
347

(To record interest income in the first year)

Notes Receiva
379

Interest Incom
379

(To record interest income in the second year)

Notes Receiva
413

Interest Incom
413

(To record interest income in the third year)

Solution
CLOSE

Brief Exercise 7-12

Interest for Year

$3,861 × 9% = $347
1
Interest for Year
[$3,861 + $347] × 9% = $379
2
Interest for Year [$3,861 + $347 + $379] ×
= $413
3 9%
Prepare the entry to record the collection of the note at maturity. (Credit account titles are
automatically indented when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for the amounts. Round
answers to 0 decimal places, e.g. 5,275.)

Account Titles and

Debit Credit
Explanation

Cash
5000

Notes Receiva
5000