Solution Manual For Financial Accounting 16th Edition Carl Warren Christine Jonick Jennifer Schneider

Solution Manual for Financial Accounting, 16th Edition, Carl Warren, Christine Jonick, Jenni
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CHAPTER 9
RECEIVABLES
DISCUSSION QUESTIONS
1. Receivables are normally classified as (1) accounts receivable, (2) notes receivable, or
(3) other receivables.
2. Dan’s Hardware should use the direct write-off method because it is a small business that has
a relatively small number and volume of accounts receivable.
3. Contra asset, credit balance.
4. The accounts receivable and allowance for doubtful accounts may be reported at a net
amount of $661,500 ($673,400 – $11,900) in the Current Assets section of the balance sheet.
In this case, the amount of the allowance for doubtful accounts should be shown separately in
a note to the financial statements or in parentheses on the balance sheet. Alternatively, the
accounts receivable may be shown at the gross amount of $673,400 less the amount of the
allowance for doubtful accounts of $11,900, thus yielding net accounts receivable of
$661,500.
5. (1) The percentage rate used is excessive in relation to the accounts written off as uncollectible;
hence, the balance in the allowance is excessive.
(2) A substantial volume of old uncollectible accounts is still being carried in the accounts
receivable account.
6. An estimate based on analysis of receivables provides the most accurate estimate of the
current net realizable value.
7. a. Sailfish Company
b. Notes Receivable
8. The interest will amount to $5,100 ($85,000 × 6%) only if the note is payable one year from
the date it was created. The usual practice is to state the interest rate in terms of an annual
rate rather than in terms of the period covered by the note.
9. Debit Accounts Receivable for $243,600
Credit Notes Receivable for $240,000
Credit Interest Revenue for $3,600
10. Cash 245,427
Accounts Receivable [$240,000 + ($240,000 × 6% × 90 ÷ 360)] 243,600
Interest Revenue ($243,600 × 9% × 30 ÷ 360) 1,827
9-1
© 2021 Cengage Learning, Inc. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER 9 Receivables
PRACTICE EXERCISES
PE 9-1A
Apr. 15 Cash 1,800
Bad Debt Expense 2,700
Accounts Receivable—Joe Brown 4,500
Aug. 7 Accounts Receivable—Joe Brown 2,700

7 Cash 2,700
PE 9-1B
Oct. 2 Cash 1,140
Accounts Receivable—Elita Ramirez 3,710
Dec. 20 Accounts Receivable—Elita Ramirez 2,570

20 Cash 2,570
PE 9-2A
Apr. 15 Cash 1,800
Allowance for Doubtful Accounts 2,700
Aug. 7 Accounts Receivable—Joe Brown 2,700

7 Cash 2,700
9-2
PE 9-2B
Oct. 2 Cash 1,140
Dec. 20 Accounts Receivable—Elita Ramirez 2,570

20 Cash 2,570
PE 9-3A
a. $158,000 ($31,600,000 × 0.005)
b. Adjusted Balance
Debit (Credit)
Accounts Receivable……………………………………………… $2,450,000
Allowance for Doubtful Accounts ($14,860 + $158,000)…… (172,860)
Bad Debt Expense………………………………………………… 158,000
c. Net realizable value ($2,450,000 – $172,860)…………………… $2,277,140
PE 9-3B
a. $478,500 ($63,800,000 × 0.0075)
b. Adjusted Balance
Debit (Credit)
Allowance for Doubtful Accounts ($478,500 – $17,230)…… (461,270)
Bad Debt Expense………………………………………………… 478,500
9-3
PE 9-4A
a. $235,140 ($250,000 – $14,860)
b. Adjusted Balance
Debit (Credit)
Allowance for Doubtful Accounts……………………………… (250,000)
Bad Debt Expense………………………………………………… 235,140
PE 9-4B
a. $397,230 ($380,000 + $17,230)
b. Adjusted Balance
Debit (Credit)
Allowance for Doubtful Accounts……………………………… (380,000)
Bad Debt Expense………………………………………………… 397,230
PE 9-5A
a. The due date for the note is September 21, determined as follows:
July …………………………………………………………….……… 8 days (31 – 23)
August …………………………………………………………….… 31 days
September …………………………………………………………… 21
Total…………………………………………………………………… 60 days
b. $56,840 [$56,000 + ($56,000 × 9% × 60 ÷ 360)]
c.
Sept. 21 Cash 56,840
Notes Receivable 56,000
Interest Revenue 840
9-4
PE 9-5B
a. The due date for the note is October 10, determined as follows:
June…………………………………………………………………… 18 days (30 – 12)
July…………………………………………………………………… 31 days
August……………………………………………………………… 31 days
September…………………………………………………………… 30 days
October………………………………………………………….…… 10 days
Total…………………………………………………………………… 120 days
b. $428,400 [$420,000 + ($420,000 × 6% × 120 ÷ 360)]
c. Oct. 10 Cash 428,400

Interest Revenue 8,400
PE 9-6A
a. Turnover 20Y2 20Y1
Sales……………………………… $1,848,000 $1,881,000
Accounts receivable:
Beginning of year…………… $ 195,300 $ 184,700
End of year…………………… $ 224,700 $ 195,300
Average accts. receivable…… $ 210,000 $ 190,000
[($195,300 + $224,700) ÷ 2] [($184,700 + $195,300) ÷ 2]
Accts. receivable turnover…… 8.8 9.9
($1,848,000 ÷ $210,000) ($1,881,000 ÷ $190,000)
b. Days’ Sales in Receivables 20Y2 20Y1

Sales……………………………… $1,848,000 $1,881,000
Average daily sales…………… $ 5,063.0 $ 5,153.4
($1,848,000 ÷ 365 days) ($1,881,000 ÷ 365 days)
[($195,300 + $224,700) ÷ 2] [($184,700 + $195,300) ÷ 2]
Days’ sales in receivables…… 41.5 36.9
($210,000 ÷ $5,063.0) ($190,000 ÷ $5,153.4)
c. The decrease in the accounts receivable turnover from 9.9 to 8.8 and the
increase in the days’ sales in receivables from 36.9 days to 41.5 days indicate
unfavorable changes in the efficiency of collecting receivables.
9-5
PE 9-6B
a. Accounts Receivable Turnover 20Y9 20Y8
Sales…………………………………… $9,525,000 $7,616,000
Accounts receivable:
Beginning of year……………… $ 715,000 $ 645,000
End of year……………………… $ 785,000 $ 715,000
Average accts. receivable………… $ 750,000 $ 680,000
[($715,000 + $785,000) ÷ 2] [($645,000 + $715,000) ÷ 2]
Accts. receivable turnover………… 12.7 11.2
($9,525,000 ÷ $750,000) ($7,616,000 ÷ $680,000)
b. Days’ Sales in Receivables 20Y9 20Y8

Sales…………………………………… $9,525,000 $7,616,000
Average daily sales………………… $ 26,095.9 $ 20,865.8
($9,525,000 ÷ 365 days) ($7,616,000 ÷ 365 days)
[($715,000 + $785,000) ÷ 2] [($645,000 + $715,000) ÷ 2]
Days’ sales in receivables………… 28.7 32.6
($750,000 ÷ $26,095.9) ($680,000 ÷ $20,865.8)
c. The increase in the accounts receivable turnover from 11.2 to 12.7 and the
decrease in the days’ sales in receivables from 32.6 days to 28.7 days indicate
favorable changes in the efficiency of collecting receivables.
9-6
EXERCISES
Ex. 9-1
Accounts receivable from the U.S. government are significantly different from receivables
from commercial aircraft carriers such as Delta and United. In its filing with the Securities
and Exchange Commission, Boeing reports the receivables together on the balance
sheet but discloses each receivable separately in a note to the financial statements.
Ex. 9-2
a. MGM Resorts International: 12.1% ($90,775,000 ÷ $747,981,000)
b. Johnson & Johnson: 1.7% ($248,000,000 ÷ $14,346,000,000)
c. Casino operations experience greater bad debt risk because it is difficult to control
the creditworthiness of customers entering the casino. In addition, individuals who
may have adequate creditworthiness could overextend themselves and lose more
than they can afford if they get caught up in the excitement of gambling. In contrast,
Johnson & Johnson’s customers are primarily other businesses such as grocery
store chains.
Note to Instructors: Approximately one-half of MGM’s receivables are related to its
casino operations.
Ex. 9-3
Jan. 19 Accounts Receivable—Dr. Sinclair Welby 77,000
Sales 77,000
19 Cost of Merchandise Sold 52,600

Merchandise Inventory 52,600
July 7 Cash 30,800

Accounts Receivable—Dr. Sinclair Welby 77,000
Nov. 2 Accounts Receivable—Dr. Sinclair Welby 46,200

2 Cash 46,200
Accounts Receivable—Dr. Sinclair Welby 46,200
9-7
Ex. 9-4
May 1 Accounts Receivable—Taiwan Palace Co. 25,800
Sales 25,800

Aug. 30 Cash 10,900

Accounts Receivable—Taiwan Palace Co. 25,800
Dec. 8 Accounts Receivable—Taiwan Palace Co. 14,900

8 Cash 14,900
Accounts Receivable—Taiwan Palace Co. 14,900
Ex. 9-5
a. Bad Debt Expense 45,800
Accounts Receivable—Philadelphia Inc. 45,800
b. Allowance for Doubtful Accounts 45,800

Accounts Receivable—Philadelphia Inc. 45,800
Ex. 9-6
a. $162,000 ($32,400,000 × 0.0050) c. $243,000 ($32,400,000 × 0.0075)
b. $155,100 ($128,000 + $27,100) d. $261,100 ($279,000 – $17,900)
Ex. 9-7
Account Due Date Number of Days Past Due
Avalanche Auto August 8 84 (23 + 30 + 31)
Bales Auto October 11 20 (31 – 11)
Derby Auto Repair June 23 130 (7 + 31 + 31 + 30 + 31)
Lucky’s Auto Repair September 2 59 (28 + 31)
Pit Stop Auto September 19 42 (11 + 31)
Reliable Auto Repair July 15 108 (16 + 31 + 30 + 31)
Trident Auto August 24 68 (7 + 30 + 31)
Valley Repair & Tow May 17 167 (14 + 30 + 31 + 31 + 30 + 31)
9-8
Ex. 9-8
a.
Customer Due Date Number of Days Past Due
Conover Industries March 22 162 days (9 + 30 + 31 + 30 + 31 + 31)
Keystone Company July 1 61 days (30 + 31)
Moxie Creek Inc. July 25 37 days (6 + 31)
Rainbow Company September 10 Not past due
Swanson Company August 3 28 days (31 – 3)
b.
Aging of Receivables Schedule
August 31
Days Past Due
Not Past Over
Customer Balance Due 1–30 31–60 61–90 90
Academy Industries Inc. 3,000 3,000
Ascent Company 4,500 4,500
Zoot Company 5,000 5,000

Subtotals 1,050,000 600,000 220,000 115,000 85,000 30,000
Conover Industries 30,000 30,000
Keystone Company 18,000 18,000
Moxie Creek Inc. 9,000 9,000
Rainbow Company 26,400 26,400
Swanson Company 46,600 46,600
Totals 1,180,000 626,400 266,600 124,000 103,000 60,000
Ex. 9-9
Days Past Due
Not Past Over
Balance Due 1–30 31–60 61–90 90
Total receivables 1,180,000 626,400 266,600 124,000 103,000 60,000
Percentage uncollectible 2% 4% 18% 40% 75%
Allowance for doubtful
accounts 131,712 12,528 10,664 22,320 41,200 45,000
9-9
Ex. 9-10
Aug. 31 Bad Debt Expense 121,600
Uncollectible accounts estimate
($131,712 – $10,112).
Ex. 9-11
Estimated
Uncollectible Accounts
Age Interval Balance Percent Amount
Not past due $3,250,000 0.8% $ 26,000
1–30 days past due 1,050,000 2.4% 25,200
31–60 days past due 780,000 7.0% 54,600
61–90 days past due 320,000 18.0% 57,600
91–180 days past due 240,000 34.0% 81,600
Over 180 days past due 150,000 85.0% 127,500
Total $5,790,000 $372,500
Ex. 9-12
Dec. 31 Bad Debt Expense 400,900
($372,500 + $28,400).
9-10
Ex. 9-13
a. Apr. 13 Bad Debt Expense 8,450
Accounts Receivable—Dean Sheppard 8,450
May 15 Cash 500

Accounts Receivable—Dan Pyle 7,100
July 27 Accounts Receivable—Dean Sheppard 8,450

27 Cash 8,450

Accounts Receivable—Paul Chapman 2,225
Accounts Receivable—Duane DeRosa 3,550
Accounts Receivable—Teresa Galloway 4,770
Accounts Receivable—Ernie Klatt 1,275
Accounts Receivable—Marty Richey 1,690
31 No entry
9-11
Ex. 9-13 (Concluded)

b. Apr. 13 Allowance for Doubtful Accounts 8,450
May 15 Cash 500

Accounts Receivable—Dan Pyle 7,100
July 27 Accounts Receivable—Dean Sheppard 8,450

27 Cash 8,450
Dec. 31 Allowance for Doubtful Accounts 13,510

Accounts Receivable—Paul Chapman 2,225
Accounts Receivable—Duane DeRosa 3,550
Accounts Receivable—Teresa Galloway 4,770
Accounts Receivable—Ernie Klatt 1,275
Accounts Receivable—Marty Richey 1,690
31 Bad Debt Expense 28,335

($3,778,000 × 0.75% = $28,335).
c. Bad debt expense under:

Allowance method………………………...…………………………………… $28,335
Direct write-off method ($8,450 + $6,600 – $8,450 + $13,510)…………… 20,110
Difference ($28,335 – $20,110)………………………………………………… $ 8,225
Shipway Company’s income would have been $8,225 higher under the direct
write-off method than under the allowance method.
9-12
Ex. 9-14
a. June 8 Bad Debt Expense 8,440
Accounts Receivable—Kathy Quantel 8,440
Aug. 14 Cash 3,000

Accounts Receivable—Rosalie Oakes 12,500
Oct. 16 Accounts Receivable—Kathy Quantel 8,440

16 Cash 8,440

Accounts Receivable—Wade Dolan 4,600
Accounts Receivable—Greg Gagne 3,600
Accounts Receivable—Amber Kisko 7,150
Accounts Receivable—Shannon Poole 2,975
Accounts Receivable—Niki Spence 6,630
31 No entry
9-13
Ex. 9-14 (Continued)

b. June 8 Allowance for Doubtful Accounts 8,440
Aug. 14 Cash 3,000

Accounts Receivable—Rosalie Oakes 12,500
Oct. 16 Accounts Receivable—Kathy Quantel 8,440

16 Cash 8,440

Accounts Receivable—Wade Dolan 4,600
Accounts Receivable—Greg Gagne 3,600
Accounts Receivable—Amber Kisko 7,150
Accounts Receivable—Shannon Poole 2,975
Accounts Receivable—Niki Spence 6,630

($47,090 – $1,545).
Computations:
Aging Class Receivables Estimated Doubtful
(Number of Days Balance on Accounts
Past Due) December 31 Percent Amount
0–30 days $320,000 1% $ 3,200
31–60 days 110,000 3% 3,300
61–90 days 24,000 10% 2,400
91–120 days 18,000 33% 5,940
More than 120 days 43,000 75% 32,250
Total receivables $515,000 $47,090
Estimated balance of allowance account from aging schedule………………… $47,090

Unadjusted credit balance of allowance account………………………………… 1,545 *
Adjustment………………………………………………………………………………… $45,545
* $36,000 – $8,440 – $9,500 + $8,440 – $24,955 = $1,545
9-14

c. Bad debt expense under:
Allowance method……………………………………………………………… $45,545
Direct write-off method ($8,440 + $9,500 – $8,440 + $24,955)…………… 34,455
Difference………………………………………………………………………… $11,090
Rustic Tables’ income would have been $11,090 higher under the direct write-off
method than under the allowance method.
Ex. 9-15
$482,800, computed as follows:
Net income under direct method……………………………………… $487,500
Bad debt expense under direct method……………………………… $27,800
Bad debt expense under allowance method
($3,250,000 × 1%)……………………………………………………… 32,500
Less increase in bad debt expense under allowance method…… 4,700
Net income under allowance method………………………………… $482,800
Ex. 9-16
$593,000, computed as follows:
a. Net income under direct method………………………………… $600,000
Bad debt expense under direct method………………………… $34,000
Bad debt expense under allowance method
($4,100,000 × 1%)………………………………………………… 41,000
Less increase in bad debt expense under
allowance method………………………………………………… 7,000
Net income under allowance method…………………………… $593,000
b. $11,700, as shown in the following T account:

Allowance for Doubtful Accounts
Year 1 Write-offs 27,800 Year 1 Adj. Entry 32,500
Bal. 4,700
Year 2 Write-offs 34,000 Year 2 Adj. Entry 41,000
Bal. 11,700
Ex. 9-17
Accounts Receivable—Shawn Brooke 4,650
Accounts Receivable—Eve Denton 5,180
Accounts Receivable—Art Malloy 11,050
Accounts Receivable—Cassie Yost 9,120
9-15

Accounts Receivable—Shawn Brooke 4,650
Accounts Receivable—Eve Denton 5,180
Accounts Receivable—Art Malloy 11,050
Accounts Receivable—Cassie Yost 9,120

($5,250,000 × 0.75% = $39,375).
c. Net income would have been $9,375 higher under the direct write-off method
because bad debt expense would have been $9,375 lower under the direct
method ($39,375 expense under the allowance method versus $30,000 expense
under the direct write-off method).
Ex. 9-18
Accounts Receivable—Kim Abel 21,550
Accounts Receivable—Lee Drake 33,925
Accounts Receivable—Jenny Green 27,565
Accounts Receivable—Mike Lamb 19,460

Accounts Receivable—Kim Abel 21,550
Accounts Receivable—Lee Drake 33,925
Accounts Receivable—Jenny Green 27,565
Accounts Receivable—Mike Lamb 19,460

($109,650 + $7,500).
Computations:
Aging Class Receivables Estimated Doubtful
(Number of Days Balance on Accounts
Past Due) December 31 Percent Amount
0–30 days $ 715,000 1% $ 7,150
31–60 days 310,000 2% 6,200
61–90 days 102,000 15% 15,300
91–120 days 76,000 30% 22,800
More than 120 days 97,000 60% 58,200
Total receivables $1,300,000 $109,650
9-16

Unadjusted debit balance of Allowance for Doubtful Accounts
($102,500 – $95,000)……………………………………………………………………… $ 7,500
Estimated balance of Allowance for Doubtful Accounts
from aging schedule…………………………………………………………………… 109,650
Adjustment………………………………………………………………………………… $117,150
c. Net income would have been $14,650 lower under the allowance method because
bad debt expense would have been $14,650 higher under the allowance method
($117,150 expense under the allowance method versus $102,500 expense under
the direct write-off method).
Ex. 9-19
Due Date Interest
a. Apr. 10 $500 [$40,000 × 0.05 × (90 ÷ 360)]
b. Sept. 15 720 [$18,000 × 0.08 × (180 ÷ 360)]
c. July 5 525 [$90,000 × 0.07 × (30 ÷ 360)]
d. Dec. 7 270 [$36,000 × 0.03 × (90 ÷ 360)]
e. Jan. 19 180 [$27,000 × 0.04 × (60 ÷ 360)]
Ex. 9-20
a. August 11 (17 + 31 + 30 + 31 + 11)
b. $94,550 [($93,000 × 5% × 120 ÷ 360) + $93,000]
c. (1) Apr. 13 Notes Receivable 93,000
Accounts Rec.—Autumn Designs &
Decorators 93,000
(2) Aug. 11 Cash 94,550

Ex. 9-21
a. Sale on account.
b. Cost of goods sold for the sale on account.
c. Note received from customer on account.
d. Note dishonored and charged face value of note plus interest to customer’s
account receivable.
e. Payment received from customer for dishonored note plus interest earned
after due date.
9-17
Ex. 9-22
20Y3
Nov. 21 Notes Receivable 96,000
Accounts Receivable—McKenna Outer Wear Co. 96,000
Dec. 31 Interest Receivable 320

Accrued interest ($96,000 × 0.03 × 40 ÷ 360).
20Y4
Jan. 20 Cash 96,480
Interest Receivable 320
Interest Revenue ($96,000 × 0.03 × 20 ÷ 360) 160
Ex. 9-23
June 23 Notes Receivable 48,000
Accounts Receivable—Radon Express Co. 48,000
Sept. 21 Accounts Receivable—Radon Express Co. 48,960

($48,000 × 0.08 × 90 ÷ 360).
Oct. 21 Cash 49,368

Accounts Receivable—Radon Express Co. 48,960
($48,960 × 0.10 × 30 ÷ 360).
9-18
Ex. 9-24
Apr. 18 Notes Receivable 60,000
Accounts Receivable—Glenn Cross 60,000
30 Notes Receivable 42,000

Accounts Receivable—Rhoni Melville 42,000
May 18 Accounts Receivable—Glenn Cross 60,350

($60,000 × 7% × 30 ÷ 360).
June 29 Accounts Receivable—Rhoni Melville 42,560

($42,000 × 8% × 60 ÷ 360).
Aug. 16 Cash 61,557

Accounts Receivable—Glenn Cross 60,350
($60,350 × 8% × 90 ÷ 360).
Oct. 22 Allowance for Doubtful Accounts 42,560

Accounts Receivable—Rhoni Melville 42,560
Ex. 9-25
1. The interest receivable should be reported separately as a current asset. It
should not be deducted from notes receivable.
2. The allowance for doubtful accounts should be deducted from accounts
receivable.
A corrected partial balance sheet would be as follows:
Napa Vino Company

Balance Sheet
December 31, 20Y9
Assets
Current assets:
Cash $ 78,500
Notes receivable 300,000
Accounts receivable $1,200,000
Less allowance for doubtful accounts 11,500 1,188,500
Interest receivable 4,500
9-19
Ex. 9-26
a. and b.
Year 2 Year 1
Sales……………………………… $6,182,300 $6,652,800
Accounts receivable…………… $ 643,600 $ 664,600
[($643,600 + $664,600) ÷ 2] [($664,600 + $770,700) ÷ 2]
($6,182,300 ÷ $654,100) ($6,652,800 ÷ $717,650)
Average daily sales…………… $ 16,937.8 $ 18,226.8
($6,182,300 ÷ 365) ($6,652,800 ÷ 365)
($654,100 ÷ $16,937.8) ($717,650 ÷ $18,226.8)
The days’ sales in receivables could also be computed by dividing 365 days by
the accounts receivable turnover as follows:
Year 2: 38.6 (365 days ÷ 9.45)
Year 1: 39.4 (365 days ÷ 9.27)
c. The accounts receivable turnover indicates a slight increase in the efficiency of
collecting accounts receivable by increasing from 9.27 to 9.45, a favorable
change. The days’ sales in receivables also indicates an increase in the efficiency
of collecting accounts receivable by decreasing from 39.4 to 38.6, which is a
favorable change. However, before reaching a final conclusion, the ratios
should be compared with industry averages and similar firms.
Ex. 9-27
a. and b.
Year 2 Year 1
Sales……………………………… $8,685 $7,890
Accounts receivable…………… $ 805 $ 616
Average accts. receivable…… $710.5 $627.0
[($805 + $616) ÷ 2] [($616 + $638) ÷ 2]
($8,685 ÷ $710.5) ($7,890 ÷ $627.0)
Average daily sales…………… $23.79 $21.62
($8,685 ÷ 365) ($7,890 ÷ 365)
($710.5 ÷ $23.79) ($627.0 ÷ $21.62)
Year 2: 29.9 (365 days ÷ 12.22)
Year 1: 29.0 (365 days ÷ 12.58)
9-20

c. The accounts receivable turnover indicates a decrease in the efficiency of collecting
accounts receivable by decreasing from 12.58 to 12.22, an unfavorable change. The
number of days’ sales in receivables increased from 29.0 to 29.9 days, also indicating
an unfavorable change in collections of receivables. However, before a final
conclusion can be reached, both ratios should be compared with those of past
years, industry averages, and similar firms.
Ex. 9-28
a. and b.
Year 2 Year 1
Sales……………………………… $4,036 $3,796
Accounts receivable……………… $ 93 $ 78
Average accts. receivable……… $ 85.5 $ 82.5
[($93 + $78) ÷ 2] [($78 + $87) ÷ 2]
Accts. receivable turnover……… 47.20 46.01
($4,036 ÷ $85.5) ($3,796 ÷ $82.5)
Average daily sales……………… $ 11.1 $ 10.4
($4,036 ÷ 365) ($3,796 ÷ 365)
Days’ sales in receivables……… 7.7 7.9
($85.5 ÷ $11.1) ($82.5 ÷ $10.4)
The days’ sales in receivables could also be computed by dividing 365 days by the
accounts receivable turnover as follows:
Year 2: 7.7 (365 days ÷ 47.20)
Year 1: 7.9 (365 days ÷ 46.01)
c. The accounts receivable turnover indicates an increase in the efficiency of collecting
accounts receivable by increasing from 46.01 to 47.20, a favorable change. The
days’ sales in receivables indicates an increase in the efficiency of collecting
accounts receivable by decreasing from 7.9 to 7.7, also indicating a favorable
change. Before a conclusion can be reached, however, the ratios should be
compared with industry averages and similar firms.
9-21
Ex. 9-29
a. The average accounts receivable turnover ratios are as follows:
Campbell Soup: 12.40 [(12.22 + 12.58) ÷ 2]
American Eagle Outfitters: 46.61 [(47.20 + 46.01) ÷ 2]
Note: For computations of the individual ratios, see Ex. 9-27 and Ex. 9-28.
b. American Eagle Outfitters has the higher average accounts receivable turnover
ratio.
c. American Eagle Outfitters operates a specialty retail chain of stores that sells
directly to individual consumers. Many of these consumers (retail customers) pay
using MasterCard or VISA, which is recorded as cash sales. In contrast, Campbell
Soup manufactures foods that are sold to food wholesalers, grocery store chains,
and other food distributors that eventually sell Campbell’s products to individual
consumers. Accordingly, because of the extended distribution chain, we would
expect Campbell Soup to have more accounts receivable than American Eagle.
In addition, we would expect Campbell’s business customers to take a longer
period to pay their receivables. Thus, we would expect Campbell’s average
accounts receivable turnover ratio to be lower than American Eagle, as shown
in (a).
9-22
PROBLEMS
Prob. 9-1A
1. and 2.
Jan. 29 10,200 Jan. 1 Balance 102,380
Aug. 9 22,380 Apr. 18 7,560
Dec. 31 98,530 Nov. 7 13,220
31 Unadjusted Balance 7,950 Dec. 31 Adjusting Entry 121,280
31 Adj. Balance 113,330
Bad Debt Expense

Dec. 31 Adjusting Entry 121,280
3. $2,626,670 ($2,740,000 – $113,330)
4. a. $124,500 ($24,900,000 × 0.005)

b. $116,550 ($124,500 – $7,950)
c. $2,623,450 ($2,740,000 – $116,550)
9-23
Prob. 9-1A (Concluded)

2. Jan. 29 Cash 6,800
Accounts Receivable—Jankovich Co. 17,000
Apr. 18 Accounts Receivable—Vince Karm 7,560

18 Cash 7,560
Accounts Receivable—Vince Karm 7,560
Aug. 9 Allowance for Doubtful Accounts 22,380

Accounts Receivable—Golden Stallion Co. 22,380
Nov. 7 Accounts Receivable—Wiley Co. 13,220

7 Cash 13,220
Accounts Receivable—Wiley Co. 13,220

Accounts Receivable—Claire Moon Inc. 22,860
Accounts Receivable—Jet Set Co. 15,320
Accounts Receivable—Randall Distributors 41,460
Accounts Receivable—Harmonic Audio 18,890

($113,330 + $7,950).
Prob. 9-2A
1.
Adams Sports & Flies May 22, 20Y6 223 days (9 + 30 + 31 + 31 + 30 + 31 + 30 + 31)
Blue Dun Flies Oct. 10, 20Y6 82 days (21 + 30 + 31)
Cicada Fish Co. Sept. 29, 20Y6 93 days (1 + 31 + 30 + 31)
Deschutes Sports Oct. 20, 20Y6 72 days (11 + 30 + 31)
Green River Sports Nov. 7, 20Y6 54 days (23 + 31)
Smith River Co. Nov. 28, 20Y6 33 days (2 + 31)
Western Trout Company Dec. 7, 20Y6 24 days
Wolfe Sports Jan. 20, 20Y7 Not past due
9-24

2. and 3.
December 31, 20Y6
Not Days Past Due
Past Over
Customer Balance Due 1–30 31–60 61–90 91–120 120
AAA Outfitters 20,000 20,000
Brown Trout Fly Shop 7,500 7,500
Zigs Fish Adventures 4,000 4,000

Subtotals 1,300,000 750,000 290,000 120,000 40,000 20,000 80,000
Adams Sports & Flies 5,000 5,000
Blue Dun Flies 4,900 4,900
Cicada Fish Co. 8,400 8,400
Deschutes Sports 7,000 7,000
Green River Sports 3,500 3,500
Smith River Co. 2,400 2,400
Western Trout Company 6,800 6,800
Wolfe Sports 4,400 4,400
Totals 1,342,400 754,400 296,800 125,900 51,900 28,400 85,000
Percentage uncollectible 1% 2% 10% 30% 40% 80%
Estimate of uncollectible
accounts 121,000 7,544 5,936 12,590 15,570 11,360 68,000
4. Bad Debt Expense 124,600

($121,000 + $3,600).
5. On the balance sheet, assets would be overstated by $124,600 because the

allowance for doubtful accounts would be understated by $124,600. In addition,
the owner’s capital account would be overstated by $124,600 because bad
debt expense would be understated and net income overstated by $124,600 on
the income statement.
9-25
Prob. 9-3A
1. Bad Debt Expense
Increase Balance of
Expense Expense (Decrease) Allowance
Actually Based on in Amount Account,
Year Reported Estimate of Expense End of Year
1st $ 4,500 $ 9,000 $4,500 $ 4,500
2nd 9,600 12,500 2,900 7,400
3rd 12,800 15,000 2,200 9,600
4th 16,550 22,000 5,450 15,050
2. Yes. The actual write-offs of accounts originating in the first two years are
reasonably close to the expense that would have been charged to those years
on the basis of 1% of sales. The total write-off of receivables originating in
the first year amounted to $8,500 ($4,500 + $3,000 + $1,000), as compared to bad
debt expense, based on the percentage of sales, of $9,000 ($900,000 × 1%). For
the second year, the comparable amounts were write-offs of $11,800 ($6,600 +
$3,700 + $1,500) and bad debt expense of $12,500 ($1,250,000 × 1%).
9-26
Prob. 9-4A
1. (a) (b)
Note Due Date Interest Due at Maturity
1. Apr. 20 $500 ($80,000 × 5% × 45 ÷ 360)
2. June 22 360 ($24,000 × 9% × 60 ÷ 360)
3. Nov. 17 840 ($42,000 × 6% × 120 ÷ 360)
4. Dec. 5 945 ($54,000 × 7% × 90 ÷ 360)
5. Jan. 28 270 ($27,000 × 6% × 60 ÷ 360)
6. Jan. 29 300 ($72,000 × 5% × 30 ÷ 360)
2. Nov. 17 Accounts Receivable 42,840

3. Dec. 31 Interest Receivable 154

Accrued interest.
$27,000 × 6% × 32 ÷ 360 = $144
$72,000 × 5% × 1 ÷ 360 = 10
Total $154
4. Jan. 28 Cash 27,270

($27,000 × 6% × 28 ÷ 360).
29 Cash 72,300
($72,000 × 5% × 29 ÷ 360).
9-27
Prob. 9-5A
Accounts Receivable 144,000
May 15 Notes Receivable 270,000

June 9 Cash 145,200

Aug. 22 Notes Receivable 150,000

Sept. 12 Cash 276,300


Oct. 6 Cash 150,750


Nov. 29 Cash 212,800

Dec. 17 Cash 121,000

9-28
Prob. 9-6A
Jan. 3 Notes Receivable 18,000
Cash 18,000
Feb. 10 Accounts Receivable—Bradford & Co. 24,000

Sales 24,000

13 Accounts Receivable—Dry Creek Co. 60,000

Sales 60,000

Mar. 12 Notes Receivable 24,000

Accounts Receivable—Bradford & Co. 24,000

Accounts Receivable—Dry Creek Co. 60,000

Cash 360
($18,000 × 8% × 90 ÷ 360).
May 11 Cash 24,280

($24,000 × 7% × 60 ÷ 360).
13 Accounts Receivable—Dry Creek Co. 60,900

($60,000 × 9% × 60 ÷ 360).
July 12 Cash 62,118

Accounts Receivable—Dry Creek Co. 60,900
($60,900 × 12% × 60 ÷ 360).
9-29

Aug. 1 Cash 18,540
($18,000 × 9% × 120 ÷ 360).
Oct. 5 Accounts Receivable—Halloran Co. 13,500

Sales 13,500

15 Cash 13,500
Accounts Receivable—Halloran Co. 13,500
Prob. 9-1B
1. and 2.
Apr. 3 12,750 Jan. 1 Balance 50,000
July 16 16,500 19 2,660
Dec. 31 24,000 Nov. 23 4,000
Dec. 31 Unadjusted Balance 3,410
31 Adjusting Entry 56,590
31 Adjusted Balance 60,000
Bad Debt Expense

Dec. 31 Adjusting Entry 56,590
3. $2,290,000 ($2,350,000 – $60,000)
4. a. $79,000 ($15,800,000 × 0.005)

b. $82,410 ($79,000 + $3,410)
c. $2,267,590 ($2,350,000 – $82,410)
9-30
Prob. 9-1B (Concluded)

2. Jan. 19 Accounts Receivable—Arlene Gurley 2,660
19 Cash 2,660
Accounts Receivable—Arlene Gurley 2,660
Apr. 3 Allowance for Doubtful Accounts 12,750

Accounts Receivable—Premier GS Co. 12,750
July 16 Cash 5,500

Accounts Receivable—Hayden Co. 22,000
Nov. 23 Accounts Receivable—Harry Carr 4,000

23 Cash 4,000
Accounts Receivable—Harry Carr 4,000

Accounts Receivable—Cavey Co. 3,300
Accounts Receivable—Fogle Co. 8,100
Accounts Receivable—Lake Furniture 11,400
Accounts Receivable—Melinda Shryer 1,200

($60,000 – $3,410).
9-31
Prob. 9-2B
1.
Arcade Beauty Aug. 17, 20Y1 136 days (14 + 30 + 31 + 30 + 31)
Creative Images Oct. 30, 20Y1 62 days (1 + 30 + 31)
Excel Hair Products July 3, 20Y1 181 days (28 + 31 + 30 + 31 + 30 + 31)
First Class Hair Care Sept. 8, 20Y1 114 days (22 + 31 + 30 + 31)
Golden Images Nov. 23, 20Y1 38 days (7 + 31)
Oh That Hair Nov. 29, 20Y1 32 days (1 + 31)
One Stop Hair Designs Dec. 7, 20Y1 24 days
Visions Hair & Nail Jan. 11, 20Y2 Not past due
2. and 3.
December 31, 20Y1
Not Days Past Due
Past Over
Customer Balance Due 1–30 31–60 61–90 91–120 120
ABC Beauty 15,000 15,000
Angel Wigs 8,000 8,000
Zodiac Beauty 3,000 3,000

Subtotals 875,000 415,000 210,000 112,000 55,000 18,000 65,000
Arcade Beauty 10,000 10,000
Creative Images 8,500 8,500
Excel Hair Products 7,500 7,500
First Class Hair Care 6,600 6,600
Golden Images 3,600 3,600
Oh That Hair 1,400 1,400
One Stop Hair Designs 4,000 4,000
Visions Hair & Nail 9,000 9,000
Totals 925,600 424,000 214,000 117,000 63,500 24,600 82,500
Percentage uncollectible 1% 4% 16% 25% 40% 80%
Estimate of uncollectible
accounts 123,235 4,240 8,560 18,720 15,875 9,840 66,000
9-32

4. Bad Debt Expense 115,860
($123,235 – $7,375).
5. On the balance sheet, assets would be overstated by $115,860 because the

allowance for doubtful accounts would be understated by $115,860. In addition,
the owner’s capital account would be overstated by $115,860 because bad debt
expense would be understated and net income overstated by $115,860 on the
income statement.
Prob. 9-3B
1. Bad Debt Expense
Increase Balance of
Expense Expense (Decrease) Allowance
Actually Based on in Amount Account,
Year Reported Estimate of Expense End of Year
1st $18,000 $31,250 $13,250 $13,250
2nd 30,200 37,000 6,800 20,050
3rd 39,900 45,000 5,100 25,150
4th 52,600 60,000 7,400 32,550
2. Yes. The actual write-offs of accounts originating in the first two years are
reasonably close to the expense that would have been charged to those years on
the basis of 1/4% of sales. The total write-off of receivables originating in the first
year amounted to $30,600 ($18,000 + $9,000 + $3,600), as compared to bad debt
expense, based on the percentage of sales of $31,250 ($12,500,000 × 0.0025). For the
second year, the comparable amounts were write-offs of $35,600 ($21,200 + $9,300 +
$5,100) and bad debt expense of $37,000 ($14,800,000 × 0.0025).
9-33
Prob. 9-4B
1. (a) (b)
Note Due Date Interest Due at Maturity
1. Feb. 13 $110 ($33,000 × 4% × 30 ÷ 360)
2. Apr. 23 525 ($60,000 × 7% × 45 ÷ 360)
3. Oct. 10 600 ($48,000 × 5% × 90 ÷ 360)
4. Nov. 6 200 ($16,000 × 6% × 75 ÷ 360)
5. Jan. 14 480 ($36,000 × 8% × 60 ÷ 360)
6. Feb. 8 240 ($24,000 × 6% × 60 ÷ 360)
2. Oct. 10 Accounts Receivable 48,600

3. Dec. 31 Interest Receivable 452

Accrued interest.
$36,000 × 8% × 46 ÷ 360 = $368
$24,000 × 6% × 21 ÷ 360 = 84
Total $452
4. Jan. 14 Cash 36,480

($36,000 × 8% × 14 ÷ 360).
Feb. 8 Cash 24,240

($24,000 × 6% × 39 ÷ 360).
9-34
Prob. 9-5B

May 7 Cash 33,275


June 11 Notes Receivable 36,000

29 Cash 81,400
July 26 Cash 36,270

Aug. 4 Notes Receivable 48,000

14 Cash 73,260
Dec. 2 Cash 49,440

9-35
Prob. 9-6B
Jan. 21 Accounts Receivable—Black Tie Co. 28,000
Sales 28,000


Accounts Receivable—Black Tie Co. 28,000
May 17 Cash 28,280

($28,000 × 6% × 60 ÷ 360).
June 15 Accounts Receivable—Pioneer Co. 17,700

Sales 17,700


Cash 18,000
25 Cash 17,700
Accounts Receivable—Pioneer Co. 17,700
July 21 Notes Receivable 18,000

Cash 120
($18,000 × 8% × 30 ÷ 360).
Sept. 19 Cash 18,270

($18,000 × 9% × 60 ÷ 360).
22 Accounts Receivable—Wycoff Co. 20,000

Sales 20,000
9-36

Sept. 22 Cost of Merchandise Sold 12,000
Oct. 14 Notes Receivable 20,000

Accounts Receivable—Wycoff Co. 20,000
Nov. 13 Accounts Receivable—Wycoff Co. 20,100

($20,000 × 6% × 30 ÷ 360).
Dec. 28 Cash 20,301

Accounts Receivable—Wycoff Co. 20,100
($20,100 × 8% × 45 ÷ 360).
9-37
CASES & PROJECTS

CP 9-1
Estimates of uncollectible accounts receivable create a unique financial reporting
challenge. Because the company does not know with certainty the amount of accounts
receivable that will be uncollectible, there is no “correct” estimate. The company must
use its judgment along with historical data to develop an estimate that fairly presents the
portion of credit sales that will become uncollectible. These estimates are required
under GAAP and should be representationally faithful and accurately match bad debt
expense to revenues generated from credit sales.
In this case, both Tim and Gowen appear to be acting unethically. The historical data
indicate that a higher estimate is needed, and they have both knowingly ignored this
data in order to improve the company’s reported earnings. Tim and Gowen have used
the subjectivity in these estimates inappropriately. The result is a bad debt expense
amount that does not faithfully represent the potential losses associated with
uncollectible accounts receivable.
CP 9-2
By computing interest using a 365-day year for depository accounts (liabilities), Bev is
minimizing interest expense to the bank. By computing interest using a 360-day year
for loans (assets), Bev is maximizing interest revenue to the bank. However, federal
legislation (Truth in Lending Act) requires banks to compute interest on a 365-day year.
Hence, Bev is behaving in an unprofessional manner.
CP 9-3
A sample solution based on Nike Inc.’s Form 10-K for the fiscal year ended May 31, 2018,
follows:
1. a. $3,498 million (from balance sheet)
b. $30 million (Note 1)
c. 23.1% ($3,498 ÷ $15,134) in 2018; 22.9% ($3,677 ÷ $16,061) in 2017.
Accounts receivable as a percentage of total current assets has increased.
d. The amount for Nike is so small that it is not reported in the financial
statements.
2. The company’s receivables turnover has improved from 9.9 in 2017 to 10.1 in 2018,
as shown below.
2018 2017
Sales……………………………………………………… $ 36,397 $ 34,350
Beginning accounts receivable……………………… $ 3,677 $ 3,241
Ending accounts receivable………………………… 3,498 3,677
Average accounts receivable………………………… $3,587.5 $3,459.0
Accounts receivable turnover……………………… 10.1 9.9
9-38
CP 9-4
To: Todd Hurley, CEO
From: A+ Student
Re: Allowance Method for Uncollectible Accounts
Accounts receivable result from the sale of goods to customers on account. Because
payment is received from customers after goods are delivered, there is a risk that
customers will default on their accounts. While the company does not know which
customers will default, it does have historical information on the portion of accounts
receivable that has become uncollectible in the past. The allowance method uses this
information to estimate the amount of accounts receivable that will be uncollectible
at the end of the accounting period. Based on this estimate, an adjusting entry is used to
record bad debt expense. However, because the company does not know which
customer accounts will be uncollectible, the specific customer accounts cannot be
removed. Instead, a contra asset account, Allowance for Doubtful Accounts, is credited
for the estimated bad debts in the adjusting journal entry:
Bad Debt Expense XXX

Allowance for Doubtful Accounts XXX
This adjusting entry affects both the income statement and balance sheet. On the
income statement, bad debt expense is matched against the revenues generated
by the accounts receivable. On the balance sheet, the accounts receivable balance is
reduced by the allowance for doubtful accounts, which is the portion of the accounts
receivable that the company does not expect to collect. This resulting number is the
amount of accounts receivable that the company expects to collect, called the net
realizable value of the receivables.
When a specific customer’s account is identified as uncollectible, it is written off against
the allowance account. This requires the company to remove the specific account
receivable from the accounts receivable ledger and an equal amount from the allowance
account. Because the adjusting entry for bad debt expense is an estimate and the
write-off of accounts receivable is based on actual defaults, the allowance account
will rarely have a zero balance at the beginning or end of a period.
9-39
CP 9-5
1. a. b.
Addition to Allowance Accounts Written
Year for Doubtful Accounts Off During Year
20Y4 $20,000 $15,000 ($20,000 – $5,000)
20Y5 22,000 18,750 ($5,000 + $22,000 – $8,250)
20Y6 24,000 22,050 ($8,250 + $24,000 – $10,200)
20Y7 25,500 21,300 ($10,200 + $25,500 – $14,400)
2. a. The estimate of 1/2 of 1% of credit sales may be too large because the allowance
for doubtful accounts has steadily increased each year. The increasing balance
of the allowance for doubtful accounts may also be due to the failure to write
off a large number of uncollectible accounts. These possibilities could be
evaluated by examining the accounts in the accounts receivable subsidiary
ledger for collectibility and comparing the result with the balance in the
allowance for doubtful accounts.
Note to Instructors: Because the allowance for doubtful accounts increased by 188%
[($14,400 – $5,000) ÷ $5,000] while sales increased by 27.5% [($5,100,000 – $4,000,000) ÷
$4,000,000], the increase cannot be explained by an expanding volume
of sales.
b. The balance of Allowance for Doubtful Accounts that should exist at

December 31, 20Y7, can only be determined after all attempts have been
made to collect the receivables on hand at December 31, 20Y7. However,
the account balances at December 31, 20Y7, could be analyzed, perhaps
using an aging schedule, to determine a reasonable amount of allowance
and to determine accounts that should be written off. Also, past write-offs
of uncollectible accounts could be analyzed in depth in order to develop a
reasonable percentage for future adjusting entries, based on past history.
Caution, however, must be exercised in using historical percentages.
Specifically, inquiries should be made to determine whether any significant
changes between prior years and the current year may have occurred,
which might reduce the accuracy of the historical data. For example, a
recent change in credit-granting policies or changes in the general
economy (entering a recessionary period, for example) could reduce the
usefulness of analyzing historical data.
Based on the preceding analyses, a recommendation to decrease the
annual rate charged as an expense may be in order (perhaps Xtreme Co. is
experiencing a lower rate of uncollectibles than is the industry average), or
perhaps a change to the “estimate based on analysis of receivables”
method may be appropriate.
9-40
CP 9-6
1. and 2.
Year 2 Year 1
Sales………………………………… $42,879 $42,151
[($1,015 + $1,049) ÷ 2] [($1,049 + $1,347) ÷ 2]
($42,879 ÷ $1,032) ($42,151 ÷ $1,198)
Average daily sales………………… $ 117.5 $ 115.5
($42,879 ÷ 365) ($42,151 ÷ 365)
($1,032 ÷ $117.5) ($1,198 ÷ $115.5)
Year 2: 8.8 (365 days ÷ 41.55)
Year 1: 10.4 (365 days ÷ 35.18)
3. The accounts receivable turnover indicates an increase in the efficiency of
collecting accounts receivable by increasing from 35.18 to 41.55, a favorable
change. The days’ sales in receivables decreased from 10.4 days to 8.8, a
favorable change. Thus, based on (1) and (2), Best Buy has increased its
efficiency in the collection of receivables.
4. We assumed that the percentage of credit sales to total sales remains constant
from one period to the next and no major changes in operations occurred
between years. For example, if the percentage of credit sales to total sales is
not similar or if the percentage changes between years, then the ratios would
be distorted and, thus, not comparable. Also, any major changes in operations
could distort the comparison between years.
9-41
CP 9-7
1. and 2.
Year 2 Year 1
Sales………………………………… $265,595 $229,234
[($23,186 + $17,874) ÷ 2] [($17,874 + $15,754) ÷ 2]
($23,186 ÷ $20,530) ($229,234 ÷ $16,814)
($265,595 ÷ 365) ($229,234 ÷ 365)
($20,530 ÷ $727.7) ($16,814 ÷ $628.0)
Year 2: 28.2 (365 days ÷ 12.94)
Year 1: 26.8 (365 days ÷ 13.63)
3. The accounts receivable turnover indicates a decline in the efficiency of

collecting accounts receivable by decreasing from 13.63 to 12.94, an unfavorable
change. The days’ sales in receivables increased from 26.8 days to 28.2, an
unfavorable change. Before a more definitive conclusion can be reached, the
ratios should be compared with industry averages and similar firms.
9-42
CP 9-8
1. and 2.
Year 2 Year 1
Sales………………………………… $138,434 $126,172
Average accts. receivable………… $ 1,550.5 $ 1,342.0
[($1,669 + $1,432) ÷ 2] [($1,432 + $1,252) ÷ 2]
($138,434 ÷ $1,550.5) ($126,172 ÷ $1,342.0)
($138,434 ÷ 365) ($126,172 ÷ 365)
($1,550.5 ÷ $379.3) ($1,342.0 ÷ $345.7)
Year 2: 4.1 (365 days ÷ 89.28)
Year 1: 3.9 (365 days ÷ 94.02)
3. The accounts receivable turnover indicates a slight decrease in the efficiency of

collecting accounts receivable by decreasing from 94.02 to 89.28, an unfavorable
change. The days’ sales in receivables increased from 3.9 days to 4.1 days, an
unfavorable change. Before a more definitive conclusion can be reached, the
ratios should be compared with industry averages and similar firms.
4. Costco’s accounts receivable turnover would normally be higher than that of a

typical manufacturing company such as the Campbell Soup Company. This is
because many of Costco’s customers charge their purchases to credit cards
or pay with checks or cash. In contrast, the customers of the Campbell Soup
Company are other businesses that pay their accounts receivable on a less
timely basis. For a recent year, the accounts receivable turnover ratio for
Campbell Soup was 12.22 (see Ex. 9-27).
9-43
Solution Manual for Financial Accounting, 16th Edition, Carl Warren, Christine Jonick, Jenni
CP 9-9
1. Note to Instructors: The turnover ratios will vary over time. Recently, the various
turnover ratios (rounded to one decimal place) were as follows:
Alcoa Corp. …………………………… 12.2

AutoZone, Inc. ………………………… 40.6
Barnes & Noble, Inc. ………………… 55.8
Caterpillar ……………………………… 6.7
The Coca-Cola Company …………… 8.3
Delta Air Lines ………………………… 17.3
The Home Depot ……………………… 50.5
IBM ……………………………………… 9.8
Kroger …………………………………… 79.6
Procter & Gamble …………………… 13.8
Wal-Mart ………………………………… 95.1
Whirlpool Corporation ……………… 8.5
Based on the above ratios, the companies can be categorized as follows:
Accounts Receivable Turnover Ratio

Below 15 Above 15
Alcoa Inc. AutoZone, Inc.
Caterpillar Barnes & Noble, Inc.
The Coca-Cola Company Delta Air Lines
IBM The Home Depot
Procter & Gamble Kroger
Whirlpool Corporation Wal-Mart
2. The companies with accounts receivable turnover ratios above 15 are all companies
selling primarily to individual consumers. In contrast, companies with turnover
ratios below 15 are companies selling primarily to other businesses. Generally, we
would expect companies selling to individual consumers to have higher turnover
ratios, since many customers will charge their purchases on credit cards. In
contrast, companies selling to other businesses normally allow a credit period of
at least 30 days or longer.
9-44
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Aug. 7 Accounts Receivable—Joe Brown 2,700

Dec. 20 Accounts Receivable—Elita Ramirez 2,570

Aug. 7 Accounts Receivable—Joe Brown 2,700

Dec. 20 Accounts Receivable—Elita Ramirez 2,570

b. $428,400 [$420,000 + ($420,000 × 6% × 120 ÷ 360)]

c. Oct. 10 Cash 428,400

b. Days’ Sales in Receivables 20Y2 20Y1

b. Days’ Sales in Receivables 20Y9 20Y8

19 Cost of Merchandise Sold 52,600

July 7 Cash 30,800

Nov. 2 Accounts Receivable—Dr. Sinclair Welby 46,200

1 Cost of Merchandise Sold 15,300

Aug. 30 Cash 10,900

Dec. 8 Accounts Receivable—Taiwan Palace Co. 14,900

b. Allowance for Doubtful Accounts 45,800

Zoot Company 5,000 5,000

May 15 Cash 500

July 27 Accounts Receivable—Dean Sheppard 8,450

Dec. 31 Bad Debt Expense 13,510

Ex. 9-13 (Concluded)

May 15 Cash 500

July 27 Accounts Receivable—Dean Sheppard 8,450

Dec. 31 Allowance for Doubtful Accounts 13,510

31 Bad Debt Expense 28,335

c. Bad debt expense under:

Aug. 14 Cash 3,000

Oct. 16 Accounts Receivable—Kathy Quantel 8,440

Dec. 31 Bad Debt Expense 24,955

Ex. 9-14 (Continued)

Aug. 14 Cash 3,000

Oct. 16 Accounts Receivable—Kathy Quantel 8,440

Dec. 31 Allowance for Doubtful Accounts 24,955

31 Bad Debt Expense 45,545

Estimated balance of allowance account from aging schedule………………… $47,090

Ex. 9-14 (Concluded)

b. $11,700, as shown in the following T account:

Ex. 9-17 (Concluded)

Bad Debt Expense 39,375

b. Allowance for Doubtful Accounts 102,500

Bad Debt Expense 117,150

Ex. 9-18 (Concluded)

(2) Aug. 11 Cash 94,550

Dec. 31 Interest Receivable 320

Sept. 21 Accounts Receivable—Radon Express Co. 48,960

Oct. 21 Cash 49,368

30 Notes Receivable 42,000

May 18 Accounts Receivable—Glenn Cross 60,350

June 29 Accounts Receivable—Rhoni Melville 42,560

Aug. 16 Cash 61,557

Oct. 22 Allowance for Doubtful Accounts 42,560

Napa Vino Company

Ex. 9-27 (Concluded)

Bad Debt Expense

3. $2,626,670 ($2,740,000 – $113,330)

4. a. $124,500 ($24,900,000 × 0.005)

Prob. 9-1A (Concluded)

Apr. 18 Accounts Receivable—Vince Karm 7,560

Aug. 9 Allowance for Doubtful Accounts 22,380

Nov. 7 Accounts Receivable—Wiley Co. 13,220