Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 6, Problem 5C
Receivables Issues
Magrath Company has an operating cycle of less than one year and provides credit terms for all of its customers. On April 3, 2019, the company factored, without recourse, some of its accounts receivable. Magrath does not normally factor its receivables.
On August 1, 2019, Magrath sold special order merchandise and received an interest-bearing note due April 30, 2020. Magrath uses the allowance method to account for uncollectible accounts. During 2019, some accounts were written off as uncollectible, and other accounts previously written off as uncollectible were collected.
Required:
- 1. Explain how Magrath should account for and report the accounts receivable factored on April 3, 2019. Why is this accounting treatment appropriate?
- 2. Explain how Magrath should report the effects of the interest-bearing note on its income statement for the year ended December 31, 2019, and its December 31, 2019, balance sheet.
- 3. Explain how Magrath should account for the collection of the accounts previously written off as uncollectible.
- 4. What are the two basic approaches to estimating uncollectible accounts under the allowance method? What is the rationale for each approach?
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Orange Company has an operating cycle of less than one year
and provides credit terms for all of its customers. On May 20,
2022, the company factored, without recourse, some of its
accounts receivable. On October 1, 2022, Orange Company sold
special order merchandise and received an interest-bearing note
due June 30, 2023. Orange Company uses the allowance method
to account for uncollectible accounts. During 2022, some
accounts were written off as uncollectible, and other accounts
previously written off as uncollectible were collected.
a) Discuss how Orange Company should report the effects of
the interest-bearing note on its income statement for the
year ended December 31, 2022 and its December 31, 2022
Statement of Financial Position.
b) Discuss how Orange Company should account for the
collection of the accounts previously written off as
uncollectible.
c) What are the two basic approaches to estimating
uncollectible accounts under the allowance method and
discuss? What is the…
Ace Company uses the Aging of receivables method to account for uncollectible accounts. The company had the following balances on January 01, 2019.
Accounts receivable $2,800,000
Allowance for uncollectible accounts $88,800 (credit)
The company completed the following transactions during 2019.
Wrote off the balance of $1,000 from Shari Wickham’s account as uncollectible on April 20
Re-instated the account of Louis Benn and recorded the collection of $1,500 as payment in full for her account which had been written off earlier on November 27
On December 31st, Recorded the uncollectible account expense based on the aging schedule. The schedule showed that $124,500 of accounts receivable was estimated as uncollectible and made the closing entry for the uncollectible expense account.
Requirements:
1. Prepare journal entries for each transaction (No narrations required)
2. Prepare the Allowance for Uncollectible and the Accounts Receivable accounts based on the information…
Ivanhoe Company uses the allowance method in accounting for uncollectible accounts. Past experience indicates that 8% of
receivables will eventually be uncollectible. Selected account balances at December 31, 2019, and December 31, 2020, appear below:
Net Credit Sales
Accounts Receivable
Allowance for Doubtful Accounts
(a)
Nov. 15
Date
Aug. 10
Record the following events in 2020. The given balance in the Accounts Receivable account at December 31, 2020 reflects the
2020 transactions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.
Record journal entries in the order presented in the problem. List all debit entries before credit entries.)
Sept. 12
12/31/19
$324,000
Aug. 10 Determined that the account of L. Young for $648 is uncollectible.
Sept. 12
Determined that the account of J. E. Ford for $3,672 is uncollectible.
Oct. 10
Received a check for $432 as payment on account from L. Young, whose account had previously been written off…
Chapter 6 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 6 - What are the components of cash? What items may be...Ch. 6 - Prob. 2GICh. 6 - Prob. 3GICh. 6 - Prob. 4GICh. 6 - Prob. 5GICh. 6 - How are trade receivables different from nontrade...Ch. 6 - How is revenue recognition related to the...Ch. 6 - Prob. 8GICh. 6 - Prob. 9GICh. 6 - What is a sales return? A sales allowance?...
Ch. 6 - Discuss the differences between the allowance...Ch. 6 - Prob. 12GICh. 6 - Prob. 13GICh. 6 - What method of bad debt estimation categorizes...Ch. 6 - Why does the write-off of uncollectible accounts...Ch. 6 - Discuss the difference between a secured borrowing...Ch. 6 - When does a company record the transfer of...Ch. 6 - Prob. 18GICh. 6 - What is a non-interest-bearing note? How does...Ch. 6 - Prob. 20GICh. 6 - How are the cash proceeds determined when a note...Ch. 6 - Under IFRS, what criteria must be satisfied in...Ch. 6 - Prob. 23GICh. 6 - (Appendix 6. 1) What is the purpose of a petty...Ch. 6 - (Appendix 6. 7) Why are actual expenses, rather...Ch. 6 - Prob. 26GICh. 6 - Prob. 27GICh. 6 - Prob. 1MCCh. 6 - Greenfield Company had the following cash balances...Ch. 6 - A company is in its first year of operations and...Ch. 6 - Marmol Corporation uses the allowance method for...Ch. 6 - On January 1, 2019, King Companys Allowance for...Ch. 6 - Prior to adjustments, Barrett Companys account...Ch. 6 - A method of estimating bad debts that focuses on...Ch. 6 - When the accounts receivable of a company are sold...Ch. 6 - Prob. 9MCCh. 6 - Prob. 10MCCh. 6 - Prob. 11MCCh. 6 - On December 31, Harrison Company reports the...Ch. 6 - Lindley Enterprises sells hand woven rugs. Paige...Ch. 6 - Long Corporation is a fabric manufacturing...Ch. 6 - Refer to RE6-3. Assume Long records accounts...Ch. 6 - Longmire Sons nude sales un credit to Alderman...Ch. 6 - Refer to RE6-5. Assume Longmire uses a perpetual...Ch. 6 - McKinney Co. estimates its uncollectible accounts...Ch. 6 - Refer to RE6-7. At the end of the first quarter of...Ch. 6 - Refer to RE6-8. On April 23, 2020, McKinncy Co....Ch. 6 - On December 1 of the current year, Jordan Inc....Ch. 6 - On December 1 of the current year, Jordan Inc....Ch. 6 - On December 1, Newton Enterprises sells 100,000 of...Ch. 6 - Kaseys Cake Shop made 20,000 in sales of wedding...Ch. 6 - On June 1, Phillips Corporation sold, with...Ch. 6 - Prob. 15RECh. 6 - Prob. 16RECh. 6 - Computing; the Cash Balance Listed below are ten...Ch. 6 - Prob. 2ECh. 6 - Journal Entry to Separate Receivables An...Ch. 6 - Prob. 4ECh. 6 - Prob. 5ECh. 6 - Prob. 6ECh. 6 - Accounts Receivable Calculations The following...Ch. 6 - Estimation versus Direct Write-Off of Bad Debts...Ch. 6 - Estimating Bad Debts from Receivables Balances The...Ch. 6 - Aging Analysis of Accounts Receivable Cowens, a...Ch. 6 - Comparison of Bad Debt Estimation Methods Bradford...Ch. 6 - Inferring Accounts Receivable Amounts At the end...Ch. 6 - ReceivablesBad Debts At January 1, 2019, the...Ch. 6 - Transferring Accounts Receivable White Corporation...Ch. 6 - Transfer of Accounts Receivable Inder Corporation...Ch. 6 - Generating Cash from Receivables Guide Company...Ch. 6 - Interest-Bearing and Non-Interest-Bearing Notes On...Ch. 6 - Computing the Proceeds from the Sale of Notes...Ch. 6 - Recording the Sale of Notes Receivable Singer...Ch. 6 - Prob. 20ECh. 6 - Prob. 21ECh. 6 - Prob. 22ECh. 6 - Prob. 23ECh. 6 - Prob. 24ECh. 6 - Prob. 1PCh. 6 - Prob. 2PCh. 6 - Estimating Bad Debts Keegan Corporations...Ch. 6 - Allowance for Bad Accounts Installment Jewelry...Ch. 6 - Allowance for Doubtful Accounts From inception of...Ch. 6 - Prob. 6PCh. 6 - Aging Accounts Receivable On September 30. 2019...Ch. 6 - Prob. 8PCh. 6 - Prob. 9PCh. 6 - Prob. 10PCh. 6 - Factoring and Assignment of Accounts Receivable...Ch. 6 - Recording Note Transactions The following...Ch. 6 - Notes Receivable Transactions The following notes...Ch. 6 - Analyzing Accounts Receivable Upham Companys June...Ch. 6 - Comprehensive Receivables Problem Blackmon...Ch. 6 - Prob. 16PCh. 6 - Unknown Book Balance (Appendix 6.1) The following...Ch. 6 - Prob. 18PCh. 6 - Prob. 19PCh. 6 - Prob. 1CCh. 6 - Prob. 2CCh. 6 - Bad Debt Expense When a company has a policy of...Ch. 6 - Prob. 4CCh. 6 - Receivables Issues Magrath Company has an...Ch. 6 - Components of Cash Cash is an important asset of a...Ch. 6 - Prob. 7CCh. 6 - Transfer of Accounts and Notes Receivable Tidal...Ch. 6 - Ethics and Sales Returns At the end of 2019, the...Ch. 6 - Analyzing Starbuckss Cash and Receivables...Ch. 6 - Researching GAAP Situation Hamilton Company...
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Resin Milling issued a $390,500 note on January 1, 2018 to a customer in exchange for merchandise. The merchandise had a cost to Resin Milling of $170,000. The terms of the note are 24-month maturity date on December 31, 2019 at a 5% annual interest rate. The customer does not pay on its account and dishonors the note. Record the journal entries for Resin Milling for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on January 1, 2020, assuming interest has not been recognized before note maturityarrow_forwardInferring Accounts Receivable Amounts At the end of 2019, Karras Inc. had a debit balance of 141,120 in its accounts receivable. Additionally, Karras had a credit balance in its allowance for doubtful accounts of 4,350 and 9,420 at the beginning and end of the year, respectively. During the year, Karras made credit sales of 1,530,000, collected receivables in the amount of 1,445,700, and recorded bad debt expense of 83, 750. Required: Next Level Compute the amount of accounts receivable that Karras wrote off during the year and the amount of accounts receivable at the beginning of the year.arrow_forwardRain T-Shirts issued a $440,600 note on January 1, 2018 to a customer, Larry Potts, in exchange for merchandise. The merchandise had a cost to Rain T-Shirts of $220,300. The terms of the note are 24-month maturity date on December 31, 2019 at a 4.5% annual interest rate. Larry Potts does not pay on his account and dishonors the note. Record journal entries for Rain T-Shirts for the following transactions. A. Initial sale on January 1, 2018 B. Dishonored note entry on January 1, 2020, assuming interest has not been recognized before note maturityarrow_forward
- Prior to adjustments, Barrett Companys account balances at December 31, 2019, for Accounts Receivable and the related Allowance for Doubtful Accounts were 1,200,000 and 60,000, respectively. An aging of accounts receivable indicated that 106,000 of the December 31, 2019, receivables may be uncollectible. The net realizable value of accounts receivable at December 31, 2019, was: a. 1,034,000 b. 1,094,000 c. 1,140,000 d. 1,154,000arrow_forwardMcKinney Co. estimates its uncollectible accounts as a percentage of credit sales. McKinney made credit sales of 1,500,000 in 2019. McKinney estimates 2.5% of its sales will be uncollectible. Prepare the journal entry to record bad debt expense for McKinney at the end of 2019.arrow_forwardOn December 31, 2019, the end of X Company's accounting period, the company has outstanding Accounts Receivable of P400,000. The company estimates that 5% of these receivables might not be collected. If there is P12,000 (credit) balance for Allowance for Uncollectible Accounts, how much is required balance of the Allowance for Uncollectible Accounts?arrow_forward
- On Dec. 31, 2018, Heart Inc. has allowance for doubtful accounts of $4,000. Each month, Heart Inc. makes interim provision for bad debts equal to 1% of credit sales. During 2019, total credit sales are $1,000,000 and $16,000 of accounts receivable is written off. Aging of accounts receivable at December 31, 2019 indicates that an allowance of $20,000 should be provided for doubtful accounts as of that date. How much is the total amount of debit or total amount of credit in the adjusting entry (if there is any) to be made on Dec. 31, 2019?arrow_forwardMagrath Company has an operating cycle of less than one year and provides credit terms for all of its customers.On April 1, 2018, the company factored, without recourse, some of its accounts receivable. Magrath transferredthe receivables to a financial institution, and will have no further association with the receivables.Magrath uses the allowance method to account for uncollectible accounts. During 2018, some accounts werewritten off as uncollectible and other accounts previously written off as uncollectible were collected.Required:1. How should Magrath account for and report the accounts receivable factored on April 1, 2018? Why is thisaccounting treatment appropriate?2. How should Magrath account for the collection of the accounts previously written off as uncollectible?3. What are the two basic approaches to estimating uncollectible accounts under the allowance method? What isthe rationale for each approach?arrow_forwardAdditional information: 1. The company uses a perpetual system 2. The company uses control accounts for selling and administrative expenses. 3. The company records and posts its adjusting entries to its account only at year-end. 4. Uncollectible accounts average 0.5% of net sales. 5. The P400K note receivable was received on March 1, 2019. The 6-month note carries an annual interest rate of 12%, the interest to be collected at the maturity date. 6. The balance in the prepaid insurance account represents payment made on January 1, 2019, for a 1-year comprehensive insurance policy. 7. The property and equipment account consists of land, P500K; buildings, P5.5M; and equipment, P2M. The buildings are depreciated over a 25-year life; the equipment over an 8-year life. Straight-line depreciation is used; residual value is disregarded. No acquisitions have made in 2019. The depreciation on the buildings is treated as an administrative expense; depreciation on the equipment as a selling…arrow_forward
- At the end of 2020, Crane Co. has accounts receivable of $740,200 and an allowance for doubtful accounts of $69,900. On January 24, 2021, the company learns that its receivable from Megan Gray is not collectible, and management authorizes a write-off of $6,.400. Prepare the journal entry to record the write-off. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit List of Accounts What is the cash realizable value of the accounts receivable before the write-off and after the write-off? Before Write-Off After Write-Off Cash realizable value List of Accountsarrow_forwardOn December 31, 2020, Extreme Fitness has adjusted balances of $830,000 in Accounts Receivable and $61,000 in Allowance for Doubtful Accounts. On January 2, 2021, the company learns that certain customer accounts are not collectible, so management authorizes a write-off of these accounts totaling $13,000. Required: Assume that on February 2, 2021, Extreme Fitness received a payment of $800 from one of the customers whose balance had been written off. Prepare the journal entries to record this transaction. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet 1 2 Record the reversal of a customer account previously written off in the amount of $800. On December 31, 2020, Extreme Fitness has adjusted balances of $830,000 in Accounts Receivable and $61,000 in Allowance for Doubtful Accounts. On January 2, 2021, the company learns that certain customer accounts are not collectible, so…arrow_forwardOn January 1, 2021, the books of the Bart Company showed a credit balance in the allowance for doubtful accounts of P16,700. During the year, P13,000 of accounts were written off as uncollectible. Based on prior experience, Bart estimates that 3% of the ending accounts receivable balance will prove to be uncollectible. The accounts receivable balance as of December 31, 2021, is P720,000. The uncollectible accounts expense for 2021 statement of income is:arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Accounts Receivable and Accounts Payable; Author: The Finance Storyteller;https://www.youtube.com/watch?v=x_aUWbQa878;License: Standard Youtube License