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Chapter 8 Homework Student Templates – 7th Edition
M8–7
Assume Simple Co. had credit sales of $250,000 and cost of goods sold of $150,000 for the period.
Simple uses the percentage of credit sales method and estimates that 1 percent of credit sales
would result in uncollectible accounts. Before the end-of-period adjustment is made, the Allowance
for Doubtful Accounts has a credit balance of $250. What amount of Bad Debt Expense would the
company record as an end-of-period adjustment?
Credit sales this period
$250,000
Bad debt loss rate (1.0%)
.01
Bad Debt Expense this year
$ 2,500
M8–8
Assume that Simple Co. had credit sales of $250,000 and cost of goods sold of $150,000 for the
period. Simple uses the aging method and estimates that the appropriate ending balance in the
Allowance for Doubtful Accounts is $3,000. Before the end-of-period adjustment is made, the
Allowance for Doubtful Accounts has a credit balance of $250. What amount of Bad Debt Expense
would the company record as an end-of-period adjustment?
Desired balance
-Unadjusted balance
Required Adjustment
M8–9
Using the information in M8-7 and M8-8, prepare the journal entry to record the end-of-period
adjustment for bad debts under the (a) percentage of credit sales method and (b) aging of
accounts receivable method. Which of these methods is required by GAAP?
Adjusting Entry for the % of Credit Sales Method (M8-7)
a.
Bad Debt Expense
2,500
Allowance for Doubtful Accounts
2,500
Adjusting Entry for the aging receivables method (M8-8)
b.
Chapter 8 Homework – ACCT 220 7th Edition
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M 8 – 10
Required: Compute the missing amounts.
Principal on the Note
Interest Rate
Time Period
Interest Earned
a. $100,000
10%
6 months
?????
b. $50,000
?????
9 months
$3,000
c. ?????
10%
12 months
$4,000
Exercise 8 – 8
Innovative Tech Inc. (ITI) has been using the percentage of credit sales method to estimate bad
debts. During November, ITI sold services on account for $100,000 and estimated that ½ of 1 percent
of those sales would be uncollectible.
Required:
1. Prepare the November adjusting entry for bad debts.
2. Starting in December, ITI switched to using the aging method. At its December 31 year-end, total
Accounts Receivable is $89,000, aged as follows: (1) 1–30 days old, $75,000; (2) 31–90 days old,
$10,000; and (3) more than 90 days old, $4,000. The average rate of uncollectibility for each age
group is estimated to be (1) 10 percent, (2) 20 percent, and (3) 40 percent, respectively. Prepare
a schedule to estimate an appropriate year-end balance for Allowance for Doubtful Accounts.
3. Before the end-of-year adjusting entry is made, the Allowance for Doubtful Accounts has a $1,600
credit balance at December 31. Prepare the December 31 adjusting entry.
4. Show how accounts receivable should be shown on the December 31 balance sheet.
Requirement 1- Prepare the November 30 adjusting journal entry for Bad Debt Expense:
Bad Debt Expense
Allowance for Doubtful Accounts
Chapter 8 Homework – ACCT 220 7th Edition
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Exercise 8 – 8 continued
Requirement 2 – Prepare a schedule for bad debt expense using the aging receivables method.
Accounts Receivable
Total
1–30
31–90
> 90
$ 89,000
$ 75,000
$ 10,000
$ 4,000
x 10 %
x 20 %
x 40 %
$ 7,500
$ 2,000
$ 1,600
Estimated Uncollectible (%)
Estimated Uncollectible ($)
$11,100
Requirement 3 – Based on the gaining receivable method to recognize bad debt expense.
What is the amount of bad debt expense recognized?
Unadjusted Balance
Adjustment for Bad Debt Expense
Desired Ending Balance in the Allowance for Doubtful Accounts
$11,100
Adjusting Journal Entry to Recognize Bad Debt Expense using Aging Receivables method.
Requirement 4 – How is this reported on the balance sheet (accounts receivable & AFDA)
The accounts related to accounts receivable can be shown one of two ways on the December 31
balance sheet:
Accounts Receivable
$89,000
Allowance for Doubtful Accounts
($11,100)
Accounts Receivable, Net of Allowance
$77,900
Chapter 8 Homework – ACCT 220 7th Edition
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Exercise 8 – 9
Fraud Investigators Inc. operates a fraud detection service.
Required:
1. Prepare journal entries for each transaction below.
a. On March 31, 10 customers were billed for detection services totaling $25,000.
b. On October 31, a customer balance of $1,500 from a prior year was determined to be
uncollectible and was written off.
c. On December 15, a customer paid an old balance of $900, which had been written off.
d. On December 31, $500 of bad debts were estimated and recorded for the year.
2. Omit Requirement 2
Requirement 1 – Prepare journal entries for transactions a, b, c and d.
a.
Accounts Receivable
25,000
Service Revenue
25,000
b.
c.
Accounts Receivable
900
Allowance for Doubtful Accounts
Cash
900
900
Accounts Receivable
900
d.
Chapter 8 Homework – ACCT 220 7th Edition
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Exercise 8 – 10
The following transactions took place for Smart Solutions Inc.
2020
Transaction
a.
July 1
Loaned $70,000 to an employee & received a one-year, 10 percent note.
b.
Dec. 31
Accrued interest on the note.
2021
c.
July 1
Received interest on the note. (No interest has been recorded since December 31.)
d.
July 1
Received principal on the note.
Required:
Prepare the journal entries that Smart Solutions Inc. would record for the above transactions.
Journal Entry on July 1, 2020
a.
Adjusting Journal Entry to Recognize Interest Expense for the year on December 31, 2020
b.
Journal Entry on July 1, 2021 when the note matures (Combine the c & d as shown in the lecture)
c/d
Chapter 8 Homework – ACCT 220 7th Edition
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