Problem 7-19A: Determination of Account Balances and Preparation of Journal Entries

Problem 7-19A: Determination of Account Balances and Preparation of Journal Entries—Percent of Receivables Allowance Method of Accounting for Uncollectible Accounts

The following information is available for Quality Book Sales regarding sales on account and accounts receivable:

• Accounts receivable balance, January 1, Year 2: $78,500
• Allowance for doubtful accounts, January 1, Year 2: $4,710
• Sales on account, Year 2: $550,000
• Collection on accounts receivable, Year 2: $556,000

After several collection attempts, Quality Book Sales wrote off $2,850 of accounts that could not be collected. Quality Book Sales estimates that 4 percent of the ending accounts receivable balance will be uncollectible.

Required

a. Compute the following amounts:

1. Using the allowance method, the amount of uncollectible accounts expense for Year 2.
2. Net realizable value of receivables at the end of Year 2.

b. Record the general journal entries to:

1. Record sales on account for Year 2.
2. Record cash collections from accounts receivable for Year 2.
3. Write off the accounts that are not collectible.
4. Record the estimated uncollectible accounts expense for Year 2.

c. Explain why the uncollectible accounts expense amount is different from the amount that was written off as uncollectible.

Problem 7-20A: Accounting for Uncollectible Accounts: Percent of Receivables Allowance Method

Roth Inc. experienced the following transactions for Year 1, its first year of operations:

1. Issued common stock for $50,000 cash.

2. Purchased $140,000 of merchandise on account.

3. Sold merchandise that cost $110,000 for $250,000 on account.

4. Collected $236,000 cash from accounts receivable.

5. Paid $118,000 on accounts payable.

6. Paid $50,000 of salaries expense for the year.

7. Paid other operating expenses of $28,000.

8. Roth adjusted the accounts using the following information from an accounts receivable aging schedule:

   Number of Days Past Due	Amount	Percent Likely to be Uncollectible	Allowance Balance
   Current	$10,000	1%
   0–30	$2,000	5%
   31–60	$1,200	10%
   61–90	$500	20%
   Over 90 days	$300	50%

Required

a. Record the above transactions in general journal form and post to T-accounts.

b. Prepare the income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Roth Inc. for Year 1.

c. What is the net realizable value of the accounts receivable at December 31, Year 1?

Problem 7-21A: Multistep Income Statement and Balance Sheet

Required

Use the following information to prepare a multistep income statement and a balance sheet for Sherman Equipment Co. for Year 2. (Hint: Some of the items will not appear on either statement, and ending retained earnings must be calculated.)