CHAPTER 6 IN-CLASS EXERCISE7 (10 points) Part 1(5 points) On Jul. 15, 2017, Harw
ID: 2565254 • Letter: C
Question
CHAPTER 6 IN-CLASS EXERCISE7 (10 points) Part 1(5 points) On Jul. 15, 2017, Harwell Company sold 1,000 automobile tires for $50 each. The terms of the sale were 2/10, n/30. Harwell uses the net method of accounting for cash discounts. 1. Prepare the journal entry to record the sale on Jul. 15, 2017 (ignore cost of goods sold). 2. Prepare the journal entry to record the cash collection assuming the buyer pays on Jul. 23, 2017 3. Prepare the journal entry to record the cash collection assuming the buyer pays on Aug. 10, 2017. Part 2 (5 points) Colorado Rocky Cookie Company offers credit terms to its customers. At the end of 2017, accounts receivable totaled $625,000. The allowance method is used to account for uncollectible accounts. The company estimates bad debts by applying a percentage of 10% to accounts receivable at the end of the year. The allowance for uncollectible accounts had a credit balance of $32,000 at the beginning of 2017 and $21,000 in receivables were written off during the year as uncollectible. Also, $1,200 in cash was received in December from a customer whose account previously had been written off. Prepare the journal entry to record the $21,000 write-off of receivables. Prepare the two journal entries to record the collection of $1,200 for previously written off receivables. Prepare the journal entry to record the year-end adjusting entry for bad debt expense. How would accounts receivable be shown in the 2017 year-end balance sheet? 1. 2. 3. 4.Explanation / Answer
Part I
On jul.15, 2017, Harwell Company sold 1,000 automobile tires for $50 each. The terms of the sale were 2/10, n/30. Harwell uses the net method of accounting for cash discounts.
Date
Journal entry
Debit
Credit
July15,2017
Accounts receivable
$49000
Sales Revenue
$49000
(Being 1000 automobile tires sold @50 each on credit )
2. Prepare the journal entry to record the cash collection assuming the buyer pays on Jul.23, 2017.
Date
Journal entry
Debit
Credit
July15,2017
Accounts receivable
$49000
Sales Revenue
$49000
(Being 1000 automobile tires sold @50 each on credit )
Date
Journal entry
Debit
Credit
July23,2017
Cash
$49000
Accounts receivable
$49000
(Being cash received from debtors or accounts receivable on account of credit sales )
3. Prepare the journal entry to record the cash collection assuming the buyer pays on Aug.10, 2017.
Date
Journal entry
Debit
Credit
July15,2017
Accounts receivable
$49000
Sales Revenue
$49000
(Being 1000 automobile tires sold @50 each on credit and entered with net amount)
Date
Journal entry
Debit
Credit
Aug, 10, 2017
Cash
$50,000
Interest revenue
$1,000
Accounts receivable
$49000
(Being cash received from accounts receivable on account of credit sales and interest due )
Part - II
Date
Journal entry
Debit
Credit
July23,2017
Allowance for uncollectible accounts
$21,000
Accounts receivable
$21,000
(Being $21,000 written off due to uncollectible )
2. Prepare the two journal entries to record to the collection of $1,200 for previously written off receivables.
Date
Journal entry
Debit
Creidt
Accounts Receivable
$1200
Allowance for uncollectible accounts
$1200
(re-entering the previously written off amount to accounts receivables)
Cash
$1200
Accounts Receivable
$1200
(Cash received from accounts receivable from already written off in the past)
3. Prepare the journal entry to record the year-end adjusting entry for bad debt expense.
Date
Journal entry
Debit
Credit
July23,2017
Bad debts expense
$50,300
Allowance for uncollectible accounts
$50,300
(Being $50,300 to be allowed as bad debts expense )
Calculation of bad debts expense amount: 10% of 625,000 = 62,500
Add: amount already in allowance for uncollectible accounts: 12,200
( 32,000 +1,200 – 21,000)
Amount to be provided for allowances as bad debts exp = 62,500 – 12,200 = 50,300
4. How would accounts receivable be shown in the year 2017 year- end balance sheet?
Accounts receivable A/c
$
Debit
$
Credit
To balance
6,25,000
By allowances for uncollectible
21,000
To allowances for uncollectible
1,200
By Cash
1,200
By balance
6,04,000
626200
626200
In the year end balance sheet the Accounts receivable A/c will shown the balance of 6,04,000.
Date
Journal entry
Debit
Credit
July15,2017
Accounts receivable
$49000
Sales Revenue
$49000
(Being 1000 automobile tires sold @50 each on credit )