Allowance/
Direct Write-off
Direct Write-off
What accounts are used for the journal entry?
CR Accts Rec
What is the interest formula?
P x I x (Days/360)
Distinguish between the
% of Sales and % of Receivables method
% of Sales: Ignore beginning bal when making adjusting entry.
% of Receivables: calculation is the ending balance.
When we dispose of an asset on any given date other than Dec31 or Jan1, we have to calculate for....
T/F
A market basket purchase is the same thing as a lump-sum purchase.
True
The owner of a business writes off a bad account receivable. He uses the allowance method.
What accounts are used in the journal entry?
dr Allowance for Doubtful Accts
cr Accts Rec
On Sep 31, 2015, Ben accepted a 8-month, 9% note for 8,000$ in settlement of an overdue account receivable. How much accrued interest is recorded on Dec 31?
180
8,000$ * 9% * (90/360)
450,000$ in Credit Sales. 600,000$ in total Sales. Management estimates 5% will be uncollectible.
What is the adjusting entry for the % of sales method estimation of bad debt?
The current balance of the allowance account is 1400dr
DR Bad Debt Expense 22500
CR Allowance 22500
What is the journal entry to dispose of a fully depreciated piece of equipment? (no gain or loss)
CR Equipment xx
*Hint: What numbers do we know without having to calculate anything?
We note the total purchase price, and the appraised value for each asset.
We then total the appraisal value of all acquired assets. The appraised value of each particular asset is then divided by the total appraised value of all assets.
This percentage is then multiplied by the total acquisition (purchase) price, and this value is recorded in our books to the asset account.
What is the journal entry for
Establishing an Allowance for Doubtful Accounts at 10,000$
and subsequently recognizing a bad acct rec in the amount of 4,000$
Establish
DR Bad Debt Expense
CR Allowance for Doubtful Accts
Recognize
DR Allowance
Cr Accts Rec
On Aug 1, 2015, Ben accepted a 10-month, 6% note for 13,000$ in settlement of an overdue account receivable. What is the JE to record accrued interest on Dec 31?
DR Interest Receivable 325
CR Interest Revenue 325
13,000 * .06 * .4167 = 325
800,000$ in Accts Rec
Management estimates 7% will be uncollectible.
What is the adjusting entry for the % of receivables method estimation of bad debt?
The current balance of the allowance account is 650cr
DR Bad Debt Expense 55350
CR Allowance 55350
A piece of equipment costing 52,000 is being disposed of. The accumulated depreciation balance is 43,000.
You do not need to calculate partial-year depreciation.
What is the required journal entry?
*Bonus: Double or nothing*
If the equipment had been sold for 12000$, how would the JE change?
DR Accum Deprec 43,000
DR Loss on Disposal of Equipment 9000
CR Equipment 52000
*Bonus. Sold for 12,000
DR Accum Deprec 43,000
DR Cash 12,000
CR Equipment 52000
CR Gain on Disposal of Equipment 3000
T/F
Prepaid insurance for the year and insurance during the delivery of an asset may not be capitalized to the Asset account, and are therefore not included in the total cost of an asset.
False
While insurance for the year will be debited to a Prepaid account, insurance during the delivery of an asset may be added to the total cost of an asset.
How do you reinstate a bad account rec under the
Direct Write off Method
and
Allowance Method
DW
DR Accts Rec
CR Bad Debts Expense
Allow
DR Accts Rec
CR Allowance
On July 31, 2015, Ben accepted a 4-month, 6% note for 13,000$ in settlement of an overdue account receivable. How much accrued interest is recorded on Dec 31?
N/A
None. The full amount should have been recorded throughout the year.
390,000$ in Credit Sales. 750,000$ in Accts Rec. Management estimates 4% will be uncollectible.
What is the ending balance for the allowance account after the adjusting entry for the % of receivables method estimation of bad debt?
The current balance of the allowance account is 2300dr
15600
A piece of equipment costing 860,000$ has a salvage value of 30,000$. The useful life of the equipment is 1,000,000 units. Assume 800,000 units have been produced. What is the journal entry when the asset is sold for 250,000$?
860,000-30,000=830,000
830,000/1,000,000= .83$/unit
800,000units * .83$ = 664,000 Acccum Deprec
JE:
DR Accum Deprec 664,000
DR Cash 250,000
CR Equipment 860,000
CR Gain on Disposal of Equipment 54000
Purchase price 500,000
Building Appraisal: 250,000
Land Improvements: 100,000
Land: 300,000
What is the apportioned cost to each asset?
250,000+100,000+300,000 = 650,000
Building 250/650= 38.5% *500000 = 192500$
Land Improvements 100/650= 15.5% * 500000 =77500$
Land 300/650= 46% * 650,000= 230000$
Badger originally wrote off Lightsey Co. as a bad receivable (2000$). Badger unexpectedly receives a check in the mail from Lightsey Co. amounting to 500$. Badger expects no future payment from Lightsey Co. What are the journal entries to recognize this payment under the allowance method?
DR Accts Rec 500
CR Allowance 500
DR Cash 500
CR Accts Rec 500
How do you record an honored 600$ 2-month note with 15% interest?
*bonus: double or nothing*
What is the JE for a dishonored note of equal value?
DR Cash 615
CR Notes Rec 600
CR Interest Rev 15
Bonus:
DR Accts Rec 615
CR Notes Rec 600
CR Interest Rev 15
Accounts Receivable is 500,000
Sales are 694,000
Credit Sales are 463,000
Allowance Account 1300DR
What is the difference in Bad Debt Expense for this period between the balance sheet and income statement method if their estimations are 7% and 4% respectively?
Accts Rec 500,000 * 7% = 35,000 ending bal
35,000 + 1300 = 36,300 Bad Debt Expense
Credit Sales 463,000 * 4% = 18,520 Bad Debt Expense
36,300 - 18,520 = 17,780
A piece of equipment purchased on Mar 31, 2015, costing 430,000$ has a salvage value of 24,000$ and a useful life of 10 years or 500,000 units.
What is the journal entry when the piece of equipment is sold for 345,000$ on Jan 1, 2020
430,000-24,000 = 406,000 Depreciable Value
406,000/10 = 4060 Dep Expense/year
First: Partial year Mar 31-Dec 31 = 8 months
(8/12) * 4060 = 2707
Jan1 2016 Accum Deprec = 2707
Jan1, 2020, 4 years later.
4060 * 4 = 16,240
Accum Deprec= 16,240+2707 = 18,947
Carrying Ball Jan 1, 2020 = 430,000-18,947 =411503
So when Sold,
DR Accum Deprec 18,947
DR Cash 345,000
DR Loss on Disposal of Equipment 66,053
CR Equipment 430,000
Purchase price 850,000
Building Appraisal: 475,000
Land Improvements: 160,000
Land: 330,000
What is the journal entry to record the acquisition of these assets?
475000+160000+330000= 965000
Building 475/965= 49% *850000 =416500
Land Improvements 160/965 = 16.5% *850000=140250
Land 330/965 = 34.5% *850000=293250
JE:
DR Building 416500
DR LI 140250
DR Land 293250
CR Cash 850000