At December 31, 2017, Ingleton Company reports the following results for the year:
Cash sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,025,000
Credit sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,342,000
In addition, its unadjusted trial balance includes the following items:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . $575,000 debit
Allowance for doubtful accounts . . . . . . . . . . . . . 7,500 credit
2. Show how Accounts Receivable and the Allowance for Doubtful Accounts appear on its December 31, 2017, balance sheet given the facts in part 1a.
The allowance for doubtful accounts of $983,950 will report under the current assets section of the balance sheet.
When the goods are sold and the payment is received at the same time, then this sales process is known as cash sales.
|Less: Allowance for doubtful accounts||41,050|
Archer Co. allows select customers to make purchases on credit. Its other customers can use either of two credit cards: Commerce Bank or Goldman. Commerce Bank deducts a 3% service charge for sales on its credit card. When customers use the Goldman card, a 2% service charge is deducted from sales on its card. Archer completed the following transactions in August.
Aug. 4 Sold $3,700 of merchandise on credit (that had cost $2,000) to McKenzie Carpenter.
10 Sold $5,200 of merchandise (that had cost $2,800) to customers who used their Commerce Bank credit cards.
11 Sold $1,250 of merchandise (that had cost $900) to customers who used their Goldman cards.
14 Received Carpenter’s check in full payment for the purchase of August 4.
15 Sold $3,250 of merchandise (that had cost $1,758) to customers who used their Goldman cards.
22 Wrote off the account of Craw Co. against the Allowance for Doubtful Accounts. The $498 balance in Craw Co.’s account stemmed from a credit sale in November of last year.
Prepare journal entries to record the preceding transactions and events. (The company uses the perpetual inventory system. Round amounts to the nearest dollar.)
The following selected transactions are from Ohlm Company.
Dec. 16 Accepted a $10,800, 60-day, 8% note dated this day in granting Danny Todd a time extension on his past-due account receivable.
31 Made an adjusting entry to record the accrued interest on the Todd note.
Feb. 14 Received Todd’s payment of principal and interest on the note dated December 16.
Mar. 2 Accepted a $6,100, 8%, 90-day note dated this day in granting a time extension on the past-due account receivable from Midnight Co.
17 Accepted a $2,400, 30-day, 7% note dated this day in granting Ava Privet a time extension on her past-due account receivable.
Apr. 16 Privet dishonored her note when presented for payment.
May 31 Midnight Co. refused to pay the note that was due to Ohlm Co. on May 31. Prepare the journal entry to charge the dishonored note plus accrued interest to Midnight Co.’s accounts receivable.
July 16 Received payment from Midnight Co. for the maturity value of its dishonored note plus interest for 46 days beyond maturity at 8%.
Aug. 7 Accepted a $7,450, 90-day, 10% note dated this day in granting a time extension on the past-due account receivable of Mulan Co.
Sep. 3 Accepted a $2,100, 60-day, 10% note dated this day in granting Noah Carson a time extension on his past-due account receivable.
Nov. 2 Received payment of principal plus interest from Carson for the September 3 note.
Nov. 5 Received payment of principal plus interest from Mulan for the August 7 note.
Dec. 1 Wrote off the Privet account against the Allowance for Doubtful Accounts.
Prepare journal entries to record these transactions and events. (Round amounts to the nearest dollar.)
BTN 7-3 Anton Blair is the manager of a medium-size company. A few years ago, Blair persuaded the owner to base a part of his compensation on the net income the company earns each year. Each December he estimates year-end financial figures in anticipation of the bonus he will receive. If the bonus is not as high as he would like, he offers several recommendations to the accountant for year-end adjustments. One of his favorite recommendations is for the controller to reduce the estimate of doubtful accounts.
1. What effect does lowering the estimate for doubtful accounts have on the income statement and balance sheet?
2. Do you believe Blair’s recommendation to adjust the allowance for doubtful accounts is within his rights as manager, or do you believe this action is an ethics violation? Justify your response.
3. What type of internal control(s) might be useful for this company in overseeing the manager’s recommendations for accounting changes?
94% of StudySmarter users get better grades.Sign up for free