(a) the entry to record estimated uncollected accounts is the same as GAAP.
(b) loans and receivables should only be tested for impairment as a group.
(c) it is always acceptable to use the direct write-off method.
(d) all financial instruments are recorded at fair value.
The correct option is a.
A legal document containing an agreement with a monetary value is a financial instrument. It might be a cash instrument or a derivative instrument.
The entry for recording the estimated uncollected accounts under IFRS is the same as GAAP. Journal entry is a debit to bad debt expenses and credit to provision/allowance for doubtful accounts. Thus, option a is correct.
(b) Other than loans and receivables, intangible and fixed assets are also tested for impairment to prevent overstatement.
(c) Direct write-off method is used only when the business entity decides that customer will not pay. Otherwise, the allowance method is used.
(d) All financial instruments are not recorded at their fair value. Some qualification criteria are used to report the financial instrument’s fair value.
On June 3, Arnold Company sold to Chester Company merchandise having a sale price of $3,000 with terms of 2/10, n/60, f.o.b. shipping point. An invoice totaling $90, terms n/30, was received by Chester on June 8 from John Booth Transport Service for the freight cost. On June 12, the company received a check for the balance due from Chester Company
(a) Prepare journal entries on the Arnold Company books to record all the events noted above under each of the following bases.
(1) Sales and receivables are entered at gross selling price.
(2) Sales and receivables are entered at net of cash discounts.
(b) Prepare the journal entry under basis 2, assuming that Chester Company did not remit payment until July 29.
(Notes Receivable with Unrealistic Interest Rate) On December 31, 2015, Ed Abbey Co. performed environmental consulting services for Hayduke Co. Hayduke was short of cash, and Abbey Co. agreed to accept a $200,000 zero-interest-bearing note due December 31, 2017, as payment in full. Hayduke is somewhat of a credit risk and typically borrows funds at a rate of 10%. Abbey is much more creditworthy and has various lines of credit at 6%.
(a) Prepare the journal entry to record the transaction of December 31, 2015, for the Ed Abbey Co.
(b) Assuming Ed Abbey Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2016.
(c) Assuming Ed Abbey Co.’s fiscal year-end is December 31, prepare the journal entry for December 31, 2017.
(Bank Reconciliation and Adjusting Entries) Logan Bruno Company has just received the August 31, 2017, bank statement, which is summarized below.
Country National Bank
Balance August 1
Deposits during August
Note collected for depositor, including $40 interest
Checks cleared during August
Bank service charges
Balance, August 31
The general ledger Cash account contained the following entries for the month of August.
Balance, August 1
Disbursement in August
Receipt during August
Deposits in transit at August 31 are $3,800, and checks outstanding at August 31 total $1,050. Cash on hand at August 31 is $310. The bookkeeper improperly entered one check in the books at $146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.
(a) Prepare a bank reconciliation dated August 31, 2017, proceeding to a correct balance.
(b) Prepare any entries necessary to make the books correct and complete.
(c) What amount of cash should be reported in the August 31 balance sheet?
Manilow Corporation operates in an industry that has a high rate of bad debts. Before any year-end adjustments, the balance in Manilow’s Accounts Receivable account was $555,000 and Allowance for Doubtful Accounts had a credit balance of $40,000. The year-end balance reported in the balance sheet for Allowance for Doubtful Accounts will be based on the aging schedule shown below.
Days Account Outstanding
Probability of Collection
Less than 16 days
Between 16 and 30 days
Between 31 and 45 days
Between 46 and 60 days
Between 61 and 75 days
Over 75 days
(a) What is the appropriate balance for Allowance for Doubtful Accounts at year-end?
(b) Show how accounts receivable would be presented on the balance sheet.
(c) What is the dollar effect of the year-end bad debt adjustment on the before-tax income?
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