Chap009 Solution Manual(1)

Feb 28 notes receivablekramer co 12600 accounts

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Feb. 28 Notes Receivable—Kramer Co .......................... 12,600 Accounts Receivable—Kramer Co .............. 12,600 To record note received on account. Mar. 1 Notes Receivable—S. Myers .............................. 6,200 Accounts Receivable—S. Myers .................. 6,200 To record note received on account. 30 Accounts Receivable—Kramer Co .................... 12,663 Interest Revenue ........................................... 63 Notes Receivable—Kramer Co .................... 12,600 To record receivable for dishonored note plus interest [$12,600 x .06 x 30/360]. Apr. 30 Cash .................................................................... 6,283 Interest Revenue ........................................... 83 Notes Receivable—S. Myers ........................ 6,200 To record cash received on note plus interest ($6,200 x .08 x 60/360 = $83 rounded). 9-31
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Chapter 09 - Accounting for Receivables Problem 9-5B (Concluded) June 15 Notes Receivable—R. Rye ............................... 2,000 Accounts Receivable—R. Rye .................... 2,000 To record note received on account. June 21 Notes Receivable—J. Striker ........................... 9,500 Accounts Receivable—J. Striker ............... 9,500 To record note received on account. Aug. 14 Cash .................................................................. 2,033 Interest Revenue* ....................................... 33 Notes Receivable—R. Rye ......................... 2,000 To record cash received on note plus interest [$2,000 x .10 x 60/360]. * Rounded to nearest dollar. Sept. 19 Cash 9,785 Interest Revenue ........................................ 285 Notes Receivable—J. Striker ..................... 9,500 To record cash received on note plus interest [$9,500 x .12 x 90/360]. Nov. 30 Allowance for Doubtful Accounts ................... 12,663 Accounts Receivable—Kramer Co ............ 12,663 To record write-off of accounts. Part 2 Analysis Component : When a business pledges its receivables as security for a loan and the loan is still outstanding at period-end, the business must disclose this information in notes to its financial statements. This is a requirement because the business has committed a portion of its assets to cover a specific portion of its liabilities, which means that if the business dishonors its obligations under the loan, the creditor can claim the amount of receivables identified in the pledge as collateral to cover the loan. This arrangement must be disclosed to satisfy the full-disclosure principle. 9-32
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Chapter 09 - Accounting for Receivables SERIAL PROBLEM SP 9 Serial Problem — SP 9, Business Solutions (50 minutes) 1. a. Bad debts expense is recorded as 1% of total revenues: $44,000 x .01 = $440. 2012 Mar. 31 Bad Debts Expense .......................................... 440 Allowance for Doubtful Accounts ............. 440 To record estimated bad debts. 1. b. Bad debts expense is recorded as 2% of accounts receivable: $22,867 x .02 = $457.34, which is $457 rounded to the nearest dollar. 2012 Mar. 31 Bad Debts Expense .......................................... 457 Allowance for Doubtful Accounts ............. 457 To record estimated bad debts. 2. Allowance Balance as of 3/31/12 ................... $457 Cr. Less: Account written off ............................. (100 ) Dr. Allowance Balance as of 6/30/12 ................... $357 Cr. (before adjustment) Required Balance: $20,250 x 0.02 = $405 Required Adjustment: $405 - $357 = $48 2012 June 30 Bad Debts Expense .......................................... 48 Allowance for Doubtful Accounts ............. 48 To record estimated bad debts. 3. Many small business owners use the direct write-off method of recording bad debts expense. The direct method is a simple and straightforward method of accounting for bad debts expense. It can also be justified if the amounts are immaterial. However, when the amounts are material, the direct write-off method can result in accounts receivable overstatements, bad debts expense understatements, and net income overstatements. The method required per GAAP is the allowance method, which will result in the best matching of a period’s expenses to revenues.
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