Question

– Problem –

Accounts Receivable

Blair Co. makes most of its sales on a credit basis. Blair uses the allowance method to account for credit losses. The company adjusts its accounts just once a year, at the December 31 year-end. Consider the following balances available from the company’s unadjustedtrial balance at year-end 2018:

Account	Debit	Credit
Accounts receivable	2,571,500
Allowance for doubtful accounts	21,065

Blair prepared an aging of accounts at year-end 2018, as follows:

Age Group	Amount	Estimated % Uncollectible
0-30 days	$1,229,900	0.9%
31-60 days	621,700	9.6%
61-90 days	405,650	16.7%
91-120 days	217,400	39.2%
Over 120 days	96,850	61.1%
	$2,571,000

On March 11, 2019, Blair wrote off a sizable receivable balance, amounting to $23,698. Later, on November 29, 2019, Blair received a check from this customer for $3,620 as partial payment on the past-due account.

3-Year Promissory Note

On December 31, 2018, Blair received a 3-year promissory note as consideration in an inventory sale transaction on that date. The note is noninterest-bearing, and it calls for the customer to pay the full face value of $51,785 on the December 31, 2021 maturity date. The going market rate of interest for comparable notes on the issue date was 8%.

4-Year Promissory Note

On that same date (December 31, 2018), Blair received a 4-year, 3%, $39,625 note from another customer as consideration in an inventory sale transaction. This note requires the customer to pay interest annually on December 31 (2019 through 2022). The going market rate of interest for comparable notes on the issue date was 7%.

Blair uses the effective-interest method to amortize premiums and discounts on allof its promissory notes.

– Instructions –

Address the following matters related to Blair Co.’s accounts and notes receivable transactions:

(a) Give the adjusting entry Blair must make on December 31, 2018 to account for estimated credit losses on its accounts receivable under eachof the following two estimation approaches:

○    Blair estimates 8.45% of the year-end accounts receivable will not be collected.

○    Blair estimates credit losses from the aging schedule it prepared.

(b) Give the entries Blair must make to record the 2019 events related to its accounts receivable:

○    The write-off on March 11, 2019.

○    The partial collection after write-off on November 29, 2019.

(c) Give the entry to record Blair’s receipt of the 3-year promissory note on December 31, 2018.

(d) Give the interest andcollection entries Blair must make over the remaining term of the 3-year note (through December 31, 2021). Tip– You might find it helpful to start by preparing an amortization schedule (see pages 340 and 341).

(e) Give the entry to record Blair’s receipt of the 4-year promissory note on December 31, 2018.

(f) Give the interest andcollection entries Blair must make over the remaining term of the 4-year note (through December 31, 2022). Tip– You might find it helpful to start by preparing an amortization schedule (see pages 340 and 341).

Please complete the following:

□          Prepare your journal entries and supporting calculations using an electronic spreadsheet.

Answer 1

As per our policy, we cannot able to post solution more than four sub parts of question.

Allowance for doubtful accounts adjusted balance (2571500*8.45%)				217,292
Less: Allowance for doubtful accounts unadjusted				(21,065)
Adjustment require for bad debts expense				196,227
Age Group		Amount	Estimated % Uncollectible	Estimated uncollected balance (multiply of both)
0-30 days		1229900	0.90%	11,069
31-60 days		621700	9.60%	59,683
61-90 days		405650	16.70%	67,744
91-120 days		217400	39.20%	85,221
Over 120 days		96850	61.10%	59,175
Total		2571500		282,892
Allowance for doubtful accounts adjusted balance (as above)				282,892
Less: Allowance for doubtful accounts unadjusted				(21,065)
Adjustment require for bad debts expense				261,827
Face value of notes				51785
Discount factor (1/(1.08*1.08*1.08))				0.79383224
Present value of notes				41109
Year	Beginning balance of note		Add: interest revenue (beginning balance of note * 8%)	Ending balance of note
2019	41109		3289	44397
2020	44397		3552	47949
2021	47949		3836	51785

Blair Co
Date	General journal	Debit	Credit
December 31, 2018	Bad debt expense	196227
	Allowance for doubtful accounts		196227
	(To record bad debts expense for the year.)
December 31, 2018	Bad debt expense	261,827
	Allowance for doubtful accounts		261,827
	(To record bad debts expense for the year.)
March 11, 2019	Allowance for doubtful accounts	23698
	Accounts receivable		23698
	(To record account write-off.)
November 29, 2019	Cash	3620
	Bad debts recovered		3620
	(To record partial collection after account write-off.)
December 31, 2018	Notes receivable	41109
	Sales revenue		41109
	(to record sales revenue of inventory in consideration of interest free notes.)
December 31, 2019	Notes receivable	3289
	Interest revenue		3289
	(To record accrued interest revenue on interest free note.)
December 31, 2020	Notes receivable	3552
	Interest revenue		3552
	(To record accrued interest revenue on interest free note.)
December 31, 2021	Notes receivable	3836
	Interest revenue		3836
	(To record accrued interest revenue on interest free note.)
December 31, 2021	Cash	51785
	Notes receivable		51785
	(To cash received from interest free note.)