Question

Journal Entry

July

1 - Grass Corp. sold to Blossom Company merchandise having a sales price of $8,500, terms 2/10, n/60. Grass records its sales and receivables net.

3 - Blossom Company returned defective merchandise having a sales price of $800.

5 - Accounts receivable of $20,000 (gross) are factored with Novak Corp. without recourse at a financing charge of 8%. Cash is received for the proceeds and collections are handled by the finance company. (These accounts were subject to a 2% discount and were all past the discount period.)

9 - Specific accounts receivable of $14,800 (gross) are pledged to Landon Credit Corp. as security for a loan of $11,700 at a finance charge of 3% of the loan amount plus 8% interest on the outstanding balance. Grass will continue to make the collections. All the accounts receivable pledged are past the discount period and were originally subject to a 2% discount.

Dec. 29

Blossom Company notifies Grass Corp that it is bankrupt and will be able to pay only 12% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.)

(a) Prepare all necessary journal entries on Grass Corp.’s books.

Date Account Titles and Explanation Debit Credit

Answer 1

Notes:

1. Since, the accounts recievable factored and pledged are already past their discount period, they are appearing at their full value.

2.In Allowance method, an adjustment entry is passed to record the value of uncollectible debts by making a debit to provision for bad debts. This entry doesnot affect the profits.