Question

Information on Swifty Corporation, which reports under ASPE, follows:

July 1		Swifty Corporation sold to Wildhorse Co. merchandise having a sales price of $8,500, terms 2/10, n/60. Ignore cost of goods sold entry.
3		Wildhorse Co. returned defective merchandise having a sales price of $700. The merchandise was not saleable and was scrapped.
5		Accounts receivable of $19,600 are factored with Ayayai Corp. without recourse at a financing charge of 9%. Cash is received for the proceeds and collections are handled by the finance company.
9		Specific accounts receivable of $16,600 (gross) are pledged to Landon Credit Corp. as security for a loan of $10,800 at a finance charge of 3% of the loan amount plus 9% interest on the outstanding balance. Swifty 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		Wildhorse Co. notifies Swifty that it is bankrupt and will be able to pay only 10% of its account. Give the entry to write off the uncollectible balance using the allowance method.

(a)

Prepare all necessary journal entries on Swifty Corporation’s books.

List of possible accounts are as follows:

Accounts Payable
Accounts Receivable
Accrued Liabilities
Accumulated Depreciation - Equipment
Advances to Employees
Advertising Expense
Allowance for Doubtful Accounts
Allowance for Sales Returns and Allowances
Bad Debt Expense
Bank Charges Expense
Cash
Cash Over and Short
Due from Factor
Entertainment Expense
Equipment
Finance Expense
Finance Revenue
Freight in
Freight out
Gain on Disposal of Equipment
Gain on Disposal of Land
Interest Expense
Interest Income
Interest Receivable
Inventory
Land
Loss on Disposal of Equipment
Loss on Disposal of Land
Loss on Disposal of Receivables
Loss on Impairment
Miscellaneous Expense
No Entry
Notes Payable
Notes Receivable
Office Expense
Petty Cash
Postage Expense
Prepaid Expenses
Purchase Discounts
Recourse Liability
Refund Liability
Rent Expense
Sales Discounts
Sales Discounts Forfeited
Sales Returns and Allowances
Sales Revenue
Servicing Liability
Service Revenue
Supplies
Supplies Expense
Unearned Revenue

Answer 1

a)

Journal Entries:

Date	Account Titles and Explanation	Debit	Credit
Jul. 1	Accounts Receivable ($8,500 - $170)	$8,330
	Sales Discount ($8,500*2/100)	$170
	Sales Revenue		$8,500
	(To recod the sales made on account)
Jul. 3	Sales Returns and Allowances	$700
	Accounts Receivable ($700 - $14)		$686
	Sales Discount ($700*2/100)		$14
	(To record the sales returns)
Jul. 5	Cash ($19,600 - $1,764)	$17,836
	Finance Expense ($19,600*9/100)	$1,764
	Accounts Receivable		$19,600
	(To record the factoring the accounts receivables)
Jul. 9	No entry is required to prepare for pledging.)
Dec. 29	Accounts Receivable ($170 - $14)	$156
	Sales Discount		$156
	(To record the expiry of trade discount for not making the payment within discount period)
Dec. 29	Cash ($7,800*10/100)	$780
	Allowance for Doubtful Accounts ($7,800 - $780)	$7,020
	Accounts Receivable ($8,333 - $686 + $156)		$7,800
	(To record the 10% of cash collections and reminder is written off)