Question

Instruction: Answer all questions and show all workings.

Two companies have asked you to record journal entries in two different areas associated with receivables, at the end of 2017.

Company I

Mandalay Company requests that you record journal entries for its bad debt expense and uncollectible accounts receivable in 2017. Mandalay’s January 1, 2017, balances relevant to accounts receivable are as follows:

                                                                                    Dr                                 Cr

Accounts receivable                                              $400,000

Allowance for doubtful accounts                                                                  $20,000

During 2017:

• $45,000 of accounts receivable were uncollectible, and no more effort to collect these accounts will be made.

• Total sales were $1,200,000, of which $200,000 were cash sales.

• $900,000 was collected on account.

Required:

a. i) If Mandalay used the credit sales method to estimate bad debt expense and uses 4% of credit sales as its estimate of bad debts, provide the journal entries at December 31 to record writeoffs

and bad debts expense for 2017. [6 marks]

ii) Provide the December 31, 2017, Statement of Financial Position disclosure for net accounts

receivable. [12 marks]

b. i) If Mandalay decided to use the accounts receivable method to estimate net accounts receivable, and uses 9% of accounts receivable at year end as its estimate of uncollectibles, provide the journal entries at December 31 to record write-offs and bad debt expense for 2017.

[15 marks]

ii) Provide the December 31,2017, balance sheet disclosure for net accounts receivable.

[3 marks]

Company II

White Mountain Company requests that you record journal entries for a note it received in 2017. On April 1, 2017, White Mountain Company sold merchandise for $12,000 and received a $12,000, 3-year, 10% note. The note calls for three equal annual payments to be made beginning March 31, 2018. The market rate for notes with similar risk is 10%.

Required:

Provide the necessary journal entries for this note on the following dates:

1. April 1, 2017 [3 marks]

2. December 31, 2017 [3 marks]

3. March 31, 2018 [8 marks]

Answer 1