P5-75B. (Learning Objective 4: Accounting for revenue, collections, and uncollectibles)

This problem takes you through the accounting for sales, receivables, and uncollectibles for On-time Delivery Corp, the overnight shipper. By selling on credit, the company cannot expect to collect 100% of its accounts receivable. At May 31, 20X6 and 20X7, respectively, On-time Delivery Corp. reported the following on its Balance Sheet

(in millions of euros):

During the year ended May 31, 20X7, On-time Delivery Corp. earned sales revenue and collected cash from customers. Assume that On-time Delivery Corp. wrote off uncollectible receivables. At year-end, On-time Delivery Corp. ended with the foregoing May 31, 20X7, balances.
Requirements 1. Prepare T-accounts for Accounts Receivable and Allowance for Uncollectibles, and insert the May 31, 20X6, balances as given.
2. Journalize the following transactions of On-time Delivery for the year ended May 31, 20X7. (Explanations are not required.)

a. Service revenue on account, €32,587 million.

b. Collections from customers on account, €31,979 million.

c. Write-offs of uncollectible accounts receivable, €350 million.

d. Uncollectible-account expense, €323 million.
3. Post to the Accounts Receivable and Allowance for Uncollectibles T-accounts.
4. Compute the ending balances for the two T-accounts and compare your balances to the actual May 31, 20X7, amounts. They should be the same.
5. Show what On-time Delivery should report on its Income Statement for the year ended May 31, 20X7.

Transcribed Image Text:

May 31 20X7 20X6 Accounts receivable..... 3,693 3,435 Less: Allowance for uncollectible accounts............. (129) (156) Accounts receivable, net........ 3,564 3,279