Assignment:

1. Present entries to record the following for a business that uses the Allowance Method:

1. Record the adjusting entry at 12/31/19, the end of the fiscal year to provide for doubtful accounts. The accounts receivable account has a balance of $100,000 and the contra asset account, before adjustment has a debit balance of $700. Analysis of receivables indicates doubtful accounts of $4,500
2. In March of the following fiscal year $610 owed by the Filthy Disgusting Yankees Inc was written off.
3. Six months later the $610 is reinstated and payment of that amount received

2. What is the estimated realizable value of the accounts receivable as reported on the Balance Sheet prepared as of 12/31/19
3. Assuming that the business had been following the direct write off method for accounting for uncollectibles, present the entry to record the write-off in (1b)
4. Record the entry for the reinstatement of the account written off in (3) under the direct write-off method

Now look at an example on the Payees books:

Nov 1: We sell our product on account $1000 terms net 30 days:

Accounts Receivable 1000

Sales 1000

Dec 1: The customer is unable to pay so we request a promissory note since it is a stronger legal claim and we can earn interest. Suppose the note is a 6%, 90- day note. We are receiving a note on account. This means we are replacing the accounts receivable with a note receivable.

Notes Receivable 1000

Accounts Receivable 1000 received a note on account

Dec 31: Adjusting Entry. We must recognize the 30 days of interest since December 1. Simple interest is calculated Principal x Rate x Time = 1000 x .06 x 90/360 = $15. That is the interest for 90 days. Since we only want 30 days 30/90 x 15 = 5

Interest Receivable 5

Interest Revenue 5

Dec 31: Closing entry.

Interest Revenue 5 Debit Income Summary 5 Credit

The due date of the note is 90 days from December 1. We do not count December1 and we are assuming we are not going into a leap year. Since some of you are calendar challenged, I will give you the due date which is March 1.

Cash 1015 (Note plus $15 interest)

Notes Receivable 1000

Interest Receivable 5

Interest Revenue 10

We have just completed the entries on the Payees books. Here are the entries on the Makers books:

Nov 1: Purchases (periodic method) 1000

Accounts Payable 1000

Dec 1: Accounts Payable 1000

Notes Payable 1000 issued a note on account

Dec 31: Adjusting Entry Interest Expense 5

Interest Payable 5

Dec 31: Closing Entry Income Summary 5

Interest expense 5

March 1: Notes Payable 1000

Interest Payable 5

Interest expense 10

Cash 1015