E7.6 (LO 2) (Recording Sales Transactions) Presented below is information from Perez Computers Incorporated.

July 1		Sold $20,000 of computers to Robertson Company with terms 3/15, n/60. Perez uses the gross method to record cash discounts. Perez estimates allowances of $1,300 will be honored on these sales.
10		Perez received payment from Robertson for the full amount owed from the July transactions.
17		Sold $200,000 in computers and peripherals to The Clark Store with terms of 2/10, n/30.
30		The Clark Store paid Perez for its purchase of July 17.

Prepare the necessary journal entries for Perez Computers.

E7.7 (LO 3) (Recording Bad Debts) Duncan Company reports the following financial information before adjustments.

		Dr.		Cr.
Accounts Receivable		$100,000
Allowance for Doubtful Accounts				$2,000
Sales Revenue (all on credit)				900,000
Sales Returns and Allowances		50,000

Instructions

Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.

E7.8 (LO 3) (Recording Bad Debts) At the end of 2020, Aramis Company has accounts receivable of $800,000 and an allowance for doubtful accounts of $40,000. On January 16, 2021, Aramis Company determined that its receivable from Ramirez Company of $6,000 will not be collected, and management authorized its write-off.

Instructions

a. Prepare the journal entry for Aramis Company to write off the Ramirez receivable.

b. What is the net amount expected to be collected of Aramis Companys accounts receivable before the write-off of the Ramirez receivable?

c. What is the net amount expected to be collected of Aramis Companys accounts receivable after the write-off of the Ramirez receivable?

E7.9 (LO 3) (Computing Bad Debts and Preparing Journal Entries) The trial balance before adjustment of Taylor Swift Inc. shows the following balances.

		Dr.		Cr.
Accounts Receivable		$90,000
Allowance for Doubtful Accounts		1,750
Sales Revenue (all on credit)				$680,000

Instructions

Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 5% of gross accounts receivable and Allowance for Doubtful Accounts has a $1,700 credit balance.

E7.17 (LO 5) (Transfer of Receivables with Recourse) Ames Quartet Inc. factors receivables with a carrying amount of $200,000 to Joffrey Company for $160,000 on a with recourse basis.

Instructions

The recourse provision has a fair value of $1,000. This transaction should be recorded as a sale. Prepare the appropriate journal entry to record this transaction on the books of Ames Quartet Inc.

E7.18 (LO 5) (Transfer of Receivables with Recourse) Beyonc Corporation factors $175,000 of accounts receivable with Kathleen Battle Financing, Inc. on a with recourse basis. Kathleen Battle Financing will collect the receivables. The receivables records are transferred to Kathleen Battle Financing on August 15, 2020. Kathleen Battle Financing assesses a finance charge of 2% of the amount of accounts receivable and also reserves an amount equal to 4% of accounts receivable to cover probable adjustments.

Instructions

a. What conditions must be met for a transfer of receivables with recourse to be accounted for as a sale?

b. Assume the conditions from part (a) are met. Prepare the journal entry on August 15, 2020, for Beyonc to record the sale of receivables, assuming the recourse obligation has a fair value of $2,000.

E7.19 (LO 5) (Transfer of Receivables without Recourse) JFK Corp. factors $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2020. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.

Instructions

a. Prepare the journal entry on July 1, 2020, for JFK Corp. to record the sale of receivables without recourse.

b. Prepare the journal entry on July 1, 2020, for LBJ Finance Corporation to record the purchase of receivables without recourse.