Mastery Problem: Receivables

Fan-Tastic Sports Gear Inc.

You have just been hired as the accountant for Fan-Tastic Sports Gear Inc., a wholesaler of sporting goods and apparel. The previous accountant left abruptly in late December, 20Y7, and an accounting intern has been drafting the journal entries since January. You are examining the accounting records before finalizing the journal entries for the first quarter of 20Y8. The following journal shows some of the accounts receivable transactions that you are reviewing.

Journal
Date	Description	Debit	Credit
Jan. 17	Sales	9,800
	Bad Debt Expense		9,800
17	Bad Debt Expense	9,800
	Accounts Receivable-CJs Sports Corp.		9,800
21	Cash	10,600
	Bad Debt Expense	2,300
	Accounts Receivable-Four Seasons Sportswear Co.		12,900
Feb. 15	Accounts Receivable-Healthy Running Inc.	3,000
	Bad Debt Expense	500
	Sales		3,500
Mar. 4	Accounts Receivable-Four Seasons Sportswear Co.	2,300
	Bad Debt Expense		2,300
4	Cash	2,300
	Bad Debt Expense		2,300
13	Cash	5,540
	Accounts Receivable-Barbs Best Gear		5,540
31	Bad Debt Expense	20,870
	Accounts Receivable-Healthy Running Inc.		5,150
	Accounts Receivable-The Locker Room		4,100
	Accounts Receivable-CJs Sports Corp.		2,780
	Accounts Receivable-Get Your Gear Inc.		7,050
	Accounts Receivable-Ready-2-Go		1,790

Finalize the journal entries shown on the Fan-Tastic Sports Gear Inc. panel and make any necessary changes. If an amount box does not require an entry, leave it blank.

Jan. 17	Allowance for Doubtful Accounts	fill in the blank 1eaf2d087f8efac_2	fill in the blank 1eaf2d087f8efac_3
	Accounts Receivable-CJ's Sports Corp.	fill in the blank 1eaf2d087f8efac_5	fill in the blank 1eaf2d087f8efac_6
Jan. 21	Cash	fill in the blank 1eaf2d087f8efac_8	fill in the blank 1eaf2d087f8efac_9
	Allowance for Doubtful Accounts	fill in the blank 1eaf2d087f8efac_11	fill in the blank 1eaf2d087f8efac_12
	Accounts Receivable-Four Seasons Sportswear Co.	fill in the blank 1eaf2d087f8efac_14	fill in the blank 1eaf2d087f8efac_15
Feb. 15	Accounts Receivable-Healthy Running Inc.	fill in the blank 1eaf2d087f8efac_17	fill in the blank 1eaf2d087f8efac_18
	Sales	fill in the blank 1eaf2d087f8efac_20	fill in the blank 1eaf2d087f8efac_21
Mar. 4	Accounts Receivable-Four Seasons Sportswear Co.	fill in the blank 1eaf2d087f8efac_23	fill in the blank 1eaf2d087f8efac_24
	Allowance for Doubtful Accounts	fill in the blank 1eaf2d087f8efac_26	fill in the blank 1eaf2d087f8efac_27
Mar. 4	Cash	fill in the blank 1eaf2d087f8efac_29	fill in the blank 1eaf2d087f8efac_30
	Accounts Receivable-Four Seasons Sportswear Co.	fill in the blank 1eaf2d087f8efac_32	fill in the blank 1eaf2d087f8efac_33
Mar. 13	Cash	fill in the blank 1eaf2d087f8efac_35	fill in the blank 1eaf2d087f8efac_36
	Accounts Receivable-Barb's Best Gear	fill in the blank 1eaf2d087f8efac_38	fill in the blank 1eaf2d087f8efac_39
Mar. 31	Allowance for Doubtful Accounts	fill in the blank 1eaf2d087f8efac_41	fill in the blank 1eaf2d087f8efac_42
	Accounts Receivable-Healthy Running Inc.	fill in the blank 1eaf2d087f8efac_44	fill in the blank 1eaf2d087f8efac_45
	Accounts Receivable-The Locker Room	fill in the blank 1eaf2d087f8efac_47	fill in the blank 1eaf2d087f8efac_48
	Accounts Receivable-CJ's Sports Corp.	fill in the blank 1eaf2d087f8efac_50	fill in the blank 1eaf2d087f8efac_51
	Accounts Receivable-Get Your Gear Inc.	fill in the blank 1eaf2d087f8efac_53	fill in the blank 1eaf2d087f8efac_54
	Accounts Receivable-Ready-2-Go	fill in the blank 1eaf2d087f8efac_56	fill in the blank 1eaf2d087f8efac_57

Note Receivable

In the trial balance for March, you see that Notes Receivable-Fast Feet Co. has a negative balance of $255, which would seem to indicate that Fast Feet paid too much. Looking back through the journal entries for March, you find that on March 19 the accounting intern recorded receipt of $6,630 in payment of this note receivable. Further investigation reveals that on November 19, 20Y7, this note receivable was received from Fast Feet Co. for $6,375. You can find no additional information about this note in the accounting records. Assume a 360 day year.

Using the preceding information, compute the term and the interest rate of the note receivable from Fast Feet.

1. Term of the note: fill in the blank da7f56008f9cf9d_1 days

2. Interest rate of the note: fill in the blank da7f56008f9cf9d_2 %

Journalize the entry needed to record information about the note receivable from Fast Feet for the year 20Y7. Assume that the entry on November 19, 20Y7 is correct. If an amount box does not require an entry, leave it blank. Round all amounts to the nearest dollar.

Dec. 31	Interest Receivable	fill in the blank 2e3960fbb053ff6_2	fill in the blank 2e3960fbb053ff6_3
	Interest Revenue	fill in the blank 2e3960fbb053ff6_5	fill in the blank 2e3960fbb053ff6_6

Journalize the entry needed to record collection of the note at maturity on March 19, 20Y8. Assume that the entry on November 19, 20Y7 is correct. If an amount box does not require an entry, leave it blank. Round all amounts to the nearest dollar.

Mar. 19	Cash	fill in the blank 3726f30b1fa8006_2	fill in the blank 3726f30b1fa8006_3
	Notes Receivable-Fast Feet Co.	fill in the blank 3726f30b1fa8006_5	fill in the blank 3726f30b1fa8006_6
	Interest Receivable	fill in the blank 3726f30b1fa8006_8	fill in the blank 3726f30b1fa8006_9
	Interest Revenue	fill in the blank 3726f30b1fa8006_11	fill in the blank 3726f30b1fa8006_12

Final Questions

Fan-Tastic Sports Gear Inc. recorded $3,100,000 of sales last year and projects sales to increase by $360,000 in the current year. Last year, 80% of sales were on account, with over 300 customer accounts. Bad debt expense was $26,187.

1. Assume that Fan-Tastic Sports Gear Inc. used the allowance method last year, and the allowance account at the end of the year had a debit balance of $2,190. The company estimated uncollectible accounts expense using the percent of credit sales method and expected 0.75% of credit sales to be uncollectible. What is the amount of the adjusting entry to provide for doubtful accounts on December 31? Round all computations to the nearest dollar. $fill in the blank 2c2416f9c04c00a_1

2. How much higher (lower) would Fan-Tastic Sports Gear Inc.s net income have been under the allowance method assumption previously shown in (1) than under the direct write-off method? (Enter 0 if there is no change.) Higher by $fill in the blank 2c2416f9c04c00a_3

3. Using the allowance method, the net realizable value of the receivables would appear on which financial statement? balance sheet