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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	10,800
	Bad Debt Expense	2,100
	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.	2,100
	Bad Debt Expense		2,100
4	Cash	2,100
	Bad Debt Expense		2,100
13	Cash	5,540
	Accounts Receivable-Barbs Best Gear		5,540
31	Bad Debt Expense	21,070
	Accounts Receivable-Healthy Running Inc.		5,350
	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

Recording Uncollectable Receivables

Review the accounts receivable transactions shown in the general journal on the Fan-Tastic Sports Gear Inc. panel.

1. How does the company appear to be handling uncollectible receivables?

2. You have made the following observations during your review of the accounting records. In deciding whether Fan-Tastic Sports Gear Inc. is handling uncollectible receivables appropriately, which of these observations are key factors in your decision?

a. Most of the companys sales are on account.

b. An analysis of the companys accounts receivable shows more accounts will be uncollectible than last year.

c. Collection agencies are routinely used.

d. Company sales last year were $3,100,000 and are expected to increase by $360,000 this year.

e. Bad debt is a rising expense.

f. The company sells primarily to smaller businesses, who are more likely to have cash flow problems.

3. After making the observations previously listed in (2), you have recommended that Fan-Tastic Sports Gear Inc. use the ______ to record bad debt expense.

Revised Journal Entries

1. Assume that Fan-Tastic Sports Gear Inc. will be using the allowance method this year. Select the item from the following list that should be added to the existing chart of accounts.

2. 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	Sales	fill in the blank 1483a3fedf8801d_2	fill in the blank 1483a3fedf8801d_3
	Accounts Receivable-CJ's Sports Corp.	fill in the blank 1483a3fedf8801d_5	fill in the blank 1483a3fedf8801d_6
Jan. 21	Cash	fill in the blank 1483a3fedf8801d_8	fill in the blank 1483a3fedf8801d_9
		fill in the blank 1483a3fedf8801d_11	fill in the blank 1483a3fedf8801d_12
	Accounts Receivable-Four Seasons Sportswear Co.	fill in the blank 1483a3fedf8801d_14	fill in the blank 1483a3fedf8801d_15
Feb. 15		fill in the blank 1483a3fedf8801d_17	fill in the blank 1483a3fedf8801d_18
		fill in the blank 1483a3fedf8801d_20	fill in the blank 1483a3fedf8801d_21
Mar. 4		fill in the blank 1483a3fedf8801d_23	fill in the blank 1483a3fedf8801d_24
		fill in the blank 1483a3fedf8801d_26	fill in the blank 1483a3fedf8801d_27
Mar. 4		fill in the blank 1483a3fedf8801d_29	fill in the blank 1483a3fedf8801d_30
		fill in the blank 1483a3fedf8801d_32	fill in the blank 1483a3fedf8801d_33
Mar. 13		fill in the blank 1483a3fedf8801d_35	fill in the blank 1483a3fedf8801d_36
		fill in the blank 1483a3fedf8801d_38	fill in the blank 1483a3fedf8801d_39
Mar. 31		fill in the blank 1483a3fedf8801d_41	fill in the blank 1483a3fedf8801d_42
		fill in the blank 1483a3fedf8801d_44	fill in the blank 1483a3fedf8801d_45
		fill in the blank 1483a3fedf8801d_47	fill in the blank 1483a3fedf8801d_48
		fill in the blank 1483a3fedf8801d_50	fill in the blank 1483a3fedf8801d_51
		fill in the blank 1483a3fedf8801d_53	fill in the blank 1483a3fedf8801d_54
		fill in the blank 1483a3fedf8801d_56	fill in the blank 1483a3fedf8801d_57

Note Receivable

In the trial balance for March, you see that Notes Receivable-Fast Feet Co. has a negative balance of $135, 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 $6,885 in payment of this note receivable. Further investigation reveals that on November 19, 20Y7, this note receivable was received from Fast Feet Co. for $6,750. 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 af02d303702dfcb_1 days

2. Interest rate of the note: fill in the blank af02d303702dfcb_2 %

3. 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		fill in the blank 8a302f0a1ffffb7_2	fill in the blank 8a302f0a1ffffb7_3
		fill in the blank 8a302f0a1ffffb7_5	fill in the blank 8a302f0a1ffffb7_6

4. 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		fill in the blank 35bbb1fdc031ff9_2	fill in the blank 35bbb1fdc031ff9_3
		fill in the blank 35bbb1fdc031ff9_5	fill in the blank 35bbb1fdc031ff9_6
		fill in the blank 35bbb1fdc031ff9_8	fill in the blank 35bbb1fdc031ff9_9
		fill in the blank 35bbb1fdc031ff9_11	fill in the blank 35bbb1fdc031ff9_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, 90% 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 b31ab6013f95001_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.) by $fill in the blank b31ab6013f95001_3

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