Part 1: Accounts Receivables and Allowance Method

Orion Co. is a large wholesaler of blankets. At the end of 2017, the companys controller estimates 5% of the $850,000 in Accounts Receivable will be uncollectible.

Write the journal entry to record Bad Debt Expense for the period if the Allowance for Doubtful Accounts has a credit balance of $10,200 before this adjusting entry is posted:

12/31/17

How does the posting of this journal entry affect the accounting equation?

What is the Net Realizable Value of Accounts Receivable reported in Orion Co.s balance sheet as of Dec. 31, 2017?

(Continuation of question 1). Assume that during 2017, a total of $14,900 Accounts Receivable has to be written off due to customers inability to pay what they owe Orion Co.

What journal entry would be used to record this write-off of $14,900?

12/31/17

How does the posting of this journal entry affect the accounting equation?

What is the Allowance for Doubtful Accounts balance after this write off? (Your answer should indicate the amount and whether it is a Debit or Credit balance. Hint: Use a T-account to determine your answer.)

Orion Co. assumes that at the end of 2018, 5% of its new $900,000 Accounts Receivable balance will be uncollectible. Using the Allowance for Doubtful Accounts balance from above (question 2) c.) determine the Bad Debt Expense that would be recorded at the end of 2018 and enter the journal entry below:

12/31/2018

New scenario: Assume that on January 23, 2018 Capricornus Co. wrote off $500 due from Ursa Minor Co. due to Ursa Minor Co.s inability to pay what they owed. What journal entry would Capricornus Co. record for this write off assuming Capricornus Co uses the allowance method?

01/23/2018

(Continuation of question 3). Now assume that on February 10, 2018 Ursa Minor Co. pays the amount previously written off by Capricornus Co. What two journal entries must Capricornus Co. record related to this collection of a previously written off Accounts Receivable?

02/10/2018
02/10/2018

Part 2: Notes Receivable

On August 1, 2017, Aquila Inc. lends $64,000 to Big Dipper Co. for 6 months. What journal entry does Aquila Inc. record for this transaction?

08/01/2017

(Continuation of question 5). The Note Receivable is established with a 3% annual interest rate, and the terms of the note states that the principal and interest will be due and paid on February 1, 2018. What adjusting journal entry is needed to accrue interest revenue earned for 2017 before Big Dipper Co. prepares financial statements on December 31, 2017?

12/31/2017

(Continuation of question 5 & 6). On February 1, 2018, Big Dipper Co. pays all principal and interest owed to Aquila Inc. Write the journal entry (from the viewpoint of Aquila Co.) to record the collection.

02/01/2018

Part 3: PP&E Transactions

Lyra Inc. buys equipment on October 1, 2017 for $150,000 cash. They estimate the equipment will have a salvage value of $25,000 and a useful life of 10 years.

a. Write the journal entry to record depreciation for 2017.

12/31/17

Record the journal entry to record depreciation expense for the second year.

12/31/18

What is the book value of this equipment on the December 31, 2018 Balance Sheet?

Puppis Industries purchased equipment on July 1, 2017 for $140,000. The equipment is estimated to have a $15,000 salvage value at the end of its 5-year life. The company uses straight-line method of depreciation. What is the balance in accumulated depreciation at 12/31/20?

On March 1, 2017, Crux Industries sells machinery for $55,000. The machinery originally cost $123,000 and had an estimated 8-year life with an expected salvage value of $21,000. The Accumulated Depreciation account had a balance of $85,876 on December 31, 2016.

What is the gain or loss on the date of the sale? (Hint: Dont forget to update depreciation through the date of sale first!)

What is the journal entry to record this sale?

3/1