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QUESTION: 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.

Chart of Accounts CHART OF ACCOUNTS Fan-Tastic Sports Gear Inc. General Ledger LIABILITIES 210 Accounts Payable 211 Salaries Payable 212 Unearned Rent 213 Customer Refunds Payable 215 Notes Payable ASSETS REVENUE 110 Cash 410 Sales Revenue 610 Rent Revenue 612 Interest Income EXPENSES 510 Cost of Goods Sold EQUITY 310 Common Stock 311 Retained Earnings 312 Dividends 111 Petty Cash 121 Accounts Receivable-Healthy Running Inc. 122 Accounts Receivable-The Locker Room 123 Accounts Receivable-CJ's Sports Corp. 124 Accounts Receivable-Get Your Gear Inc. 125 Accounts Receivable-Four Seasons Sportswear Co. 126 Accounts Receivable-Ready-2-Go 127 Accounts Receivable-Barb's Best Gear 129 Allowance for Doubtful Accounts 132 Notes Receivable-Fast Feet Co. 313 Income Summary 520 Sales Salaries Expense 521 Advertising Expense 136 Interest Receivable 141 Inventory 145 Office Supplies 151 Prepaid Insurance 522 Depreciation Expense-Store Equipment 523 Delivery Expense 529 Miscellaneous Selling Expense 530 Office Salaries Expense 531 Rent Expense 532 Depreciation Expense-Office Equipment 533 Insurance Expense 534 Office Supplies Expense 536 Credit Card Expense 537 Cash Short and Over 538 Bad Debt Expense 539 Misc. Administrative Expense 181 Land 191 Store Equipment 192 Accumulated Depreciation Store Equipment 193 Office Equipment 194 Accumulated Depreciation Office Equipment 710 Interest Expense Fan-Tastic Sports Gear Inc. DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY Jan. 17 Sales Revenue 9,800.00 Bad Debt Expense 9,800.00 17 Bad Debt Expense 9,800.00 9,800.00 Accounts Receivable-C's Sports Corp. Cash 5 21 10,600.00 Bad Debt Expense 2,300.00 12,900.00 Accounts Receivable-Four Seasons Sportswear Co. Accounts Receivable-Healthy Running Inc. Feb. 15 3,000.00 500.00 Bad Debt Expense Sales Revenue 3,500.00 Mar.4 Accounts Receivable-Four Seasons Sportswear Co. 2,300.00 Bad Debt Expense 2,300.00 4 Cash 2,300.00 Bad Debt Expense 2,300.00 13 Cash 5,540.00 Accounts Receivable-Barb's Best Gear 5,540.00 31 Bad Debt Expense 20,770.00 Accounts Receivable-Healthy Running Inc. 5,150.00 Accounts Receivable-The Locker Room 4,100.00 Accounts Receivable-CI's Sports Corp. 2,780.00 Accounts Receivable-Get Your Gear Inc. 7,050.00 Accounts Receivable-Ready-2-Go 1,690.00 Recording Uncollectible Receivables Review the accounts receivable transactions shown in the general journal on the Fan-Tastic Sports Gear Inc. panel. Answer the following questions 1. How does the company appear to be handling uncollectible receivables? direct write-off method O percent of credit sales revenue O allowance method aging method 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? Check all that apply. The company sells primarily to smaller businesses, who are more likely to have cash flow problems. O Company sales revenue last year were $3,100,000 and are expected to increase by $360,000 this year. Most of the company's sales revenue are on account. O Collection agencies are routinely used. Bad debt is a rising expense. An analysis of the company's accounts receivable shows more accounts will be uncollectible than last year. aging method 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. direct write-off method allowance method percent of credit sales revenue Revised Journal Entries 1. Assume that Fan-Tastic Sports Gear Inc. will be using the allowance method this year. Select any items(s) from the following list that should be added to the existing chart of accounts. Check all that apply. Balance of Aging Accounts Allowance for Doubtful Accounts Net Realizable Value of Receivables Estimate for Uncollectible Accounts Total Credit Sales Revenue 2. Finalize the journal entries shown on the Fan-Tastic Sports Gear Inc. panel and make any necessary changes. Refer to the Chart of Accounts for the exact wording of account titles. You may also use any items from the preceding list shown in (1), if needed. PAGE 11 GENERAL JOURNAL ACCOUNTING EQUATION ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY Note Receivable In the trial balance for March, you see that Notes Receivable-Fast Feet Co. has a negative balance of $105, 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 $3,605 in payment of this note receivable. Further investigation reveals that on November 19, 20Y7, this note receivable was received from Fast Feet Co. for $3,500. 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: days 2. Interest rate of the note: 3. Journalize the entry needed to record information about the note receivable from Fast Feet for the year 2017. Assume that the entry on November 19, 2017 is correct. Refer to the Chart of Accounts of exact wording of account titles. Round all amounts to the nearest dollar PAGE 11 GENERAL JOURNAL ACCOUNTING EQUATION DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY 4. Journalize the entry needed to record collection of the note at maturity on March 19, 20Y8. Assume that the entry on November 19, 2017 is correct. Refer to the Chart of Accounts of exact wording of account titles. Round all amounts to the nearest dollar. PAGE 3 GENERAL JOURNAL ACCOUNTING EQUATION DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT ASSETS LIABILITIES EQUITY Final Questions Fan-Tastic Sports Gear Inc. recorded $3,100,000 of sales revenue last year and projects sales revenue to increase by $360,000 in the current year. Last year, 70% of sales revenue were on account, with over 400 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 $2,240. The company estimated uncollectible accounts expense using the percent of credit sales revenue method and expected 0.85% of credit sales revenue 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. $ 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 3. Using the allowance method, the net realizable value of the receivables would appear on which financial statement? Higher Lower Trial balance No change Balance sheet Income statement Schedule of accounts receivable