Question

Comprehensive in class problems Cash & Receivables 101220

1. Ace Company purchases $1,400 of merchandise from Zitco on December 16. Zitco accepts Ace’s $1,400, 90 day 12% note as payment. Zitco’s accounting period ends on Dec 31^st
   1. prepare entries for Zitco on December 16 and 31^st
   2. prepare entries for Zitco on March 16^th if Ace dishonors the note
   3. Instead, prepare Zitco’s March 16^th entry if Ace honors the note
   4. Assume facts in b (dishonors note) and on March 31^st Zitco wirtes off the receivable from Ace company assuming Zitco uses the allowance method.

1. A retailer uses the allowance method. Record the following transactions:

Dec 31: The retailer estimates $3,000 of its accounts receivable are uncollectible at year-end

Feb 14: The retailer determines that it cannot collect $400 of its accounts receivable from ZZZ Co.

Apr 1: ZZZ Company unexpectedly pays its account in full to the retailer, which then records its recovery of this bad debt.

Answer 1

Answer to First Question Journal Entries In the books of Zitco Date Description Debit Dec-16 Note Receivable $ 1,400 Sales revenue (To record storage services provided for cash and on account) Credit $ 1,400 $ 7 Dec-31 Interest Receivable (1400*12%*15/360) Interest income (To record accrued interest on note) $ 7 $ 1,442 $ Mar-16 Accounts Receivable Note Receivable Interest Receivable Interest income (1400*12%*75/360) (To record note dishonoured by Ace) $ $ 1,400 7 35 $ $ 1,442 $ Mar-16 Cash Note Receivable Interest Receivable Interest income (1400*12%* 75/360) (To record note honoured by Ace) $ 1,400 7 35 Mar-31 Allowance for Doubtful Accounts $ 1,442 Accounts Receivable (To record write off Ace balance using allowance method) $ 1,442

Credit Answer to Second Question Journal Entries Date Description Dec-31 Bad Debt expense Allowance for Doubtful Accounts (To record bad debt expense estimation) Debit 3,000 $ $ 3,000 $ $ 400 Feb-14 Allowance for Doubtful Accounts Accounts Receivable (To record write off ZZZ balance) $ 400 $ $ 400 Apr-01 Accounts Receivable Allowance for Doubtful Accounts (To record reinstate the written off account) $ 400 400 Apr-01 Cash $ Accounts Receivable (To record cash received on previously written off debt) $ 400