Problem 7-22A Accounting for notes receivable and uncollectible accounts using the direct write-off method

Accounting for Receivables

Problem 7-22A Accounting for notes receivable and uncollectible accounts using the direct write-off method

The following transactions apply to Hooper Co. for Year 1, its first year of operations:

1. Issued $60,000 of common stock for cash.
2. Provided $90,000 of services on account.
3. Collected $78,000 cash from accounts receivable.
4. Loaned $20,000 to Mosby Co. on November 30, Year 1. The note had a one-year term to maturity and a 6 percent interest rate.
5. Paid $26,000 of salaries expense for the year.
6. Paid a $2,000 dividend to the stockholders.
7. Recorded the accrued interest on December 31, Year 1 (see item 4).
8. Determined that $920 of accounts receivable were uncollectible.

Required

a. Record the above transactions in general journal form.

b. Post the entries to T-accounts.

c. Prepare the income statement, balance sheet, and statement of cash flows for Year 1.

d. Show the effects of the above transactions in a horizontal statements model like the one shown next:

Problem 7-23A Missing information

The following information comes from the accounts of James Company:

Required

a. There were $190,000 of sales on account during the accounting period. Write-offs of uncollectible accounts were $1,450. What was the amount of cash collected from accounts receivable? What amount of uncollectible accounts expense was reported on the income statement? What was the net realizable value of receivables at the end of the accounting period?

b. The note receivable has a two-year term with a 7 percent interest rate. What amount of interest revenue was recognized during the period? How much cash was collected from interest?

Problem 7-24A Accounting for credit card sales and uncollectible accounts: percent of receivables allowance method

Northwest Sales had the following transactions in Year 1:

1. The business was started when it acquired $200,000 cash from the issue of common stock.
2. Northwest purchased $900,000 of merchandise for cash in Year 1.
3. During the year, the company sold merchandise for $1,200,000. The merchandise cost $710,000. Sales were made under the following terms:
   • a. $520,000 Cash sales
   • b. $380,000 Credit card sales (The credit card company charges a 4 percent service fee.)
   • c. $300,000 Sales on account
4. The company collected all the amount receivable from the credit card company.
5. The company collected $210,000 of accounts receivable.
6. The company paid $190,000 cash for selling and administrative expenses.
7. Determined that 5 percent of the ending accounts receivable balance would be uncollectible.

Required

a. Show the effects of each of the transactions on the elements of the financial statements, using a horizontal statements model like the one shown next. Use + for increase, − for decrease, and NA for not affected. The first transaction is entered as an example. (Hint: Closing entries do not affect the statements model.)

b. Prepare general journal entries for each of the transactions and post them to T-accounts.

c. Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows for Year 1.