Account

CHAPTER 8 RECEIVABLES

DISCUSSION QUESTIONS

1. 2. 3. 4. Receivables are normally classified as (1) accounts receivable, (2) notes receivable, or (3) other receivables. Dan’s Hardware should use the direct write-off method because it is a small business that has a relatively small number and volume of accounts receivable. Contra asset, credit balance The accounts receivable and allowance for doubtful accounts may be reported at a net amount of $661,500 ($673,400 – $11,900) in the Current Assets section of the balance sheet. In this case, the amount of the allowance for doubtful accounts should be shown separately in a note to the financial statements or in parentheses on the balance sheet. Alternatively, the accounts receivable may be shown at the gross amount of $673,400 less the amount of the allowance for doubtful accounts of $11,900, thus yielding net accounts receivable of $661,500. (1) The percentage rate used is excessive in relationship to the accounts written off as uncollectible; hence, the balance in the allowance is excessive. (2) A substantial volume of old uncollectible accounts is still being carried in the accounts receivable account. 6. 7. 8. An estimate based on analysis of receivables provides the most accurate estimate of the current net realizable value. a. b. Sailfish Company Notes Receivable

5.

The interest will amount to $5,100 ($85,000 × 6%) only if the note is payable one year from the date it was created. The usual practice is to state the interest rate in terms of an annual rate, rather than in terms of the period covered by the note. Debit Accounts Receivable for $243,600 Credit Notes Receivable for $240,000 Credit Interest Revenue for $3,600 Cash Accounts Receivable [$240,000 + ($240,000 × 6% × 90/360)] Interest Revenue ($243,600 × 30/360 × 9% = $1,827). 245,427 243,600 1,827

9.

10.

8-1

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