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Apple Corporation Sample Accounts Receivable Subsidiary Ledger

Gross Accounts Receivable. Apple Corporation Sample Accounts Receivable Subsidiary Ledger. Total Due Acme $ 10,000 Baxter 50,000 Jones 15,000 Martin 20,000

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Apple Corporation Sample Accounts Receivable Subsidiary Ledger

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  1. Gross Accounts Receivable Apple Corporation Sample Accounts Receivable Subsidiary Ledger Total Due Acme $ 10,000 Baxter 50,000 Jones 15,000 Martin 20,000 Smith 5,000 $100,000 LO1

  2. Terms: 2/10, net 30 Sales Invoice Credit Sales • Slows inflow of cash • Risk of uncollectible accounts Trade Credit Retail Customer Receivables

  3. Future period charged with expense of bad debt write-off Accounting for Bad Debts:Direct Write-off Method Journal entry to record write-off in period determined to be uncollectible: Bad Debts Expense XXX Accounts Receivable—Dexter XXX Period of sale

  4. Accounting for Bad Debts: Allowance Method Period of sale Estimated bad debt expense (and allowance account) recorded in the same period

  5. Accounting for Bad Debts:Allowance Method I estimate... Journal entry to record estimated bad debt expense in period of sale: Bad Debts Expense XXX Allowance for Doubtful Accounts XXX

  6. Balance Sheet Presentation – Allowance Method Partial Balance Sheet Accounts receivable $xxx,xxx Less: Allowance for doubtful accounts xxxx Net accounts receivable $XXX,XXX

  7. Accounting for Bad Debts:Allowance Method Bankrupt Journal entry to record bad debt write-off in period determined uncollectible: Allowance for Doubtful Accounts XXX Accounts Receivable—Dexter XXX

  8. Approaches tothe Allowance Method % of Net Credit Sales % of Accounts Receivable Aging Method Income Statement Approach Balance Sheet Approach

  9. Percentage of Net Credit Sales Method Example: Assume prior years’ net credit sales and bad debt expense is as follows: YearNet Credit SalesBad Debts 2007 $1,250,000 $ 26,400 2008 1,340,000 29,350 2009 1,200,000 23,100 2010 1,650,000 32,150 2011 2,120,000 42,700 $7,560,000 $153,700

  10. Percentage of Net Credit Sales Method 2012 Net credit sales $2,340,000 (given) Bad debt % ($153,700/$7,560,000) 2% Bad debts expense $ 46,800 Example: Journal entry: Bad Debts Expense 46,800 Allowance for Doubtful Accounts 46,800

  11. Percentage of Accounts Receivable Method Example: Assume prior years’ ending Accounts Receivable and bad debts is as follows: December 31 YearAccounts ReceivableBad Debts 2007 $ 650,000 $ 5,250 2008 785,000 6,230 2009 854,000 6,950 2010 824,000 6,450 2011 925,000 7,450 $4,038,000 $32,330

  12. Percentage of Accounts Receivable Method $32,330 / $4,038,000 = 0.8% ratio of bad debts to the ending accounts receivable December 31, 2012 Accounts Receivable $865,000 × 0.8% Credit balance required in Allowance account after adjustment $6,920 Example:

  13. Percentage of Accounts Receivable Method Assume the Allowance for Doubtful Accounts has a beginning credit balance of $2,100: Credit balance required in allowance account after adjustment $ 6,920 Less: Credit balance in allowance account before adjustment 2,100 Amount for bad debt expense entry $ 4,820

  14. Percentage of AccountsReceivable Method Assume the Allowance for Doubtful Accounts has a beginning credit balance of $2,100: Journal entry: Bad Debts Expense 4,820 Allowance for Doubtful Accounts 4,820 To record estimated bad debts.

  15. Percentage of AccountsReceivable Method The net realizable value of accounts receivable would be determined as follows: Accounts receivable $xxx,xxx Less: Allowance for doubtful account 6,920 Net realizable value $xxx,xxx

  16. Estimated Percent Estimated Amount Category Amount Uncollectible Uncollectible Current $ 85,600 1% $ 856 Past due: 1–30 days 31,200 4% 1,248 31–60 days 24,500 10% 2,450 61–90 days 18,000 30% 5,400 90+ days 9,200 50% 4,600 Totals $168,500 $14,554 Aging Method

  17. Aging Method Assume the Allowance for Doubtful Accounts has a beginning credit balance of $1,230: Credit balance required in allowance account after adjustment $14,554 Less: Credit balance in allowance account before adjustment (1,230) Amount for bad debt expense entry $13,324

  18. Aging Method Assume the Allowance for Doubtful Accounts has a beginning credit balance of $1,230: Journal entry: Bad Debts Expense 13,324 Allowance for Doubtful Accounts 13,324 To record estimated bad debts.

  19. Aging Method The net realizable value of accounts receivable would be determined as follows: Accounts receivable $xxx,xxx Less: Allowance for doubtful account 14,554 Net realizable value $xxx,xxx

  20. Accounts Receivable Turnover Net Credit Sales Average Accounts Receivable Indicates how quickly a company is collecting (i.e., turning over) its receivables LO2

  21. Too fast may mean: credit policies too stringent; may be losing sales Too slow may mean: credit department not operating effectively; dissatisfied customers Accounts Receivable Turnover

  22. Principal Interest Maturity Date Interest-Bearing Promissory Note Baker Corporation promises to pay HighTec, Inc. $15,000 plus 12% annual interest on March 13, 2013. Date: December 13, 2012 Signed:_________ Baker Corporation LO3

  23. Interest-Bearing Promissory Note Maker Gives a Note to Payee

  24. Receipt of Interest-Bearing Promissory Note Journal entry to record the receipt of the note on December 13, 2012: Notes Receivable 15,000 Sales Revenue 15,000

  25. Interest-Bearing Promissory Note Adjusting entry to record interest on Dec. 31, 2012: Interest Receivable 90 Interest Revenue 90* *Interest = $15,000 × 12% × 18/360

  26. Interest-Bearing Promissory Note Journal entry to record the collection of the note on March 13, 2013: Cash 15,450 Notes Receivable 15,000 Interest Revenue 360* Interest Receivable 90 *15,000 × 12% × 72/360

  27. Accelerating the Cash Inflow from Sales • Credit card sales • Discounting notes receivable LO4

  28. Credit Card Sales • Competitive necessity • Credit card company: • Charges fee • Assumes risk of nonpayment

  29. Discounting Notes Receivable • Sell note prior to maturity date for cash • Receive less than face value (i.e., discounted amount) • Can be sold with or without recourse

  30. Reasons Companies Invest in Other Companies • Short-term cash excesses • Long-term investing for future cash needs • Exert influence over investee • Obtain control of investee LO5

  31. Investment in a CD Example: Purchase of investment: Short-Term Investments—CD 100,000 Cash 100,000 On October 2, 2012, Creston invests $100,000 of excess cash in a 120-day CD. Principal plus interest @ 6% due upon investment maturity.

  32. Investment in a CD Year-end adjusting entry: Interest Receivable 1,500 Interest Revenue 1,500 Interest (I) = Principal (P) × Rate (R) × Time (T) $1,500 = $100,000×6%×90*/360 *October = 29 days November = 30 days December = 31 days 90 days

  33. Investment in a CD Upon investment maturity: Cash 102,000 Short-Term Investments—CD 100,000 Interest Receivable 1,500 Interest Revenue* 500 *Interest earned in January: $100,000 × 6% × 30/360 = $500

  34. Consolidated Financial Statements Fair Value Method Equity Method 50% 100% 0% Control No significant influence Significant influence Accounting for Common-Stock Investments 20% Our focus in Appendix

  35. Investment in Bonds • Bonds of other companies • Intent and ability to hold until maturity $100,000, 10% bond due ten years

  36. Investment in Bonds Example: On 1/1/12, Atlantic buys: • $100,000, 10% bonds @ face value • Bonds mature in ten years • Interest payable semiannually Record the purchase of the bonds and receipt of the first interest payment

  37. Recording Bond Purchase Investment in Bonds 100,000 Cash 100,000 To record purchase of ABC bonds. $100,000, 10% bond due 2022

  38. Recording Receipt of Interest Payment 6/30/12 Cash ($100,000 × 10% × 1/2)5,000 Interest Income 5,000 To record interest income on ABC bonds.

  39. Recording Bond Sale 7/1/12 Cash 99,000 Loss on Sale of Bonds 1,000 Investment in Bonds 100,000 To record sale of ABC bonds.

  40. Investment in Stocks • Stocks of other companies • Recorded at cost, including any brokerage fees, commissions or other fees paid to acquire the shares

  41. Investment in Stocks Example: On February 1, 2012, Dexter Corp. pays $50,000 for shares of Stuart common stock plus $1,000 commissions : Investment in Stuart Common Stock 51,000 Cash 51,000 Record the purchase of common stock

  42. Recording Receipt of Dividends Dexter receives $500 cash dividends from Stuart common stock on March 31, 2012: Cash 500 Dividend Income 500 To record the receipt of dividends

  43. Sale of Investment in Stocks Sale of Investment in Stuart common stock on May 20, 2012 for $53,000: Cash 53,000 Investment in Stuart Common Stock 51,000 Gain on Sale of Stock 2,000 To record the sale of Stuart common stock.

  44. Liquid Assets and the Statement of Cash Flows – Indirect Method Operating Activities Net income xxx Increase in accounts receivable – Decrease in accounts receivable + Increase in notes receivable – Decrease in notes receivable + Investing Activities Purchases of held-to-maturity and available-for-sale securities – Sales/maturities of held-to-maturity and available-for-sale securities + Financing Activities LO6

  45. End of Chapter 7

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