Page 401 - Accounting Principles (A Business Perspective)

9. Receivables and payables

39,000 3-6 75
12,000 6-9 35
2,250 9-12 10
Exercise C On 2009 April 1, Kelley Company, which uses the allowance method of accounting for uncollectible
accounts, wrote off Bob Dyer's USD 400 account. On 2009 December 14, the company received a check in that
amount from Dyer marked "in full payment of account". Prepare the necessary entries.
Exercise D Jamestown Furniture Mart, Inc., sold USD 80,000 of furniture in May to customers who used their
American Express credit cards. Such sales are subject to a 3 per cent discount by American Express (a nonbank
credit card),
a. Prepare journal entries to record the sales and the subsequent receipt of cash from the credit card company.

b. Do the same as requirement (a), but assume the credit cards used were VISA cards (a bank credit card).
Exercise E Dunwoody Discount Toys, Inc., sells merchandise in a state that has a 5 per cent sales tax. Rather
than record sales taxes collected in a separate account, the company records both the sales revenue and the sales
taxes in the Sales account. At the end of the first quarter of operations, when it is time to remit the sales taxes to the
state taxing agency, the company has USD 420,000 in the Sales account. Determine the correct amount of sales
revenue and the amount of sales tax payable.
Exercise F Assume the following note appeared in the annual report of a company:
In 2009, two small retail customers filed separate suits against the company alleging misrepresentation,
breach of contract, conspiracy to violate federal laws, and state antitrust violations arising out of their purchase

of retail grocery stores through the company from a third party. Damages sought range up to USD 10 million in
each suit for actual and treble damages and punitive damages of USD 2 million in one suit and USD 10 million in
the other. The company is vigorously defending the actions and management believes there will be no adverse
financial effect.
What kind of liability is being reported? Why is it classified this way? Do you think it is possible to calculate a
dollar amount for this obligation? How much would the company have to pay if it lost the suit and had to pay the
full amount?

Exercise G Determine the maturity date for each of the following notes:
Issue Date Life
2010 January 13 30 days
2010 January 31 90 days
2010 June 4 1 year
2010 December 2 1 month
Exercise H Crawford, Inc., gave a USD 20,000, 120-day, 12 per cent note to Dunston, Inc., in exchange for
merchandise. Crawford uses periodic inventory procedure. Prepare journal entries to record the issuance of the

note and the entries needed at maturity for both parties, assuming payment is made.
Exercise I Based on the facts in the previous exercise, prepare the entries that Crawford, Inc., and Dunston,
Inc., would make at the maturity date, assuming Crawford defaults.
Exercise J John Wood is negotiating a bank loan for his company, Wood, Inc., of USD 16,000 for 90 days. The
bank's current interest rate is 10 per cent. Prepare Wood's entries to record the loan under each of the following
assumptions:
a. Wood signs a note for USD 16,000. Interest is deducted in calculating the proceeds turned over to him.

b. Wood signs a note for USD 16,000 and receives that amount. Interest is to be paid at maturity.

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