Page 402 - Accounting Principles (A Business Perspective)

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Exercise K Based on the previous exercise, prepare the entry or entries that would be made at the maturity
date for each alternative, assuming the loan is paid before the end of the accounting period.
Exercise L Pistol Pete provides communication services and products, as well as network equipment and

computer systems, to businesses, consumers, communications services providers, and government agencies. The
following amounts were included in its 2010 annual report:
(Millions)

Net sales USD 79,609
Receivables, net, 2009 December 31 29,275
Receivables, net, 2008 December 31 28,623

Calculate the accounts receivable turnover and the number of days' sales in accounts receivable. Use net sales
instead of net credit sales in the calculation. Comment on the results.

Problems
Problem A As of 2009 December 31, Fargo Company's accounts prior to adjustment show:
Allowance for uncollectible accounts (credit balance)
Accounts receivable $ 40,000
Allowance for uncollectible accounts (credit balance) 750
Sales 250,000
Fargo Company estimates uncollectible accounts at 1 per cent of sales.
On 2010 February 23, the account of Dan Hall in the amount of USD 300 was considered uncollectible and
written off. On 2010 August 12, Hall remitted USD 200 and indicated that he intends to pay the balance due as

soon as possible. By 2010 December 31, no further remittance had been received from Hall and no further
remittance was expected.
a. Prepare journal entries to record all of these transactions and adjusting entries.
b. Give the entry necessary as of 2009 December 31, if Fargo Company estimated its uncollectible accounts at 8
per cent of outstanding receivables rather than at 1 per cent of sales.
Problem B At the close of business, Jim's Restaurant had credit card sales of USD 12,000. Of this amount,
USD 4,000 were VISA (bank credit card) sales invoices, which can be deposited in a bank for immediate credit, less

a discount of 3 per cent. The balance of USD 8,000 consisted of American Express (nonbank credit card) charges,
subject to a 5 per cent service charge. These invoices were mailed to American Express. Shortly thereafter, a check
was received.
Prepare journal entries for all these transactions.
Problem C Ruiz Company sells merchandise in a state that has a 5 per cent sales tax. On 2010 January 2, Ruiz
sold goods with a sales price of USD 80,000 on credit. Sales taxes collected are recorded in a separate account.
Assume that sales for the entire month were USD 900,000. On 2010 January 31, the company remitted the sales
taxes collected to the state taxing agency.
a. Prepare the general journal entries to record the January 2 sales revenue. Also prepare the entry to show the

remittance of the taxes on January 31.
b. Now assume that the merchandise sold on January 2 also is subject to federal excise taxes of 12 per cent. The
federal excise taxes collected are remitted to the proper agency on January 31. Show the entries on January 2 and
January 31.

Accounting Principles: A Business Perspective 403 A Global Text