Page 403 - Accounting Principles (A Business Perspective)

9. Receivables and payables

Problem D Honest Tim's Auto Company sells used cars and warrants all parts for one year. The average price
per car is USD 10,000, and the company sold 900 in 2009. The company expects 30 per cent of the cars to develop
defective parts within one year of sale. The estimated average cost of warranty repairs per defective car is USD 600.

By the end of the year, 80 cars sold that year had been returned and repaired under warranty. On 2010 January 4, a
customer returned a car purchased in 2009 for repairs under warranty. The repairs were made on January 8. The
cost of the repairs included parts, USD 400, and labor, USD 210.
a. Calculate the amount of the estimated product warranty payable.
b. Prepare the entry to record the estimated product warranty payable on 2009 December 31.
c. Prepare the entry to record the repairs made on 2010 January 8.
Problem E Celoron Power Boat Company is in the power boat manufacturing business. As of 2010 September

1, the balance in its Notes Receivable account is USD 256,000. The balance in Dishonored Notes Receivable is USD
60,660 (includes the interest of USD 600 and the protest fee of USD 60). A schedule of the notes (including the
dishonored note) is as follows:
Face Date Interest
Amount Maker of Note Life Rate
$ 100,000 C. Glass Co. 2009/6/01 120 days 12%
72,000 A. Lamp Co. 2009/6/15 90 8
84,000 C. Wall Co. 2009/7/01 90 10
60,000 N. Case Co. 2009/7/01 60 6
$316,000
Following are Celoron Power Boat Company's transactions for September:
Sept. 10 Received USD 36,660 from N. Case Company as full settlement of the amount due from it. The
company does not charge losses on notes to the Allowance for Uncollectible Accounts account.

? The A. Lamp Company note was collected when due.
? The C. Glass Company note was not paid at maturity.
? C. Wall Company paid its note at maturity.
30 Received a new 60-day, 12 per cent note from C. Glass Company for the total balance due on the dishonored
note. The note was dated as of the maturity date of the dishonored note. Celoron Power Boat Company accepted the
note in good faith.
Prepare dated journal entries for these transactions.
Problem F Premium Office Equipment, Inc., discounted its own USD 30,000, non interest-bearing, 180-day
note on 2009 November 16, at Niagara County Bank at a discount rate of 12 per cent.

Prepare dated journal entries for:
a. The original discounting on November 16.
b. The adjustment required at the end of the company's calendar-year accounting period.
c. Payment at maturity.

Alternate problems
Alternate problem A The following selected accounts are for Keystone, Inc., a name brand shoe wholesale
store, as of 2009 December 31. Prior to closing the accounts and making allowance for uncollectible accounts
entries, the USD 5,000 account of Morgan Company is to be written off (this was a credit sale of 2009 February 12).
Accounts receivable $ 360,000
Allowance for uncollectible accounts (credit) 6,000

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