The cofounders of ReGreen Corporation are introduced in the chapter's opening feature. Assume that they are considering two new selling options.

Plan A. ReGreen would begin selling instruction videos on reducing water usage online directly to customers. The new online customers would use their credit cards. The company has the capability of selling instructional videos through its website with no additional investment in hardware or software. Annual credit sales are expected to increase by $250,000.
 Costs associated with Plan A: Cost of these new sales is$135,500; credit card fees will be 4.75% of sales; and additional recordkeeping and shipping costs will be 6% of sales. Instructional video sales will reduce consulting sales for ReGreen by $35,000 annually because some customers will now only purchase instructional videos-assume that consulting sales for ReGreen have a 25% gross margin percentage.

Plan B. ReGreen would expand to more cities. It would make additional annual credit sales of$500,000 to customers in those new cities.
 Costs associated with Plan B: Cost of these new sales is $375,000; additional recordkeeping and shipping costs will be 4% of sales; and uncollectible accounts will be 6.2% of sales.

Required
1. Compute the additional annual net income or loss expected under (a) Plan A and (b) Plan B.
2. Should the company pursue either plan? Discuss both the financial and nonfinancial factors relevant to this decision.

Why does the Bad Debts Expense account usually not have the same adjusted balance as the Allowance for Doubtful Accounts?

At year-end (December 31), Chan Company estimates its bad debts as 0.5% of its annual credit sales of $975,000. Chan records its bad debts expense for that estimate. On the following February 1, Chan decides that the$580 account of P. Park is uncollectible and writes it off as a bad debt. On June 5, Park unexpectedly pays the amount previously written off.

 Prepare the journal entries of Chan to record these transactions and events of December 31, February 1, and June 5.

The following selected transactions are from Ohlm Company.

2016
Dec. 16 Accepted a $10,800, 60-day, 8% note dated this day in granting Danny Todd a time extension on his past-due account receivable.
 31 Made an adjusting entry to record the accrued interest on the Todd note.

2017
Feb. 14 Received Todd's payment of principal and interest on the note dated December 16.
Mar. 2 Accepted a$6,100,8%, 90-day note dated this day in granting a time extension on the past-due account receivable from Midnight Co.
 17 Accepted a $2,400, 30-day, 7% note dated this day in granting Ava Privet a time extension on her past-due account receivable.
Apr. 16 Privet dishonored her note when presented for payment.
May 31 Midnight Co. refused to pay the note that was due to Ohlm Co. on May 31. Prepare the journal entry to charge the dishonored note plus accrued interest to Midnight Co.'s accounts receivable.
July 16 Received payment from Midnight Co, for the maturity value of its dishonored note plus interest for 46 days beyond maturity at 8%.
Aug. 7 Accepted a$7,450, 90-day, 10% note dated this day in granting a time extension on the past-due account receivable of Mulan Co.
Sep. 3 Accepted a $2,100, 60-day, 10% note dated this day in granting Noah Carson a time extension on his past-due account receivable.
Nov. 2 Received payment of principal plus interest from Carson for the September 3 note.
Nov. 5 Received payment of principal plus interest from Mulan for the August 7 note.
Dec. 1 Wrote off the Privet account against the Allowance for Doubtful Accounts.

Required
1. Prepare journal entries to record these transactions and events. (Round amounts to the nearest dollar.)

Analysis Component
2. What reporting is necessary when a business pledges receivables as security for a loan and the loan is still outstanding at the end of the period? Explain the reason for this requirement and the accounting principle being satisfied.

Explain why writing off a bad debt against the Allowance for Doubtful Accounts does not reduce the estimated realizable value of a company’s accounts receivable.

The following selected transactions are from Springer Company.

2016
Nov. 1 Accepted a $4,800, 90-day, 8% note dated this day in granting Steve Julian a time extension on his past-due account receivable.
Dec. 31 Made an adjusting entry to record the accrued interest on the Julian note.

2017
Jan. 30 Received Julian's payment for principal and interest on the note dated November 1.
Feb. 28 Accepted a$12,600, 30-day, 8% note dated this day in granting a time extension on the pastdue account receivable from King Co.
Mar. 1 Accepted a $6,200, 60-day, 12% note dated this day in granting Myron Shelley a time extension on his past-due account receivable.
  30 The King Co. dishonored its note when presented for payment.
Apr. 30 Received payment of principal plus interest from M. Shelley for the March 1 note.
June 15 Accepted a$2,000, 72-day, 8% note dated this day in granting a time extension on the past-due account receivable of Ryder Solon.
  21 Accepted a $9,500, 90-day, 8% note dated this day in granting J. Felton a time extension on his past-due account receivable.
Aug. 26 Received payment of principal plus interest from R. Solon for the note of June 15.
Sep. 19 Received payment of principal plus interest from J. Felton for the June 21 note.
Nov. 30 Wrote off King's account against Allowance for Doubtful Accounts.

Required

1. Prepare journal entries to record these transactions and events. (Round amounts to the nearest dollar.) Analysis Component
2. What reporting is necessary when a business pledges receivables as security for a loan and the loan is still outstanding at the end of the period? Explain the reason for this requirement and the accounting principle being satisfied.

Required
1. Prepare journal entries to record these transactions and events. (Round amounts to the nearest dollar.)

Analysis Component
2. What reporting is necessary when a business pledges receivables as security for a loan and the loan is still outstanding at the end of the period? Explain the reason for this requirement and the accounting principle being satisfied.

Access eBay's February 1, 2016, filing of its 10-K report for the year ended December 31, 2015, at SEC.gov.

Required
1. What is the amount of eBay's net accounts receivable at December 31, 2015, and at December 31, 2014?
2. "Financial Statement Schedule II" of its 10-K report lists eBay's allowance for doubtful accounts (including authorized credits). For the two years ended December 31, 2015 and 2014, identify its allowance for doubtful accounts (including authorized credits), and then compute it as a percent of gross accounts receivable.
3. Do you believe that these percentages are reasonable based on what you know about eBay? Explain.

A company has net sales of $489,600 and average accounts receivable of$40,800. What is its accounts receivable turn-over?

• a. 0.08
• b. 30.41
• c. 1,341.00
• d. 12.00
• e. 111.78

Gomez Corp. uses the allowance method to account for uncollectibles. On January 31, it wrote off an $800 account of a customer, C. Green. On March 9, it receives a$300 payment from Green.

1. Prepare the journal entry for January 31.

2. Prepare the journal entries for March 9; assume no additional money is expected from Green.

Dexter Company uses the direct write-off method. Prepare journal entries to record the following transactions.

Mar. 11 - Dexter determines that it cannot collect $45,000 of its accounts receivable from Leer Co.

        29 - Leer Co. unexpectedly pays its account in full to Dexter Company. Dexter records its recovery of this bad debt.

The following list describes aspects of either the allowance method or the direct write-off method to account for bad debts. For each item listed, indicate if the statement best describes either the allowance (A) method or the direct write-off (DW) method.

_____1. No attempt is made to predict bad debts expense.
_____2. Accounts receivable on the balance sheet is reported at net realizable value.
_____3. The write-off of a specific account does not affect net income.
_____4. When an account is written off, the debit is to Bad Debts Expense.
_____5. Sales and any bad debt expense are usually not recorded in the same period; thus, proper: matching (of revenue and expense recognition) does not consistently occur.
_____6. Requires a company to estimate bad debts expense related to the sales recorded in that period.

As the accountant for Pure-Air Distributing, you attend a sales managers’ meeting devoted to a discussion of credit policies. At the meeting, you report that bad debts expense is estimated to be $59,000 and accounts receivable at year-end amount to$1,750,000 less a $43,000 allowance for doubtful accounts. Sid Omar, a sales manager, expresses confusion over why bad debts expense and the allowance for doubtful accounts are different amounts. Write a one-page memorandum to him explaining why a difference in bad debts expense and the allowance for doubtful accounts is not unusual. The company estimates bad debts expense as 2% of sales.

A company receives a $9,000, 8%, 60-day note. The maturity value of the note is

• a.$120.
• b. $9,000.
• c.$9,120.
• d. $720.
• e.$9,720.

Liang Company began operations on January 1, 2016. During its first two years, the company completed a number of transactions involving sales on credit, accounts receivable collections, and bad debts. These transactions are summarized as follows:

2016
a. Sold $1,345,434 of merchandise (that had cost$975,000) on credit, terms n/30.
b. Wrote off $18,300 of uncollectible accounts receivable.
c. Received$669,200 cash in payment of accounts receivable.
d. In adjusting the accounts on December 31, the company estimated that 1.5% of accounts receivable will be uncollectible.

2017
e. Sold $1,525,634 of merchandise on credit (that had cost$1,250,000), terms n/30.
f. Wrote off $27,800 of uncollectible accounts receivable.
g. Received$1,204,600 cash in payment of accounts receivable.
h. In adjusting the accounts on December 31, the company estimated that 1.5% of accounts receivable will be uncollectible.

Required
Prepare journal entries to record Liang's 2016 and 2017 summarized transactions and its year-end adjustments to record bad debts expense. (The company uses the perpetual inventory system and it applies the allowance method for its accounts receivable. Round amounts to the nearest dollar.)