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ACCT-221 Final Review

Chapter 9

Accounting for Receivables

Accounts Receivable

1.     Valuing accounts receivable

  • Direct write-off method for uncollectible account

Bad Debt Expense                                           $$$$$

Accounts Receivable                                         $$$$$

 

  • Allowance method for uncollectible account

(a) Percentage of Sales Basis (Emphasis on Income Statement Relationships)

Bad Debt Expense                                             $$$$$

Allowance for Doubtful Accounts                           $$$$$

To record estimated bad debts for year

 (b) Percentage of Receivable Basis (Emphasis on Balance Sheet Relationships)

Bad Debt Expense                                             $$$$$

Allowance for Doubtful Accounts                           $$$$$

To adjust allowance account to total estimated uncollectibles

 2.     Recording the Write-off of an Uncollectible Account

Allowance for Doubtful Accounts                    $$$$$

Accounts Receivable - ABC Company             $$$$$

 3.     Recovery of an Uncollectible Account

Occasionally, a company collects from a customer after the account has been written off. Two entries are required to record the recovery of a bad debt: (1) reversing the previous write-off entry to restore the customer's account ;(2) Journalizing the collection in the usual manner.

Accounts Receivable - ABC Company             $$$$$

Allowance for Doubtful Accounts                    $$$$$

Cash                                                         $$$$$

Accounts Receivable - ABC Company             $$$$$

 Notes  Receivable

 

  • When receive a note - the note receivable is recorded at its face value

Notes Receivable - ABC Company                $$$$

Cash                                                        $$$$

 

  • Calculating Interest

 Interest = Face Value of Note * Annual Interest Rate * Time in Terms of One Year

 

  • Accrue period-end interest revenue

Interest Receivable                        $$$$

Interest Revenue                           $$$$

  • Receive interest payment

Cash                                                              $$$$

Interest Revenue (Receivable)                           $$$$

  • If Note is honored (paid in full at its maturity date)

Cash                                                                $$$$

Notes Receivable - ABC Company                        $$$$

  • If note is dishonoured (not paid in full at its maturity date)

 

(a)   If eventual collection is expected:

Accounts Receivable - ABC Company           $$$$

Notes Receivable - ABC Company               $$$$

Interest Revenue                                      $$$$

(b)   If eventual collection is not expected:

Allowance for Doubtful Notes               $$$$

Notes Receivable - ABC Company        $$$$

Chapter 10

Capital Assets

 

 

1.     Cost of Capital Assets

  • Recorded at historical cost
  • Consists of all expenditures made to acquire the asset and make it ready for intended use

 

2.     Amortization of Property, Plant and Equipment

  • Straight-Line

Annual amortization expense = (cost - residual Value)/useful Life in years

  • Double-Declining-Balance

Annual amortization expense = beginning net book value * straight-line rate * 2

Units-of-Activity

Annual amortization expense = (cost - residual Value)/total units of activity * units of activity during the year

3. Disposals of Property, Plant and Equipment

  • Compare the net book value with the fair market value of the asset disposed:

If: NBV = FMV;    No gain, no loss

If: NBV > FMV;    Loss on disposal

If: NBV < FMV;    Gain on disposal

  • Take off the Accumulated Amortization account balance for the asset disposed.

Chapter 11

Current Liabilities

 

1.     Property Tax liability

Before the bill is received, business property taxes must be estimated and accrued for each accounting period. Once the bill is received, the annual property tax expense must be adjusted for the portion already accrued.

2.     Product Warranty liability

Matching Principle: The estimated cost of honouring product warranty should be recognized as an expense in the period in which the sales are made.

3.     Sales Tax Liabilities

The journal entry for sales of $100 with GST and PST is as follows:

Cash (A/R)                                      115

Sales                                              100

GST Payable (7% * $100)                    7

PST Payable (8% * $100)                    8

Chapter 16

Long-Term Liabilities

 

Issuance of Bonds

a.      At face value

b.     At Premium

c.     At discount

d.     Between interest payment dates

Recording Interest Payments and Interest Expenses

  • Period-end adjusting entries
  • Amortization of premium or discount (Straight-line)

Retirement of Bonds

  • At maturity
  • Before maturity - recognize gain or loss on redemption

Long-Term Notes payable

  • Fixed principle payment
  • Blended Payment

 

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