2100 Solutions - CH8

Kimmel, Weygandt, Kieso, Trenholm
Financial Accounting, Second Canadian Edition
CHAPTER 8
Reporting and Analysing Receivables
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives
Questions
Brief
Exercises
Exercises
A
Problems
B
Problems
1.
Identify the different

types of receivables.
1,2
2.
Explain how accounts

receivable are
recognized in the
accounts.
1A, 2A,
6A, 7A,
1B, 2B,
6B, 7B,
3.
Describe the method

used to account for bad
debts.
4, 5, 6, 7
3, 4, 5, 9
2, 3, 4
1A, 2A,
3A, 4A,
5A, 7A
1B, 2B,
3B, 4B,
5B, 7B
4.
Explain how notes

receivable are
recognized and valued
in the accounts.
8, 9, 10
6, 7, 8
5, 6
6A, 8A,
9A
6B, 8B,
9B
5.
Explain the statement

presentation of
receivables.
11
7, 11
9A
9B
6.
Describe the principles

of sound accounts
receivable
management.
12, 13
10
7.
Identify the ratios used

to analyse a companys
receivables.
14, 15, 16
9, 11
9, 10
7A, 10A,
11A
7B, 10B,
11B
8.
Describe the methods

used to accelerate the
receipt of cash from
receivables.
17, 18
12
11, 12
11A
11B
Solutions Manual
8-1
Chapter 8
Copyright 2004 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.
ASSIGNMENT CHARACTERISTICS TABLE

Problem
Number
Description
Difficulty
Level
Time
Allotted (min.)
1A
Journalize receivables transactions.
Moderate
20-30
2A
Determine missing amounts.
Complex
15-20
3A
Journalize bad debts transactions.
Moderate
20-30
4A
Journalize bad debts transactions
Moderate
20-30
5A
Calculate bad debt amounts.
Moderate
20-30
6A
Moderate
20-30
7A
Journalize receivables transactions and calculate

ratios.
Moderate
30-40
8A
Journalize notes receivables transactions.
Moderate
20-30
9A
Journalize credit card and notes receivable

transactions; show balance sheet presentation.
Moderate
15-20
10A
Calculate and interpret ratios.
Moderate
15-20
11A
Evaluate liquidity.
Moderate
15-20
1B
Moderate
20-30
2B
Determine missing amounts.
Complex
15-20
3B
Journalize bad debts transactions.
Moderate
20-30
4B
Journalize and post bad debts transactions
Moderate
20-30
5B
Calculate bad debt amounts.
Moderate
20-30
6B
Moderate
20-30
7B
Journalize receivables transactions and calculate

ratios.
Moderate
30-40
8B
Journalize notes receivables transactions.
Moderate
20-30
9B
Journalize credit card and notes receivable
Moderate
15-20
Solutions Manual
8-2
Chapter 8
Problem
Number
Description
transactions; show balance sheet presentation.
Difficulty
Level
Time
Allotted (min.)
10B
Calculate and interpret ratios.
Moderate
15-20
11B
Evaluate liquidity.
Moderate
15-20
Solutions Manual
8-3
Chapter 8
ANSWERS TO QUESTIONS
1.
Accounts receivable are amounts owed by customers on account. They result from the
sale of goods and services in the normal course of business operations (i.e., in trade).
Notes receivable represent claims that are evidenced by formal instruments of credit.
Notes normally extend for periods longer than an account and have a specified
interest rate attached.
2.
Other receivables include nontrade receivables such as interest receivables, loans to

company officers, advances to employees, and income taxes refundable.
3.
The sale should be recorded at $10,000 on December 29. If the customer takes the
discount it will be recorded on January 8 as a sales discount. If sales discounts
covering more than one period of time are material for a company, they should be
estimated and recorded in the proper period similar to the allowance for doubtful
accounts.
4.
The purpose of the allowance for doubtful accounts is to show an estimate of the
accounts receivable expected to become uncollectible. The allowance account is used
because the amount is only an estimate and we do not know for certain which
customers will not pay. The account can be in a debit balance if the amount of actual
write-offs exceeds previous provisions for bad debts.
5.
Soo Eng should realize that the decrease in net realizable value occurs when
estimated uncollectibles are recognized in an adjusting entry. The write-off of an
uncollectible account reduces both accounts receivable and the allowance for doubtful
accounts by the same amount. Thus, net realizable value does not change.
6.
A company should write off an account when all methods of attempting to collect it
have failed. Therefore once an account is written off the company should no longer
actively attempt collection.
7.
Two journal entries are required because the first journal entry has to restore the
previously written off accounts receivable and the second journal entry records the
actual receipt of payment on the account. This way there is a record that the person
did eventually pay for the purpose of future credit decisions.
8.
Notes are not recorded at their maturity value because the interest on the note is
earned over time. According to the revenue recognition principle, interest is recorded
as earned.
9.
In total the note will earn $1,250 interest ($30,000 x 5% x 10/12). $1,000 will be
recorded for the year ended December 31 8 months interest ($30,000 x 5% x 8/12).
Solutions Manual
8-4
Chapter 8
Questions (Continued)
10.
Payee:
Accounts Receivable................................................................
Notes Receivable................................................................
Interest Revenue.................................................................
Maker (May Ltd.):
Notes Payable..........................................................................
Interest Expense......................................................................
Accounts Payable...............................................................
11.
Receivables
Accounts receivable
Less: Allowance for doubtful accounts
Net realizable value
Notes receivable
Less: Allowance for doubtful accounts
xxx
xxx
xxx
xxx
xxx
xxx
$xxx
xx
xxx
$xxx
xx
xxx
12.
The steps involved in receivables management are:

(1) Determine to whom to extend credit
(2) Establish a payment period
(3) Monitor collections
(4) Evaluate the liquidity of receivables
(5) Accelerate cash receipts from receivables when necessary
13.
A concentration of credit risk exists when a material threat of nonpayment exists, from
either a single customer or class of customers, that could adversely affect the
companys financial health.
14.
An increase in the receivables turnover ratio indicates a faster collection of receivables.

The higher the turnover ratio the fewer days it takes to collect the accounts receivable.
An increase in the collection period means that it is taking longer for the company to
convert sales in to cash.
15.
Sales for the period
16.
An increase in the current ratio normally indicates an improvement in short-term

liquidity. This may not always be the case because the composition of current assets
may vary. In order to determine if the increase is an improvement in financial health
other ratios that should be considered include: the receivables turnover, average
collection period, inventory turnover and days in inventory ratios.
= Receivables Turnover X Average Accounts Receivable

=
11.6 X $1,762.5 million
=
$20,445 million
Solutions Manual
8-5
Chapter 8
Questions (Continued)
17.
Bombardier may sell its receivables to accelerate the receipt of cash. The proceeds
from the sale of the receivables could be used to finance operations and reduce the
need for the company to rely on other sources of financing such as operating lines of
credit. As well, the company may not want to dedicate resources to the time consuming
responsibility of billing and collecting from customers. By selling the receivables and
passing this responsibility to others, Bombardier is free to concentrate on its core
business activities.
18.
From its own credit cards, Sears may realize interest revenue from customers who do
not pay the balance due within a specified grace period. To account for these
transactions the company records a debit to accounts receivable and a credit to sales
revenue.
Bank credit cards offer the following advantages:
(1) The credit card issuer makes the credit card investigation of the customer.
(2) The issuer maintains individual customer accounts.
(3) The issuer undertakes the collection process and absorbs any losses from
uncollectible accounts.
(4) The retailer receives cash more quickly from the credit card issuer than it would
from individual customers.
To record a bank credit card transaction, the seller normally records a debit to cash for
the amount of the sale less the service charge required by the credit card company. A
debit is made to the service charge expense and a credit is made to sales revenue for
the gross amount of the sale.
The advantage of the debit card is that the cash is deducted immediately from the
customers account. There are no credit checks or collection concerns so the service
charges are normally lower than for a bank credit card.
The entries to record a debit card sale are the same as the entry to record a bank
credit card sale.
By using its own credit cards, bank credit cards and debit cards Sears provides more
options to its customers, increases its revenue, and reduces its risk.
Solutions Manual
8-6
Chapter 8
SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 8-1
(a)
(b)
(c)
(d)
Nontrade receivables
Notes receivable
Accounts receivable
Nontrade receivables
BRIEF EXERCISE 8-2

(a)
(b)
(c)
Accounts Receivable..................................................................
Sales................................................................................
14,000
Cost of Goods Sold....................................................................

Inventory............................................................................
10,000
Sales Returns and Allowances..................................................

Accounts Receivable.......................................................
2,400
Inventory.....................................................................................
Cost of Goods Sold..........................................................
1,440
Cash ($11,600 - $232)...............................................................

Sales Discounts ($11,600 X 2%)...............................................
Accounts Receivable ($14,000 $2,400)........................
11,368
232
14,000
10,000
2,400
1,440
11,600
BRIEF EXERCISE 8-3

(a)
(b)
Bad Debt Expense.....................................................................

Allowance for Doubtful Accounts.....................................
4,500
4,500
The amount to be reported as bad debts expense would be $800 + $7,500 = $8,300.
Solutions Manual
8-7
Chapter 8
BRIEF EXERCISE 8-4

(a)
Allowance for Doubtful Accounts........................................................
Accounts Receivable.................................................................
(b)
(1)
Accounts receivable
Allowance for doubtful accounts
Before Write-Off
$700,000
54,000
$646,000
18,000
18,000
(2)
After Write-Off
$682,000
36,000
$646,000
BRIEF EXERCISE 8-5

Accounts Receivable...........................................................................
Allowance for Doubtful Accounts...............................................
18,000
Cash....................................................................................................
Accounts Receivable.................................................................
18,000
18,000
18,000
BRIEF EXERCISE 8-6

Annual Interest Rate
10%
(a) 8%
12%
Total Interest
(b) $1,500.00
$400.00
(c) $1,680.00
BRIEF EXERCISE 8-7

Jan.
Feb.
10
Accounts Receivable........................................................
Sales......................................................................
12,000

Inventory.............................................................
8,000
Notes Receivable.............................................................
Accounts Receivable.............................................
12,000
12,000
8,000
12,000
Solutions Manual
8-8
Chapter 8
BRIEF EXERCISE 8-8

(a)
Apr.
Notes Receivable.....................................................................
10,000
July
Cash .........................................................................................
Notes Receivable............................................................
Interest Revenue ($10,000 x 7% x 3/12)........................
10,175
(b)
Apr.
Notes Receivable.....................................................................
10,000
July
Accounts Receivable................................................................
Notes Receivable............................................................
Interest Revenue ($10,000 x 7% x 3/12)........................
10,175
10,000
10,000
175
10,000
10,000
175
BRIEF EXERCISE 8-9

(a)
(b)
Bad Debts Expense...................................................................

Allowance for Doubtful Accounts......................................
Current assets
Cash..................................................................................
Accounts receivable..........................................................
Less: Allowance for doubtful accounts.............................
Merchandise inventory......................................................
Prepaid expenses.............................................................
35,000
35,000
$ 90,000
$600,000
35,000
565,000
130,000
13,000
$798,000
(c)
Receivables turnover =
Average collection period =
$3,000,000
5 times
$600,000
365 days
73 days
5
Solutions Manual
8-9
Chapter 8
BRIEF EXERCISE 8-10

(a)
(b)
(c)
(d)
(e)
2.
3.
4.
5.
1.
Review company credit ratings

Collect information about competitors payment period policies
Prepare accounts receivable aging schedule
Calculate the receivables turnover and average collection period
Accept bank credit cards
BRIEF EXERCISE 8-11

Receivables Turnover ($ in millions):
$5,075.9
20.7 times
($248.1 + $243.1) 2
Average Collection Period:

365 days
18 days
20.7 times
BRIEF EXERCISE 8-12

Visa card
Cash ($100 $3).......................................................................
Service Charge Expense ($100 X 3%)......................................
Sales.................................................................................
97
3
Nonbank card
Credit Card Receivables............................................................
Sales.................................................................................
100
Debit card
Cash ($100 $3).......................................................................
Service Charge Expense ($100 X 3%)......................................
Sales.................................................................................
97
3
100
100
100
Solutions Manual
8-10
Chapter 8
SOLUTIONS TO EXERCISES
EXERCISE 8-1
Nicklaus Corp.
Jan.
16
Account ReceivableWatson Inc....................................

Sales........................................................................
6,000

Inventory..................................................................
3,600
Cash ($6,000 $120)......................................................

Sales Discounts (2% X $6,000).......................................
Accounts ReceivableWatson Inc..........................
5,880
120
Merchandise Inventory.....................................................
Accounts Payable....................................................
6,000
Accounts Payable............................................................
Merchandise Inventory.............................................
Cash.........................................................................
6,000
6,000
3,600
6,000
Watson Inc.
Jan.
6
16
6,000
120
5,880
EXERCISE 8-2
(a)
Dec. 31
(b) Dec. 31
Bad Debts Expense..............................................

Allowance for Doubtful Accounts..................
8,200

7,500
8,200
7,500
Solutions Manual
8-11
Chapter 8
EXERCISE 8-3
(a)
(b)
(c)
Age of Accounts
0-30 days
31-60 days
61-90 days
Over 90 days
Mar. 31
Amount
$65,000
12,600
8,500
6,400
%
2
7
30
50
Estimated Uncollectible
$1,300
882
2,550
3,200
$7,932

($7,932 $2,200)
5,732
5,732
The total balance of receivables increased from 2003 to 2004. However, of concern is
the fact that each of the three categories of older accounts increased substantially
during 2004. That is, customers are taking longer to pay and bad debts are likely to
increase. Management needs to investigate the causes of this change.
EXERCISE 8-4
2004
Dec. 31
Bad Debts Expense.........................................................

($8,400 + $1,000)
9,400
9,400
2005
May 11
June 12

Accounts ReceivableWorthy..................................
900
Accounts ReceivableWorthy........................................
Allowance for Doubtful Accounts...............................
900
Cash.................................................................................
Accounts ReceivableWorthy..................................
900
900
900
900
Solutions Manual
8-12
Chapter 8
EXERCISE 8-5
Nov.
Dec.
1
1
15
31
Cash.........................................................................
24,000
Sales........................................................................
3,600

Inventory..................................................................
2,500
Accounts ReceivableB. Barnes............................
8,000
Interest Receivable..........................................................
Interest Revenue*....................................................
361
*Calculation of interest revenue:

Bouchards note:
Wrights note:
Barnes note:
Total accrued interest
$24,000 X 8% X 2/12
$3,600 X 6% X 1/12
$8,000 X 7% X 15/365
=
=
=.
24,000
3,600
2,500
8,000
361
$320
.18
23
$361
Note: Some students may also calculate interest using part months, rather than days.
EXERCISE 8-6
May
June 30
July
Oct.
Nov.
31
31
Accounts Receivable Jioux Company..................
6,000
Interest Receivable ($6,000 X 5% X 2/12)......................

Interest Revenue......................................................
50
Cash.........................................................................
10,000
Cash.................................................................................
Note Receivable ..............................................................
Interest Revenue ($10,000 X 7% X 3/12)................
10,175

Note Receivable.......................................................
Interest Receivable .................................................
6,050
6,000
50
10,000
10,000
175
6,000
50
Solutions Manual
8-13
Chapter 8
EXERCISE 8-7
DEERE AND COMPANY
Balance Sheet (partial)
October 31, 2002
(in U.S. millions)
Receivables
Trade accounts and notes receivable...........................................................
Financing receivable
(net of allowance for doubtful accounts $136)..............................................
Other receivables..........................................................................................
Total receivables ..........................................................................................
Less: Allowance for doubtful accounts*...............................................................
Net receivables....................................................................................................
$ 2,779.0
9,068.0
426.4
12,273.4
45.0
$12,228.4
* This presentation assumes that the allowance relates for all receivables. Some students
may also assume that it relates solely to accounts receivable.
EXERCISE 8-8
Bombardier has industry risk in that a significant amount of its receivables are concentrated
in the transportations and aerospace industry. However, due to the note disclosure, users are
now aware of this risk. So long as sales are being made to a variety of customers in the
industry, users should not be concerned.
Solutions Manual
8-14
Chapter 8
EXERCISE 8-9
(a)
2002
Current ratio =
$1,163
0.55 : 1
$2,134
2001
Current ratio =
$1,164
0.71 : 1
$1,638
(b)
2002

2001
$6,110
8.1 times
($781 + $726) 2
365 days
45 days
8.1
$5,652
7.4 times
($726 + $800) 2
365 days
49 days
7.4
(c)
The accounts receivable represented 62.1% ($722 $1,163) of the companys current
assets and 11.8% ($722 $6,110) of the companys revenue in 2002. It represented
55.4% ($645 $1,164) of the companys current assets and 11.4% ($645 $5,652) of
the companys revenue in 2001. This is a significant portion of the companys liquid
assets and its revenue and thus clearly deserves close monitoring.
(d)
The receivables turnover ratio and the average collection period seem to indicate that
the companys management of receivables has improved. The turnover has improved
from 7.4 times in 2001 to 8.1 times in 2002. The average collection period has
decreased from 49 days in 2001 to 45 days in 2002. However it appears that overall
liquidity has deteriorated as evidenced by the decline in the current ratio from 0.71:1 in
2001 to 0.55:1 in 2002.
Solutions Manual
8-15
Chapter 8
EXERCISE 8-10
(a)
(b)
(c)
(d)
Decrease
Increase
No effect
Increase
EXERCISE 8-11
(a)
Jan. 15
Jan. 20
Jan. 30
Feb. 10
Feb. 15
Credit Card Receivables..................................................

Sales........................................................................
15,000
Cash.................................................................................
Service Charge Expense ($4,500 X 2%).........................
Sales........................................................................
4,410
90
Cash.................................................................................
Service Charge Expense ($1,000 X 3%).........................
Sales........................................................................
970
30
Cash.................................................................................
Credit Card Receivables..........................................
12,000
Interest Receivable ($15,000 - $12,000 X 18% X 1/12). .

Interest Revenue......................................................
45
15,000
4,500
1,000
12,000
45
(b) Service charge expense and interest revenue would be shown in the nonoperating
revenues and expense section of the Statement of Earnings
EXERCISE 8-12
One possible reason CN chose to sell may have been to improve its financial ratios. Other
reasons include not wanting to deal with the administration of collecting accounts or the
desire to accelerate cash receipts.
Solutions Manual
8-16
Chapter 8
SOLUTIONS TO PROBLEMS
PROBLEM 8-1A
(a) Accounts Receivable..........................................
Sales...............................................................
800,000
Cash...................................................................
Accounts Receivable......................................
743,000
(b) Allowance for Doubtful Accounts........................

7,000
(c) Accounts Receivable..........................................

Allowance for Doubtful Accounts....................
4,000
Cash...................................................................
4,000
(d) Bad Debt Expense.............................................

19,000
800,000
743,000
7,000
4,000
4,000
19,000
Allowance for Doubtful Accounts

Beg. Bal.
9,000
W/O
7,000 Recovery
4,000
Bad Debts 19,000
End Bal.
25,000
Solutions Manual
8-17
Chapter 8
PROBLEM 8-1A (Continued)

(e)
Accounts Receivable
Beg. Bal.200,000 Collections 743,000
Sales
800,000 W/O
7,000
Recovery
4,000 Collections
4,000
End Bal.
250,000
Beg. Bal.
9,000
W/O
7,000 Recovery
4,000
Bad Debts 19,000
End Bal.
25,000
(f)
Net realizable value of receivables is $225,000 ($250,000 - $25,000)
Solutions Manual
8-18
Chapter 8
PROBLEM 8-2A
(a)
Allowance for doubtful accounts = $425 (given)
(b)
$350 - $150 (b) = $425

(b) = $225
(c)
Bad debt expense = Adjustment to allowance for doubtful accounts = $225

(from (b))
(d)
Addition to Accounts Receivable = $45,000
(e)
Amounts written off = Reductions in the allowance account = $150
(f)
(f) + $45,000 - $46,350 - $150 = $4,500

(f) = $6,000
Solutions Manual
8-19
Chapter 8
PROBLEM 8-3A
(a) Total estimated bad debts
Total
Accounts
receivable
% uncollectible
Estimated
bad debts
0-30
Number of Days Outstanding

31-60
61-90
91-120
$375,000
$220,000
1%
$90,000
4%
$40,000
8%
$10,000
16%
$15,000
30%
$15,100
$2,200
$3,600
$3,200
$1,600
$4,500
(b) Bad Debts Expense....................................................

Allowance for Doubtful Accounts..........................
($15,100 + $10,000)
25,100
(c) Allowance for Doubtful Accounts.................................

Accounts Receivable............................................
5,000
(d) Accounts Receivable...................................................

5,000
Cash............................................................................
5,000
(e)
Over 120
25,100
5,000
5,000
5,000
If Image.com used 4% of total accounts receivable rather than aging the

individual accounts the allowance at year end, the bad debt expense
adjustment would be $25,000 [$15,000 ($375,000 x 4%) + $10,000]. The
answers to (c) (d) would not change.
Aging the individual accounts rather than applying a percentage to the
total accounts receivable should produce a more accurate allowance and
bad debt expense.
Solutions Manual
8-20
Chapter 8
PROBLEM 8-4A
(a)
Dec. 31 Bad Debts Expense............................... 18,610

Allowance for Doubtful Accounts. . .
($38,610 $20,000)
(b)
18,610
2005
1.
2.
Mar. 31 Allowance for Doubtful Accounts...........

Accounts Receivable.....................
800
May 31 Accounts Receivable.............................

800
31 Cash.......................................................
800
(c)
800
800
800
2005
Dec. 31
Bad Debts Expense.....................................

Allowance for Doubtful Accounts...........
($38,610 $45,000)
6,390
6,390
Solutions Manual
8-21
Chapter 8
PROBLEM 8-5A
(a)
$36,000
(b)
$32,000 - $3,000 = $29,000
(c)
$32,000 + $3,000 = $35,000
(d)
Using the allowance method of reporting bad debt expense provides a

better balance sheet valuation for accounts receivable and better matches
expenses to the period in which the sale occurs.
Solutions Manual
8-22
Chapter 8
PROBLEM 8-6A
Jan. 5
Accounts ReceivableGeorge Company.......... 16,000

Sales............................................................
Cost of Goods Sold.............................................
Inventory......................................................
20
Feb.18
Apr. 20
30
May 25
Aug.18
25
Sept. 1
16,000
9,600
9,600
Notes Receivable................................................ 16,000

Accounts ReceivableGeorge Company. . .
Notes Receivable................................................
Sales............................................................
8,000

Inventory......................................................
5,000
16,000
8,000
5,000
Cash ($16,000 + $360)....................................... 16,360

Notes Receivable.........................................
Interest Revenue ($16,000 X 9% X 3/12)....
16,000
360
Cash ($11,000 + $293).......................................

Interest Revenue ($11,000 X 8% X 4/12)....
11,293
11,000
293
Accounts ReceivableAvery Inc.................
6,000
Cash ($8,000 + $200).........................................

Interest Revenue ($8,000 X 5% X 6/12)......
8,200
Accounts ReceivableAvery Inc........................

($6,000 + $120)
Notes Receivable...................................
Interest Revenue ($6,000 X 8% X 3/12)
6,120
6,000
8,000
200
6,000
120
Notes Receivable................................................ 10,000

Sales............................................................
Inventory......................................................
10,000
6,000
6,000
Solutions Manual
8-23
Chapter 8
PROBLEM 8-7A
(a)
1.
Accounts Receivable..................................... 3,200,000

Sales......................................................
3,200,000
2.
Sales Returns and Allowances.......................

Accounts Receivable.............................
50,000
50,000
3.
Cash............................................................... 3,000,000
3,000,000
4.

90,000
40,000
Cash...............................................................
40,000
5.
90,000
40,000
40,000
(b)
Accounts Receivable
Bal.
(1)
(5)
960,000 (2)
3,200,000 (3)
40,000 (4)
(5)
Bal. 1,020,000
(c)
50,000
3,000,000
90,000
40,000

(4)
90,000 Bal.
(5)
70,000
40,000
Bal.
20,000
Balance before adjustment [see (b)].....................

Balance needed....................................................
Adjustment required..............................................
$ 20,000
110,000
$ 90,000
The journal entry would therefore be as follows:

Bad Debts Expense.......................................
90,000
90,000
Solutions Manual
8-24
Chapter 8

(d)
Receivables Turnover
$3,200,000 $50,000
3.2 times
$960,000 $1,020,000
Average Collection Period

Its average collection period is:
365 days
= 114 days
3.2
Solutions Manual
8-25
Chapter 8
PROBLEM 8-8A
(a)
July 31
Aug. 31
Sept. 30
(b)
Sept. 30
30
Notes Receivable........................ 50,000

Accounts Receivable............
Interest Receivable......................
Interest Revenue..................
($50,000 x 5% x 1/12)
208
208
Cash............................................ 50,416
Interest Receivable...............
Interest Revenue
(50,000 X 5% X 1/12)...........
Notes Receivable..................
Interest Receivable......................
Interest Revenue..................
($50,000 x 5% x 1/12)
50,000
208
208
50,000
208
Accounts Receivable................... 50,416

Interest Receivable
($208 + $208).......................
Notes Receivable..................
208
416
50,000
Solutions Manual
8-26
Chapter 8
PROBLEM 8-9A
(a)
Oct. 1
Cash........................................................... 8,093.33
Interest Receivable
($8,000 X 7% X 2/12)..........................
93.33
Notes Receivable.................................
8,000.00
Accounts Receivable................................. 6,900.00

Sales....................................................
6,900.00
12
Cash ($750 $15).....................................

Service Charge Expense ($750 X 2%)......
Sales............................................
735.00
15.00
750.00
21
Cash ($1,500 $30).................................. 1,470.00

Service Charge Expense ($1,500 X 2%)...
30.00
Sales............................................
1,500.00
31
Accounts Receivable ................................ 5,260.66

5,200.00
Interest Receivable
($5,200 X 7% X 1/12)..........................
30.33
Interest Revenue
($5,200 X 7% X 1/12)..........................
30.33
31
Interest Receivable ...................................

Interest Revenue.................................
($10,200 X 9% X 1/12)
76.50
76.50
Solutions Manual
8-27
Chapter 8

(b)
Oct.1
Notes Receivable
Bal. 23,400.00 Oct. 15 8,000.00
Oct. 25 5,200.00
Oct. 31 Bal. 10,200.00
Interest Receivable
Oct. 1 Bal. 123.66 Oct. 1 93.33
Oct. 31
76.50 Oct. 31 30.33
Oct. 31 Bal. 76.50
Accounts Receivable
Oct. 7
6,900.00
Oct. 31
5,260.66
Oct. 31 Bal. 12,160.66
(c) Current assets
Notes receivable......................................................... $10,200
Accounts receivable.................................................... 12,161
Interest receivable......................................................
77
Total receivables................................................... $22,438
Solutions Manual
8-28
Chapter 8
PROBLEM 8-10A
Rogers
Shaw
($ in millions)
Receivables turnover
$4,323
($558.8 $577.6) 2
Average collection period
$1,888.6
($208.8 + $206.8) 2
$4,323
= 7.6 times
$568.2
$1,888.6
9.1 times
$207.8
365 days
= 48 days
7.6
365 days
= 40 days
9.1
Shaws receivables turnover was almost 20% higher than Rogers, which
means Shaw was more efficient than Rogers in collecting its receivables.
However, both companies are still collecting their accounts receivables
slower than the industry average of 38 days.
Solutions Manual
8-29
Chapter 8
PROBLEM 8-11A
(a)
At first glance it appears that Tianjins liquidity had deteriorated over the
past year since the companys current ratio has fallen from 1:5:1 to 1:3:1.
However, it is taking the company less time to collect its accounts
receivable as evidenced by the higher receivables turnover ratio. As well,
the company appears to be moving its inventory more quickly as
evidenced by the higher inventory turnover ratio. It is possible that the
lower current ratio is due to the fact that with improved collections and
inventory turnover, the company is carrying fewer current assets and not
because the companys liquidity has deteriorated.
(b)
Changes in the turnover ratios do not directly affect profitability. However,

improvements in turnover generally indicate that the company is better
able to convert sales to cash. Improved liquidity could allow the company
to better manage it cash flows and therefore, indirectly improve
profitability.
(c)
There are several steps that Tianjin might have taken to improve its
receivables and inventory turnover:
Receivables
-
The company could limit credit to only the best customers, however,
this could negatively affect sales.
The company could initiate the use of a cash discount to encourage

early payment of receivables.
The company could more aggressively monitor collections to

encourage customers to pay on time.
The company could sell or factor its receivables to accelerate cash

receipts.
Solutions Manual
8-30
Chapter 8

(c) (Continued)
Inventory
-
The company could limit the amount of inventory by improving its

purchasing relationships with suppliers. If inventory could be
purchased more frequently, required inventory levels could be
reduced.
Improvements in production processes could reduce the amount of

work in process and thereby reducing inventory and improving the
turnover ratio.
Moving to a system whereby inventory is only produced as needed,

will reduce the amount of finished goods inventory and improve the
turnover ratio. However, there is some risk to this option as sales
could be lost if stock-outs occur.
Solutions Manual
8-31
Chapter 8
PROBLEM 8-1B
(a) Accounts Receivable..........................................
Sales...............................................................
900,000
900,000
Cash................................................................... 1,069,000
1,069,000
(b) Allowance for Doubtful Accounts........................
6,000
(c) Accounts Receivable..........................................

3,000
Cash...................................................................
3,000
(d) Bad Debt Expense.............................................

11,000
6,000
3,000
3,000
11,000

10,000 Beg. Bal.
W/O
6,000 3,000 Recovery
11,000 Bad Debts
18,000 End. Bal.
Solutions Manual
8-32
Chapter 8
PROBLEM 8-1B (Continued)

(e)
Accounts Receivable
Beg. Bal.400,000 Collections
Sales
900,000 W/O
Recovery
3,000 Collections
End Bal.
225,000
W/O
(f)
1,069,000
6,000
3,000

10,000
Beg. Bal.
6,000
3,000
Recovery
11,000
Bad Debts
18,000
End Bal.
Net realizable value of receivables is $207,000 ($225,000 - $18,000)
Solutions Manual
8-33
Chapter 8
PROBLEM 8-2B
(a)
Allowance for doubtful accounts = $930 (given)
(b)
$930 - $750 + $105 = $285
(c)
Bad debt expense = Adjustment to allowance for doubtful accounts = $285

[from (b)]
(d)
Addition to accounts receivable = Sales = $30,000
(e)
Amounts written off = Reductions in the allowance account = $105
(f)
$8,300 + $30,000 (d) - $32,000 - $105 (e) = $6,195
Solutions Manual
8-34
Chapter 8
PROBLEM 8-3B
(a) Total estimated bad debts
Total
Accounts
receivable
% uncollectible
Estimated
bad debts
0-30
Number of Days Outstanding

31-60
61-90
91-120 Over 120
$260,000 $100,000 $60,000 $50,000 $30,000

1%
5%
10%
20%
$21,000
$1,000
$3,000
$5,000
$6,000
(b) Bad Debts Expense....................................................

[$21,000 - $15,000]
6,000
(c) Allowance for Doubtful Accounts.................................

2,000
(d) Accounts Receivable...................................................

1,000
Cash............................................................................
1,000
(e)
$20,000
30%
$6,000
6,000
2,000
1,000
1,000
By establishing an allowance at the end of each accounting period the bad

debt expense is recorded in the period in which the sales occur. This
satisfies the matching principle.
Solutions Manual
8-35
Chapter 8
PROBLEM 8-4B
(a)
Dec. 31 Bad Debts Expense............................... 16,660

($35,660 $19,000)
(b)
16,660
2005
1.
2.
Mar. 1
May 1
1
(c)

800
800
Cash.......................................................
800
800
800
800
2005
Dec. 31
Bad Debts Expense.....................................

($35,660 $40,000)
4,340
4,340
Solutions Manual
8-36
Chapter 8
PROBLEM 8-5B
(a)
Bad debts written off
$28,000
(b)
$20,000 - $4,000 =
$16,000
(c)
$20,000 + $2,000 =
$22,000
(d)
The advantages of the allowance method are:

1.
It attempts to match bad debt expense related to uncollectible

accounts receivable with sales revenues on the statement of
earnings.
2.
It attempts to show the net realizable value of the accounts receivable

on the balance sheet.
Solutions Manual
8-37
Chapter 8
PROBLEM 8-6B
Jan.
Feb. 2
12
26
Apr.
5
12
Accounts ReceivableBrooks Company...........

Sales.......................................................
6,000

Inventory......................................................
4,000
Accounts ReceivableBrooks Company....
6,000
Sales............................................................
7,800

Inventory......................................................
5,000
Accounts ReceivableMathias Co....................

Sales............................................................
5,000

Inventory......................................................
3,750
Accounts ReceivableMathias Co.............
5,000
Cash ($7,800 + $78)...........................................

7,878
6,000
4,000
6,000
7,800
5,000
5,000
3,750
5,000
7,800
78
Solutions Manual
8-38
Chapter 8

June 2
July
July 15
Oct. 15
Cash ($6,000 + $80)...........................................

Accounts ReceivableMathias Co.
($5,000 + $88) ...................................................
6,120
6,000
120
5,088
5,000
88
Sales............................................................
2,000

Inventory......................................................
1,500
Cash ($2,000 + $35)...........................................

2,035
2,000
1,500
2,000
35
Solutions Manual
8-39
Chapter 8
PROBLEM 8-7B
(a)
1.
Accounts Receivable.......................................... 2,600,000

Sales...........................................................
2,600,000
2.
Sales Returns and Allowances..........................

Accounts Receivable..................................
40,000
40,000
3.
Cash.................................................................. 2,200,000
2,200,000
4.
Allowance for Doubtful Accounts.......................

80,000
Accounts Receivable.........................................
Allowance for Doubtful Accounts................
25,000
Cash..................................................................
25,000
5.
80,000
25,000
25,000
(b)
Accounts Receivable
Bal.
(1)
(5)
Bal.
1,000,000 (2)
2,600,000 (3)
25,000 (4)
(5)
1,280,000
40,000
2,200,000
80,000
25,000

(4)
Bal.
80,000 Bal.
(5)
50,000
25,000
5,000
Solutions Manual
8-40
Chapter 8

(c)
Balance before adjustment [see (b)]..........................

Balance needed.........................................................
Adjustment required..................................................
$ 5,000 dr.
70,000 cr.
$75,000 cr.
The journal entry would therefore be as follows:

Bad Debts Expense...................................................
Allowance for Doubtful Accounts.....................
(d)
75,000
75,000
Receivables Turnover:
$2,600,000 $40,000
$2,560,000
=
= 2.25 times
($1,000,00 0 + $1,280,000 ) 2 $1,140,000
The average collection period is:
365 days
162 days
2.25
Solutions Manual
8-41
Chapter 8
PROBLEM 8-8B
(a)
Nov. 1
30
Notes Receivable.............................
Accounts Receivable.................
20,000
20,000
Interest Receivable
($20,000 X 7% X 1/12).....................
117
..................................................Interest Revenue
117
Dec. 31
Jan. 31
Feb. 1
(b)
Feb. 1
Interest Receivable..........................
Interest Revenue.......................
117
Interest Receivable..........................
Interest Revenue.......................
116
Cash.................................................
Interest Receivable....................
Notes Receivable......................
20,350
Accounts Receivable........................
Interest Receivable....................
Notes Receivable......................
20,350
117
116
350
20,000
350
20,000
Solutions Manual
8-42
Chapter 8
PROBLEM 8-9B
(a) July 1
Cash ......................................................... 6,060.00

Interest Receivable
($6,000 X 6% X 2/12).....................
5
14
31
31
Accounts Receivable................................. 7,800.00

Sales....................................................
Cash ($700 $21).....................................
Service Charge Expense ($700 X 3%)......
Sales....................................................
60.00
7,800.00
679.00
21.00
700.00
Allowance For Doubtful Accounts ............. 4,824.00

Interest Receivable
($4,800 X 6% x 1/12).....................
Interest Receivable ...................................
Interest Revenue
($9,000 X 5% X 1/12).....................
6,000.00
4,800.00
24.00
37.50
37.50
Solutions Manual
8-43
Chapter 8

(b)
Notes Receivable
Jul. 1 Bal.19,800 Jul. 1
Jul. 31
Jul. 31 Bal.
Jul. 1
Jul. 3
Jul. 5
9,000
Interest Receivable
84.00 Jul. 1 Bal.
37.50 Jul. 31
Jul. 31 Bal.
6,000
4,800
60.00
24.00
37.50
Accounts Receivable
7,800
Jul. 31 Bal.
7,800
(c) Current assets

Notes receivable..................................................
Accounts receivable.............................................
Interest receivable...............................................
Total receivables............................................
$ 9,000
7,800
38
$16,838
Solutions Manual
8-44
Chapter 8
PROBLEM 8-10B
(a)
Nike
Reebok
($ in U.S. millions)
$9,893.0
$3,127.9
($1,693.5 $1,884.5 ) 2
($438.6 $482.7 ) 2
$9,893.0
= 5.53 times
$1,789
$3,127.9
6.79 times
$460.65
Average collection period 365 = 66 days

5.53
365
= 54 days
6.79
Reeboks receivables turnover ratio was higher than Nikes, which means
that Reebok was more efficient than Nike in turning receivables into cash.
However, both companies are below the industry average in receivables
turnover and average collection period.
Solutions Manual
8-45
Chapter 8
PROBLEM 8-11B
(a)
At first glance it appears that Hawryluks liquidity had improved over the
past year since the companys current ratio has increased from 1:5:1 to
1:8:1. However, it is taking the company more time to collect its accounts
receivable as evidenced by the lower accounts receivable turnover ratio.
As well, the company appears to be moving its inventory less quickly as
evidenced by the lower inventory turnover ratio. The cause for these
declines should be investigated as part of assessing the companies
liquidity.
(b)
Changes in the turnover ratios directly affect cash flow. Improvements in

the receivables turnover and inventory turnover speed up the cash cycle
which provides the company with better cash flow and less need for
outside financing.
(c)
There are several steps that Hawryluk could consider to improve its
receivables and inventory turnover:
Receivables
-
The company could limit credit to only the best customers, however,
this could negatively affect sales.
The company could initiate the use of a cash discount to encourage

early payment of receivables
The company could more aggressively monitor collections to

encourage customers to pay on time.
The company could sell or factor its receivables to accelerate cash

receipts
Solutions Manual
8-46
Chapter 8

(c) Continued
Inventory
-
The company could limit the amount of inventory by improving its

purchasing relationships with suppliers. If inventory could be
purchased more frequently, required inventory levels could be
reduced.
Improvements in production processes could reduce the amount of

work in process and thereby reducing inventory and improving the
turnover ratio.
Moving to a system whereby inventory is only produced as needed

will reduce the amount of finished goods inventory and improve the
turnover ratio. However, there is some risk to this option as sales
could be lost if stock-outs occur.
Solutions Manual
8-47
Chapter 8
(a)
BYP 8-1 FINANCIAL REPORTING PROBLEM

($ in millions)
$23,082
42.9 times
($605 $472) 2

365
8.5 days
42.9
Loblaw has very few credit sales. Given its average collection period of 8.5 days, one
can assume that the majority of its sales are cash sales.
(b)
Loblaw has a policy of writing off any credit card receivables that has a payment in
arrears of greater than 180 days or where the likelihood of collection is considered
remote.
(c)
Loblaw (through PC Bank) sells a portion of its credit card receivables to an

independent Trust through a process called securitization.
(d)
Loblaw seems to have a policy of quickly converting its receivables to cash. The
company has very few receivables; therefore most of its sales must be on a cash
basis. The few receivables owned by the company are quickly sold through
securitization allowing the company to quickly turn the receivables into cash.
Solutions Manual
8-48
Chapter 8
BYP 8-2 COMPARATIVE ANALYSIS PROBLEM
(a)
M
ost of the receivables owned by the two companies are credit card receivables.
However, Sobeys does have some mortgage and loans receivable representing longterm financing to franchisees.
(b)
($ in millions)
Loblaw
1.
Current ratio
$3,526
1.12 : 1
$3,154
2.
= 42.9 times
$10,414.5
($285.4 + $251.0) 2
= 38.8 times

365
8.5 days
42.9
(c)
$1,094.4
0.92 : 1
$1,180.5
$23,082
($605 $472) 2
3.
Sobeys
365
= 9.4 days
38.8
Overall working capital management appear on par with the industry for both Loblaw
and Sobeys. The current ratio for Loblaws is around the industry average of 1:1 while
Sobeys current ratio is less than the industry average. It appears that Loblaw manages
it receivables better than the industry average. Its turnover rate is 42.9 times compared
to the average of 40.4. Its average collection period of 8.5 days is slightly better than
the industry average of 9 days. Sobeys ratios indicate that it is slightly below the
industry average, at 38.8 times for its turnover ratio and 9.4 days for the average
collection period.
Solutions Manual
8-49
Chapter 8
BYP 8-3 RESEARCH CASE

(a)
On the average, Canadians pay off 33% of their credit card balances monthly.
(b)
2.6% of balances are overdue by more than 30 days.
(c)
3% of uncollectible accounts were written off in the first quarter of 2002
(d)
In comparison to Canadians, Americans only pay off 15% of their balances monthly,
delinquent accounts (accounts over 30 days) average 5.4% and in the first quarter of
2002 6.4% of uncollectible accounts were written off.
Solutions Manual
8-50
Chapter 8
BYP 8-4 INTERPRETING FINANCIAL STATEMENTS

(a)
($ in millions)
2002
2001
Current ratio
$722
0.91 : 1
$797
$622
0.80 : 1
$773
$4,902
($406 + $309) 2
$4,194
($309 $410) 2
= 13.7 times
= 11.7 times

365
26.6 days
13.7
365
= 31.2 days
11.7
Suncors liquidity has improved over the past year. Its current ratio has increased to
0.91:1 from 0.80:1 and it is collecting its accounts receivables almost 5 days faster in
2002 versus 2001. The companys current ratio is still under the industry average but
they are collecting receivables much faster than the average company in the industry.
(b)
By keeping the dollar amount of its allowance for doubtful accounts unchanged over the
past few years, the company had a much higher percentage of receivables recognized
as doubtful in 2001 versus 2002. It may be more relevant for the company to determine
a percentage of receivables that it deems doubtful each year and adjust the balance in
the doubtful accounts by recognizing a bad debt expense annually. However, the
company may have identified specific accounts that are doubtful, which may be the
reason why the balance has not changed from year to year.
(c)
By regularly selling its accounts receivable Suncor is able to more quickly convert
receivables into cash. The company may have determined that the fees associated with
selling the receivables are less than the cost of having to use short term borrowings to
finance operations. As well, the company may also not want to bother with the cost and
effort required to bill and collect the receivables and would rather sell the receivables
and let another company deal with these issues.
Solutions Manual
8-51
Chapter 8
BYP 8-5 A GLOBAL FOCUS

(a)
Sears sold $8.1 billion of its receivables. This represents 20% ($8.1 ($32.595 +
$8.1)) of Sears total receivables. Thus, the sale of receivables by Sears is obviously
significant.
Companies sell receivables to raise funds to meet cash needs. As well, Sears may
not have wanted to devote resources to the time consuming job of billing and
collecting its receivables.
One concern that an investor would have is whether Sears is responsible for these
receivables if the receivables go bad. That is, Sears may have to make up any
deficiency to the party it sold the receivables to if that party is not able to collect.
(b)
The receivables turnover ratio is calculated as net credit sales divided by average
gross accounts receivable.
($ in U.S. millions)
2002
$35,698
($32,595 + $29,321) 2
= 1.15 times
2001
$35,755
($29,321 + $18,003) 2
= 1.51 times
The average collection period is calculated as 365 (the number of days in a year)
divided by the receivables turnover ratio. For 2002 and 2001 this is calculated as:
2002
365
317 days
1.15
2001
365
242 days
1.51
Note that the average collection period for Sears is longer than for many companies
because Sears provides instalment financing, allowing its customers to pay over an
extended period of time.
Solutions Manual
8-52
Chapter 8
BYP 8-5 (Continued)

(c)
Both. By providing financing, Sears makes it possible for many of its customers to
purchase goods that they dont currently have adequate cash to purchase. Sears
allows these customers to pay off their balance in instalment payments, requiring that
they pay interest on the outstanding balance. This interest represents a significant
portion of Sears' revenue for the year.
(d)
The ratio of bad debts expense divided by sales for Sears for 2002 and 2001 is
calculated as:
2002
2001
$2,261
6.3%
$35,698
$1,866
5.2%
$35,755
This ratio gives an indication of the cost of bad debts per dollar of sales. The ratio has
gotten worse from 2001 to 2002. It should be monitored over time by management to
ensure that the companys credit policies are appropriate and that they are being
followed. Too tight a policy and the company will lose too many sales; too loose a
policy and the company will incur high bad debts expense.
Solutions Manual
8-53
Chapter 8
BYP 8-6 FINANCIAL ANALYSIS ON THE WEB

Due to the frequency of change with regard to information available on the World Wide Web,
the Accounting on the Web cases are updated as required. Their suggested solutions are
also updated whenever necessary, and can be found online in the Instructor Resources
section of our home page <www.wiley.com/canada/kimmel>.
Solutions Manual
8-54
Chapter 8
(
a)
BYP 8-7 COLLABORATIVE LEARNING ACTIVITY

2004
$500,000
2003
$600,000
2002
$400,000
$ 2,450
3,800
8,000
2,500
750
$17,500
$ 2,500
3,800
9,600
3,000
900
$19,800
$ 1,600
3,800
6,400
2,000
600
$14,400
3.5%
3.3%
3.6%
(b) Average accounts receivable (5%)......................
$25,000
$30,000
$20,000
Investment earnings (5%)..............................
$ 1,250
$ 1,500
$ 1,000
Total credit and collection expense per above

Add: Investment earnings*.............................
Net credit and collection expense..................
$17,500
1,250
$18,750
$19,800
1,500
$21,300
$14,400
1,000
$15,400
Net expenses as a percentage of net sales...
3.75%
3.55%
3.85%
Net credit sales.............................................

Credit and collection expenses
Collection agency fees........................
Salary of accounts receivable clerk.....
Uncollectible accounts.........................
Billing and mailing costs......................
Credit investigation fees......................
Total.............................................
Total expenses as a percentage of
net credit sales....................................
*The investment earnings on the cash tied up in accounts receivables is an additional

expense of continuing the existing credit policies.
(c) The analysis shows that the credit card fee of 3% of net credit sales will be lower than the
percentage cost of credit and collection expenses in each year before considering the
effect of earnings from other investment opportunities. However, after considering
investment earnings, the credit card fee of 3% will be even more attractive to the
company. Financially, the company should accept the offer to use the credit cards.
However, the decision hinges on (1) the accuracy of the estimates of investment
earnings, (2) the expected trend in credit sales, and (3) the effect the new policy will
have on sales.
Nonfinancial factors include the effects on customer relationships of the alternative
credit policies and whether the Campus Fashions wants to continue with the handling
of their own accounts receivable.
Solutions Manual
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Chapter 8
BYP 8-8 COMMUNICATION ACTIVITY

Memorandum
To:
Sales Staff
From:
Student
Re:
Management of the credit function
During the year Toys for Big Boys has experienced a significant increase in sales due to your
efforts. However, it is important that the sales staff be aware that, in order for the company to
generate the cash it needs to continue operations, it is essential that Toys for Big Boys be
able to generate cash from these sales. Cash is needed to pay for the inventory the
company has purchased and to cover other operating expenses such as your sales
commissions.
Over the past year, the company has noticed a trend whereby the average time to collect
accounts receivables has increased from 30 days to 120 days. By allowing you to assume
the role of managing the credit function what it is likely is that you have become too focused
on sales without considering the quality of the sales and the ability of the customer to pay the
receivable within a reasonable period of time.
Given the increase in the average collection period, it is likely that the company has now
assumed additional credit risk. The longer a customer takes to pay, the more likely that he
will default on the receivable.
The selling staff has been placed in a conflict of interest position. While it is in your best
interest to stimulate sales, this may deter you from performing adequate credit checks. To
improve this process I would recommend using a separate credit department to evaluate the
credit worthiness of all potential credit customers. If the sales staff is opposed to this
recommendation, at the very least a set of specific criteria should be developed which would
ensure that the selling staff only grant credit to those customers who meet the companys
credit standards.
Solutions Manual
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Chapter 8
BYP 8-9 ETHICS CASE

(a)
The stakeholders in this situation are:

The president of Shady Corporation
The controller of Shady Corporation
The shareholders of Shady Corporation
(b)
The ethical dilemma is whether the controller should issue the credit notes and
reinvoice the sale to make the receivable appear to be more current. This way Shady
will be able to meet the banks requirements and increase the amount of the operating
line of credit.
(c)
To proceed with the presidents plan would be fraudulent. If Shady ever defaulted on
the loan and it was discovered that the invoices were reissued to manipulate the
accounts receivable figures both Shady and potentially the controller could be liable.
The controller should point this out to Shadys president and refuse to proceed with the
adjustments. If the president still insists that the invoices be reissued, the controller
should resign from his position.
Solutions Manual
8-57
Chapter 8
Legal Notice
Copyright
Copyright 2004 by John Wiley & Sons Canada, Ltd. or related companies. All rights reserved.
The data contained in these files are protected by copyright. This manual is furnished under licence
and may be used only in accordance with the terms of such licence.
The material provided herein may not be downloaded, reproduced, stored in a retrieval system,
modified, made available on a network, used to create derivative works, or transmitted in any form or
by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise without the
prior written permission of John Wiley & Sons Canada, Ltd.
Solutions Manual
8-58
Chapter 8

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Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Identify the different

Explain how accounts

Describe the method

Explain how notes

Explain the statement

Describe the principles

Identify the ratios used

Describe the methods

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE

Journalize receivables transactions.

Determine missing amounts.

Journalize bad debts transactions.

Journalize bad debts transactions

Calculate bad debt amounts.

Journalize receivables transactions.

Journalize receivables transactions and calculate

Journalize notes receivables transactions.

Journalize credit card and notes receivable

Calculate and interpret ratios.

Journalize receivables transactions.

Determine missing amounts.

Journalize bad debts transactions.

Journalize and post bad debts transactions

Calculate bad debt amounts.

Journalize receivables transactions.

Journalize receivables transactions and calculate

Journalize notes receivables transactions.

Journalize credit card and notes receivable

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Calculate and interpret ratios.

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Other receivables include nontrade receivables such as interest receivables, loans to

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

The steps involved in receivables management are:

An increase in the receivables turnover ratio indicates a faster collection of receivables.

Sales for the period

An increase in the current ratio normally indicates an improvement in short-term

= Receivables Turnover X Average Accounts Receivable

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 8-2

Cost of Goods Sold....................................................................

Sales Returns and Allowances..................................................

Cash ($11,600 - $232)...............................................................

BRIEF EXERCISE 8-3

Bad Debt Expense.....................................................................

Kimmel, Weygandt, Kieso, Trenholm

Financial Accounting, Second Canadian Edition

BRIEF EXERCISE 8-4

BRIEF EXERCISE 8-5