apply gaap for revenue, receivables, collections, and uncollectibles using the percent-of-sales method; account for notes receivable) this harrison, walter t.; horngren, charles t.; thomas, c. willi

Project Description:

p5-50a. (learning objectives 2, 3, 4, 5: apply gaap for revenue, receivables, collections, and
uncollectibles using the percent-of-sales method; account for notes receivable) this problem takes you
through the accounting for sales, receivables, uncollectibles, and notes receivable for quick mail
corp., the overnight shipper. by selling on credit, the company cannot expect to collect 100% of
its accounts receivable. at july 31, 2014, and 2015, respectively, quick mail corp. reported the
following on its balance sheet (in millions of dollars):

july 31

2015 2014
accounts receivable..................................................$6,990 $5,830
less: allowance for uncollectible accounts..................(1419)...........(860)
__________________
accounts receivable, net...........................................$5,571...........$4,970



during the year ended july 31, 2015, quick mail corp. earned service revenue and collected
cash from customers. assume uncollectible-account expense for the year was 4% of service
revenue on account and that quick mail wrote off uncollectible receivables and made other
adjustments as necessary (see below). at year-end, quick mail ended with the foregoing
july 31, 2015, balances.

requirements

1. prepare t-accounts for accounts receivable and allowance for uncollectible accounts
and insert the july 31, 2014, balances as given.
2. journalize the following assumed transactions of quick mail corp. for the year ended
july 31, 2015 (explanations are not required):
a. service revenue was $98,480 million, of which 10% is cash and the remainder
on account.
b. collections from customers on account were $84,341 million.
c. uncollectible-account expense was 4% of service revenue on account.
d. write-offs of uncollectible accounts receivable were $2,986 million.
e. on july 1, quick mail received a 2-month, 6%, $203 million note receivable from a
large corporate customer in exchange for the customer’s past due account; quick mail
made the proper year-end adjusting entry for the interest on this note.
f. quick mail’s july 31, 2015 year-end bank statement reported $58 million of nsf
checks from customers.
3. post your entries to the accounts receivable and the allowance for uncollectible accounts
t-accounts.
4. compute the ending balances for accounts receivable and the allowance for uncollectible accounts and compare your balances to the actual july 31, 2015, amounts. they should
be the same. how much does quick mail expect to collect from its customers after july 31,
2015?
5. show the net effect of these transactions on quick mail’s net income for the year ended july 31, 2015.

harrison, walter t.; horngren, charles t.; thomas, c. william (2014-06-28). financial accounting (10th edition) (page 289). pearson education. kindle edition.
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