Adjusting Journal Entry Information: A) Compass Corporation uses the percentage of receivables method to estimate uncollectible receivables, using the analysis of receivables method. (the T-account is provided to assist you in your calculations, the official ledger is on the following page.) Allowance for Doubtful Accounts 1,200 Unadj Bal Compass Corporation Schedule of Accounts Receivable by Age For the Year Ended December 31, 2017 Total A/R Aged Category Amount Percent Uncollectible Dollars Uncollectible Not Past Due 40,000 2% 800 1-30 Days Past Due 17,250 4% 690 31-60 Days Past Due 10,100 10% 1,010 61-90 Days Past Due 5,000 35% 1,750 Over 90 Days Past Due 2,500 50% 1,250 Total 74,850 5,500 B) Prepare the adjusting journal entry to record the accrual of interest as of 12/31/2017 for Note Receivable #1 based on the following information: Issued date of note = Term of note, in days = #days to accrue interest? 10/2/2017 120 Face amount of note = Annual interest rate = $40,000 6% 91 Accrued interest through 12/31= Total interest on note 606.67 800 1. PREPARE THE REQUIRED JOURNAL ENTRIES Date Description Adjusting Entries A) 12/31/17 Bad Debt Expense Allowance for dobtful account B) 12/31/17 Interest Receivable Intresest Revenue Post Ref Debit Credit 607 111 4,300 116 606.67 700 606.67 b) Assuming that Compass Corporation uses the percentage of sales method to estimate the bad debts, what amount would be used in the adjusting journal entry to record the uncollectible receivables based on the information below? Compass Corporation Net Credit Sales Method For the Year Ended December 31, 2017 Information regarding sales for year ended December 31, 2017: Net credit sales for the year Estimated % of uncollectible sales Estimated bad debts at 12/31/2017 630,000 0.75% 4,725 c) If the company had used the percentage of sales method instead of the percentage receivables method when preparing the financial statements, how would it effect the following: Total Revenue Total Expenses Net Income Total Assets Total Liabilities Stockholders' Equity +/-/N/A d) What is the due date of the note receivable? e) What is the maturity value of the note receivable? f) What is the journal entry the company will record when payment on the note receivable is received in full on its due date? Description Debit Credit g) Calculate the following ratios: $ $ $ $ $ $4,725 Amount Net Sales Accounts receivable turnover Average Accounts Receivable, net Ending Accounts Receivable, net Net Sales/365 =- Days' Sales in Receivables times days h) What conclusions can you draw about the collection of receivables by Compass Corporation based on the ratio calculations you made in g) above? 2 POST ADJUSTING ENTRIES A) AND C) AND UPDATE BALANCES IN THE T-ACCOUNTS Compass Corporation General Ledger December 31, 2017 Cash #100 Accum Deprec #151 Dividends #315 Beg Balance Annual activity 16.800 Beg Balance 5,000 Beg Balance 0 Beg Balance 653,150 629,690 Annual activity 5,000 Annual activity 5,000 Annual activity Uned Delance 40.260 Unad Balance 10,000 Unad Balance 5,000 Unad Balance Sales Salaries Exp 600 D 60,800 60.800 Beg Balance Amual activity, Unad Balance Accounts Receivable #110 73.000 637.740 635,890 74,850 Allow For Doubt Accts #111 Beg Balance Amus activity 1,200 O Unad Balence 1,200 Ad Ad Bal 4.300 3,100 Accounts Payable #200 Sales #400 Deprec. Exp.-Store 8605 Beg Balance Annual activity Unad Balance 2,300 175,000 174,300 1,600 Beg Balance 0 Beg Balance Annual activity Unad Balance 637,740 637,740 Annual activity Unad Balance 0 5.000 5,000 Notes Pay-Current #201 Sales Returns & Allo #410 Bad Debt Expense #607 Beg. Balance 5,000 Beg Balance 0 Beg Balance 0 Annual activity Annual activity 1,990 Annual activity 0 Unad). Balance 5,000 Uned Balance 1,990 Unad Balance 0 Ad Ad Bal 4,300 4.300 Notes Receivable #115 Notes Payable #220 Sales Discounts #415 Insurance Expense #622 Beg Dance 40,000 Beg Balance 35,000 Beg Balance 0 Annual activity Annual activity 10,000 Annual activity Uned Balance 40,000 Unad Balance 25,000 Unad Balance 5,750 5,750 Beg. Balance Annual activity Unad Balance 0 30,000 30.000 Interest Receivable #116 Common Stock #300 Cost of Goods Sold #500 Office Utilities Exp #630 Beg Balance 0 Beg Balance Annual adivity 0 Annual activity 100,000 25,000 Unad Balance O Unad. Balance 125,000 Beg Balance Annual activity Unad Balance 0 Beg Balance 0 450,490 450,490 Annual activity Unad Balance 20.740 20,740 A4 607 Ad Bal 608 Beg Balance Merch Inventory 40,000 #120 Retained Earnings #310 Advertising Expense #501 Beg Balance 45,300 Beg Balance 0 Annual activity Uned Balance 438 490 450 490 28,000 Annual activity Annual activity Unad Balance 45,300 Unadj Balance 17,460 17,460 Store Equipment #150 Beg Balance 24.000 Annual activity 31,000 Unad Balance 55.000 Rent Expense #635 Beg Balance Annual activity 0 Unad Balance 15.500 15.500 Interest Revenue #700 Beg Balance 0 Annual activity Unad Balance ad Ad Bal 10 10 607 607 ACC 211 3. COMPLETE FINANCIAL STATEMENTS Revenue from sales: Sales Less Sales returns and allowances Sales discounts Net sales Cost of goods sold Gross profit Operating expenses: Selling expenses: Sales salaries expense CHALLENGE #5 Compass Corporation Income Statement Name $ 637,740 1,990 5,750 7,740 630,000 450,490 179,510 $ 60,800 Advertising expense Depreciation expense - store equip 17,460 5,000 Administrative expenses: Total selling expenses Insurance expense Office utilities expense Rent Expense Bad debt expense Total administrative epxenses Total operating expenses Income from operations Other income and expenses: Interest revenue Net income 83,260 30,000 20,740 15,500 Retained earnings, Net income Less dividends Increase in retained earnings Retained earnings, Compass Corporation Retained Earnings Statement ACC 211 Current assets: Cash Accounts receivable Less: allowance for doubtful accounts Notes receivable Merchandise inventory Total current assets Plant assets: Store Equipment Less: accumulated depreciation Total plant assets Total assets Assets 40,260 74,850 CHALLENGE #5 Compass Corporation Balance Sheet Name Liabilities Current liabilities: Accounts payable $ 1,600 N/P current portion 5,000 Total current liabilities 40,000 Long-term liabilities: Notes payable 25.000 28,000 Total long-term liabilities 25,000 Total liabilities Stockholders' Equity 55,000 10,000 Common stock Retained earnings Compass Corporation Statement of Cash Flows Cash flows from operating activities: Cash received from customers Deduct cash payments for Expenses Creditors Net cash flow 628,150 (408,690) (175,000) operating activities Cash flows from investing activities: Less: Cash paid for purchase of equipment $ (31,000) Net cash flow investing activities Cash flows from financing activities: Cash received from issuing stock Less: Cash paid for notes payable Cash paid for dividends Net cash flow in cash Cash at the beginning of the year $ 25,000 $ (10,000) (5,000) financing activities Total stockholders' equity Total liabilities and stockholders' equity