Financial Accounting: An Integrated Statements Approach, 2nd Edition

TheBoeing Companyis one of the world’s major aerospace firms, with operations involving

commercial aircraft, military aircraft, missiles, satellite systems, and information and battle man-

agement systems. As of December 31, 2004, Boeing had $2,701 million of receivables involving

U.S. government contracts and $985 million of receivables involving commercial aircraft cus-

tomers, such as Delta Air LinesandUnited Airlines. Should Boeing report these receivables

separately in the financial statements, or combine them into one overall accounts receivable

amount? Explain.

Mandalay Resort Groupowns and operates casinos at several of its hotels, located primarily in

Nevada. At the end of one fiscal year, the following accounts and notes receivable were reported

(in thousands):

a. Compute the percentage of the allowance for doubtful accounts to the gross hotel

accounts and notes receivable for the end of the fiscal year.

b. Compute the percentage of the allowance for doubtful accounts to the gross casino

accounts receivable for the end of the fiscal year.

c. Discuss possible reasons for the difference in the two ratios computed in (a) and (b).

Douglas Auto Supply distributes new and used automobile parts to local dealers throughout the

Southeast. Douglas’s credit terms are n/30. As of the end of business on July 31, the following

accounts receivable were past due.

376 Chapter 8 Receivables

10. Which of the two methods of estimating uncollectibles
    provides for the most accurate estimate of the current net
    realizable value of the receivables?


11. For a business, what are the advantages of a note receiv-
    able in comparison to an account receivable?


12. Tecan Company issued a note receivable to Bauer
    Company. (a) Who is the payee? (b) What is the title of
    the account used by Bauer Company in recording the
    note?


13. If a note provides for payment of principal of $75,000 and
    interest at the rate of 8%, will the interest amount to
    $6,000? Explain.


14. The maker of a $6,000, 10%, 120-day note receivable failed
    to pay the note on the due date of April 30. What accounts

should be debited and credited by the payee to record

the dishonored note receivable?

15. The note receivable dishonored in Question 14 is paid on
    May 30 by the maker, plus interest for 30 days, 9%. What
    entry should be made to record the receipt of the payment?


16. Under what section should accounts receivable be re-
    ported on the balance sheet?


17. To reduce its bad debt expense, Adang Inc. decided to
    quit granting credit to customers. Is this a wise decision
    by Adang Inc.? Explain.


18. The accounts receivable turnover increased, while the
    number of days’ sales in receivables decreased for the
    current year for Nackerud Co. Are changes for the cur-
    rent year good or bad? Explain.

EXERCISES

Exercise 8-1

Classifications of receivables

Goal 1

Exercise 8-2

Nature of uncollectible

accounts

Goal 2

a. 5.4%

Exercise 8-3

Number of days past due

Goal 4

The Body Shop, 58 days

Hotel accounts and notes receivable $31,724

Less: Allowance for doubtful accounts 1,699

$30,025

Casino accounts receivable $44,139

Less: Allowance for doubtful accounts 12,300

31,839