# Learning Goal 26. bal. 62,300 3,000

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1 S1 Learning Goal 26 Multiple Choice 1. c Remember that any entry to the Accounts Receivable account also requires an entry to a subsidiary account. 2. b 3. d Only the direct write-off method debits an expense at the time a receivable is written off. 4. b \$44,700 \$1,500 = \$43, a Assets are overstated because the credit to the allowance has not been recorded, so net accounts receivable is too high. Expenses are understated because the debit to uncollectible accounts expense has not been recorded. 6. b When a receivable is written off, there is no expense recorded, so there is no effect on net income. There is also no change in net accounts receivable because the Accounts Receivable and allowance accounts are reduced by the same amount. 7. c With a \$350 previous debit balance, a \$2,350 credit is needed to end with a \$2,000 credit balance. 8. d Net realizable value means the amount collectible. 9. b Both Accounts Receivable and the Allowance for Uncollectible Accounts are reduced by \$ d 11. a (\$120,000.01) + (\$45,000.03) + (\$30,000.1) + (\$10,000.6) = \$11, a \$11,550 \$900 = \$10,650. The amount of the adjustment compensates for the existing allowance balance. 13. d 14. c (\$120, )/360 = \$1, a Use T accounts to visualize: Accounts Receivable bal. 62,300 3,000 Allowance for Uncollectible Accounts bal. 1,000 3,300 1,300 The net realizable value is \$62,300 \$1,300 = \$61,000. The \$3,300 expense (period-end adjustment) creates a \$3,300 credit entry into the allowance account. The write-offs during the year are debits to the allowance account. 16. b The collectible value is called the net realizable value. 17. c 18. c

2 S2 Section V Analysis of Key Accounts Discussion Questions and Brief Exercises 1. \$9,100 \$2,300 = \$6, \$9, \$9,100 + \$2,300 = \$11, \$9, \$11,500 + \$44,000 \$39,800 \$1,000 = \$14,700. The uncollectible accounts expense adjusting entry does not affect the balance in Accounts Receivable only an expense and an allowance account are affected. You can also use a T account to visualize the answer to the problem: Accounts Receivable bal. 11,500 39,800 44,000 1,000 bal. 14, The net realizable value is the difference between the balance in Accounts Receivable and the adjusted balance in Allowance for Uncollectible Accounts. Using the percent of sales method, the adjusted balance in Allowance for Uncollectible Accounts is \$200 + (\$44,000.01) = \$640. Therefore, \$14,700 \$640 = \$14, Because both the accounts receivable account and the allowance account, which is an offset, are reduced by the same amount. For example, assume that a \$200 receivable is written off. The table below shows account balances before and after the write-off. The net realizable amount is unchanged. Account Balance Before Balance After Accounts Receivable \$20,000 \$19,800 Less: Allowance for Uncollectible Accts. 1,500 1,300 Net realizable amount \$18,500 \$18, Maturity value is the amount of principal and interest owing at the maturity date. The interest for the 90 days is (\$4, )/360 = \$ The maturity value is \$4,500 + \$67.50 = \$4, August 5. (24 days in May + 30 days in June + 31 days in July + 5 days in August = 90 days) 10. An account receivable usually is created by a sale of products or services and is typically due in days. It does not accumulate interest except as a penalty for late payment. No formal promise to pay (a note) is signed. A note receivable arises for various reasons, including loaning money or making a sale. The note is a formal written promise to repay principal plus interest in a specified way by a specified date. 11. The allowance method is used to satisfy the GAAP requirement of showing accounts receivable at their net realizable value. This prevents overstating the value of accounts receivable on the balance sheet and also results in better matching of uncollectible accounts expense to the revenue that created the receivables. With this method, uncollectible receivables are estimated and an uncollectible accounts expense is recorded in the same period as the sales that created the bad receivables. The realizable amount of accounts receivable is reduced by use of an offsetting allowance account. In contrast, the direct write-off method simply records an uncollectible accounts expense in the period that a receivable is written off, and no effort is made to estimate bad receivables. This method overstates the accounts receivable value on the balance sheet and mismatches expenses to revenues.

3 S3 12. A debit balance in the Allowance for Uncollectible Accounts means that the total of the debits to the account exceeded the credit balance created by the previous period-end estimate. This means that more receivables were written off than expected (bad debts were underestimated). A credit balance in the account means that the total debits were less than the credit balance created by the previous period estimate, so fewer receivables were written off than expected (bad debts were overestimated). The amount of the debit or credit balance is the amount of error in the previous estimate. 13. Yes, if the aging procedure is being used. No, if the percentage-of-sales procedure is being used, which targets a calculated balance for the Uncollectible Accounts Expense. 14. On the balance sheet, total assets would be overstated because net accounts receivable would be overstated. Also, on the balance sheet, owner s equity would be overstated because net income is overstated. On the income statement, net income is overstated because uncollectible accounts expense is understated. 15. If sales returns and allowances are relatively stable every period, then they can simply be recorded as they occur. However, if returns and allowances are unpredictable or it is likely that there may be significant merchandise returns from certain customers, sales returns and allowances should be estimated and recorded as a period-end adjustment in the same period in which the related sales were recorded. 16. This fraud was accomplished by debiting the Allowance for Uncollectible Accounts and crediting a revenue or an expense account. Greater revenue or less expense resulted in higher net income. Reinforcement Problems LG Not Yet Number of Days Past Due Total Due Over 90 \$ 47,650 \$ 32,000 \$ 7,050 \$ 3,900 \$ 3,150 \$ 1,550 Estimated % Uncollectible 1% 4% 10% 30% 60% Total Estimated Uncollectible \$ 2,867 \$ 320 \$ 282 \$ 390 \$ 945 \$ 930 a. \$2,867 = (\$320 + \$282 + \$390 + \$945 + \$930); rounded to \$2,900 b. June 30 Uncollectible Accounts Expense 2,530 Allowance for Uncollectible Accounts 2,530

4 S4 Section V Analysis of Key Accounts LG a. \$320, = \$3,200 b. June 30 Uncollectible Accounts Expense 3,200 Allowance for Uncollectible Accounts 3,200 LG Using the aging method, 2% of total accounts receivable are estimated to be uncollectible. Using the percent of sales method, uncollectible accounts expense is estimated to be 1.25% of net sales. An account receivable is written off. An account receivable that was previously written off is now reinstated. Using the direct write-off method, an account receivable is written off. Total Accounts Receivable Allowance for Uncollectible Accounts Net Realizable Value Uncollectible Accounts Expense NE + + NE + + NE NE + + NE NE Account not used + LG a. b. June 30 Uncollectible Accounts Expense 4,250 Allowance for Uncollectible Accounts 4,250 June 30 Uncollectible Accounts Expense 5,750 Allowance for Uncollectible Accounts 5,750

5 S5 LG 26-4, continued c. d. June 30 Uncollectible Accounts Expense 1,800 Allowance for Uncollectible Accounts 1,800 June 30 Uncollectible Accounts Expense 1,800 Allowance for Uncollectible Accounts 1,800 Comment: The percentage of sales method does not compensate for an existing balance in the allowance account. LG a. Allowance for Uncollectible Accounts Beginning balance: 750 Adjustment: 4,250 Ending balance: 5,000 b. Allowance for Uncollectible Accounts Beginning balance: 750 Adjustment: 5,750 Ending balance: 5,000 c. Comment: Notice that with the aging method, the allowance account balance must have an ending balance that is the same as the estimated amount of uncollectible accounts. Allowance for Uncollectible Accounts Beginning balance: 500 Adjustment: 1,800 Ending balance: 2,300 d. Allowance for Uncollectible Accounts Beginning balance: 500 Adjustment: 1,800 Ending balance: 1,300

6 S6 Section V Analysis of Key Accounts LG a Dec. 31 Uncollectible Accounts Expense 41,240 Allowance for Uncollectible Accounts 41,240 Allowance for Uncollectible Accounts Beginning balance: 2,700 Adjustment: 41,240 December 31, 2008, balance: 43,940 b Feb. 15 Allowance for Uncollectible Accounts 15,000 Accounts Receivable Shankar 15,000 Allowance for Uncollectible Accounts Beginning balance: 2,700 Adjustment: 41,240 December 31, 2008, balance: 43,940 Shankar write-off: 15,000 c Sept. 3 Accounts Receivable Shankar 10,000 Allowance for Uncollectible Accounts 10,000 Cash 10,000 Accounts Receivable Shankar 10,000 Allowance for Uncollectible Accounts Beginning balance: 2,700 Adjustment: 41,240 December 31, 2008, balance: 43,940 Shankar write-off: 15,000 Shankar partial payment: 10,000

7 S7 LG 26-6, continued d Dec. 31 Uncollectible Accounts Expense 39,060 Allowance for Uncollectible Accounts 39,060 Allowance for Uncollectible Accounts Beginning balance: 2,700 Adjustment: 41,240 December 31, 2008, balance: 43,940 Shankar write-off: 15,000 Shankar partial payment: 10,000 Other write-offs: 48,200 Adjustment: 39,060 December 31, 2009, balance: 29,800 December 31, 2009 calculation: 43, ,000 15,000 48,200 = (9,260) which is a debit balance before the adjustment. To obtain a final credit account balance of 29,800, a credit entry of 39,060 is required. e. The direct write-off method does not use an allowance account. Therefore, no year-end adjustments are prepared, and the only entries recorded are those that involve events related to the write-off of receivables Feb. 15 Uncollectible Accounts Expense 15,000 Accounts Receivable Shankar 15,000 Sept. 3 Accounts Receivable Shankar 10,000 Uncollectible Accounts Expense 10,000 Cash 10,000 Accounts Receivable Shankar 10,000 Uncollectible Accounts Expense 48,200 Accounts Receivable (various accounts) 48,200 The allowance method is better because it better matches the expense of bad receivables against the sales revenue that created the receivables. This is done by estimating bad receivables at the end of each accounting period. By not making an estimate and waiting until a receivable is judged to be uncollectible, the direct write-off method also overstates the collectible value of the accounts receivable showing on the balance sheet. The allowance method is required by GAAP.

8 S8 Section V Analysis of Key Accounts LG a. Bellarmine Associates Date Account/Explanation Post. Ref. Dr. Cr. Jan. 17 Allowance for Uncollectible Accounts 500 Accounts Receivable Tyler 500 March 11 Notes Receivable 7,000 Sales 7,000 Cost of Goods Sold 5,000 Merchandise Inventory 5, Accounts Receivable Tyler 500 Allowance for Uncollectible Accounts 500 Cash 250 Accounts Receivable Tyler Uncollectible Accounts Expense 1,250 Allowance for Uncollectible Accounts 1,250 Interest Receivable 39 Interest Revenue 39 April 20 Allowance for Uncollectible Accounts 4,725 Accounts Receivable Burrus 1,775 Accounts Receivable Chen 2,950 May 23 Cash 250 Accounts Receivable Tyler 250 June 9 Accounts Receivable Dinville 7,175 Interest Receivable 39 Interest Revenue 136 Notes Receivable 7, Uncollectible Accounts Expense 1,650 Allowance for Uncollectible Accounts 1,650

9 S9 LG 26-7, continued Date Account/Explanation Post. Ref. Dr. Cr. August 2 Allowance for Uncollectible Accounts 3,170 Accounts Receivable Cramer 1,400 Accounts Receivable Seinfeld 850 Accounts Receivable Costanza 920 Sept. 30 Uncollectible Accounts Expense 1,800 Allowance for Uncollectible Accounts 1,800 Nov. 16 Notes Receivable 20,000 Sales 20,000 Cost of Goods Sold 12,000 Merchandise Inventory 12, Accounts Receivable Burrus 150 Allowance for Uncollectible Accounts 150 Cash 150 Accounts Receivable Burrus 150 Dec. 4 Allowance for Uncollectible Accounts 1,390 Accounts Receivable Bennis 1, Uncollectible Accounts Expense 4,235 Allowance for Uncollectible Accounts 4,235 Calculation notes: Interest Receivable 609 Interest Revenue 609 March 31 (end of quarter) interest accrual on Dinville note: (\$7, )/360 = \$38.88, rounded to \$39. December 31 interest accruals: Dinville: \$7,175.1 (205/360) = \$408.58, rounded to \$409. Kessler: \$20, (45/360) = \$200.

10 S10 Section V Analysis of Key Accounts LG 26-7, continued December 31 uncollectible accounts adjustment: Because this is the aging procedure, before making the adjusting entry, it is necessary to know the balance in the allowance account. Calculate the balance by using a T account: The December 31 adjusting entry is the difference between the required balance of \$4,500 and the credit balance of \$265. b. The December 31 balance in Accounts Receivable is \$67,390: Allow. for Uncoll. Accts. Beginning balance: 4,700 Jan. 17, write off Tyler: 500 Mar. 15, reinstate Tyler: 500 Mar. 31, first quarter adjustment: 1,250 April 20, write off Burrus, Chen: 4,725 June 30, second quarter adjustment: 1,650 August 2, write off Cramer, Seinfeld, Costanza: 3,170 September 30, third quarter adjustment: 1,800 November 18, reinstate Burrus: 150 December 4, write off Bennis: 1,390 Balance prior to adjustment: 265 Dec. 31 adjustment: 4,235 Dec. 31 balance: 4,500 Accounts Receivable Beginning balance: 152,000 Jan. 17, write off Tyler: 500 Mar. 15, reinstate Tyler: 500 Sales first quarter: 125,000 March 15, Tyler collection: 250 April 20, Write off Burrus, Chen: 4,725 May 23, Tyler collection: 250 June 10, Dinville note dishonored: 7,175 Sales second quarter: 165,000 Aug. 2, write off Cramer, Seinfeld, Costanza: 3,170 Sales third quarter: 180,000 Nov. 18, reinstate Burrus: 150 Nov. 18, Burrus collection: 150 Dec. 4, write off Bennis: 1,390 Sales fourth quarter: 190,000 Collections for the year: 742,000 Ending balance, Dec. 31: 67,390 Note: Remember that in actual practice there would also be subsidiary accounts for each of the individual customers. Each subsidiary account would record all the activity including writeoffs and reinstatements, and would maintain a balance for each customer.

11 S11 LG 26-7, continued b, continued The December 31 balance in Notes Receivable (short term) is \$0: Notes Receivable Beginning balance: 0 Mar. 11, Dinville note: 7,000 June 10, Dinville note dishonored: 7,000 Nov. 16, Kessler note 20,000 Ending balance, December 31: 20,000 Balance sheet presentation of accounts receivable: Accounts and notes receivable Less: Allowance for uncollectible accounts Net realizable value \$87,390 4,500 \$82,890 Or: Accounts and notes receivable, less allowance for uncollectible accounts of \$4,500 \$82,890 LG a. St. Cloud Company Date Account/Explanation Post. Ref. Dr. Cr. Jan.14 Allowance for Uncollectible Accounts 1,400 Accounts Receivable Donnelly 1,400 Feb. 9 Accounts Receivable Donnelly 1,400 Allowance for Uncollectible Accounts 1,400 Cash 1,000 Accounts Receivable Donnelly 1,000 March 31 Uncollectible Accounts Expense 3,150 Allowance for Uncollectible Accounts 3,150 April 18 Allowance for Uncollectible Accounts 4,100 Accounts Receivable Nordquist 1,400 Accounts Receivable Carlson 2,700

12 S12 Section V Analysis of Key Accounts LG 26-8, continued Date Account/Explanation Post. Ref. Dr. Cr. May 4 Cash 400 Accounts Receivable Donnelly 400 June 30 Uncollectible Accounts Expense 3,375 Allowance for Uncollectible Accounts 3,375 July 19 Notes Receivable 15,000 Sales 15,000 Cost of Goods Sold 10,000 Merchandise Inventory 10,000 Aug. 22 Allowance for Uncollectible Accounts 5,850 Accounts Receivable Kirk 1,800 Accounts Receivable Spock 1,500 Accounts Receivable McCoy 2,550 Sept. 30 Uncollectible Accounts Expense 3,450 Allowance for Uncollectible Accounts 3,450 Interest Receivable 304 Interest Revenue 304 Oct. 17 Cash 10,000 Notes Receivable 5,375 Interest Receivable 304 Interest Revenue 71 Notes Receivable 15,000 Nov. 30 Accounts Receivable Carlson 150 Allowance for Uncollectible Accounts 150 Cash 150 Accounts Receivable Carlson 150

13 S13 LG 26-8, continued Date Account/Explanation Post. Ref. Dr. Cr. Dec. 8 Allowance for Uncollectible Accounts 2,900 Accounts Receivable Scott 2,900 Dec. 31 Uncollectible Accounts Expense 6,875 Allowance for Uncollectible Accounts 6,875 Interest Receivable 112 Interest Revenue 112 Calculation notes: Sept. 30 (end of quarter) interest accrual on Johnson note: (\$15, )/360 = \$ rounded to \$304. Oct. 17 partial payment and renewal of Johnson note: Partial payments are normally applied first to interest and then to principal. The interest due for the remaining 17 days is (\$15, )/360 = \$70.83 rounded to \$71. Therefore, the total interest due on the note is \$375 (\$304 + \$71). To verify this, calculate the interest for the full 90 days: (\$15, )/360 = \$375. After interest, the balance of the payment applied to principal is \$9,625: \$10,000 \$375 = \$9,625. The new net balance is: \$15,000 \$9,625 = \$5,375. December 31 uncollectible accounts adjustment: Because this is the aging procedure, before making the adjusting entry it is necessary to know the balance in the allowance account. Calculate the balance by using a T account: Allow. for Uncoll. Accts. Beginning balance: 950 Jan. 14, write off Donnelly: 1,400 Feb. 9, reinstate Donnelly: 1,400 March 31, first quarter estimate: 3,150 April 18, write off Nordquist, Carlson: 4,100 June 30, second quarter estimate: 3,375 Aug. 22, write off Kirk, Spock, McCoy: 5,850 Sept. 30, third quarter estimate: 3,450 Nov. 30, reinstate Carlson: 150 Dec. 8, write off Scott: 2,900 Balance prior to adjustment: 1,775 Dec. 31 adjustment: 6,875 Dec. 31 balance: 5,100 The December 31 adjusting entry is the sum of the required balance of \$5,100 and the debit balance of \$1,775. December 31 interest accrual on Johnson note: (\$5, )/360 = \$111.98, rounded to \$112. Notice that the note principal was reduced to \$5,375 because of the October 17 partial payment before the renewal.

14 S14 Section V Analysis of Key Accounts LG 26-8, continued b. The December 31 balance in Accounts Receivable is \$94,100: Note: Remember that in actual practice there would also be subsidiary accounts for each of the individual customers. Each subsidiary account would record all the activity for a customer, including write-offs and reinstatements, and would maintain a balance for the customer.) The December 31 balance in Notes Receivable (short term) is \$5,375: Balance sheet presentation as part of current assets: Accounts Receivable Beginning balance: 47,300 Write off Donnelly: 1,400 Reinstate Donnelly: 1,400 Sales first quarter: 210,000 Write off Nordquist and Carlson: 4,100 Sales second quarter: 225,000 Write off Kirk, Spock, McCoy: 5,850 Sales third quarter: 230,000 Reinstate Carlson: 150 Write off Scott: 2,900 Sales fourth quarter: 310,000 Collections for the year: 915,500 Ending balance, December 31: 94,100 Notes Receivable July 19: 15,000 October 17: 15,000 October 17: 5,375 5,375 Accounts and notes receivable Less: Allowance for uncollectible accounts Net realizable value \$99,475 5,100 \$94,375 Or: Accounts and notes receivable, less allowance for uncollectible accounts of \$5,100: \$94,375 LG Maker Maturity Date Maturity Value Interest Due Calculation O Meara Choi Cook Agami Natenberg May 4, 2008 September 12 December 18 January 26 January 2, 2008 \$10,000 + \$2,000 = \$12,000 \$50,000 + \$750 = \$50,750 \$80,000 + \$2,400 = \$82,400 \$45,000 + \$900 = \$45,900 \$20,000 + \$3,000 = \$23,000 \$10, = \$2,000 (\$50,000.06) 3/12 = \$750 (\$80,000.12) 90/360 = \$2,400 (\$45,000.08) 90/360 = \$900 (\$20,000.1) 18/12 = \$3,000

15 S15 LG Date Account/Explanation Post. Ref. Dr. Cr. Mar. 5 Cash 10,000 Notes Receivable Kapalua Corp. 30,000 Equipment 40,000 April 8 Notes Receivable Wailea Company 10,000 Accounts Receivable Wailea Company 10,000 June 12 Notes Receivable Supplies, Inc. 7,500 Cash 7,500 July 7 Cash 5,000 Notes Receivable Wailea Company 5,250 Interest Revenue 250 Notes Receivable Wailea Company 10,000 (10, )/360 = 250 Aug. 20 Notes Receivable Kahalui Bay Company 16,000 Equipment 16,000 Nov. 1 Accounts Receivable Supplies, Inc. 7,737 Notes Receivable Supplies, Inc. 7,500 Interest Revenue 237 (7, )/360 = 237 Nov. 18 Cash 16,360 Notes Receivable Kahalui Bay Company 16,000 Interest Revenue 360 Dec. 31 Interest Receivable Kapalua Corporation 2,190 Interest Receivable Wailea Company 310 Interest Receivable Supplies, Inc. 103 Interest Revenue 2,603 (30, )/360 = 2,190 (5, )/360 = 310 (rounded) (7, )/360 = 103 (rounded)

16 S16 Section V Analysis of Key Accounts LG Multiple-step income statement for periodic format showing cost of goods sold calculation: Zhang Trading Company Income Statement For the Year Ended January 31, 2008 Sales revenue \$561,090 Less: Sales returns and allowances \$2,500 Sales discounts 3,250 5,750 Net sales revenue 555,340 Cost of goods sold Inventory, February 1 47,300 Purchases \$284,800 Less: Purchase returns and allowances \$900 Purchase discounts 800 1,700 Net purchases 283,100 Cost of goods available for sale 330,400 Inventory, January 31 39,700 Cost of goods sold 290,700 Gross profit 264,640 Operating expenses Selling expenses Salaries and wages expense 15,100 Depreciation expense 5,500 Uncollectible accounts expense 2,100 Freight-out expense 1,100 Supplies expense 350 Total selling expenses 24,150 Administrative expenses Salaries & wages 60,400 Rent expense 21,900 Insurance expense 4,300 Utilities expense 1,740 Depreciation expense 500 Supplies expense 350 Total administrative expenses 89,190 Total operating expenses 113,340 Operating income 151,300 Other revenue Interest revenue 3,740 Net income \$155,040

17 S17 LG 26-11, continued Zhang Trading Company Balance Sheet January 31, 2008 Assets Current assets Cash \$98,390 Accounts receivable \$55,750 Less: Allowance of uncollectible accounts 2,500 Net realizable accounts receivable 53,250 Current portion of note receivable 6,000 Merchandise inventory 39,700 Store supplies 5,750 Prepaid insurance 950 Total current assets \$204,040 Non-current notes receivable 24,000 Property, plant, and equipment Office equipment \$15,500 Less: Accumulated Depreciation 10,750 4,750 Store equipment 125,300 Less: Accumulated Depreciation 101,100 24,200 Total Property, plant, and equipment 28,950 Total assets \$256,990 Liabilities and Owner s Equity Current Liabilities Accounts payable \$51,300 Unearned revenue 750 Total current liabilities \$52,050 Owner s equity M. Zhang, capital 204,940 Total liabilities and owner s equity \$256,990 The current portion of the long-term receivable is \$500/month 12 = \$6,000. This must be shown as a current asset. This is for receipts of principal only and does not include interest receipts. Depreciation on store equipment is usually considered part of selling expenses. Uncollectible accounts expense is usually classified as part of selling expenses because it results from decisions to approve credit sales. Some accountants might consider it to be an administrative expensive. Also notice that merchandise inventory is the item that appears on both the balance sheet and income statement. Merchandise inventory is a major asset that appears on the balance sheet. When a detailed multiple-step income statement is prepared, merchandise inventory is also shown as part of the calculation of cost of goods sold on the income statement.

18 S18 Section V Analysis of Key Accounts LG Multiple-step income statement for perpetual inventory system format: Zhang Trading Company Income Statement For the Year Ended January 31, 2008 Sales revenue \$561,090 Less: Sales returns and allowances \$2,500 Sales discounts 3,250 5,750 Net sales revenue 555,340 Cost of goods sold 290,700 Gross Profit 264,640 Operating expenses Selling expenses Salaries and wages expense 15,100 Depreciation expense 5,500 Uncollectible accounts expense 2,100 Freight-out expense 1,100 Supplies expense 350 Total selling expenses 24,150 Administrative expenses Salaries & wages 60,400 Rent expense 21,900 Insurance expense 4,300 Utilities expense 1,740 Depreciation expense 500 Supplies expense 350 Total administrative expenses 89,190 Total operating expenses 113,340 Operating income 151,300 Other revenue Interest revenue 3,740 Net income \$155,040

19 S19 LG 26-12, continued Zhang Trading Company Balance Sheet January 31, 2008 Assets Current assets Cash \$98,390 Accounts receivable \$55,750 Less: Allowance of uncollectible accounts 2,500 Net realizable accounts receivable 53,250 Current portion of note receivable 6,000 Merchandise inventory 39,700 Store supplies 5,750 Prepaid insurance 950 Total current assets \$204,040 Non-current notes receivable 24,000 Property, plant, and equipment Office equipment \$15,500 Less: Accumulated Depreciation 10,750 4,750 Store equipment 125,300 Less: Accumulated Depreciation 101,100 24,200 Total property, plant, and equipment 28,950 Total assets \$256,990 Liabilities and Owner s Equity Current liabilities Accounts payable \$51,300 Unearned revenue 750 Total current liabilities \$52,050 Owner s equity M. Zhang, capital 204,940 Total liabilities and owner s equity \$103,580 The current portion of the long-term receivable is \$500/month 12 = \$6,000. This must be shown as a current asset. This is for receipts of principal only and does not include interest receipts.

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