| Chapter 7, Cont. Marketable Securities (stocks and bonds) - short term investment - list them at current value * Bought 100 $25 shares Dr Marketable Security $ 2500 Cr Cash $ 2500 * Later, it�s $28/share, so� Dr Marketable Security $ 300 Cr Unrealized Gain $ 300 --that way, they know it�s unrealized b/c it hasn�t been cashed in yet! * Later, if it dropped to $22/share� Dr Unrealized Loss $ 600 Cr Marketable Security $ 600 Securities Available for Sale- not actively trading, but available if company needs cash Transactional Securities- will be changed to market value Debt Securities- will not be adjusted to market value if not intended to be sold Accounting for Notes Receivable Thursday 21 October **Example: Receivables 20,000 Income Statement Revenue 20,000 Revenue 20,000 Salaries Expense 10,000 Sal Expense 10,000 Cash 10,000 Net Income 10,000 The Allowance for Doubtful Accounts **If we believe we wont ever receive the 20,000: Dr Bad Debt Expense 20,000 Cr Allowance for Doubtful Accounts 20,000 <-- contra-asset account so now� Income Statement Revenue 20,000 <-- we still earned this Sal Expense 10,000 <-- expenses total Bad Debt Exp 20,000 30,000 Net Loss 10,000 Receivables 20,000 Allow for Doubtful Accts < 20,000 > Net Receivables --0-- Uncollectible Accounts Accounts Receivable: 1,000,000 Loss < 30 days 500,000 1% 5,000 > 30 < 60 300,000 2% 6,000 > 60 < 90 150,000 10% 15,000 > 90 days 50,000 50% 25,000 51,000 (use this approach if most are routine receivables) Accounts Receivable 1,000,000 Dr Bad Debt Expense 51,000 Allowance for DA < 51,000 > Cr Allow for DA 51,000 949,000 Writing off Uncollectible Accounts we decide that JB Co. will not pay their $10,000, so we write it off: Dec 31, 2002 Accts Rec Allow for DA Dr Allow for DA 10,000 1,000,000 10,000 10,000 51,000 Cr Receivable: JB Co. 10,000 990,000 41,000 legally, they still owe it! Dec 31, 2003 Accounts Receivable: 1,500,000 Loss < 30 days 700,000 1% 7,000 > 30 < 60 500,000 2% 10,000 > 60 < 90 200,000 10% 20,000 > 90 days 100,000 50% 50,000 87,000 estimated loss is different now, we must adjust: Accts Rec Allow for DA Bad Debt Exp Dr Allow for DA 10,000 1,500,000 41,000 46,000 Cr Receivable: JB Co. 10,000 46,000 87,000 Problem 7.3 (p 311) 1. Not yet due 500,000 1% 5,000 2. < 30 days 210,000 3% 6,300 3. > 30 < 60 80,000 10% 8,000 4. > 60 < 90 15,000 20% 3,000 5. > 90 days 30,000 50% 15,000 37,300 Receivables 835,000 Allowance for Doubtful Accts < 37,000 > 11,800 797,000 25,500 37,300 Dr Bad Debt Expense 25,500 Cr Allow for Doubt Accts 25,500 More on Allowance for Doubtful Accounts **balance wont always be the same as �Bad Debt Expense� b/c it�s a permanent account, and �BD Exp� is closed. Allowance for DA Beginning Balance 10,000 - Write-offs < 5,000 > <-- happen during the period + Bad Debt Expense 25,000 <-- happen only periodically Ending Balance 30,000 |