Exercise 7-7 Information on Novak Corp., which reports under ASPE, follows: July

Question

Exercise 7-7 Information on Novak Corp., which reports under ASPE, follows: July 1 Novak Corp. sold to Wildhorse Co. merchandise having a sales price of $9,400, terms 2/10, n/60. Novak records its sales and receivables net. 3 Wildhorse Co. returned defective merchandise having a sales price of $700. 5 Accounts receivable of $18,600 (gross) are factored with Pina Corp. without recourse at a financing charge of 8%. Cash is received for the proceeds and collections are handled by the finance company. (These accounts were subject to a 2% discount and were all past the discount period.) 9 Specific accounts receivable of $14,900 (gross) are pledged to Landon Credit Corp. as security for a loan of $10,700 at a finance charge of 3% of the loan amount plus 8% interest on the outstanding balance. Novak will continue to make the collections. All the accounts receivable pledged are past the discount period and were originally subject to a 296 discount Dec. 29 Wildhorse Co. notifies Novak that it is bankrupt and will be able to pay only 13% of its account. Give the entry to write off the uncollectible balance using the allowance method. (Note: First record the increase in the receivable on July 11 when the discount period passed.) Prepare all necessary journal entries on Novak Corp.'s books. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Record

Explanation / Answer

a) Journal Entries :

Date Accounts Titles and explanation Debit $ Credit $ July 1 Accounts Receivables 9212 Trade Discount (2%) 188 Sales Revenue 9400 (being sales and accounts receivable booked net) July 3 Sales Return 700 Accounts Receivable 686 Trade Discount 14 (being sales return booked) July 5 Cash 17112 Finance Charge 1488 Accounts Receivables 18600 (being receivables factored away with 8% charge) July 9 No Entry (being only pledge) Dec 29 Accounts Receivables 174 Trade discount 174 (being increase in receivable of lapse of discount period) Dec 29 Cash (13%) 1131 Allowance for Doubtful Accounts 7569 Accounts Receivables 8700 (being written off of receivables over 13% received )

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